Fundamentals to buoy copper prices after US-China trade war recedes from the spotlight

SHANGHAI, Sep 19 (SMM) – Copper prices in the Chinese market are likely to strengthen as the fundamentals front would take center stage after US-China trade tensions temporarily receded from the spotlight, SMM expects.

Demand for copper cathode was booming. Inventories across LME, SHFE and COMEX came in at 526,800 mt as of Friday September 14, standing 18.2% lower than the corresponding period last year. LME stocks stood at 225,900 mt with COMEX stocks at 166,300 mt. SHFE stocks decreased for 11 consecutive weeks to 134,600 mt, SMM data showed.

Previous losses in copper prices shrank the price spread between copper cathode and scarp and this eroded downstream consumers’ buying interest on copper scrap. SMM research found that Chinese producers of copper rods with copper scrap as feedstock operated at only 38.54% in August. Some large producers told SMM that their scrap consumption almost halved this year. Some even completely suspended their production of scrap-using rods and commissioned the production line with copper cathode as feedstock. Such shrinkage in demand for scrap boosted consumption of copper cathode.

The import market was also experiencing spectacular demand. Premiums of cargoes with quotational period in October were offered up to $120/mt as of Tuesday September 18, the highest thus far this year. Inventories in the Shanghai bonded areas came in at 410,000 mt as of Friday, down 43,500 mt from a week ago and 123,000 mt from a year ago. The figure had dropped for the fifth straight week.

Feverish performance was also seen in the Chinese spot market with premiums expanding on low inventories and pre-holiday stockpiling. Premiums of resources of higher quality were heard up to 300 yuan/mt in Shanghai on Tuesday. One large rods producer in the north even purchased from the Shanghai market. The backwardation structure between the SHFE October and November contracts widened to 230 yuan/mt as of Tuesday, indicating the support from the physical market to the futures.

The spread is likely to expand further as the currently tight supply of spot cargoes makes it tough for shorts to liquidate their positions in the limited trading days before October delivery.

The months-long trade disputes between Washington and Beijing and the downward pressure faced by China’s economy had been keeping weighing on copper prices. The trade war temporarily receded from the spotlight after the US and China announced their new round of tit-for-tat tariffs earlier this week. The fundamentals front is expected to come under spotlight across the copper market in the short term.

However, we see limited upward room in copper prices as demand for scrap would rebound in a rising market. Besides, an extended trade war is set to jeopardise investors’ confidence and downward pressure over China’s economy in the longer term sustains.