US Dollar Rebounds, Copper Prices Retreat from Highs [Institutional Commentary]

Copper prices fluctuated upward last week, mainly due to high sentiment over US copper tariff premium expectations, an increase in total LME cancelled warrants, and continuous global inventory flow to North America. Some Chinese smelters also implemented small production cut plans, driving copper prices higher. Subsequently, the US Fed's policy statement and comments from some voting members indicated ongoing risks in US employment and inflation, with uncertain prospects for interest rate cuts. The US dollar index rebounded, and copper prices pulled back. Domestically, China's economy operated steadily in January-February, with rapid industrial production growth, fast development of high-tech manufacturing, and strong trade-in commodity sales. CPI decline expanded YoY, while PPI decline narrowed. Fundamentally, spot TC turned more negative, domestic inventory fell from highs (excluding bonded zones), spot premiums converged to parity, and the futures price spread between April and May narrowed, with the far-month B structure turning flatter.

Overall, the pricing center for US copper with implied tariff premiums has risen to 12%, with global inventory continuously shifting to North America, leading to a sustained decline in LME inventory. The US Fed paused interest rate cuts as expected in March, while the US President urged the Fed to continue cutting rates, boosting bullish sentiment. Fundamentally, the tight supply of concentrate is unlikely to reverse, with TC turning more negative. Domestic refined copper production cuts were realized, and social inventory fell from highs. The supply side continues to provide cost support, but Fed officials remain cautious about the risk of stagflation caused by tariff policies, with unclear prospects for interest rate cuts this year. In the short term, be wary of the risk of copper prices pulling back from highs, and pay attention to global trade situations and expectations of a mild US recession.

Risk factors: A hawkish shift in the Fed's stance, and a deterioration in global trade conditions