"The 'Wolf' Has Truly Arrived: The Spot Market Gradually Enters 'Holiday Mode,' What Drama Will Unfold in the Copper Market? [SMM Commentary]"

SMM January 17 News:

This week, the US PPI data cooled, and the US core CPI data came in below expectations, raising market expectations for further interest rate cuts by the US Fed this year. Additionally, Fed Governor Waller stated that if US economic data weakens further, there could still be three to four rate cuts this year, which weighed on the US dollar index. This boosted risk appetite for assets like copper, coupled with China's GDP growth of 5% YoY in 2024 and 5.4% in Q4, which also supported prices of metals like copper. As of 16:26 on January 17, LME copper rose 0.5% to $9,277/mt, with its weekly chart continuing the previous week's upward trend, temporarily up 2.04%. SHFE copper rose 0.83% to 76,540 yuan/mt, with its weekly chart also continuing the previous week's upward trend, up 1.77%.

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Fundamentals

National Mainstream Copper Inventories Increased by 5,100 mt This Week

Domestic Inventory: As of Thursday, January 16, SMM national mainstream copper inventories increased by 5,100 mt from Monday to 108,100 mt, up 2,400 mt WoW. Compared to Monday's inventory changes, most regions saw an increase, except for a slight decline in Jiangsu. Total inventory was 32,700 mt higher than the 75,400 mt YoY. Specifically, Shanghai's inventory increased by 5,100 mt from Monday to 79,300 mt. This week, both imported and domestic copper arrivals contributed to the increase, while downstream consumption showed signs of weakening. However, in Jiangsu, a major copper consumption region, pre-holiday restocking peaked, boosting downstream procurement and leading to a 3,500 mt decline in inventory to 14,500 mt. Additionally, the substitution of copper scrap for copper cathode helped maintain the overall low inventory pattern in domestic copper stocks. 》Click to view details

Overseas Inventory: This week, LME copper inventories and COMEX copper inventories: LME copper inventories stood at 260,075 mt on January 17, down 4,350 mt from 264,425 mt on January 10. COMEX copper inventories were 95,499 short tons on January 16, down 522 short tons from 96,021 short tons on January 9. Both LME and COMEX copper inventories showed destocking this week. Attention will focus on whether overseas destocking can continue next week.

Copper Cathode Rod Operating Rates Declined, but Raw Material Inventory Increased WoW

》Click to view SMM Metal Industry Database

Copper Cathode Rod: Operating rates at major domestic copper cathode rod enterprises declined WoW during the week of January 10-16. As the year-end and Chinese New Year atmosphere intensified and copper prices remained high, downstream orders were significantly suppressed, and the market overall weakened. Some enterprises have already reduced operating rates, with holiday schedules starting earlier than expected. However, in terms of inventory, copper cathode rod enterprises have begun pre-holiday restocking, with raw material inventories increasing WoW, driven by some large enterprises. 》Click to view details

Outlook

Macro: Next week, focus on China's January one-year Loan Prime Rate (LPR), the scale of China's medium-term lending facility (MLF) operations, the inauguration of the new US President, US initial jobless claims for the week ending January 18, the Davos World Economic Forum Annual Meeting, and the Bank of Japan's interest rate decision.

Fundamentals: Looking ahead, next week's imported copper arrivals are expected to remain basically flat compared to this week, while smelter shipments are expected to increase, leading to a higher total supply WoW. On the demand side, as the Chinese New Year approaches, more downstream enterprises are expected to go on holiday, with consumption likely to weaken compared to this week. SMM expects a scenario of increasing supply and decreasing demand next week, with weekly inventories continuing to rise.

In Summary: Market expectations for domestic RRR cuts have resurfaced, with attention on upcoming monetary policy developments. Expectations for a potential rate hike by the Bank of Japan next week have also risen. Market participants are closely watching whether the inauguration of the new US President will reignite global market volatility. On the fundamentals side, as spot trading gradually enters the Chinese New Year holiday period and copper prices hover above 76,000 yuan/mt, pre-holiday restocking sentiment among downstream buyers has been suppressed, leading to expectations of further inventory increases. In the short term, inventory support for copper prices is weakening. Considering the mixed macro factors and certain uncertainties, spot market trading is expected to gradually cool down, with copper prices likely to fluctuate downward next week. However, if the new US President does not introduce policies beyond market expectations, the market may interpret the absence of further bearish news as a positive signal.

Institutional Views

China Fortune Futures Research Report: Against the backdrop of improving macro sentiment, copper and aluminum, supported by improved supply-demand fundamentals, are likely to continue their medium-term rebound. Copper has already reached a new high since mid-November last year, and if open interest further recovers, the rebound could extend further.

Shenwan Futures Research Report: Several institutions, including the International Copper Study Group, expect a slight oversupply in the copper market by 2025. According to data from the National Bureau of Statistics (NBS), domestic downstream demand remains generally stable and positive. Power grid investments are driving high growth in electricity infrastructure, home appliance production continues to grow, and the penetration of new energy is expected to strengthen copper demand in the transportation equipment sector. However, real estate data remains sluggish and requires ongoing attention. Copper prices may fluctuate within a wide range during the holiday period. It is recommended to monitor changes in the US dollar, yuan exchange rates, inventory, and spot-futures price spread.

ANZ Bank Report: ANZ stated on Friday that the short-term outlook for commodities remains uncertain. ANZ expects challenges in copper supply to persist through 2025. Copper demand is projected to grow 3.5% YoY, reaching 28 million mt, with a market supply gap of 500,000 mt (2% of annual demand).

With the new US administration about to take office, a stronger US dollar, potential tariff hikes, and a possible slowdown in the energy transition, the copper market faces unfavourable factors. BMI, a research arm of Fitch Solutions, has lowered its average copper price forecast for this year to $10,000/mt. BMI stated that in the long term, as the green transition accelerates, strong demand prospects and a structural deficit in the copper market will persist. Copper prices are expected to reach $17,000/mt by 2033. BMI forecasts refined copper production to grow 3.6% YoY in 2024, driven by capacity expansion in China and additional output from projects in Congo. Copper consumption is expected to grow 2.5% YoY in 2024 and further by 3.6% in 2025.

Recommended Reading:

》US Dollar Index Pulls Back Slightly From Highs, Boosting Copper Prices; Spot Market Gradually Cools Down During the Week [SMM Macro Weekly Review]

》Chinese New Year Atmosphere Intensifies, Weak Consumption; High Copper Prices Limit Pre-Holiday Restocking [SMM Copper Cathode Rod Weekly Review]

》National Mainstream Copper Inventories Increased by 5,100 mt This Week [SMM Weekly Data]

》Cable Weekly Operating Rates Decline for Six Consecutive Weeks; Strong Chinese New Year Holiday Atmosphere [SMM Analysis]