SHANGHAI, Sep 22 (SMM)—SHFE copper has been undergoing a period of consolidation since mid-July, failing to break above a previous high of 53,520 yuan/mt. The most-traded SHFE 2011 copper contract closed 1.45% weaker at 51,500 yuan/mt last night, while three-month LME copper also dropped from a two-year high to end 2.43% lower at $6,683.5/mt. A broad sell-off occurred across global stock markets as the US dollar index, which tracks the greenback against a basket of leading currencies, rebounded to a six-week high, which weighed on copper prices.
SMM expects that copper prices are likely to rise further in the fourth quarter considering ample liquidity and optimism over consumption after the National Day holiday.
Macroeconomic environment
The US Federal Reserve vowed last week to keep interest rates near zero for years to support the coronavirus-hit economy, and raised economic and inflation outlook for this year, which boosted US dollar. However, positive market sentiment driven by new progresses in COVID-19 vaccines limited the increase in the dollar.
Japanese and British central banks also decides to keep easy monetary policies. Expectations of an ample global liquidity further sent copper prices higher in the second half of last week.
In China, industrial value-added, urban fixed-asset investment and social retail sales all saw larger-than-expected increases in August.
On the coronavirus front, more than 30.78 million people have been infected by the virus, and British Prime Minister Boris Johnson said on Monday that the country may impose a second national lockdown, while cases in Spain and France have also climbed.
Demand and supply
Last week, the Birla Copper in India overhauled one production line. As of September 18, SMM copper concentrate index stood at $48.52/mt, up $0.09/mt on the week. Tight copper concentrate supply is expected to sustain in the near term.
The price spread between copper cathode and copper scrap narrowed recently as tight copper scrap supply boosted its prices, which was favourable to copper cathode consumption. Some small and medium-scale enterprises had already used up most of their approvals for copper scrap import before September, with only a few enterprises having ample quotas on hand, SMM learned.
Domestic copper consumption failed to show significant signs of improving in a typical high season. Orders for copper rod continued to shrink as demand from the electric power sector weakened, and operating rates at some refined copper rod producers fell by more than 20%, an SMM survey showed.
Copper stocks across Shanghai, Jiangsu and Guangdong expanded 15,000 mt on the week to 338,900 mt as of last Friday September 18. Some seaborne copper arrived at ports in the second half of September, and flowed into domestic warehouses as current consumption was tepid, which led to the increases in social inventories across the three regions. However, as it is approaching the National Day holidays, downstream users will start to step up procurement from this week.
