The First Week After the Holiday: LME and SHFE Copper Jointly Climbed to a New Stage High. Can Domestic Macro Tailwinds Continue to Support Copper Prices? [SMM Commentary]

SMM February 7 News:

After the holiday, concerns over potential global trade conflicts triggered by US tariff policies eased. Although macro uncertainties overseas persisted, multiple domestic and international institutions, influenced by Deepseek, turned bullish on Chinese assets. Additionally, expectations for favourable macro policies in China boosted market confidence. Coupled with the continued deterioration in the spot copper concentrate market during the week, copper prices rose significantly despite a sharp inventory buildup in domestic copper stocks. As of 16:54 on February 7, LME copper increased by 1.37% to $9,404/mt, marking a new high in over two months, with a weekly gain of 3.35%, potentially achieving the best weekly performance in over four months. SHFE copper rose by 1.77% to 77,250 yuan/mt, with a weekly gain of 2.25%.

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Fundamentals

Spot Copper Concentrate Market Continued to Deteriorate This Week; Imported Copper Concentrate Index Declined Further

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After the holiday, the tight supply situation at the mine end persisted, and the spot copper concentrate market continued to deteriorate during the week, with various forms of price suppression observed. On February 7, the SMM Imported Copper Concentrate Index (weekly) was reported at -$2.7/mt, down $0.5/mt from the previous reading of -$2.2/mt.

According to SMM, the imbalance in raw material structures has led to severe difficulties in spot procurement for smelters and a "price collapse" in the spot market. In addition to TC spot prices falling into negative territory, some traders have extended the QP to M+6, exacerbating the situation. The extension of the QP imposes settlement risks on both buyers and sellers. For buyers, an extended QP poses significant challenges to hedging operations for raw materials. For sellers, it creates risks in raw material business settlements if the futures market structure reverses during this period, potentially leading to losses. 》Click to View Details

During the Chinese New Year, Copper Inventories in Major Domestic Regions Increased by 107,300 mt; Weekly Inventory Expected to Continue Rising Next Week

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Domestic Inventory: As of Thursday, February 6, copper inventories in major domestic regions tracked by SMM increased by 107,300 mt from pre-holiday levels to 273,100 mt. Total inventory was 12,600 mt lower than the 285,700 mt recorded after last year's holiday. Specifically, inventory buildup in Shanghai was relatively small during the Chinese New Year, mainly due to reduced shipments from nearby smelters. Some smelters reduced shipments in preparation for production cuts, while others stockpiled goods for export. In Jiangsu and Guangdong, inventory buildup was significant as downstream enterprises had not yet resumed normal production, forcing smelters to deliver goods to warehouses for delivery purposes. 》Click to View Details

Overseas Inventory: This week, LME copper inventories and COMEX copper inventories showed mixed trends. LME copper inventories stood at 247,625 mt on February 7, down 8,600 mt from 256,225 mt on January 31. COMEX copper inventories were 99,880 short tons on February 6, up 1,827 short tons from 98,053 short tons on January 30. LME copper inventories saw a significant destocking this week, while COMEX copper inventories experienced a buildup, nearing 100,000 short tons. Future trends in overseas copper inventories warrant close attention.

Operating Rates of Copper Cathode Rods Declined, While Raw Material Inventories Increased MoM

Copper Cathode Rods: During the Chinese New Year, the weekly operating rates of major domestic copper cathode rod enterprises (January 24-30) declined MoM. In the first week after the holiday (January 31-February 6), weekly operating rates slightly increased MoM. On a YoY basis, considering the different timing of the Chinese New Year, the average operating rate during the 2024 Chinese New Year period (February 2-15, 2024) compared to the 2025 Chinese New Year period (January 24-February 6, 2025) declined by 4.33 percentage points. In terms of consumption, downstream cargo pick-up was significantly weaker than the same period last year. Copper cathode rod enterprises extended their holiday periods YoY, slowing destocking rates. Both pre-holiday stockpiling and post-holiday replenishment by downstream enterprises were weaker than in the same period last year. 》Click to View Details

