Copper prices retreated from highs, with risks of further upward movement [Institutional Commentary]

Market Sentiment: Last week, copper prices hit a high and then retreated, with the market still following the pace of US copper futures. The new US President indicated that copper tariffs might be implemented within weeks, causing the US-LME price spread to rapidly widen to $1,700, and the market adjusted its view on copper logistics. Currently, the new US President and various institutions still hold conflicting views on tariffs, and the market is sensitive to the reciprocal tariffs set for April 2. Logistically, if tariffs are implemented within weeks, the US will struggle to fully complete its stockpiling scale, and the effective increase in domestic copper production is measured in "years." Subsequently, the US will primarily consume its copper inventories. If the tariffs are implemented as previously expected within the year, the scale of US copper imports could indeed increase by 400,000-500,000 mt compared to the past. US economic indicators still reflect "stagflation," with the preliminary March manufacturing PMI falling below expectations to under 50, February corporate equipment orders declining for the first time in four months, weak consumer confidence, and February core PCE slightly exceeding expectations. The market continues to lower its expectations for US economic growth. In contrast, Europe's March manufacturing PMI rebounded, while China's remained stable and expanded to 50.5. This week, the market is focused on US employment data, durable goods orders, and factory orders.

Domestic Supply and Demand: Macro consumption still reflects the characteristics of the peak season, with March manufacturing PMI new orders continuing to rise. Short-term copper prices adjusted, but looking back at March, SHFE copper weighted cumulative gains exceeded 5,000 yuan/mt, and the total open interest in the market quickly surpassed 600,000 lots. Compared to last year, midstream and downstream acceptance of high copper prices at 80,000-81,500 yuan/mt was relatively smooth. Combined with the futures market, prices of 82,500-83,000 yuan/mt have some suppression on consumption, and the short-term decline in social inventory slowed, with SMM social inventory dropping to 337,200 mt on Monday. However, it is worth noting that fluctuations in the Shanghai-Guangdong price spread are driving logistics southward, with Guangdong inventory temporarily flowing in, and Guangdong premiums dropping from a high of 225 yuan/mt in late March to 10 yuan/mt, while Shanghai copper turned to a premium of 15 yuan/mt on Monday. Apart from the significant price advantage of sulphuric acid, domestic refinery output in April is expected to decline MoM due to maintenance impacts. In terms of open interest, the high open interest background has not been fully vented, which is the main reason for the objective view that copper prices still have the potential to rise further. In the long-term theme, the current inflection point is mainly inclined towards the transition period between April and May.

Overseas News: Mine supply remains key, with Q2 domestic refinery TC long-term contract negotiations stalled. Chile's Codelco indicated it would shift more spot copper sales to the US. In terms of institutional attitudes, Citi lowered its three-month copper price forecast to $9,500, expecting the average copper price in H2 to be $8,800; BNP Paribas believes copper prices may fall to $8,500/mt in Q2. The earthquake in Myanmar may affect copper production in Sagaing Region, but current attention is limited. The market is still waiting for clearer information on mine increments and the impact on TC after the resumption of operations at mines in Indonesia and Panama.

Outlook: SHFE copper's adjustment time is short, and the extent of the pullback is likely to be limited under peak season pricing demand, with SHFE copper's pullback this week expected to be limited to 79,700-80,000 yuan/mt. Technically, LME copper's current support is at $9,700. Midstream and downstream players should price on demand during pullbacks.

(Source: SDIC Futures)