Copper prices dropping from highs and an upcoming high season to boost trades

SHANGHAI, Mar 1 (SMM)—The most-traded SHFE 2104 copper contract rose by its daily limit on last Monday February 22, but dropped below 67,000 yuan/mt last Friday amid rising US Treasury yield after breaking above the 70,000 mark on February 25.

Both copper smelters and traders have added a large amount of margin for their hedged short positions. Great financial pressure prompted them to lower prices to recoup funds. 

Operating rates at downstream users were slightly higher during the Chinese New Year (CNY) holiday compared with previous years, as workers were encouraged to stay where they work for the Spring Festival in order to reduce the possibility of being infected with COVID-19. However, as copper prices surged after the holiday, copper processors had to raise their products prices by 10-15 percentage points, which kept their downstream buyers on the sidelines. Some small and medium-scale copper processors had to postpone resumption due to soaring raw materials prices and sluggish new orders. Operating rates at downstream processors will see year-on-year declines in March if copper prices continue to fluctuate at high levels. 

Copper pipes and strips are important raw materials for home appliances such as air conditioners, and the rapid rise in copper prices will have a greater impact on the home appliance industry. Home appliances manufacturers will have to raise prices if copper prices remain high, and thus sliding demand for these products will weigh on operating rates at copper processors. 

However, the price decline on last Friday and an upcoming high season in March will boost copper trades in the near term.