Copper prices to have downward room

SHANGHAI, May 18 (SMM)—SHFE copper prices reached 78,270 yuan/mt after rising for nearly two weeks before edging lower last week.

US CPI far exceeded market expectations, triggering market concerns that the US will tighten liquidity ahead of schedule. As a result, the US dollar index stopped falling and rebounded. The decline in the US dollar index is likely to be limited, weighing on copper prices in the short term. Informal financing in China fell short of expectations in April. China  will analyse domestic and overseas markets in response to overly rapid gains in commodity prices, enhancing currency and other policy to stabilise economy. This aims to curb the impact on domestic industry chain from inflation. Domestic and overseas market sentiment was depressed. Copper prices are expected to fall further and hover at around 75,000 yuan/mt.

The Covid-19 pandemic has exerted significant impact on production at and transportation from copper mines. Copper demand recovered rapidly amid insufficient supply. Spot copper concentrate TCs have bottomed and rallied as the pandemic in Peru and Chile has been controlled. Meanwhile, copper consumption has been weak against high copper prices. The off season will set in soon. Operating rates at copper cathode rod plants hit a record low in April. In this scenario, copper prices will face pressure.

SHFE copper prices are expected to move between 72,500-76,000/mt this week, and LME copper will trade between $9,950-10,500/mt.

As May 17 is the last trading day of the SHFE 2105 contract. Spot copper will be quoted against the June contract. Spot copper is expected to be quoted with big discounts if the contango of the SHFE next-month contract exceeds 300 yuan/mt over the front-month contract. the declines in SHFE coper prices failed to incentivise downstream buying interest significantly. Downstream buyers are expected to purchase as needed. Smelters will undertake maintenance in May but the short=term impact on output will be insignificant. Spot discounts are expected to stand at 250-150 yuan/mt this week.