Market Gradually Prices in Tariff Expectations Copper Prices Fluctuate at High Levels [Institutional Commentary]

On Monday, the most-traded SHFE copper 2505 contract fluctuated at a high level, LME copper oscillated around the 10,000 yuan mark, and the premium for COMEX US copper continued to widen. The domestic near-month 4-5 price spread narrowed. On Monday, the spot copper cathode market saw stagnant transactions, with a strong atmosphere of downstream players holding back due to high prices, and spot prices turned to parity. Yesterday, LME inventory fell to 221,000 mt.

On the macro side: US Fed's Bostic stated that the US inflation rate will not return to 2% before early 2027. He originally expected two interest rate cuts this year but now expects only one. Lowering the inflation rate remains the top priority for the US Fed, but if the economy unexpectedly weakens, the Fed will still take action. Meanwhile, the US President again urged the Fed to continue cutting interest rates, believing that with falling energy prices, the Fed has the capacity to lower rates. Tariff policies will gradually impact the economic level. The US President said yesterday that he may grant exemptions to many countries on reciprocal tariffs, or even provide more favorable policies, but will impose a series of import tariffs on items such as cars, chips, and timber. We believe that the current global trade situation is still full of uncertainties, with important strategic reserve resources like copper continuously flowing into the US. Metal giant Mercuria stated that about 500,000 mt of copper was recently shipped to the US, causing a supply deficit in non-US regions. At the same time, the US President aims to boost domestic refined copper production to revitalize US manufacturing and industrial infrastructure. The current market pricing for US copper implies a tariff rate of 12%.

In terms of industry: According to the General Administration of Customs, China's imports of copper ore and concentrate reached 4.714 million mt in January-February, up 1.3% YoY.

Expectations of tariff premiums have triggered a large amount of refined copper being sent to the US, leading to tight supply in non-US regions. Expectations for minor production cuts by Chinese smelters have been realized, but there are still disagreements between the US Fed and Trump on interest rate cuts. The US dollar index, showing oversold signals, has rebounded from recent lows, causing copper prices to enter a high-level fluctuation. Fundamentally, the tight supply of concentrates is unlikely to change, and the cost side continues to provide strong support in the medium term. As China enters a destocking cycle, be cautious of the risk of a high-level correction in copper prices, and closely monitor overseas trade situations and expectations of a mild recession in the US economy.