Copper Prices may Remain High amid the Tight Supply

SHANGHAI, Aug 22 (SMM) - Last week, the minutes of the US Fed meeting in July was released, and the market did not see anything too hawkish in it. Officials reached a consensus on the tightening monetary policy, but they also considered tempering the rate rises in the future. The performance of economic data varied. In July, the US industrial output and manufacturing output rose month-on-month, which were better than expected. The US real estate market continued to weaken, with floor space of new housing starts falling 9.6% and the number of building permits declining 1.3% to 1.67 million in July. The New York Fed Manufacturing Index in August dropped sharply to 31.3, the lowest since May 2020, which made the market hesitant about the Fed's interest rate hikes in September. And the CME FedWatch Tool shows that the probability of raising the interest rate by 50 basis points is less than 60%. Before the meeting on interest rates in September, important indicators such as the US inflation index in August, the employment report in August, and Powell's speech at the annual global central banking conference in Jackson Hole on August 26 are going to be released, which will better guide the market to forecast the next moves of the US Fed. In China, the financing data in July fell short of expectations, and so did the national economic data, which indicated the pressure on the domestic economy in the context of pandemic outbreaks and the sluggish real estate industry. The central bank cut interest rates beyond the expectations, and the government urged some provinces with better economic development to play a key supporting role in stabilising the economy.

On the fundamentals, due to the continuous hot weather in China, the influence of power rationing on smelters is extending. SMM presumes that the output of smelters in Hubei, Anhui, Jiangsu, and Zhejiang in August may be reduced by 30,000-40,000 mt. The volume of goods under the bill of lading arriving at ports last week was small even though the import window opened. The consumption of copper was boosted by the infrastructure and new energy industry, as well as the low cost efficiency of copper scrap. Both social and bonded zone inventory in China declined, and the shortage of supply was unlikely to ease in a short time.

In short, copper prices may remain high amid the mild macro front and the tight supply, and the market is unlikely to see a short-term sharp decline in the prices. The most-traded SHFE copper is expected to move between 61,000-63,500 yuan/mt this week, and LME copper will trade between $8,000-8,300/mt.

In the spot market, before the impact of the power cut on domestic copper production is lifted, the extremely low spot inventory has enabled the traders to raise the premiums to a high level. However, downstream companies that maintained low operating rates due to the power rationing were less willing to accept the high premiums. SMM predicts that before the finish of long-term orders, the domestic premiums will hover around high levels because of the wrestling between buyers and sellers. Spot premiums are expected to move between 500-600 yuan/mt this week.