In early August, US job data was lower than expected, and the market began trading on recession logic again. Copper futures were pressured by macro risk factors, with LME copper hitting a low at $8,714/mt and the most-traded SHFE copper contract falling to 70,630 yuan/mt. As recession sentiment faded and Chinese consumption improved following the price drop, copper cathode stocks declined significantly, leading to a rebound in copper prices. The US CPI YoY for July fell below 3%, making a rate cut in September almost certain. The US dollar fell rapidly, boosting copper prices, and SHFE copper once again approached 74,000 yuan/mt. Following the release of the US Fed's July monetary meeting minutes, the market confirmed that September would see the first rate cut, and the US dollar index hit a new low of 105.51 in 2024. Copper futures briefly broke through 75,000 yuan/mt at the end of August, but high copper prices once again suppressed downstream consumption, and without macro and fundamentals sides to support it, copper futures lost their gains.
On the fundamentals side, the August copper concentrate index remained at a low level, with multiple smelters reducing production due to tight supply of blister copper and copper anode. However, due to the rebound in sulphuric acid prices and the output from newly commissioned smelters in August, SMM China's copper cathode production recorded 1.0135 million mt, a drop of 14,700 mt MoM but exceeding the expected value by 10,100 mt.
On August 1, the Fair Competition Review Regulations officially came into effect. Secondary copper plants faced challenges, and tight secondary copper supply further exacerbated the shortage of blister copper and copper anode. The substitution of copper scrap by copper cathode was reflected in copper cathode rod consumption, and the operating rate of copper cathode rod plants turned better at the beginning of August. Consequently, copper cathode stocks declined significantly, and with the opening of the SHFE copper import window, bonded zone stocks also continued to deplete. However, it is notable that LME and COMEX stocks are still increasing, mainly in the Asian region for LME.
Looking forward to September, the US Fed rate cut is almost certain. Whether the Chinese market will implement RRR cuts and rate cuts is worth watching. Currently, recession expectations are not obvious, so macro pressures and benefits are expected to be limited in September. From a fundamental perspective, SMM China's copper cathode production for September is expected to be 1.0156 million mt, without significant reduction, indicating no apparent tightening in the supply due to the smelters' output cuts. September is traditionally a peak season, and consumption is expected to improve. The early September price drop and pre-holiday stocking for the Mid-Autumn Festival are likely to boost market consumption sentiment. However, downstream customers are sensitive to copper price volatility, and prices above 74,000 yuan/mt will suppress end-user orders. It is anticipated that copper prices in September will fluctuate rangebound at 70,500-74,500 yuan/mt, with attention to the support at 70,500 yuan/mt.
