Domestic Copper Consumption Still Have Support but Copper Prices to Dip Further

SHANGHAI, Aug 23 (SMM) – Copper prices are likely to dip even as supply and demand have given support to domestic fundamentals.

Domestic and overseas economic data in July fell short of expectations, giving rise to market opinions that overseas economy had entered a stagflation period; meanwhile, the Fed’s meeting minutes sent out a clear signal of tapering monetary policy as the inflation rate and employment data have met most of its targets for a tighter policy, depressing market sentiment noticeably. Copper led price declines and SHFE copper prices are likely to dip further. Manufacturing PMI from European countries and the US for August and US existing home sales will be due early this week. Speeches of leaders at the Jackson Hole Economic Symposium to be held from August 26 to 28 will be a focus of markets.

The impact from electric restrictions on domestic copper cathode supply lingers even as power curtailment in south China has eased slightly. This resulted in continued inventory declines in south China. Sharp drop in SHFE copper prices improved downstream buying interest last week, increasing purchasing, signifying the market acceptance of the 66,000 yuan/mt price point. Meanwhile, the plunge in copper prices combined with shortages of copper scrap has grown difficulties for copper rod plants using copper scrap as raw materials in restocking adequate raw materials, and they even quoted above copper cathode rod prices. RCs of blister copper continued to fall with some smelters quoting at 1,200 yuan/mt. In this scenario, large volumes of copper cathode has been used to substitute copper scrap, underpinning domestic copper cathode consumption.

SHFE copper prices are expected to move between 65,800-68,500/mt this week, and LME copper will trade between $8,800-9,200/mt.

In the domestic spot market, the backwardation of the SHFE front-month copper contract stabilised at around 200 yuan/mt over the SHFE next-month contract. The import window remains open and investors took profits. Spot trades will pick up should spot premiums fall to around 100 yuan/mt, which will attract traders to purchase under long-term contracts. Spot premiums are expected to move between 50-150 yuan/mt this week.