The US CPI fell more than expected in May, and the Federal Reserve kept interest rates untouched, which was in line with market expectations. However, two 25-basis-point rate hikes are expected to lie ahead in the future. The Fed pausing interest rate hikes pushed the US dollar lower further. And risky assets including copper edged up.
The support for copper prices from the fundamentals will be weak in the long run as US demand is still shrinking. In the eurozone, the European Central Bank (ECB) raised interest rates by 25 basis points as expected in order to prevent a spiral increase in inflation. This restrained the US dollar, pushing up copper prices. The ECB lowered its GDP growth forecast for 2023 and 2024, and demand will face contraction in the foreseeable future. Notably, Japan may adjust YCC in the future due to the inflation pressure, which will continue to put pressure on the US dollar.
In China, the economic data slowed down across the board in May, with real estate sales and investment falling sharply, and informal financing and M2 going down. The recent continuous contraction of CPI and PPI data indicates that the economy has been gradually declining since China scraping controls over the Covid-19 pandemic. The lack of demand means that the support from fundamentals for copper prices is weak. Nonetheless, a barrage of policy support such as favourable new energy vehicle policies, deposit rates cuts in a bid to release liquidity and favourable real estate policies issued by local governments have driven copper prices to soar.
As of Friday June 16, the social inventories of copper cathode in China recorded 93,600 mt, down 15,800 mt compared with 109,400 mt on Friday June 9. The inventory decline provided certain support for copper prices. However, new orders at copper semis plants weakened significantly.
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