Copper Prices Gained Ground on Positive Macro Data, Views on Direction This Week

SHANGHAI, Mar 6 (SMM) – Early last week, the annualised US Personal Consumption Expenditures (PCE) Price Index recorded 4.7%, an increase of 0.1 percentage point year-on-year, far exceeding the market's expectation of 4.3%.

The data showed that the U.S. economy is resilient, and inflation is expected to rise, fuelling expectations of interest rate hike by the Federal Reserve. The U.S. dollar index rebounded sharply and breached the 105 mark. This lowered copper prices.

In the eurozone, the composite PMIs in Germany, France, and Italy have returned to above the territory of prosperity, and inflation has continued to cool down, growing market's expectations for a "soft landing" of the eurozone economy. This provided certain support for the prices of risky assets such as copper.

China’s February manufacturing PMI released last week was 52.6%, an expansion of 2.5 percentage points from January, and stood above 50 for two consecutive months.

Copper prices rebounded during the week as strong manufacturing data bolstered confidence of the market.

Fundamentally, consumption has gradually recovered since the beginning of March, and consumption in various sectors of the copper industry has shown signs of gradual recovery.

As of Friday March 3, SMM copper inventory across major Chinese markets stood at 309,100 mt, down 16,300 mt from Friday February 24.

The main reason for the sizeable inventory decline last week is due mainly to increasing exports by smelters and limited shipments arrivals.

On the whole, copper prices fell before rebounding during the week on the back of the strengthening of the U.S. dollar index and the relatively strong global macroeconomic data.

A slew of positive macroeconomic news - new policy guidelines for expanding domestic demand - are expected during the National People's Congress (NPC) and the Chinese People's Political Consultative Conference (CPPCC). This will help copper prices maintain upside trend.

However, it is still necessary to pay attention to whether the Fed will raise interest rates in response to the current higher-than-expected inflation rate, which will make the U.S. dollar index stronger. In particular, it is necessary to pay attention to the U.S. non-farm payrolls. If the numbers continue the strong trend in January, the market will bet on substantial interest rate hike by the Fed, bolstering the U.S. dollar index, and ultimately limiting gains in risky assets such as copper.

The most active SHFE copper contract prices are expected to move between 68,000-71,000/mt this week, and LME copper will trade between $8,800-9,100/mt.

In China’s domestic spot market, consumption is gradually recovering. The current import loss stands at nearly 1,000 yuan/mt, meaning export opportunities for smelters. This has reduced the supply of available cargoes in the market.

Traders have raised their quotes as the delivery of the SHFE front-month copper contract nears, so spot quotes should rise this week.

Spot copper is expected to be quoted with discounts of 20 yuan/mt to premiums of 50 yuan/mt this week.