Future Outlook Amid Macro Concerns and Fundamental Interplay: How Will Copper Prices Evolve? [SMM Analysis]

Copper prices sharply declined after peaking at 75,020 yuan/mt at the end of August and have since been hovering around 72,000 yuan/mt into September, keeping the market on edge. As the Mid-Autumn Festival approaches, market expectations for copper prices have turned more cautious. How will copper prices evolve shortly? SMM will analyze from both macro and fundamental perspectives.

Macro perspective: According to the most recent data released last Friday, while U.S. non-farm payrolls increased in August, the unemployment rate ended its four-month rise, slightly falling to 4.2%. Additionally, non-farm payrolls for June and July were significantly revised downward, with a total reduction of 86,000. Following the release of this data, concerns about a U.S. economic recession quickly spread, impacting the price movements of various assets. In this context, market expectations for a rate cut by the US Fed also intensified, with the rate cut cycle expected to begin the day after the Mid-Autumn Festival. One key factor determining the rate cut magnitude will be the U.S. CPI data scheduled for release on Wednesday evening. Moreover, the widespread contraction in manufacturing PMIs for major economies like China, the U.S., and Europe is another strong indication of weak global economic recovery. Manufacturing, as the cornerstone of the national economy, is directly linked to overall economic growth and market demand. A decline in PMI, especially in new orders, often signals a slowdown in production and investment activities in the coming period, posing demand-side pressure on commodities like copper that rely heavily on manufacturing demand. With increasing global economic uncertainties, the price trend of metals such as copper may continue to be suppressed.

Fundamentals: Supply side, despite overseas copper mines faced with strikes in August, such as the disputes involving BHP and Chile’s Escondida mine that heightened supply concerns, the overall stock levels remain historically high, providing limited support for prices. Domestically, copper cathode stocks continue their decline trend but remain high overall. According to SMM data, as of Monday, September 9, SMM copper stocks in major regions across China fell sharply by 24,000 mt WoW to 231,000 mt, continuing the destocking trend at an accelerating pace. However, total stocks remain 136,000 mt higher YoY than last year's 95,000 mt.

Additionally, the current domestic blister copper RCs remain low, mainly due to reduced blister copper produced from copper scrap. Although the “Fair Competition Review Regulations” officially took effect on August 1st, specific implementation details at the local level are yet to be determined. Coupled with rising tax-included copper scrap prices and significant drops in copper prices leading to tight supply, many copper anode producers are forced to cut or halt production. As the new policies still require a transition period for full implementation, the short-term output of copper anode will face constraints, creating significant supply pressure and providing some support for prices.

Consumption side, the lowered copper prices present a more favorable purchasing environment for downstream industries. Combined with optimistic expectations for the traditional September-October peak season and the pre-holiday stocking effects of the Mid-Autumn Festival and National Day, downstream industries may accelerate their stocking pace, showing positive signs of market recovery. According to SMM survey data, the operating rate of key sectors such as wire and cable and copper rods is expected to continue rising, indicating strong market activity in the upcoming peak season.

In summary, despite macro-level uncertainties related to the global economy, the US Fed's rate-cut expectations, and widespread contractions in manufacturing PMIs, the tight supply situation for upstream copper mines, the constrained blister copper market, and the substantial improvement in downstream demand will provide robust support for copper prices. Therefore, SMM believes copper prices will fluctuate upward in the near term. However, the market is always full of variables, and the future trajectory of copper prices will require continuous close monitoring of market dynamics.