Copper Prices Fell amid Resonating Macro and Fundamentals Fronts with Firm Rate Hike Stance in US and Europe

SHANGHAI, Sep 2 (SMM) - On the macro level, after the central banks of Europe and the United States expressed their firmness in reining high inflation, the commodity asset prices remained under pressure with an extensive correction. And the market is still digesting the hawkish information conveyed by the central banks. On August 29, Kazaks, the European Central Bank's governing committee member, said that the European Central Bank should raise interest rates by at least 50 basis points in September and reach a neutral interest rate in the first quarter of 2023. On August 30, New York Fed President Williams said that the Fed may need to raise its interest rate to over 3.5%, and interest rate cut next year is off the table, indicating that the Fed will resolutely fight against the excessive inflation. As such, the two-year U.S. Treasury bond yields hit a 15-year high. The US dollar continues to appreciate amid the Fed's tightening monetary policy and solid interest rate hike expectations, with the dollar index hitting a new high in nearly two decades. The value of commodities denominated in US dollars faced accumulating upward pressure. 

In terms of fundamentals, the supply of domestic copper cathode has shown signs of growth. In the short term, with the cooling weather in China, the smelters affected by the power restriction policy in east and central China have improved their production to varying degrees, and basically resumed normal production this week. In the medium term, according to SMM statistics, China's newly commissioned and newly expanded copper cathode capacity will reach 1.13 million mt/year, and most of which will gradually see their production entering the market in August, and more in 2023.

On the demand side, the recent impact of high temperature-induced power rationing continued to subside, while the release of downstream orders was not very smooth. The average operating rate of copper cathode rod producers stood at 66.65% as of the fourth week of August, a significant drop of 11.45 percentage points week-on-week. Rising copper prices last week weighed on downstream new orders. And high premiums also damaged the production enthusiasm of copper rod producers, with quite a few in south China suspending the production.

In terms of copper wire and cable, there are still companies in Sichuan and Chongqing shut down due to power cuts, and the terminal players are in a strong wait-and-see mood. The new orders from most wire and cable companies have been falling. Orders from enamelled wire companies have not changed much, and the overall performance is still sluggish.

The average operating rates of secondary copper rod producers added 2.03 percentage points week-on-week to 43.51% in the fourth week of August. Copper scrap supply picked up slightly last week as the scrap traders took profits after copper prices rose. Most secondary copper rod manufacturers could maintain the production with relatively sufficient raw materials. However, the sluggishness in the demand for copper cathode will not improve amid the recovery in the operating rates of secondary copper rods.