Multiple Changes Are Coming, Copper Prices' Downward Trend Is Hard to Sustain

Recovery Trend May Begin

Since the beginning of this year, the global macro market has been complex, with escalating trade frictions, fluctuating US economic data, and the emergence of peace talks in geopolitical conflicts, all of which have had inconsistent impacts on copper prices. After the unexpected implementation of the US "reciprocal tariffs" policy, short-term market concerns quickly gathered. Considering that subsequent tariff disputes are still ongoing, the bearish impact of the US "reciprocal tariffs" seems to have reached its limit and may have been excessively "overdrawn." Coupled with the uncertainty of US tariffs on copper, the bearish impact of tariff concerns is expected to gradually weaken.

Since the beginning of this year, copper prices have continued to fluctuate upward, with multiple bullish factors sequentially driving copper prices.

At the start of the new year, the US dollar remained strong at high levels but did not significantly suppress copper prices. On the contrary, amid concerns that the US might impose tariffs on non-ferrous metals, copper prices rose steadily. Driven by risk aversion, a weakening US dollar, and optimism in gold purchases, overseas gold prices continued to hit record highs, leading to a certain degree of follow-up rise in copper prices in February. Subsequently, Tongling Nonferrous Metals announced maintenance, sparking concerns about supply, and copper prices accelerated their rise in March.

By the end of March, the most-traded SHFE copper futures contract had risen by more than 10% compared to the end of 2024, and COMEX copper futures prices performed even better under the influence of tariff concerns. However, with the implementation of the US "reciprocal tariffs," the market sentiment changed abruptly, and copper prices nearly wiped out all their gains for the year in just two trading days around the Qingming Festival.

Macro Uncertainties Persist, Financial Attributes Weaken

Since the beginning of this year, the global macro market has been complex, with escalating trade frictions, fluctuating US economic data, and the emergence of peace talks in geopolitical conflicts, all of which have had inconsistent impacts on copper prices.

In Q1, the US Fed held two interest rate meetings, one at the end of January and the other in mid-to-late February, neither of which implemented an interest rate cut, in line with market expectations. On February 1, US time, the US announced a 10% tariff on Chinese goods, along with an additional 25% tariff on products from Canada and Mexico, and a 10% tariff on energy resources from Canada, marking a new phase of tariff concerns. Geopolitically, on February 12, US time, the US spoke with Russian President Putin and Ukrainian President Zelensky, hoping to initiate negotiations aimed at ending the Russia-Ukraine conflict, which seemed to bring a glimmer of hope for peace talks in the prolonged conflict.

In Q2, the US Fed will hold interest rate meetings in early May and mid-June, with the June meeting set to release economic outlooks and dot plots. Although the trade friction initiated by the US continues, its impact in Q2 may be more reflected in global macroeconomic data. The macro impact on copper prices may follow this rhythm, initially pressuring copper prices due to economic data concerns, followed by a certain boost as interest rate cut expectations recover.

After the US "reciprocal tariffs" exceeded market expectations, short-term market concerns quickly gathered. Considering that subsequent tariff disputes are still ongoing, the bearish impact of the US "reciprocal tariffs" seems to have reached its limit and may have been excessively "overdrawn." Coupled with the uncertainty of US tariffs on copper, the bearish impact of tariff concerns is expected to gradually weaken.

Supply Pressure Eases, Price Support Remains

In Q1, overseas mines operated smoothly overall, but the supply tension of copper concentrates due to smelting capacity expansion and the mining cycle remained prominent. According to SMM data, imported copper concentrate TCs turned negative in late January and continued to weaken. By the week of March 21, imported copper concentrate TCs were reported at -$22.88/mt, down nearly $30/mt from $6.91/mt at the end of last year. Additionally, based on institutional surveys, seven domestic smelters have maintenance plans in Q2, with the scale of maintenance expanding compared to Q1, and TCs are expected to stop falling and rebound in Q2.

In Q1, the tax-included price spread between domestic refined copper and copper scrap rose twice, possibly related to the rise in copper futures prices. In January, the slow circulation of domestic copper scrap due to the Chinese New Year once pushed the price spread between refined copper and copper scrap to over 3,000 yuan/mt. Meanwhile, the "reverse invoicing" issue continues to affect the industry, with more copper scrap raw materials flowing into anode plates, and anode copper supply is expected to continue recovering in Q2, alleviating some of the raw material supply pressure on domestic smelters.

According to institutional surveys of domestic smelters' maintenance plans, there was less maintenance in Q1, with only a few smelters scheduling maintenance in January and March. Meanwhile, the operating rate of copper smelters remained around 82%, and the tight ore supply has put some pressure on domestic smelters. The survey shows that from April to June, multiple smelters have maintenance plans, and based on estimates of refined copper production, the impact of maintenance is mainly concentrated in April and May.

Different Demand Rhythms, Steady Consumption Boost

This year, the early Chinese New Year led to weaker production efforts by wire and cable enterprises in January, but production improved significantly in February. This production rhythm differs from the usual pattern of a rebound in operating rates in February in previous years. Based on the overall performance of wire and cable enterprises from January to February and SMM's forecast for March operating rates, the overall production performance of wire and cable enterprises in Q1 was weaker than in the same period in previous years. Domestic air conditioning production has been active again this cold season, with significant production increases starting in September last year, a month earlier than usual, and sales performance has also been impressive. In the automotive sector, data shows that domestic car production from January to February was generally better than in previous years, with NEV production continuing to grow steadily and sales significantly outperforming production.

The inhibitory effect of high copper prices on end-users is expected to continue in Q2, and the rebound in wire and cable consumption is unlikely to effectively form a new consumption boost. The seasonal rebound effect in the automotive industry persists, but Q2 is the contraction period for air conditioning production, and overall demand boost is expected to remain steady. In summary, copper prices are unlikely to form a sustained downward trend, and a recovery trend is about to begin.

(Source: Futures Daily)

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