SHFE Copper Prices Staged Five-Day Losing Streak against Lower Manufacturing Prosperity and Demand Concerns

SHANGHAI, Jan 5 - Dragged down by China's poor economic data in November and concerns about global demand, SHFE copper prices post a five-day losing streak. As of 11:19 a.m. on January 5, 2023, SHFE copper prices fell 1.52% to 64,050 yuan/mt.

China's official Manufacturing Purchasing Managers Index (PMI) in November 2022 was 47%, compared with the expected 48%, and 48% in October. China's unofficial manufacturing PMI in November was 41.6%, compared with the expected 45%, and 46.7% in October. The composite PMI in November was 42.6%, and the figure in October was 47.1%.

The PMI in December was 47%, compared with the expected 48%, a decrease of 1 percentage point from the previous month, which fell short of market expectations, according to the research report of Donghai Futures. The COVID-19 pandemic has caused another impact on the domestic economy. The new order index stood at 43.9%, down 2.5 percentage points month on month, as demand continued to weaken. The production index stood at 44.6%, a decrease of 3.2 percentage points on the month, reflecting that manufacturing continued to fall. In terms of foreign trade, the import and export index dropped slightly, and stood at 44.2% and 43.7%, respectively, down 2.5% and 3.4% from the previous month. Overseas demand has weakened, while domestic demand continued to slow down due to the impact of the COVID-19.

But the good news is that the resumption of subway use in major Chinese cities is sending a strong signal that the Chinese economy is recovering from the COVID-19-induced pause. "However, this is not being felt in the copper market amid fears that both the US and European economies are headed for recession. And the latest PMI data from China points to further declines," said Giles Coghlan, an analyst at brokerage HYCM.

The decline in China's demand for imported copper can also be reflected in Yangshan copper premiums.

SMM reported that Yangshan copper premiums with a quotation period in January stood at $20-35/mt (B/L) as of January 4, and the average premium stood at $27.5/mt, flat from the previous trading day. Yangshan copper premiums (B/L) hit a high of $146/mt on October 19, 2022 before falling amid wakening market sentiment and unfavourable SHFE/LME copper price ratio. In early November 2022, with the occasional opening of the long closed import window, the average daily Yangshan copper premium (B/L) once rebounded slightly. However, the rebound was so small that the average daily premium failed to exceed the eight-year high of $146/mt. Meantime, the highest daily average premium was $135/mt hit on November 4, 2022. Since then, it has continued to decline. As of January 4 2023, the average daily Yangshan copper premium (B/L) was $27.5/mt. This is down $118.5/mt or 81.16% from $146/mt registered on October 19, 2022.

The recent increase in shipments from smelters at the end of the year and poor downstream consumption have also increased copper inventories. As of January 3, copper stocks in mainstream markets surveyed by SMM increased by 11,300 mt from December 30 to 109,300 mt, and the total inventory was 14,400 mt higher than the 94,900 mt in the same period last year. The inventory increased across all the major markets during the New Year's Day holidays.

The impact of the COVID-19 pandemic on downstream copper processing enterprises continues to exist. Although the infection rate of COVID-19 in some areas has passed the peak and the on-duty rate of workers has risen, more areas have not yet seen the peak and the operating rate is still low. In addition, some end-user companies have shut down for Chinese New Year holidays and their orders decreased, which also drove social copper inventories higher. At present, copper inventory is on the rise, even as the closure of the import window has prevented the inflows of imported copper. The social inventory base is still at a low level, though.