Copper Prices to Have Solid Support at 70,000 yuan/mt

SHANGHAI, Jan 25 (SMM) - The domestic policy tends to be loose before the Chinese New Year (CNY). The MLF and reverse repurchase interest rates were lowered by 10 basis points on January 17. Then on January 18, Liu Guoqiang, Vice Governor of the People’s Bank of China (PBoC), said at the first press conference of the bank in 2022 that the monetary policy toolbox should be opened wider to avoid credit collapse. On January 20, the one-year LPR was reduced by 0.1 percentage point to 3.7%, and the five-year LPR was reduced by 0.05 percentage point to 4.60%, which was in line with market expectations. This is also the simultaneous reduction of the two interest rates again after a 21 months’ interval.

On the domestic capital side, the real estate demand and the future infrastructure development will ensure that the copper prices maintain a strong momentum in the short term. The number of housing starts in the United States increased unexpectedly in December 2021, reaching the highest level in nine months, indicating that builders have achieved some success in solving the problem of material and labour shortage. At the same time, the European Central Bank said that it would not raise interest rates in 2022. Under the strong economic performance, the LME copper market showed a strong upside potential. The market this week shall focus on the European and US manufacturing PMI and overseas existing home sales data. The copper prices should remain strong on the ample domestic liquidity and optimistic overseas manufacturing figures.       

There will not be many opportunities for imports. Some cargoes were stacked in the bonded zone, growing the domestic bonded zone inventories. The import losses of 600-700 yuan/mt against the SHFE February contract last week galvanised some smelters to export, lowering the domestic social inventories slightly. But the overall consumption was not sound before CNY. There were some downstream buyers building up inventories last week, which kept the spot premiums at high levels. The consumption will weaken this week, which is the last week before CNY. The domestic inventories are expected to accumulate. The low inventories will shore up the copper prices around 70,000 yuan/mt, though.

The most active SHFE 2203 copper contract prices are expected to move between 69,900-72,000/mt this week, and LME copper will trade between $9,750-10,050/mt.

The demand for cargoes with front-month invoices will maintain the spot premiums in the positive territory early this week. As more downstream plants were closed at the week’s end, the spot quotes will fall rapidly. Spot copper is expected to be quoted with discounts of 50 yuan/mt to premiums of 200 yuan/mt this week.