SHANGHAI, Oct 17 (SMM) - On the macro front, rising geopolitical tensions and the expectations of the US Fed's further rate hike boosted the US dollar last week. Besides, the US CPI data in September that was released last Thursday night exceeded the expectation, and then the US dollar soared to 113.91. The growing core inflation pressure enhanced the market’s expectation that the Fed will continue to raise the interest rates by 75 basis points in November. At the same time, the minutes of the Fed's September meeting showed that Fed officials were aware of the risks posed by the aggressive rate hikes to the world. Some officials said that in the current uncertain global economic and financial environment, it was also particularly important to further adjust the pace of tightening monetary policies to reduce the adverse impact on the economic outlook, thus the US dollar index dropped after surging last week. In China, the growth of M2 money supply, social finance, and new loan in September all exceeded expectations, which was caused by the implementation of "quasi-fiscal" activities and the increased demand for financing for infrastructure projects in the peak season of construction. However, during the National Day holiday, the pandemic struck many places in China, and the related prevention and control measures tightened, which significantly weakened the consumption.
On the fundamentals, the import window remained open last week, and some traders shipped imported copper from LME warehouses to China, thus the proportion of LME cancelled warrants continued to rise. As of October 14, the proportion of LME cancelled warrants rebounded to 32.67% or 46,800 mt, and the premiums of LME cash to 3M contract rose to more than $90/mt. SHFE front-month and next-month spread soared to around 1,600 yuan/mt in the backwardation structure amid the historically low inventory in China. The downstream consumption was sluggish. Most processing companies held a wait-and-see attitude, and some were forced to reduce or suspend their production due to the large backwardation structure. However, orders from the State Grid, infrastructure, and new energy sectors continued to grow, and real estate also showed marginal improvement thanks to a series of stimulus policies. In the long term, it is still necessary to keep an eye on the impact of the domestic pandemic outbreaks on terminal consumption.
Last week, SHFE copper still bore the possibility of a short squeeze. Based on the current SHFE contract spread, SMM believes that the SHFE 2211 copper contract will rise this week. The most-traded SHFE copper is expected to move between 62,000-65,500 yuan/mt this week, and LME copper will trade between $7,450-7,750/mt.
In the spot market, premiums slumped last week amid the cargo holders’ demand for cash after the SHFE contract spread soared. The SHFE 2210 copper contract will be delivered this week. Spot premiums are expected to reach 1,000 yuan/mt as the spread between the SHFE 2211 and 2212 contracts stood at nearly 1,200 yuan/mt in the backwardation structure last week. However, the premiums will probably fall when the imported copper flows into China continuously and the high copper prices weaken the downstream buying interest. Spot premiums in the Shanghai market are expected to move between 600-1,200 yuan/mt over the SHFE 2211 copper contract.
