Tariff Premiums Drive Strong Copper Prices [Institutional Commentary]

On Tuesday, the most-traded SHFE copper 2505 contract surged, with LME copper breaking through a key psychological level. The COMEX copper premium expanded to above $1,300. The domestic near-month April-May price spread remained stable. Spot copper market trading was mediocre on Tuesday, as downstream buyers hesitated to chase prices due to the rapid short-term rise in copper prices. Spot prices fell to a discount of 15 yuan/mt. Yesterday, LME inventory dropped to 220,000 mt.

Macro side: US Fed Governor Kugler noted that goods inflation indicators have risen in recent months. Against the backdrop of increasing uncertainty due to new tariffs imposed by the US government on trading partners, both short-term and long-term inflation expectations in the US are rising. The Fed needs to maintain restrictive interest rates for some time. The recent decline in economic data, especially on the consumption side, is more attributable to seasonal factors. After the implementation of tariff policies, forecasting economic prospects and inflation trends will become highly challenging. S&P expects US inflation to remain around 3% in 2025, primarily due to trade policies driving simultaneous price increases in domestic supply chains and end-user consumers.

Domestically, the State-owned Assets Supervision and Administration Commission held a media conference on artificial intelligence, emphasizing that the development of AI industries in China's central state-owned enterprises will further accelerate, with active efforts to seek breakthroughs in key areas such as applications, computing power, data, and models.

Since the initiation of the US Section 232 investigation, the US copper premium has continued to expand. The gradual shift of refined copper overseas to North America has caused short-term supply disruptions. The US government's imposition of tariffs aims to rebuild the US copper supply chain, coupled with Chinese smelters partially fulfilling expectations for production cuts, boosting sentiment among bulls. Fundamentals side, the expectation of tightening mid-term copper ore supply is difficult to reverse, and domestic social inventory is declining. Technically, it remains to be seen whether LME copper can firmly hold above the key psychological level. Copper prices are expected to fluctuate upward in the short term, with caution against mid-term high-level pullback risks.