Macro Headwinds Suppress Copper Prices; Mid-Week Destocking Slows; Copper Market May End the Year "Weak" [SMM Commentary]

SMM December 20:

The US Fed's "hawkish rate cut," faster-than-expected US Q3 economic growth, and a larger-than-expected drop in initial jobless claims for the week drove the US dollar index to a new high of 108.55 on December 20, the highest since November 2022. After hitting this two-year high, the US dollar index pulled back. LME copper rebounded slightly at the end of the week, but macro headwinds suppressed copper prices during the week, leaving the weekly chart still in decline. As of 16:37 on December 20, LME copper rose 0.66% to $8,942/mt, with a weekly decline of 1.22%. SHFE copper fell 0.22% to 73,820 yuan/mt, with a weekly decline of 1.22%.

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Fundamentals

SMM Copper Inventories in Major Regions Nationwide Show Slower Destocking Speed Mid-Week

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Domestic Inventory: As of Thursday, December 19, SMM copper inventories in major regions nationwide decreased by 4,400 mt from Monday to 98,700 mt, down 23,600 mt from last Thursday. Although this marked the ninth consecutive week of weekly destocking, the destocking speed slowed mid-week. Attention is on whether destocking can continue next week. Specifically, inventories in Shanghai decreased by 2,500 mt from Monday to 70,200 mt, while Jiangsu inventories fell by 100 mt to 15,200 mt. Despite arrivals of imported copper, domestic copper arrivals were limited, and downstream consumption remained moderate, leading to a decline in inventories in east China. Guangdong inventories decreased by 1,600 mt to 7,200 mt, mainly due to limited arrivals. Additionally, signs of weakening downstream consumption in Guangdong were reflected in the region's daily outflows from warehouses remaining at low levels. 》Click to view details

LME Copper Inventories: LME copper inventories stood at 272,325 mt on December 20, down by 500 mt from 272,825 mt on December 13.

COMEX Copper Inventories: COMEX copper inventories were 93,193 short tons as of December 19, down by 349 short tons from 93,542 short tons on December 12.

Consumption Demand Gradually Weakens; Copper Cathode Rod and Wire and Cable Operating Rates Decline

Copper Cathode Rod: This week (12.13-12.19), the weekly operating rate of major domestic copper cathode rod enterprises declined MoM, falling short of expectations. Although YoY growth was supported by orders on hand, the YoY increase has slowed. Copper prices fell this week, but as year-end approaches, downstream maintained just-in-time procurement. While year-end push-for-annual-target orders persisted, some enterprises have gradually slowed their pace as the month is about to end, leading to a MoM decline in operating rates. 》Click to view details

Wire and Cable: This week (12.12-12.19), the operating rate of SMM wire and cable enterprises declined MoM, falling short of expectations. According to SMM, downstream demand is currently experiencing seasonal weakness. Apart from relatively stable orders from State Grid, industry orders in general have weakened, with some northern markets even starting holidays. Additionally, due to payment term issues with many wire and cable orders, enterprises are strictly screening orders based on payment methods to ensure smooth payment collection before the Chinese New Year, actively abandoning orders with unfavorable payment terms. This has also impacted the growth of new orders. 》Click to view details

Outlook

Macro Front: Domestically, attention next week will focus on the implementation of macro policies and data such as China's November industrial enterprise profits above a designated size. Internationally, the market is awaiting the US PCE price index (the Fed's preferred inflation gauge). Additionally, attention is needed on how the US government, nearing a shutdown countdown, addresses the potential crisis and its impact on market sentiment. With multiple markets closed for Christmas next week, market activity is expected to be subdued. Key focuses include US initial jobless claims data and monetary policy meeting minutes from the Bank of Japan and the Bank of Canada.

Fundamentals: Looking ahead, as smelters complete maintenance, production is expected to increase significantly. Attention should be paid to the arrivals of domestic copper, especially as year-end approaches, when smelters are likely to face inventory clearance pressure. On the downstream side, some end-user enterprises are expected to reduce production and tighten cash flow in late December, leading to a gradual decline in consumption. Therefore, SMM expects a scenario of increasing supply and weakening demand next week, with weekly inventories potentially rising again. Both LME and COMEX copper inventories saw slight destocking this week, and attention is needed on whether overseas copper inventories will continue to destock during some trading days next week.

In summary, with the conclusion of major domestic and international macro events and the Christmas season next week, macro impacts on the market may be limited. Attention should be paid to how the US government, amid a leadership transition, resolves the potential shutdown crisis. On the fundamentals side, as year-end approaches, weakening downstream demand and increasing supply may lead to rising copper inventories. Fundamentals' support for copper prices has weakened, and barring major macro surprises, copper prices are expected to fluctuate rangebound next week.

Institutional Insights

Dongwu Futures Research Report: On the macro front, the Fed's hawkish stance suggests that the pace of interest rate cuts next year may slow or even pause, with a strong US dollar exerting pressure on copper prices. In the short term, fundamentals continue to weaken. Domestic copper cathode production in December may rise significantly, while downstream operating rates face downward pressure. However, insufficient raw material supply still supports copper prices. Caution is advised regarding potential macro sentiment fluctuations.

Citi Research stated that it holds a neutral to bearish outlook for industrial metals in 2025. Citi expects copper prices to decline to $8,500/mt over the next three months.

Guotou Futures Research Report: On Friday, SHFE copper fluctuated with a bullish candlestick. Spot copper prices fell to 73,805 yuan, with Shanghai copper premiums at 95 yuan and Guangdong copper premiums expanding to 255 yuan. The price difference between primary metal and scrap rebounded to 946 yuan. Evening focus remains on US November PCE and the University of Michigan Consumer Sentiment Index. Overnight, LME copper hit a new low since mid-November adjustments, pressured by a strong US dollar and expectations for next year's supply-demand dynamics. Technically, LME copper may find temporary support at $8,700, but attention to timing is crucial, and short positions should be held.

China Fortune Futures Analysis: Today's copper price decline narrowed, with attention on previous lows around the 73,000-73,500 range for support. Since late May this year, SHFE copper's weekly trading volume and open interest have continuously declined, indicating persistent capital outflows. As the year-end approaches and major macro policies in China and the US are implemented, the market is gradually shifting to industry-driven trading logic. A wait-and-see approach is recommended for now.

Recommended Reading:

》Weekly Copper Inventories in Major Regions Nationwide Decrease by 4,400 mt [SMM Weekly Data]

》Seasonal Weakness in Downstream Demand; Wire and Cable Operating Rates Decline [SMM Analysis]

》Year-End Consumption Gradually Weakens; Weekly Copper Cathode Rod Operating Rates Decline as Expected [SMM Analysis]

》Grapevine Guide: US Government Shutdown Countdown—What Happens Next?