LME Copper Surge to $9,400/mt, a Seven-Month High, boosted by Bulls

SHANGHAI, Jan 20 (SMM) - IMF president said that the consecutive downgrades of global economic growth expectations are over, and global economic growth will bottom out by the end of 2023. In China, the GDP exceeded 120 trillion yuan in 2022, up 3%. In the fourth quarter of 2022, the GDP added 2.9% year-on-year, higher better than the average market expectation of 1.9%. In addition, the National Development and Reform Commission (NDRC) stated that after the Chinese New Year, it will intensively issue a batch of central budgetary investment to support the construction of new infrastructure projects, in addition to local government special bonds. Recently, the domestic economy has picked up as expected, thus the overseas institutions are optimistic about the prospects of China's economic growth. And copper prices rose.

On the fundamentals, as of January 16 (the last week before Chinese New Year), SMM copper inventory across major Chinese markets added 18,700 mt from last Friday to 154,200 mt. The total inventory was 63,800 mt higher than in the same period last year when the figure was 90,400 mt. However, as the visible inventory of LME and COMX dropped, SHFE copper failed to catch up with the growth of the prices in overseas markets despite the bullish macro factors in the mid and long-term. Overseas capitals traded the anticipation of growing copper consumption by China in the mid and long-term. LME copper prices surged as the higher proportion of LME cancelled warrants intensified the overseas supply tightness.

After the Chinese New Year (CNY) holiday, most Chinese smelters will be enthusiastic about production owing to high profits, but the demand may hardly improve greatly in the short term. The mainstream smelters will be more willing to export amid considerable profits, hence the possibilities of the inventory accumulating after the Chinese New Year will decrease. In terms of SHFE copper, the actual demand is poor while the expectation is strong, and the contradiction between supply and demand is not prominent. It is expected that the prices will drop after surging stimulated by the increased liquidity. SHFE copper prices will still be lower than the prices in overseas markets. It is necessary to pay attention to the annual rate of the US December core PCE price index (released at 21:30 on January 27), which may guide the Fed’s February meeting. The most-traded SHFE copper is expected to move between 68,500 -71,200 yuan/mt after the Chinese New Year, and LME copper will trade between $9,100-9,400/mt.

It is expected that the spot premiums will rise first and then decrease after the CNY holiday. According to the cash cost of 10 yuan/mt per day, the cargo holders can only gain profits when their spot premiums are more than 100 yuan/mt. But the premiums will bear downward pressure since the demand from the processing companies can hardly improve before February 5. SMM expects the premiums to move between -0-120 yuan/mt post CNY holiday.