Copper Prices Fell amid the Declining Market Risk Appetite

SHANGHAI, Jul 13 (SMM) - In June, the market was in anticipation of the sharp interest rate hikes in the Europe and US and the global economic recession, and the shorts completely took over the commodity market. Copper prices dropped from 72,000 yuan/mt to around 56,000 yuan/mt and then rebounded. Before the minutes of the June meeting of the US Fed came out on July 7, 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 to 107.27, hitting a nearly 20-year high. The PMI index of the manufacturing industry in the Europe and the US all fell, which aggravated the market's expectation of an economic recession. US non-farm payrolls that was better than expected failed to prevent the market trading from declining. In China, in June, local governments issued new special bonds of 1.37 trillion yuan, creating a monthly high. As of June, a total of 3.4 trillion yuan of special bonds had been issued. Meanwhile, the government mentioned that the funds raised should be used up before the end of August. On June 30, the executive meeting of the State Council decided to use policy and development-oriented financial instruments to raise 300 billion dollars. However, the market was still pessimistic due to the pandemic situation.

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. Therefore, orders received by wire and cable companies in July will improve significantly from the previous month. Moreover, production schedules of copper cathode rod producers will be sufficient as some secondary copper rod producers have suspended the production due to the poor cost efficiency of copper scrap. The overall operating rates of copper semis producers rose somewhat, while the terminal demand of copper tube, plate/sheet and strip weakened.

Generally speaking, the overseas monetary tightening policy continues 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 is 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 copper contract is expected to trade between 56,500-60,500 yuan/mt, and LME copper will trade between $7,500-7,950/mt.