SHANGHAI, Sep 16 (SMM) - From a macro perspective, since Fed Chairman Powell delivered a hawkish speech at the Jackson Hole central bank annual meeting, other US Fed officials have also expressed their firmness to fight extremely high inflation. The recently released US August CPI and core CPI data unexpectedly beat market expectations, igniting fears that the US Fed will maintain a hawkish stance over interest rate hikes for a longer period of time. At present, the US Fed’s swap transactions have fully priced in a 75 basis point hike in interest rate in September. Whether the Fed will raise the upper limit of the federal funds rate for a second time at its September meeting is also a particular concern of the market. The US dollar will remain firm. Other central banks' interest rate hikes, such as the European Central Bank's hike in three key interest rates by 75 basis points in September, will bring short-term pressure to the US dollar, thus adding to the volatility of copper prices. The macro environment in China is relatively optimistic. The financial data improved in August, especially the medium and long-term credit, which showed obvious recovery. The domestic demand has begun to recover, but the willingness of enterprises and residents to save continued to rise. Zhengzhou City, Henan Province, held a meeting with property developers to ensure the full resumption of suspended housing projects, boosting market confidence.
In terms of fundamentals, LME copper inventories kept falling, and are currently around 100,000 mt. The LME copper cash-to-three-month backwardation hit a new high since the end of November last year, reflecting tight supply in the spot market. Potential supply disruptions have also worried the market after news that workers at Chile's Escondida copper mine, the world's largest copper mine, threatened to strike due to safety concerns. In China, copper smelters in some regions have returned to normal operating levels after the power rationing was lifted, but those in Jiangxi and Inner Mongolia are still disturbed by the pandemic. It remains to be seen how rapidly the demand will recover in the traditional peak season. Copper scrap supply will remain tight, while copper inventory is at a low level. As of September 13, SHFE copper inventory under warrants stood at merely 3,224 mt, while the open interest of the front-month contract was at a staggering high of 14,550 lots.
While the macro risks have abated when compared with August, hawkish stance of the US Fed will put pressure on copper prices in the medium and long term. The Fed's September FOMC meeting will deserve close attention. Tight supply should sustain copper prices at highs in the short term. It is expected SHFE copper and LME copper will run between 60,000-64,500 yuan/mt and $7,500-8,100/mt in September.
