SHANGHAI, Jun 15 (SMM) — The core annualised CPI in May before seasonal adjustment from the United States recorded 3.8%, a new high since 1992. The annualised US CPI in May before seasonal adjustment stood at 5%, a record high since August 2008. The market has been increasingly concerned over an earlier write down of its bond purchases. Although ADP employment and ISM service industry data were upbeat, the core non-farm data has fallen short of expectations for two consecutive months, leading to mixed performance of non-farm data and CPI. The Fed is unlikely to scale back its bond purchases in the short term, nor will it withdraw from quantitative easing policy. The currency oversupply has been severe since last year when the COVID-19 broke out. Easy monetary policies in Europe and the United States have peaked, and are unlikely to be wound down in the short term. The interest decision meeting by the Fed will be the market focus for this week. The market has gradually turned its focus onto domestic fundamentals since June.
According to an SMM survey, domestic copper cathode production increased around 500,000 mt year-on-year from January to May, according to SMM survey. Downstream consumption was significantly depressed as copper prices continued to rise. Domestic social inventories accumulated despite the traditional peak season in Q2 dragging on copper prices. Inventories have declined recently due to hampered inflows of imported cargoes, as opposed to the improvement in end-user and downstream consumption. SHFE copper inventories decreased around 20,000 mt last week. However, copper scrap sellers refrained from selling, muting trades. This has also boosted domestic copper cathode consumption. Meanwhile, downstream buyers have purchased as required recently as SHFE copper prices stopped falling and stabilised. Copper prices should fluctuate rangebound in the short term amid inventory declines.
SHFE and LME copper prices diverged. SHFE copper prices moved around 71,500 yuan/mt and are expected to fluctuate rangebound in the short term, falling to the 60-day moving average. LME copper prices are expected to hover around the 40-day moving average. Import losses are set to expand further. SHFE copper prices are expected to move between 70,500-72,500/mt during June 15-18, and LME copper will trade between $9,750-10,100/mt this week.
The decline in inventory will narrow spot discounts this week. The market is optimistic over spot prices. Based on the price spread between SHFE front-month and next-month copper contracts of around 300 yuan/mt and the capital cost for the three-day Dragon Boat Festival holiday, spot discounts are expected to stand at 100 yuan/mt after delivery this week. Spot discounts will move between 130-50 yuan/mt.
