Copper Prices to Continue the Downward Trend

SHANGHAI, Nov 22 (SMM) – The copper prices fluctuated widely last week, falling for three consecutive days before rebounding on Friday. The strong fundamentals and market pessimism drove the copper prices to hover in a wide range.

The macro front is still bearish. The US dollar index continued to strengthen in anticipation of market interest rate hikes, which surged to 96.266 during the week and remained at a high level of 95.5 despite a small drop. The macro front is expected to continue to pressure the copper prices. The market shall focus on the US existing home sales data and the PMI readings of European countries and the US.

The previously big backwardation structure of LME copper shrank further last week. The backwardation hovered at around $15/mt since November 16, and once turned into the contango structure. LME copper inventory at the warehouses in North America increased 8,925 mt. The resulting market doubts over the supply tightness lowered the copper prices rapidly. However, many domestic importers received the customs notices that the issue of value-added tax invoices would be suspended from mid-November to December 25. And the volume of imported cargoes that exceeds the prescribed tax limit would require a deposit. Due to concerns about the lack of input invoices and as the deposits would be kept for quite some time, some domestic importers’ willingness to import goods has been suppressed, which has triggered concerns about the reduction of import supplies in the spot market. In this scenario, the spot premiums soared to a 10-year high amid the ultra-low domestic inventories.

But the output at domestic smelters is expected to drop to 820,000 mt in November, and to 850,000 mt in December driven by the production rush. The copper prices are expected to continue to edge down amid the elimination of the supply-side interference and the poor consumption in the domestic real estate market.

The most active SHFE 2201 copper contract prices are expected to move between 69,000-71,000/mt this week, and LME copper will trade between $9,400-9,750/mt.

The premiums are unlikely to fall in the short term if the issue of customs invoices remains unsolved. But the downstream buying interest has declined significantly amid the high premiums and high prices. Nonetheless, the sellers with adequate invoices for cargoes still have strong negotiation power over pricing. The spot premiums are expected to stand at 1,300-2,000 yuan/mt this week before the completion of the long-term contracts delivery.