Copper Prices Continued to Rebound with the Support of Fundamentals

SHANGHAI, Aug 8 (SMM) - The US Fed raised the federal funds rate by 75 basis points to 2.25-2.5% in July. According to the dot plot published in June, the interest rate at the end of 2022 will be 3.4%. The market now expects the Fed to raise the interest rate by 50 basis points in September and 25 basis points each in November and December.  Last week, Fed officials expressed their hawkish views on the subsequent interest rate hikes and the potential path of an interest rate cut in 2023, reiterating that anti-inflation was still the most important task. In July, the initial value of manufacturing PMI in Germany and France fell below 50, while the Chicago PMI in the US was 52.1, which was also significantly lower than the previous value and market expectation. In China, the PMI of the manufacturing industry in July stood at 49, alluding the downward pressure from the pandemic situation and shrinking demand. Therefore, China continues to promote the easing monetary policy.  At the meeting of the Political Bureau of the Central Committee, it was proposed that macro-policies should actively boost the demand. In response to the loan suspension in the real estate industry, a package of orders was introduced to promote the healthy and sustainable development of the platform.

On the supply side, the SMM survey showed that China's copper cathode output in July was 840,000 mt, down 2% MoM but up 1.1% YoY. Domestic smelters were still under maintenance in July, and the overhaul of Jinchuan, Nanguo and Chifeng Jintong cast a great impact on the output. However, the main reasons for the sharp drop in domestic output were the technical upgrade of some smelters and the tight supply of blister copper. In August, except for some smelters' short-term extended maintenance plans and technical upgrade, the others have basically resumed their production. With the commissioning of Fuye headquarters and its companies in Jiangxi, the combined output is expected to hit 900,000 mt in August, but it is still necessary to be alert to the potential production cut caused by the tight supply of blister copper. On the demand side, due to the investment from the State Grid, orders of medium and high voltage cables rose in mid-July, and the operating rates of wire and cable and copper rod companies were higher than that in June. In addition, the shrinking supply of copper scrap stimulated the consumption of copper cathode rods.

Last week, the direction of nonferrous metal prices was basically manipulated by macro factors. However, copper prices rebounded strongly amid the low domestic and overseas inventories and rising premiums in bonded zones as well as expanding LME cash-to-three-month premiums. SMM believes that the prices may continue to rebound before the tightness on the fundamentals is relieved. In the long term, the idea of short selling on rallies still suits the market. The most-traded SHFE 2209 copper contract is expected to move between 58,000-61,000 yuan/mt, and LME copper will trade between $7,600-7,900/mt.

As for the spots, the market will gradually enter the delivery cycle this week, and it is expected that the premiums will fall further based on the spread between the front-month and next-month contracts. Spot premiums are expected to move between 50-250 yuan/mt this week.