Copper Prices Rose Steadily This Week, Spot Transactions Showed "Stable Prices with Increased Volume"? [SMM Analysis]

During the week, the focus of copper prices gradually moved up from 72,000 yuan/mt to 74,000 yuan/mt. As the Mid-Autumn Festival approaches, downstream stocking sentiment has emerged. Despite the continuous rise in copper prices, downstream stocking volume and operating rates still increased. However, spot premiums did not rise with the downstream stocking sentiment, leading to spot transactions seeing "stable prices with increased volume" during the week.

Observing the performance of spot premiums/discounts in multiple regions this week, taking Shanghai and Guangdong as examples: inventories in both regions continued to deplete, and the operating rate of copper cathode rod makers also increased. However, actual spot premiums fluctuated in the range of 0-50 yuan/mt.

There are three main reasons for this:

1. At the beginning of the week, the futures structure turned into a backwardation structure, suppressing the rise in spot premiums. Additionally, previous arbitrage players realized profits and sold futures warehouse warrants at low prices. Therefore, even though futures warehouse warrants continued to decrease, spot premiums did not remain firm.

2. During the week, concentrated arrivals of imported copper in Shanghai led importers to actively sell for cash, putting pressure on spot premiums. However, when imported sources were sold at low premiums, they were mostly absorbed by downstream.

3. As copper prices continued to rise, downstream, despite having stocking sentiment, also aimed to bargain down purchasing prices. When spot premiums rose to around 50 yuan/mt, downstream buying interest decreased, resulting in spot premiums operating within a narrow range.

Observing inventory levels, recent copper cathode stocks in both domestic and bonded areas of Shanghai and Guangdong were in a state of depletion, verifying the active downstream stocking sentiment.

According to the SMM survey, the weekly operating rate of major domestic copper cathode rod makers recorded 81.72% (9.6-9.12), up 3.57 percentage points WoW. However, the overall operating rate this week was 1.91 percentage points lower than expected, mainly due to the rise in copper prices during the week dragging down some companies' expected orders. Nevertheless, the increase still indicates that previous orders had sufficient production schedules this week, confirming the active stocking sentiment for the Mid-Autumn Festival.

Looking ahead to next week, as the Mid-Autumn Festival ends and the National Day holiday approaches, downstream will also start their stocking plans for the National Day. Spot premiums will enter quotations against the SHFE 2410 contract. Based on the current backwardation price spread between front-month and next-month contracts and the spot premiums against the SHFE 2409 contract, it is expected that holders will continue to quote premiums for the SHFE 2410 contract, possibly attempting 100 yuan/mt. However, it should be noted that the US Fed will announce its interest rate decision next week. Although the market has frequently traded on rate cut expectations earlier, there is still a short-term risk of copper prices rising. Attention should be paid to actual downstream orders. If copper prices rise above 75,000 yuan/mt, downstream purchasing sentiment is expected to cool down.