Copper Prices to Move Rangebound

SHANGHAI, Dec 20 (SMM) – The Federal Reserve announced to accelerate the tapering of bond purchases at its interest rate meeting last week. It decided to increase the monthly reduction scale of bond purchases from $15 billion to $30 billion, and the net asset purchase will end in the first quarter of next year. According to the Fed’s projection, the interest rate hikes in both 2022 and 2023 will be three times. Powell made it clear that he did not support raising interest rates during the tapering of the bond purchases. The meeting turned out not as hawkish as market expected. All risk assets stopped falling and rose after the meeting. At the same time, the Bank of England unexpectedly raised the interest rates by 15 basis points at the end of the week to combat the soaring inflation, which led to the rapid decline of the US dollar index, falling below the 96 mark. Hence the copper prices edged up significantly. The meeting of the Political Bureau of the CPC Central Committee has boded well for the liquidity next year. The market capital has been relatively abundant after the RRR cut on December 15, which also supported the rally of the copper prices.

The market shall still focus on the US employment rate and inflation data, and the US real estate data. The copper prices may rise initially before falling amid the risk aversion of some investors ahead of the Christmas holiday.

In terms of fundamentals, Freeport and domestic smelters finalised the benchmark TC/RC for long-term contracts of copper concentrate in 2022 at $65/mt and $0.065/lb respectively, which basically met the market expectations. Las bambas copper mine is expected to stop production on December 18 due to serious road blockage in the community and the depletion of key consumables at the mine, and it is expected to suppress the spot market of copper concentrate. But from a long-term viewpoint, the impact on the overall supply and demand pattern will be limited. However, from the perspective of inventory structure, although LME accumulated a small amount of stocks at the beginning of the week, there was a significant decline in China due to the closed import window. The inventories continued to fall even as the smelters have rushed to produce in December and the downstream buyers lacked buying interest against the cash flow issues, providing a strong support for the copper prices.