Domestic Copper Inventories Likely to Reverse After Two Weeks of Consecutive Increases; Macro Front May Continue to Weigh on Copper Prices [SMM Commentary]

Published: Jan 3, 2025 19:22

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[SMM Commentary: Domestic Copper Inventories Likely to Reverse After Two Weeks of Consecutive Increases; Macro Front May Continue to Weigh on Copper Prices] The number of Americans filing new claims for unemployment benefits last week fell to an eight-month low, which the market interpreted as a sign of a still-resilient US job market. Coupled with concerns that the US Fed may adopt a more cautious approach to interest rate cuts in 2025 and that US tariff policies could exacerbate inflation and limit rate cuts, the US dollar index has recently hovered at a high level of 108, reaching a more than two-year high of 109.56 on January 2. Market concerns over macro uncertainties in 2025 and weakening end-use demand for copper have both put pressure on copper prices. As of 16:58 on January 3, LME copper rose by 0.06% to $8,808/mt, while its weekly performance showed a temporary decline of 1.94%. SHFE copper fell by 0.52% to 72,920 yuan/mt, with a weekly decline of 1.92%.

SMM January 3 News: The number of Americans filing new claims for unemployment benefits last week fell to an eight-month low, interpreted by the market as a sign of a resilient US job market. Coupled with concerns that the US Fed may adopt a more cautious approach to interest rate cuts in 2025 and that US tariff policies could exacerbate inflation, potentially limiting rate cuts, the US dollar index has recently hovered around the high level of 108. On January 2, the US dollar index hit a more than two-year high of 109.56. Market concerns over macro uncertainties in 2025 and weakening copper end-use demand have pressured copper prices. As of 16:58 on January 3, LME copper rose 0.06% to $8,808/mt, while its weekly decline stood at 1.94%. SHFE copper fell 0.52% to 72,920 yuan/mt, with a weekly decline of 1.92%. 》Click to View SMM Futures Data DashboardFundamentalsSMM Copper Inventories in Major Regions Nationwide Increased for Two Consecutive WeeksDomestic Inventory: As of Thursday, January 2, SMM copper inventories in major regions nationwide increased by 1,200 mt from Monday to 114,300 mt, up 8,900 mt WoW, marking the second consecutive weekly increase. Compared to Monday's inventory changes, most regions saw an increase, with only Jiangsu and Tianjin experiencing slight declines. Total inventory was 37,400 mt higher YoY compared to 76,900 mt in the same period last year. Specifically, Shanghai's inventory increased by 300 mt from Monday to 79,100 mt, mainly due to continued arrivals of imported copper. Jiangsu's inventory decreased by 1,800 mt to 18,800 mt, primarily due to lower arrivals of domestic copper. Guangdong's inventory increased by 3,500 mt to 10,000 mt, reflecting significantly weakened downstream consumption in the region, as evidenced by the continued decline in Guangdong's daily outflows from warehouses.》Click to View DetailsLME Copper Inventory: LME copper inventories stood at 269,800 mt on January 3, down 2,925 mt compared to 272,725 mt on December 27.COMEX Copper Inventory: COMEX copper inventories were 93,372 short tons on January 2, down 2,266 short tons compared to 95,638 short tons on December 26.Most Copper Cathode Rod Plants Conduct Maintenance During New Year Holiday; Copper Wire and Cable Enterprises' Weekly Operating Rates Decline for Four Consecutive Weeks》Click to View SMM Metal Industry Chain DatabaseCopper Cathode Rod: This week, SMM surveyed the production and sales of major medium and large copper rod enterprises in China. Overall, operating rates declined MoM, falling short of expectations (surveyed enterprises: 21, capacity: 8.13 million mt). Spanning the year-end period of 2024-2025, most enterprises focused on cash recovery and scheduled maintenance, with varying degrees of production cuts and shutdowns. During this period, downstream order placement and picking up goods also slowed, leading to a sharper-than-expected decline in operating rates.》Click to View DetailsWire and Cable: This week, SMM copper wire and cable enterprises' operating rates declined both YoY and MoM. Compared to expected operating rates, they were only 0.36 percentage points higher, aligning with seasonal weakening expectations. As the year-end approached, market purchasing enthusiasm waned, and order volumes significantly decreased. Although 2025 has begun, the sharp drop in copper prices has led most customers to adopt a wait-and-see approach. Orders accumulated into 2025 have yet to be significantly released, and the market remains focused on copper price trends.》Click to View