Copper Prices Fell Back from Highs in October, Awaiting Guidance; November to be Volatile Due to Macro Trends [SMM Analysis]

Reviewing October, on the macro front: September manufacturing PMIs for France, Germany, and the Eurozone were all higher than expected, while the US ISM manufacturing PMI for September recorded 47.2, lower than the expected 47.5. Additionally, frequent macro policy announcements in China at the end of September led to a significant rise in copper prices. With the US September seasonally adjusted non-farm payrolls recording 254,000, far exceeding the previous and expected values of 159,000 and 140,000 respectively, the US dollar rose above the 102 level, continuing to rise with the anticipation of the next interest rate cut and the presidential election sentiment. Copper prices fell back after the end of China's National Day holiday, but due to the appreciation of the yuan, the price spread between SHFE copper and LME 3-month copper narrowed. In mid-to-late October, US September retail sales growth slightly exceeded expectations, supporting the view of strong economic growth in Q3; China's Q3 GDP recorded 4.6%, lower than the previous value of 4.7%, and is expected to achieve further growth in Q4. SHFE copper fell to the 76,000 yuan/mt level in mid-October, while LME copper fell below $9,450/mt. In mid-to-late October, the market focused on the US election results and the next steps of the US Fed, with the US dollar index rising all the way above the 104 level, but copper prices remained relatively stable, awaiting more macro guidance.

On the fundamentals: The SMM copper concentrate index gradually stabilized in October. It is reported that on October 14, the acid-making equipment at Freeport's Manyar smelter in Indonesia caught fire. The Manyar smelter started feeding raw materials in September, and the copper production at this smelter will be delayed until year-end. In October, SMM China's smelter production decreased by 8,600 mt MoM. Despite the commissioning of new smelters, the actual production ramp-up was lower than expected due to tight raw material supply. Although domestic copper cathode supply decreased in October, imports are expected to be 355,000 mt, resulting in an inventory buildup of 38,000 mt in the social sector, with a copper semis operating rate of 64.58%.

Looking ahead to November, at the beginning of the month, the market sentiment shifted with the US presidential election trading, with copper prices falling after taking profits from the "Trump trade" following Trump's election victory. The US Fed's interest rate decision on November 7 set the upper limit at 4.75%, with another 25bp interest rate cut, and the US dollar fluctuated above the 105 level, suppressing copper prices below 78,000 yuan/mt. SMM expects domestic copper cathode production in November to decrease by 14,800 mt MoM, a decline of 1.49%, with imports also expected to decrease MoM. Apparent consumption in November is expected to decline, but the operating rate of copper semis will increase, leading to destocking in the social sector, providing bottom support for copper prices. Additionally, with the cancellation of copper semis export tax rebates by the Ministry of Finance and the State Administration of Taxation, a rush to place orders is expected in November, promoting copper semis consumption and exports. Copper prices are expected to find fundamental support around the 73,000 yuan/mt level, with resistance appearing at the upper limit of 78,500 yuan/mt.