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Overseas Monetary Tightening Policy Continued to Advance, and the Shorts still Controlled the Copper Market
Jul 11, 2022 09:54CST
Source:SMM
Last week, shorts still controlled the market, and copper prices bottomed out.

SHANGHAI, Jul 11 (SMM) - Last week, shorts still controlled the market, and copper prices bottomed out. Before the minutes of the June meeting of the Fed came out on Thursday, the US dollar index maintained strong momentum, and prices of global industrial products, led by the crude oil, plunged. US dollar index rose day by day from above 105 at the beginning of the week to 107.27 on Thursday night, hitting a nearly 20-year high. Overseas, Powell emphasised the Fed's commitment to control the inflation at 2% at the European Central Bank Forum. President of the European Central Bank reiterated the interest rate hike of 25 basis points in July, and his attitude became tougher. The resignation of British Prime Minister Johnson further confirmed the interest rate hikes in Britain. In China, in June, local governments issued new special bonds of 1.37 trillion yuan, creating a monthly high. As of June, special bonds of 3.4 trillion yuan had been issued. Meanwhile, the government mentioned that the funds raised should be used up before the end of August. Pandemic in Shanghai, Anhui, Wuxi, Xi'an and other places cast a negative impact on the domestic economy.

On the fundamentals, smelting profits were considerable, so the overhaul of smelters in the third and fourth quarter decreased compared with the same period last year. On the demand side, the investment plans of State Grid have been executed, and the orders in wind power, new energy automotive wiring harness and other industries have improved. In July, orders of wire and cable will improve significantly MoM. Moreover, the production of copper cathode rod producers was sufficient last week while some secondary copper rod producers suspended their production due to the poor cost efficiency of copper scrap. The overall operating rates of copper semis producers rose, but the terminal consumption of copper tube, plate/sheet and strip weakened. The overseas monetary tightening policy continued to advance. The index of economic prosperity dropped significantly, and the market risk appetite went down further, thus the expectations of declining transactions dominated the market, and copper prices remained rangebound at low levels. In China, after the pandemic, the domestic demand rebounded more weakly than expected, and the inventory of main industrial varieties did not decrease quickly. However, the policy support was expected to be strong, especially in infrastructure and automobile consumption. The domestic copper prices will rise when the terminal consumption improves. The most-traded SHFE 2208 copper contract is expected to move between 57,000-60,000 yuan/mt, and LME copper will trade between $7,600-7,950/mt.

In the spot market, the overall supply was still tight, and the premiums stopped falling and stabilised due to the traders’ restocking. The market shall keep an eye on the guidance of the spread between the front-month and next-month contracts on the premiums and the downstream restocking after the futures prices continued to decline. In the short term, the premiums may stabilise. Spot premiums are expected to move between 80-150 yuan/mt this week. The market will enter the delivery cycle this week, so the downstream purchasing based on the spread between the front-month and next-month contracts and the wild fluctuation in futures prices is of utmost concern, and the premiums will continue to fall slowly. Spot premiums are expected to move between 0-100 yuan/mt this week.

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