Central Banks Hawkish Language Continue To Weigh On Copper Prices

Stronger-than-expected economic data released last week, including new home sales in May, durable goods orders in May and the consumer confidence index in June in the US pointed to a strong US economy. Powell said at the ECB Forum on Central Banking last Wednesday that there may be several interest rate hikes in the future in the midst of strong economic data, and another aggressive interest rate hike to curb inflation is not ruled out. In this scenario, the US dollar rebounded to the 103 mark last week, weighing on copper prices. The European Central Bank also showed a hawkish attitude at the Forum. ECB President Lagarde stated that "unless there are major changes, we will continue to raise interest rates in July." The euro is expected to contain the US dollar for the foreseeable future. Japan, which has always insisted on easy monetary policy, also expressed an aggressive stance. Bank of Japan Governor Kazuo Ueda said that if the BOJ determines that inflation is likely to accelerate after 2024, it will adjust the YCC by the end of this year at the earliest. Any adjustment of the YCC at the end of the year will restrain the dollar.

In China, the boost from macroeconomic sentiment to copper prices has faded. On the other hand, China's political and economic macro environment is improving. There have been continuous positive macroeconomic policies for the real estate industry. And at the Davos Economic Forum, participants were still optimistic about China’s economic prospects. China’s official manufacturing PMI released last Friday rebounded slightly. On the fundamental front, as of Friday June 30, social inventory of copper cathode increased by 15,900 mt from June 21 to 99,100 mt due mainly to the inflows of imported copper and mid-year stock liquidation. Nonetheless, copper cathode inventories remained at a historically low level, and there will still be some support for copper prices in the short term.

The continuous hawkish tone of the Federal Reserve has led to a rebound in the US dollar index, increasing expectations of a Fed rate hike in July.  In China, more favourable policies are in the pipeline, and this will push copper prices higher. In terms of fundamentals, new orders at downstream processing enterprises rebounded when copper prices went down, and consumption remained relatively resilient. Copper prices will continue to fluctuate in a wide range in the near term.

The most active SHFE copper contract prices are expected to move between 66,500-69,000/mt this week, and LME copper will trade between $8,150-8,500/mt. Spot trades will be affected by the price spread between the SHFE front-month and SHFE next-month copper contracts this week, which has expanded further. Spot premiums will stand between 380-520 yuan/mt this week.