How did the domestic spot copper market perform in the week before the US Fed's interest rate meeting? [SMM Analysis]

Macroeconomically, the US August CPI year-on-year rate significantly declined from the previous value, increasing market expectations of an economic slowdown. Economic data, especially manufacturing data, continued to drag down US Treasury yields throughout the week. The 10-year US Treasury yield once dipped to the 3.60 mark, hitting its lowest level since June 2023. In Europe, the Eurozone central bank cut the benchmark interest rate by 25 basis points in September due to the continued sluggishness of the German economy, with the main refinancing rate cut by 60 basis points. Although the ECB still maintains the rhetoric of high inflation in 2024, this decision to narrow the interest rate corridor also indicates signs of economic activity under pressure. In China, the August CPI showed some recovery compared to the previous value. However, pessimistic expectations for Q3 GDP growth have made it difficult to implement current policies aimed at deleveraging and deflating bubbles. Last week, macro sentiment was relatively subdued, and copper prices slightly rose before the US Fed's rate cut. LME copper hovered around $9,000-9,100/mt at the beginning of the week and rose to $9,250/mt by the end of the week. SHFE copper fluctuated between 72,000-73,000 yuan/mt at the beginning of the week and briefly surged above 74,000 yuan/mt by the end of the week.

In foreign trade, the market's spot premiums widened significantly before the holiday, with the overall focus remaining stable. Mainstream fire method September early bill of lading offers were around $65-78/mt, with actual transaction premiums falling at $60-72/mt. The main reason for the widened price spread was that some pre-holiday delivery sources were eager to sell due to high dollar funding costs, and holders were unwilling to bear the holding costs during the holiday. However, from the EQ copper offers, the market still holds a bullish view on subsequent premiums. Last week, the focus of EQ copper prices continued to increase compared to before, with actual transaction premiums falling at $35-43/mt.

In the domestic market, SHFE copper's contango structure turned into a backwardation structure last week. Due to the concentrated inflow of 50,000 mt of imported copper last week, holders were noticeably active in selling, and spot premiums were under pressure to fall. However, the decline in premiums does not equate to poor downstream consumption. On the contrary, domestic social inventory continued to accelerate compared to before. Downstream processing enterprises showed a clear sentiment of restocking at low prices, with pre-holiday stocking volumes increasing, indicating significant demand elasticity.

Looking ahead, after the Mid-Autumn Festival, the US and Japanese central banks will start their interest rate meetings. After the narrowing of the interest rate differential between the US and Japan, it is expected that the previously carried trade funds will still withdraw, and the US dollar index may rebound after its continuous decline. Under the influence of capital sentiment shifts, futures copper may be under pressure. Fundamentally, after the Mid-Autumn Festival, it will be the last trading day for the SHFE copper 2409 contract, and after SHFE copper turns into a backwardation structure, domestic shipments are expected to continue increasing. The supply-demand imbalance in some regions has already emerged, and this situation is expected to expand further in the future.