SHANGHAI, Apr 11 (SMM) - Last week, the US Fed announced that it may begin to shrink the balance sheet at the next meeting in May. The pace will be accelerated to a monthly reduction of $95 billion. At the same time, the Fed is likely to raise interest rates by 50 basis points once or several times at future meetings, and some officials even call for 3%-3.25% interest rate hikes. The inverted short and long-term US treasury bond yield spread also evidences the potential stagflation risk of the US to a certain extent. The pressure of overseas monetary policy has offset the potential risks of the Russia-Ukraine conflict, and the market shall hold a neutral standpoint at present. In China, at the Standing Committee meeting last week, the signal of releasing monetary policy tools in real-time in the near future was once again released. In the case that the domestic and overseas situations are not optimistic, there is the possibility of lowering the RRR and interest rate again. The domestic economy in March was affected by the pandemic, and the market was generally optimistic about domestic policies. The domestic prices may be supported, and there may be an opportunity to narrow the SHFE-LME price spread.

On the fundamentals, a large number of goods flowed into Asian LME warehouses last week, which are probably goods of domestic smelters exported to gain large profits. In China, affected by the pandemic, goods could not be picked up in a great number of warehouses in Shanghai and surrounding areas, which led to an increase in inventory. Consumption in China may have a retaliatory rebound after the pandemic gets eased, and the fundamentals are also favourable to the SHFE/LME price ratio to a certain extent. Moreover, in March, the output of copper cathode in China totalled 848,500 mt, up 1.5% from the previous month and down 1.4% from the same period last year. Except for two private smelters in Shandong, which were forced to be shut down due to financial pressure and other problems, the output of other domestic smelters was basically in line with expectations in March. Although some smelters in north-east China have advanced the maintenance plan due to raw materials problems, it has little impact on the output. Smelters such as Zhongjin and Fuye all entered the overhaul period, but they were still reluctant to reduce the output due to the low inventory, high premiums and TCs in China. Therefore, the overhaul had a limited impact on copper cathode output. The impact of the smelters in Shandong on domestic production will be difficult to alleviate in the short term, and domestic copper cathode stocks will remain low, supporting copper prices.

The most-traded SHFE 2205 copper contract is expected to trade between 72,500-74,200 yuan/mt, and LME copper will trade between $10,200-10,500/mt. Spot premiums are expected to move between 150-250 yuan/mt this week.

Disclaimer:

The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.