Recently, copper prices in both domestic and overseas markets have retreated from their highs at the end of March, with the most-traded SHFE copper futures contract once falling below the key level of 80,000 yuan/mt. The implementation of the US reciprocal tariff policy will have a significant impact on global trade.
Zhang Weixin, an industrial products analyst at China Securities Futures, told Futures Daily that the pullback in copper prices at the end of March was due to the cooling of the "hoarding fever" for copper and the rise in global risk-off sentiment, which corresponded to the further strengthening of gold prices, while other non-ferrous metals generally faced downward pressure. As the reciprocal tariff policy is implemented, the demand for hoarding that previously drove copper prices higher has weakened.
Meanwhile, concerns about US economic stagflation persisted throughout March, from the strengthening of US inflation stickiness in mid-March to the US Fed's hawkish stance in late March, and then to the YoY rebound in US PCE exceeding expectations at month-end. The short-term impact of the new US policy on the economy has gradually emerged, further dampening market optimism.
Ji Xianfei, a non-ferrous metals researcher at Guotai Junan Futures, believes that there are two reasons for the recent pullback in copper prices. First, market concerns have intensified, as the US tariff hike directly affects the US economy and also impacts related trading partners and even the global economy, putting downward pressure on risk asset prices. Second, the sustained high copper prices have continued to suppress downstream demand, with spot premiums/discounts and the SHFE copper term structure weakening.
From the perspective of market open interest, Wang Yunfei, head of the investment consulting department at Shandong Gold Futures, stated that as of now, the latest LME open interest data has not been released, but it is highly likely that fund longs reduced their positions near historical extremes last week, which is the direct cause of the copper price pullback. In addition, there have been no significant changes in the actual market situation recently, and most of the news factors have already been digested by the market.
Ji Xianfei noted that the expectation of tight supply still exists, mainly driven by the anticipation of the US imposing tariffs on copper. The US government previously stated plans to impose a 25% tariff on imported copper, and COMEX copper prices remain relatively firm, currently $1,500/mt higher than LME copper prices, which will attract globally available copper for COMEX delivery to the US, potentially leaving other regions in a state of tight supply.
It is understood that the long-term contract TC for copper concentrates in 2025 is low, and the current spot TC for copper concentrates has fallen to -$24.14/mt, resulting in significant losses for smelters. The expectation of long-term production cuts or shutdowns by smelters is increasing. The supply-side logic for 2025 mainly lies in the smelting sector, and if smelters cut or halt production, the support for prices will be quite evident.
In Zhang Weixin's view, the current fundamentals of the copper market are in a "strong reality" state. On the supply side, the growth rate of copper ore supply lags far behind that of smelting capacity, and the TC in March continued to deteriorate to -$24/mt. The concern over smelter production cuts remains a significant support at the bottom of copper prices. However, the current sulphuric acid price is at a high level of around 600 yuan/mt, and the risk of large-scale smelting cuts is relatively distant.
However, Wang Yunfei believes that the current supply imbalance in the copper market is structural rather than a general tightness in supply. From the inventory performance, the inventory-to-consumption ratio of refined copper has significantly improved compared to the previous two years, and the spot basis in Shanghai has not strengthened, indicating that the supply and demand in the spot market are stabilizing. As TC processing fees decline, the scale of future smelting maintenance is expected to increase, but it will not have a significant impact on overall supply.
Zhang Weixin stated that downstream purchases are quite sensitive to the strength of copper prices, with the weekly operating rates of refined copper rod, secondary copper rod, and copper plate/sheet and strip processing enterprises all declining, and spot premiums also under pressure. From the inventory results, the domestic destocking inflection point remains to be verified, and the global copper inventory absolute volume is as high as 640,000 mt, an increase of 228,000 mt YoY. From the end-use perspective, spring consumption is gradually recovering, but structurally, it is still driven by the power grid, home appliances, and automotive sectors, while the real estate sector continues to drag.
Ji Xianfei believes that high copper prices continue to suppress downstream demand, but price pullbacks will attract downstream enterprises to restock in phases. As the weather warms up, the demand for wires and cables from infrastructure projects in some regions has increased, supporting the operating rates of wire and cable enterprises; the processing fees for copper rods in some regions have rebounded, and the copper price pullback has attracted refined copper rod enterprises to restock at low prices appropriately; the production schedules of air conditioning and other refrigeration enterprises continue to increase, supporting the operating rates of copper pipe & tube enterprises, driving them to restock raw materials appropriately during price pullbacks. Meanwhile, the marginal increase in overseas market demand lies in Europe's increased military spending, which will also drive infrastructure investment, benefiting the demand for basic raw materials.
"April 2 marks the initial implementation of the reciprocal tariff policy, and the next few weeks will require attention to the results of the copper import tariff policy," Zhang Weixin said. He believes that the implementation of the tariff policy does not mean that the negative factors have been fully priced in. Considering the economic data performance after the first round of tariffs at the beginning of the year, the series of tariff policies announced in early April will bring potential stagflation pressure to the US economy, forming long-term pressure on commodity prices.
He also stated that the implementation of the tariff policy on copper will reverse the trade flow of physical copper from overseas to the US, and Asian inventories may face short-term buildup pressure due to the policy implementation. In terms of market risks, the intensity of the US tariff policy implementation needs to be vigilant.
In Wang Yunfei's view, the US tariff policy will not have a substantial impact on the direction of medium and long-term copper prices. In the short term, considering that the implementation of the tariff policy will end the previous narrative of global inventory transfer, the impact on the capital level is expected to be mainly bearish.
Ji Xianfei stated that the US tariff hike on end-use consumer goods will exacerbate the volatility of raw material prices for bulk commodities. "Considering that the expectation of tight copper supply remains strong and downstream enterprises have a strong willingness to restock at low prices, even if copper prices pull back, it may be a resistant decline," he said.
(Source: Futures Daily)
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