Review of the Copper Market during the Spring Festival: The downstream operating rate slightly weakened before the holiday. However, according to SMM research, overall pre-holiday inventory levels remained considerable, and terminal consumption was somewhat suppressed due to the previously high copper prices. On February 8, the SHFE Cu 2403 contract fell below 68,000 yuan/ton, testing as low as 67,630 yuan/ton during trading. From February 9 to February 18, it was the traditional Spring Festival holiday in China, with copper trading suspended on the SHFE. In ex-China markets, influenced by the strong performance of the US dollar, LME copper was pressured to decline to near $8,200/ton, then rebounded to around $8,400/ton as the dollar retreated.
From a macro perspective, in ex-China markets, the unadjusted CPI for January in the United States recorded 3.1%, down from 3.4% previously; the PPI for January increased by 0.9% year-on-year, down from 1% previously, both slowing more than market expectations. As a result, inflation expectations for February in the US have been raised to 3%, reinforcing the possibility that the Federal Reserve will not rush to cut interest rates, causing the dollar to briefly rise below the 105-point level. On Friday, the Fed's Daley said that three interest rate cuts by the Fed this year are a "reasonable baseline" expectation, but two risks need to be considered: the slowing progress of inflation and the sudden sharp deterioration of the labor market. The EU has lowered its GDP growth forecast for the eurozone in 2024 from 1.2% to 0.8% and for 2025 from 1.6% to 1.5%, citing weaker-than-expected economic fundamentals entering 2024; however, with further inflation easing, the growth rate of residents' wages and consumption levels may gradually recover, and external trade may also marginally improve. Domestically, the CPI rose by 0.3% month-on-month in January, but it is necessary to note that major items contributing to core CPI showed declines, considering the disturbances caused by increased consumer spending and price hikes during the Spring Festival holiday, the overall domestic consumption performance was relatively weak.
Looking at the fundamentals, LME spot prices experienced historical discounts during the pre-holiday week, once expanding to $112.26/ton. Weak ex-China demand has a short-term boosting effect on the domestic market. From the perspective of inventory, the extent of stocking up before the Chinese New Year is significantly weaker than the same period last year, and social inventories are also at a low level compared to previous years. As a result, the domestic market has experienced a lower decline, and the SHFE-LME ratio has continued to climb. Overseas holders are relatively optimistic about post-holiday consumption recovery. Spot prices in various domestic regions are all in a state of discount. According to SMM research, pre-holiday downstream consumption did not show a significant decline, and raw material and cost inventory reserves were relatively active. Taking refined copper rod enterprises as an example, research shows that pre-holiday inventory levels increased by nearly 20% compared to the previous period. Attention should be paid to the digestion of hidden inventory after the holiday.
Looking ahead to the post-holiday market, February 19 is the first trading day after the holiday and the last trading day of the SHFE Cu 2402 contract. Influenced by factors such as pre-holiday holders registering a large number of spot warehouse receipts, temporary delays in customs clearance of imported goods, varying degrees of high contango month differential structures, and downstream inventory digestion, consumption may gradually recover in rhythm. Short-term incremental increases are expected to be limited, and spot prices are expected to be slightly discounted.
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