Outlook

Macro: The US dollar index remained around 107.7. The market is currently awaiting the US January non-farm payrolls data to gauge the state of the US economy. Attention should first be paid to the US non-farm payrolls data. As per usual practice, the US Department of Labor will release the "annual revision" of non-farm data before the February non-farm release date. The preliminary revision in August last year showed a downward adjustment of 818,000 jobs for the year ending March 2024. What will this final revision reveal? According to compiled estimates, economists currently expect January non-farm payrolls to increase by 170,000, with the unemployment rate remaining stable at 4.1%. Additionally, attention should be paid to January CPI and PPI data for both China and the US, US initial jobless claims data, and domestic data such as social financing and M2, which may be released next week. Next week, Fed Chairman Powell will also attend a Senate hearing and deliver the semi-annual policy report.

Fundamentals: Looking ahead, in terms of supply, the tight copper ore supply situation will continue to support copper prices. Smelter production in February is expected to remain high, and smelters are likely to transfer goods to delivery warehouses under the backdrop of significant discounts. Warehouse arrivals are expected to remain high next week. On the demand side, some manufacturers will not fully resume normal production until after the Lantern Festival. Therefore, SMM expects a supply surplus in copper next week, with weekly copper inventories likely to continue increasing.

In Summary: The overall domestic macro sentiment remains positive, boosting market confidence. With the upcoming Two Sessions, expectations for favourable domestic policies are strong, and the domestic macro outlook is expected to remain positive. However, macro uncertainties overseas persist, and caution is needed regarding heightened market risk aversion, which could alter market risk appetite and suppress copper prices. On the fundamentals side, tight copper concentrate supply and ongoing mine-smelter imbalances will support copper prices. However, after a 100,000 mt inventory buildup during the Chinese New Year, domestic copper inventories are expected to continue increasing next week, weakening their support for copper prices. Meanwhile, significant destocking in LME copper inventories this week, if continued next week, will provide inventory support for LME copper. Considering the mixed macro and fundamental factors domestically and internationally, copper prices are expected to remain rangebound at high levels next week.

Institutional Views

China Fortune Futures Research Report: During the night session, SHFE copper opened lower and fluctuated rangebound, with total open interest slightly decreasing. During the daytime session, open interest increased, and prices rose, hitting new highs in the afternoon. The most-traded March contract closed at 77,250 yuan, up 1.77%. Total trading volume slightly decreased compared to the previous day, while total open interest increased by over 27,000 lots. SHFE aluminum followed a similar trading pattern, with the most-traded March contract closing at 20,600 yuan, up 1.8%. Total trading volume surged, and total open interest increased by nearly 30,000 lots. Meanwhile, alumina performed weakly, with the most-traded May contract closing at 3,481 yuan, down 0.34%. Today, the stock market and the overall non-ferrous sector continued to resonate. This week, copper surged with increased trading volume and open interest, driving rebounds in other non-ferrous metals. As the market approaches late February, attention will gradually shift to policy expectations for the Two Sessions in March. A positive trading strategy remains recommended, with potential for further rebounds in copper and aluminum.

The Chilean National Copper Corporation expects average copper prices to be $4.25/lb in 2025 and $4.25/lb in 2026.

Citi predicts that further tariff escalations will lead to bullish sentiment for gold within 6-12 months, with gold prices rising to $3,000/oz. Silver is also expected to rise to $36/oz, while copper prices are forecasted to decline to $8,500/mt within the next three months.

Recommended Reading:

》QP Extensions Continue; Parsa Smelter Halts Production [SMM Copper Concentrate Spot Weekly Review]

》Operating Rates Decline YoY During Chinese New Year; Destocking Awaits Spring [SMM Copper Cathode Rod Weekly Review]

》Expectations for US Fed Interest Rate Cuts Cool; Trump's Tariffs Disrupt Supply Chains [SMM Macro Weekly Review]

》Copper Inventories in Major Domestic Regions Increased by 107,300 mt During Chinese New Year [SMM Weekly Data]