Copper prices fell before moving rangebound last week

In the week ending January 19, the US dollar exceeded 103. LME copper prices fell below the $8,300/mt mark. SHFE copper prices fluctuated within a narrow range. The US PPI in December was down 0.1% month-on-month, and has not increased for three consecutive months. The market expectations for the Federal Reserve to cut interest rates in March strengthened, and US bond yields fell below 4.0%. The US dollar generally fluctuated little. US stocks fell in the middle of the week, and the US dollar rebounded sharply to above 103 amid cooling expectations of interest rate cuts; copper prices were under significant pressure. The European Central Bank maintained its hawkish remarks during the week, and interest rate cuts did not seem to be on the agenda; the eurozone's December CPI data was flat from the previous reading, having little impact on the market. The euro fell significantly against the US dollar in the second half of the week.

China's Medium-term Lending Facility (MLF) in January increased with the rate remaining unchanged. Loan Prime Rate (LPR) is unlikely to be lowered. However, the market still had expectations for an interest rate cut in the future. China's GDP growth rate for the whole year of 2023 was 5.2%, which met the target of about 5% at the beginning of the year. The State Council Information Office said at a press conference that the national economy rebounded in 2023, giving the market confidence. However, A-shares fell below 2,800 points, which caused some pessimism in the market. This, combined with the pressure from the US dollar, lowered copper prices. Copper concentrate TCs continued to decline. The expectations of tighter supply of copper concentrate underpinned copper prices. During the week, SHFE copper prices fell to 67,500-68,000 yuan/mt, narrowing the price spread between copper cathode and copper scrap. Copper cathode thus obtained advantages. According to SMM survey, some downstream companies shut down and some restocked when copper prices and premiums were low.

In the week of January 22, China's latest LPR is expected to remain unchanged. The Bank of Japan's previous interest rate hike plans are not expected to be realised in January. The core PCE of the US in December will be a market focus. On fundamentals, downstream companies have closely monitored copper prices and started stocking up cargoes in the recent two weeks. The narrower price spread between copper cathode and copper scrap boosted copper cathode consumption. During the week, the inventory of China’s mainstream warehouses declined. Copper prices will lack ability to rebound sharply. LME copper is expected to trade between $8,250-8,400/mt in the week of January 22 and SHFE copper prices will fluctuate between 67,200-68,300 yuan/mt. The spot market may gradually turn into a buyer's market, with spot discounts of 50 yuan/mt to premiums of 150 yuan/mt.