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Copper Prices Dropped Last Week amid the Global Economic Recession

iconMay 23, 2022 10:57
Source:SMM
Last week, the unsatisfactory US economic data dragged down the US dollar index from 105 at the beginning of last week to 102.65.

SHANGHAI, May 23 (SMM) - Last week, the unsatisfactory US economic data dragged down the US dollar index from 105 at the beginning of last week to 102.65. The fall of the US dollar index supported base metals prices to bottom out. LME copper prices rose from $9,358/mt to $9,488/mt, but met resistance at the 20-day moving average and stood firmly at the 5-day moving average.

On the macro level, the US CPI and PPI in April were higher than expected, which, to a certain extent, drove the US Fed's attitude towards the tight monetary policy to be more hawkish, pushing up the US dollar index. The rapid narrowing of the US 10-year and 2-year Treasury bond yield spread also reflects the Fed's expectations of the monetary policy.

Moreover, due to the recent rapid rise in the yield of US bonds, the global financial market's valuation and revenue and the stock market fell sharply, which led to a general drop in commodities, a rapid decline in market risk appetite, and a significant correction in inflation expectations. In China, in April 2022, social financing increased by 910.2 billion yuan, 946.8 billion yuan less than the same period of the previous year. The large drop was contributed by the narrower increase in RMB loans of social finance which was 922.4 billion yuan less year-on-year. At the same time, the issuance scale of government bonds dropped significantly in April, so the support for social financing weakened. In April, the added value of industrial enterprises above the designated size decreased by 2.9% year-on-year (including 4.6% in the manufacturing industry and 31.8% in the automobile industry), and the total social retails dropped by 11.1% year-on-year, which was significantly lower than expected. On May 15, the People's Bank of China and China Banking and Insurance Regulatory Commission announced that the lower limit of the first home loan interest rate would be reduced to the corresponding term LPR minus 20 basis points. Besides, last Friday, the central bank lowered the quoted interest rate of the 5-year loan by 15 basis points to 4.45%, slightly exceeding the market expectation.

The fundamentals in China have not changed much. On the supply side, the maintenance of smelters is concentrated in May. CICC and Fuye extend the maintenance period, while Southeast Copper, Daye Nonferrous, and Zijin Copper also start maintenance in May. Therefore, domestic output in May is likely to record an annual low. The arrival of imported copper has increased. If the import window continues to open, the bonded zone inventory and LME Asian inventory will be sufficient. Tight sources of copper scrap brought difficulty in purchasing raw materials for downstream scrap users. While bare bright copper prices remained firm, the loss of secondary copper rod producers reached more than 500 yuan/mt.

On the whole, the global market is worried about the US Fed's aggressive tightening policy and the economic recession. In China, due to the pandemic outbreaks, the market risk appetite was declining, and the market generally held a bearish outlook for copper prices. However, domestic policies still get room to exert power, so the copper futures are likely to rebound.

The most-traded SHFE 2206 copper contract is expected to trade between 70,000-73,000 yuan/mt, and LME copper will trade between $9,000-9,500/mt.

In the spot market, this week, if the import window is still closed before the end of the long-term order in May, and the in-plant inventories of domestic smelters continue to drop due to their overhaul, the spot premiums will stay firm. Spot premiums are expected to move between 300-450 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.

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