Bank of Japan's Raising YCC Last Week Hit the US Dollar, and Copper Prices Rise First and then Fall

SHANGHAI, Dec 26 (SMM) - The interaction went on among global financial systems last week. The Bank of Japan announced to expand the range of yield curve control (YCC), which led to a surge in the exchange rate of the yen against the US dollar and the yields of global bonds. The decline in the US dollar was bullish for risk assets. The most-traded SHFE copper once ballooned to above 66,000 yuan/mt last week. The US annualised GDP in the third quarter of 2022 rose 3.2% after adjustment. Last week, the lower-than-expected rebound in the number of US initial jobless claims highlighted the market’s expectations for the US Fed's hawkish rate hikes again. European Central Bank officials said that 50 basis points of rate hikes may become the "new norm". The short-term exchange rate of the euro against the US dollar will still be constrained. In China, on December 22, the central bank carried out reverse repurchase operations of 4 billion yuan for seven days and 153 billion yuan for 14 days, achieving a net investment of 155 billion yuan, to maintain the stable liquidity at the end of the year. However, after the market digested a number of favourable policies that were issued earlier, the macro sentiment has weakened marginally under the impact of the COVID-19 outbreaks recently.

On the fundamentals, arrivals of domestic and imported copper were limited last week. SMM survey showed that copper inventory in the major markets across China dipped 5,700 mt from last Monday to 76,200 mt as of last Friday, which was 18,100 mt lower than the previous Friday and hit the new low since the National Day holiday in 2022. The extremely low inventory pushed up the spot premiums and supported the copper prices. Consumption did not improve owing to the spread of COVID-19 outbreaks. The operating rates of copper cathode rod producers dropped again last week. With the increase in COVID-19-infected cases in China, the supply and demand of copper will weaken further. LME inventories hovered around 80,000 mt, and the discounts narrowed last week. The LME will be closed this Monday, this Tuesday and Friday as the overseas countries began their Christmas-New Year holidays last weekend, thus the market trading will be sluggish this week.

The most-traded SHFE copper is expected to move between 65,000-66,500 yuan/mt this week, and LME copper will trade between $8,250-8,380/mt.

In the spot market, in the last trading week of 2022 this week, the traders will begin to quote with next-month fapiao (Chinese invoice). Around the year-end, the transactions will remain slack, and the market will mainly hear inquiries only. Domestic inventory will remain low as the arrivals of domestic and imported copper will be limited in the short term. According to SMM research, cargo holders held their prices firm last week. The spread between the SHFE front-month and next-month contracts stood at around 40-60 yuan/mt in the backwardation structure, and the spread between cargoes with front-month and next-month fapiao was 60-80 yuan/mt. SMM predicts that the spot premiums will be 380-500 yuan/mt this week.