At the beginning of last week, new policies were introduced in China’s real estate sector, and favorable policies for the housing market pushed up SHFE base metals prices, with the most-traded SHFE copper contract touching a high of 85,880 yuan/mt. On Thursday, SHFE base metals prices declined. The short squeeze in COMEX copper dissipated as LME copper inventories continued to increase, narrowing the price spread between the COMEX most-traded copper contract and the LME 3-month copper contract. Negative feedback from the demand side became prominent, with LME copper price falling all the way to around $10,000/mt, and the most-traded SHFE copper contract falling below 83,000 yuan/mt. The US Fed released the Beige Book on economic conditions, predicting moderate goods price increases. Fed officials remained cautious about future rate cuts, and US Treasury yields rebounded. However, due to the continued slowdown in inflation, the market still expects one rate cut within the year.
In the eurozone market, the April unemployment rate fell more than expected, boosting market confidence. The ECB is likely to cut rates this week, and the euro's rise against the dollar pushed the US dollar index higher, putting further pressure on copper prices. In the Chinese market, the State Council issued new policies to strictly control new smelting capacities for copper and alumina, but the market had already priced in this, providing limited support for copper prices.
On the fundamentals side, the downward trend in copper concentrate TCs temporarily slowed. Domestic smelters, which had been active in exports previously, gradually delivered cargoes to warehouses. Inventories in LME Asian warehouses accumulated over 8,000 mt during the week, and the SHFE/LME copper price ratio showed signs of recovery, with trade in the imported copper market picking up. Spot premiums in Shanghai first declined and then rose during the week. At the beginning of the week, with high copper prices, domestic inventories continued to accumulate by 19,000 mt. After the mid-week price decline, downstream orders significantly improved. Due to a bearish sentiment, sellers were holding back goods and raising prices, with spot discounts returning to below 200 yuan/mt.
This week, several countries will release the final PMI for May. Before the ECB rate cut decision and the release of US unemployment and non-farm payrolls data, the market is expected to remain cautious. However, the current resilience of inflation will keep the US dollar index running high. Under bearish sentiment, copper prices may fall, with LME copper expected to trade between $10,000-10,300/mt and SHFE copper between 80,500-83,500 yuan/mt. In the spot market, as copper prices fall, the contango of the SHFE front-month contract against the next-month contract will narrow. With increased downstream purchasing sentiment, sellers may raise their offers. Spot discounts against the SHFE 2406 contract are expected to be between 200-50 yuan/mt.
The SMM copper price forecasting model predicts the price range for the most-traded copper contract's closing price to be [83,925, 90,555], with an average of 86,660 yuan/mt. The unit is yuan/mt. The extreme price range is [81,920, 92,310], the normal price range is [83,260, 91,140], and the conservative price range is [84,590, 89,970]. Price is expected to be sideways or consolidate weakly. The support range is [83,260, 84,590], and the resistance range is [89,970, 91,140].
