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Poor fundamentals to weigh on Shanghai copper in Q3
Jul 29,2019 14:26CST
smm insight
The SHFE 1909 contract weakened to the 47,000 yuan/mt level last week

SHANGHAI, Jul 29 (SMM) – Shanghai copper is likely to come under pressure from greater supply and weaker demand in the third quarter, SMM believes.

The most active copper contract on the Shanghai Futures Exchange weakened to the 47,000 yuan/mt level last week, erasing gains from a substantial rise on July 19 on dovish comments from New York Fed President John Williams, which grew the expectations of an aggressive easing from the US central bank.

This week, the Federal Reserve is widely expected to cut interest rates for the first time in more than a decade, while US and Chinese negotiators will meet face-to-face for the first time since their presidents, Donald Trump and Xi Jinping, agreed in late June to revive talks.

Poor fundamentals are likely to force Shanghai copper to give up gains from macroeconomic developments.

Domestic production of copper cathode is expected to considerably grow in Q3, as smelters recover from concentrated maintenance in April-May, and as newly-commissioned capacity ramp up. An SMM survey showed that operating rates across copper smelters climbed 14.96 percentage points from May to 86.19% in June.

Falling treatment charges for copper concentrate that pushed some small and medium-sized smelters into losses are likely to limitedly impact supply of copper cathode, as it would cost more to suspend production. TCs for spot copper concentrate tumbled to $55/mt as of July 26.

End-users, meanwhile, enter a low season in Q3, which lowers demand for copper. Operating rates across Chinese manufacturers of wire and cable are expected to decline some 3 percentage points month on month in July, after shedding 2.33 percentage points to 89.7% in June, showed an SMM survey. Wire rods account for more than half of consumption of copper products.

A total of 164.4 billion yuan was invested in power grid projects in the first six months of the year, which was 19.3% less than the same period last year. The power sector is the major consumer of copper.

As of the end of June, completed residential housing floor space in China slipped 12.7% from a year ago, while the auto market remained sluggish.

In June, production of air-conditioners in China fell 4.1% from May to 7.46 million units, with that of washing machines down 4.5% to 6.5 million units.

Market commentary

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