SMM Review of LME Copper during the National Day Holiday

SHANGHAI, Oct 9 (SMM) - During the National Day holiday, LME copper rose first and then fell. As of October 7, LME copper closed at $7,462/mt, down $96/mt or 1.27% from $7,558/mt on September 30.

Three days before the holiday, LME copper rebounded continuously under the support of the continuous decline of the US dollar index, with the highest price of $7,879/mt. The Bank of England unexpectedly announced unlimited temporary bond purchases, and the US manufacturing PMI was lower than expected. The Chinese government released a signal to stabilise the real estate on the last day before the holiday. The above-mentioned factors are the reasons for the decline in the dollar. However, oil prices continued to rise due to OPEC's unexpected production cuts, and the US non-farm payrolls data for September released on Friday exceeded expectations. The Fed reiterated that it will insist on raising interest rates until inflation falls, which made the dollar rise again, and LME copper fell under pressure.

In terms of fundamentals, LME copper inventories added 8,525 mt to 143,775 mt during the National Day, while COMEX copper inventories dipped 278 mt to 44,653 mt. During the holiday, domestic inventory in Guangdong only rose 4,525 mt to 10,502 mt, the smallest increase in the past four years, while in the same period last year the inventory grew 6,424 mt. Considering that downstream consumption in Guangdong was much weaker than that in east China during the National Day, it is expected that the growth rate of inventory in east China will be slower. The low global inventories supported copper prices to a certain extent, and domestic inventories did not grow significantly. The short squeeze will continue before the delivery of the SHFE 2210 copper contract. In addition, the London Metal Exchange (LME) has restricted Russia's Ural Mining and Metallurgy Company (UMMC) and its subsidiaries from new copper and zinc deliveries, which are expected to flow into China in the future.

Domestic inventories are expected to increase. On one hand, the supply of copper concentrate is sufficient and the TCs continue to rise, thus the smelters are active in producing. On the morning of September 27, CSPT nailed the TCs of spot copper concentrate in the fourth quarter at $93/mt and $0.093/lb, $13/mt higher than that of the third quarter, creating a new high since the fourth quarter of 2017. On the other hand, it is expected that domestic consumption will recover slightly in the fourth quarter.

To sum up, SMM believes that copper prices will remain rangebound at high levels in the short term, especially before the delivery of the SHFE 2210 copper contract. However, as inventories rise and the US Fed sticks to a hawkish rate hike, the European economy is expected to recess first in winter, and the global economic growth will further slow down. At that time, copper prices may fall further under pressure.