DetailsOutlookMacro Front: Domestic: Next week, attention will focus on China's December CPI and PPI data, as well as potentially released social financing and M2 data. Overseas: Focus will be on speeches by US Fed officials, US job openings data, ADP employment data, the Fed meeting minutes, and non-farm payrolls data, all of which could influence the US dollar's trajectory.Fundamentals: Looking ahead, this week's copper concentrate index continues to decline, and spot market transactions remain sluggish. Overseas blister copper long-term contract BM has fallen below triple digits for the first time in years. The long-term tight supply of copper raw materials shows no signs of improvement, providing support for copper prices on the raw material side. Inventory: According to SMM, smelter shipments are expected to decrease next week compared to this week (as smelters cleared inventories this week), and arrivals of imported copper are unlikely to increase significantly. Total supply is expected to be slightly lower WoW. On the downstream consumption side, ample early-year funds are expected to boost consumption WoW. Therefore, SMM anticipates a scenario of reduced supply and increased demand next week, potentially leading to a decline in weekly inventories. LME and COMEX copper inventories both experienced destocking this week, and attention will focus on whether this trend continues next week.In Summary: Copper downstream operating rates may rebound next week compared to this week. If domestic copper inventories end their "two-week increase," it could support copper prices. However, as Trump's inauguration date approaches, concerns over the US Fed's rate cut outlook and US tariff policies are intensifying. The US dollar index hovering at high levels will continue to weigh on copper prices. Future attention will focus on the impact of US data releases on the US dollar index. Additionally, from a weekly perspective, the US dollar index has risen for five consecutive weeks, and a potential pullback next week could ease its pressure on copper prices. In the absence of unexpected macro data or policies, the fundamentals are expected to improve, supporting copper prices. However, the macro front, with the US dollar remaining at high levels even if it pulls back, will continue to exert some pressure on copper prices. This may result in copper prices fluctuating downward. Technically, attention should be paid to the support strength at key psychological levels.Institutional Views: China Fortune Futures stated that from Wednesday to Friday this week, SHFE copper saw continuous open interest increases and price declines, with bears dominating the futures market. Prices have fallen below the key level of 73,000 yuan, and the domestic macro front is in a vacuum period, making the US dollar one of the main factors influencing the non-ferrous market. Guotai Junan Futures Research Report pointed out that the market expects a stronger US economy, with fewer rate cuts this year compared to Europe. Technically, LME copper has some support at $8,700, while SHFE copper may continue to decline toward 72,000 yuan. Bank of America (BofA) analysts emphasized: "With producers cutting capital expenditures, copper mine projects have gradually decreased over the past decade. BofA forecasts a supply gap of approximately 409,000 mt this year, with inventories falling to levels sufficient to meet only 1.2 weeks of global demand. BofA expects the average copper price in 2025 to reach $9,438/mt ($4.28/lb), driven by constrained supply and sustained demand." UBS analysts noted that demand growth will continue to be supported by electrification and power grid infrastructure, predicting growth in these areas "slightly above historical trends, with an annual growth rate of approximately 2.5%." They also forecast mine supply growth of only 2% in 2025, adding that "benchmark processing and refining fees have hit historical lows, the copper scrap market is tightening, and refined copper growth is limited."Recommended Reading:》Most Copper Cathode Rod Plants Conduct Maintenance During New Year Holiday; Production Expected to Resume in the First Week of 2025 [SMM Analysis]》Copper Wire and Cable Enterprises' Weekly Operating Rates Decline for Four Consecutive Weeks! Will They Stabilize Next Week? [SMM Analysis]》Weekly Copper Inventory in Major Regions Nationwide Increased by 1,200 mt [SMM Weekly Data]

Data Source Statement: Except for publicly available information, all other data are processed by SMM based on publicly available information, market communication, and relying on SMM‘s internal database model. They are for reference only and do not constitute decision-making recommendations.

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