Most-Traded SHFE Copper to Hold Momentum Because of Bullish Chinese Policies and the US Fed's Possibly Slower Rate Hikes

SHANGHAI, Jan 13 (SMM) - In 2023, the tone of Chinese policies is set optimistic. The government frequently introduced policies to boost the real estate industry. Many provinces and cities announced a reduction in the down payment ratio and relaxed the home purchase restriction policy. The bullish macro factors somehow offset the impact of COVID-19 in the short term. Some provinces and cities promoted the investment projects in 2023 vigorously. For instance, Guangdong province set out 17,722 investment projects in 2023 firstly, with a total amount of 6.5 trillion yuan, which enables the investors to hold a bullish outlook on the market in the mid and long term. In the US, the December employment data dropped, and the growth of non-farm payrolls slowed down, confirming the effects of the US Fed’s tightening monetary policy. The US non-manufacturing PMI was significantly lower than expected, weakening the market’s expectations for the US Fed’s subsequent rate hikes. The US dollar index dropped sharply, driving the prices of base metals. The market shall keep an eye on the US CPI data that was released on the evening of January 12, 2023, to see whether it can further slow the Fed’s rate hike as expected so as to push up the copper prices.

On the fundamentals, processing companies have gradually begun their Chinese New Year (CNY) holiday amid the high copper prices and slack downstream consumption near the year-end. Most downstream companies took the CNY holiday 4-6 days earlier than in previous years, and they were less willing to buy raw materials amid the spreading COVID-19. According to SMM data, as of January 9, 2023, copper stocks in major Chinese markets grew to 122,500 mt, a year-on-year increase of 36,100 mt. Bonded zone inventories will grow in the near future amid the peak season and closed import window. Domestic copper prices stood low because of the Chinese New Year and the spreading COVID-19. Some Chinese smelters intended to export their goods amid the higher copper prices in overseas markets, but halted their acts since the logistics services will be suspended near the Chinese New Year and will not resume the businesses until after the CNY holiday.

In general, the downstream companies became less willing to purchase near the year-end. The copper prices fluctuated owing to the short-term bullish factors, but the prices can gain insufficient upward momentum in the off-season. The most-traded SHFE copper will move between 63,500-69,000 yuan/mt in January 2023, and LME copper will trade between $8,250-9,150/mt.