SMM Copper Price Forecast for March 2023 from Supply-Demand and Macro Perspective

SHANGHAI, Mar 21 (SMM) –

Macro front:

Silicon Valley Bank announced bankruptcy on March 10 after its business was severely jeopardised by prolonged period of US interest rate hikes. Subsequently, the US Fed unveiled a new bank financing plan, and the Treasury Department said it would allocate $25 billion in support of this plan, leading the market to believe that the chance of the US Fed raising interest rates by 50 basis points in its March meeting would be zero. In the short term, the spillover effect of Silicon Valley Bank's collapse will be limited. In order to fight rising unemployment rate and financial risks, the US Fed will probably raise interest rates by merely 25 basis points in March, which will have limited impact on copper prices. Market sentiment will become neutral after panic sentiment is faded. In the medium and long run, considering that some US banks are still under tremendous liquidity pressure, the US Fed seems unlikely to tighten its monetary policy significantly. In addition, the impact of high inflation and high interest rates on the US economy is shifting from manufacturing and real estate sectors to consumption, which could steer the US Fed's monetary policy, thus befitting risky assets like copper.

Fundamentals:

Supply: The domestic copper production is expected to grow in March, but copper imports may fall steeply on a YoY basis as the import window has long been closed. Moreover, the current SHFE/LME copper price ratio will cripple the inflows of bonded copper into the domestic market. As such, copper supply looks set to tighten in March.

Demand: SMM estimates that the average operating rate of domestic copper processing enterprises will rise 7.96 percentage points MoM and 2.58 percentage points YoY to 72.59% in March. With the arrival of the peak season, copper consumption is poised to recover further.

Price forecast: The impact of macro factors will gradually recede. With inflation in the US in a downward trend, market players are betting on the US Fed to slow down interest rate hike again. Weak supply and seasonal demand recovery will drive copper stocks to drop, thus buoying up copper prices.

SMM sees the most-traded SHFE copper contract moving between 67,500-70,500 yuan/mt in March and LME copper between $8,700-9,150/mt.