Copper prices to remain high in May

In April 2024, copper futures prices rose strongly. LME copper prices broke through $9,000/mt and rose further to the $10,000/mt mark, with a monthly increase of 12.45%. The most active SHFE copper (Cu2406) contract rose from above 75,000 yuan/mt to 80,000 yuan/mt, reaching a high of 82,460 yuan/mt, with a monthly increase of 13.45%. In April, strong US employment data and CPI led the market to delay the expectations of the Federal Reserve’s first rate cut this year. The US dollar index rose. Meanwhile, geopolitical conflicts escalated, international gold prices hit new highs, and prices of crude oil, copper and other commodities rose in tandem. Expectations of "re-inflation" in Europe and the United States further reduced expectations for interest rate cuts this year. The European Central Bank has recently expressed a dovish tone, and the market expects its first interest rate cut to occur in June. The Japanese yen plummeted, with the USD/JPY exchange rate hitting 160 points; as the yen plummeted, the international status of the RMB rose. In the Chinese market, the PMI in March was 50.86, returning to the expansion range for the first time in six months; other Chinese economic data released in April were also generally positive. Confidence in the real estate market improved with the relaxation of purchase restrictions in many cities. The performance of copper futures exceeded expectations in April. However, the continued rise in copper prices has put great pressure on the downstream consumption and spot market.

Fundamentally, TCs of copper concentrate have dropped to single digits and are gradually turning negative. The replenishment of blister copper and anode plates prevented a significant decrease in copper cathode output at Chinese smelters in April, which stood at 985,100 mt. The average operating rate of copper semis producers was 67.94% in April, down 1.88 percentage points MoM and 7.21 percentage points YoY. The continued rise in copper prices has led to a large price gap between SHFE and LME copper, leading to export profitability. Smelters have actively exported. However, downstream consumption of copper cathode has declined, preventing destocking in social inventory from happening in April.

In May, the US non-farm data for April cooled down, and market expectations of "one or two interest rate cuts" this year resurfaced. The US dollar index fell at the beginning of the month, and copper futures gave up some of their gains. However, the price decline is not significant for the time being. LME copper is expected to trade between $9,750-10,200/mt in May and SHFE copper prices will fluctuate between 78,000-82,000 yuan/mt.