Tariff Hype Heats Up, Copper Prices Remain Strong [Institutional Commentary]

Macro 1. The US Fed's decision to keep interest rates unchanged at the March meeting met market expectations, with a reduction in the pace of balance sheet reduction. The dot plot indicated expectations for two interest rate cuts this year, consistent with the December meeting. Powell noted that while the economic outlook has slowed, hard data such as employment and consumption remain strong. The GDP forecast for this year was revised down by 0.4 percentage points to 1.7%, and the inflation expectation was raised by 0.3 percentage points to 2.8%. After Powell's speech, the US dollar jumped initially and then pulled back, the 2-year Treasury yield fell slightly below 4%, and US stocks generally rebounded. 2. The Bank of Japan kept its target interest rate unchanged at 0.5%, a move that may reflect the weak recovery of the Japanese economy. Spot 1. Speculation over US tariffs continued to heat up, with New York copper leading the gains. Yesterday, the premium of New York copper over LME copper expanded to $1,200. According to Goldman Sachs, 100,000-150,000 mt of copper could be shipped to the US in the next two months due to tariff-induced arbitrage and stockpiling. While the high premium on New York copper remains the dominant logic, it is worth being cautious about potential pressure on New York copper as non-US spot copper arrives in large quantities in the US. 2. LME copper maintained a rapid destocking, with the spot discount narrowing to $35 yesterday. The high premium on New York copper suggests increased squeeze pressure on LME copper. 3. Statistics show that refined copper production in the first two months of this year was 2.3 million mt, up 3.7% YoY, and copper semis production was 3.16 million mt, up 4.2% YoY. Data from the National Energy Administration showed that power generation capacity in the first two months reached 34 billion kW, up 14.5% YoY, with PV installations at 9.3 billion kW, up 43% YoY. National power supply investment was 75.3 billion yuan, up 0.2%, and grid investment was 43.6 billion yuan, up 33.5%. The data validates the boost to copper demand from the steady growth policies. 4. In terms of news, it was reported that spot TC for refined copper this week was below -20 dollars, indicating increased smelting losses, which heightened expectations for maintenance and production cuts at smelters. Additionally, the Congolese government publicly expressed willingness to cooperate with US capital in developing its mineral assets in exchange for security guarantees. The M23 military forces are steadily advancing in eastern Congo, and Rwanda rejected ceasefire talks yesterday. Although the current conflict is still far from the copper belt, the risk of disruption from the conflict is increasing in the medium term. 5. Spot side, with copper prices rising sharply, downstream buyers' sentiment turned cautious, and the Shanghai spot discount widened slightly to 30 yuan, but the Foshan spot premium expanded to 150 yuan. The prolonged low SHFE/LME price ratio has increasingly highlighted the impact of reduced exports and imports by smelters. The futures market saw an increase in SHFE copper positions over the past two days, possibly indicating the entry of arbitrage-related funds. It is expected that both supply and demand will decrease, but future reductions in imports will continue to provide strong support for spot prices. 6. Conclusion: The slowdown in the US economy is a medium-term bearish factor, but short-term panic sentiment has been released, reducing the bearish impact. Fundamentally, speculation over US tariffs continues to ferment, and the high premium on New York copper remains the dominant bullish factor. In the short term, focus on support around 80,000 mt, maintaining a strategy of buying on dips.