LME Copper Basically Stable during Holiday, Short Squeeze May Occur before SHFE Contract Delivery 【SMM post-holiday review】

SHANGHAI, Oct 8 (SMM) – Three-month LME copper closed at $9,136/mt in the intraday trading on September 30, and settled at $9,142/mt on October 7, up $6 or 0.06%.

LME copper bottomed out before falling back during China’s national holiday. After SHFE market closed on September, LME copper plummeted amid the lower-than-expected Chinese PMI and the uncertain ceil of US bond issuance. However, Fed Chairman Powell said on October 1 that the current high inflation level may ease next summer, and in order to achieve full employment, the current low interest rate policy will be maintained. US dollar index fell from the high level under the impact, and the copper prices rebounded. Biden’s trade policy against China announced early this week was milder than expected, and Meng Wanzhou returned to Chin. the market expects that the China-US relations will gradually return to normal and copper prices will continue to rebound. However, during the National Day, more real estate companies were revealed to have debt problems, and the market's concerns about the US debt default continued to ferment. The US Senate postponed the voting on the suspension of the debt ceiling that was originally scheduled to be held on Wednesday. The ADP data was also more positive than expected. The US dollar rebounded continuously, and the copper prices fell under pressure.

United States is under high inflationary pressures. Once the employment situation is better than expected, US may raise interest rates ahead of schedule. Therefore, SMM will pay close attention to the US non-farm payrolls to be released tonight. The current market consensus is that the employment data will increase by 500,000, which is supported by the strong ADP data. The US dollar may rise strongly to break through the previous highs if the actual data is higher than expected, while copper prices may fall under pressure.       

According to SMM survey, many domestic plants in both upstream and downstream industries were still under the power rationing during the National Day holiday, so the inventory changes after the holiday is worth attention. The domestic inventory increased by 23,000 mt on the first day but fell by 10,500 mt in the first week after the holiday in 2020. However, the inventories increased both on the first day and in the first week after the holiday in 2018 and 2019. Therefore, SMM will pay close attention to the changes in the inventory after the holiday. The national inventory is at a historically low level currently, and the spot market has already seen the short squeeze. If the inventory increase is slightly after the holiday, there is expected to be the soft short squeeze before the contract delivery, and the spot premiums are expected to rise sharply. Malaysia is about to lift its lockdown as the pandemic is controlled, and the imports of the copper scrap from Malaysia are expected to increase. The most traded SHFE copper contract is expected to fluctuate between 67,800-68,500 yuan/mt.