SHFE Copper Filled the Gap, Why Is the Fundamental So Strong? [Institutional Consultation]

After a panic-driven plunge in early April, SHFE copper quickly rebounded, reclaiming the 75,000-point level from an 8-month low in just one trading session, and continued to rise thereafter, filling the significant gap above.

Recently, domestic spot copper concentrate TCs have continued to decline, and news of copper mine suspensions in Peru has emerged. Will the tight ore supply further support copper prices? Over the past two weeks, the destocking of domestic refined copper social inventories has accelerated. What are the main factors driving this? How long will the destocking trend last? Considering the current macro and supply-demand dynamics, can the rebound in copper futures be sustained? Webstock Inc.'s [Institutional Diagnosis] section invites SHFE copper futures experts to provide in-depth analysis.

[Institutional Diagnosis]: Recently, domestic spot copper concentrate TCs have continued to decline, and news of copper mine suspensions in Peru has emerged. Will the tight ore supply further support copper prices?

Wang Yunfei, Head of Investment Consulting Department at Shanjin Futures: Ore supply has recently experienced another phase of tightness. Currently, we believe the main impact remains at the sentiment level, as the effect of specific mine production cuts on the full year still requires further comprehensive observation of supply conditions. From our perspective, against the backdrop of high smelting output, we remain cautious about the supply disruptions caused by the mine level. Overall, we consider the reliability of this support to be unstable.

Xiao Jing, Senior Researcher at SDIC Futures Research Institute: In Q1 and throughout April, the supply side has felt the impact of the mine-smelting game, with copper concentrate TCs deepening in negative territory to -$30, continuously providing bullish trading themes for the market. Since March, there have been numerous unexpected incidents at both the mine and smelter levels. In addition to the recent suspension of operations at Peru's Antamina copper mine due to an accident, overseas smelters such as Glencore's Chilean smelter and Southern Mexico Group's smelter have also reported production cuts or suspensions. The low TCs reality, along with themes such as early maintenance or sudden interruptions at smelters like Tongling Nonferrous, has been consistently reflected in the high average copper prices in Q1. However, the extremely low TCs have not led to effective production cuts at smelters. Domestically, for example, against the backdrop of sulfuric acid, by-products, and recycled copper scrap supplementation, SMM's domestic refined copper production in Q1 increased by 9.4%, adding over 270,000 mt, nearing 3.2 million mt. Meanwhile, statistical agencies generally revised down the MoM decline in domestic copper production in April. From a smelter production perspective, the impact of extremely low TCs on production in the first four months has been quite limited. Currently, it is expected that in May and June, as the peak season ends, consumption cools, and average prices decline, if TCs still show no signs of bottoming out, and imported copper scrap raw materials remain tight, smelters may take more proactive measures in maintenance and production cuts. This year, the cumulative growth rate of domestic smelter supply output will likely follow a similar trend to last year, gradually converging. We believe the price support from mine or smelting themes will weaken. Firstly, the impact of the suspension of Peru's major mine on actual production is relatively limited, as the ore processing system may continue to operate. Secondly, as we enter mid-year, the outline of the full-year copper concentrate supply will become more certain after dynamic adjustments. Currently, major copper-producing countries such as Chile, Peru, Congo, and Zambia have clear incremental targets for 2025. As domestic peak season consumption comes to an end, and the global economic growth outlook is significantly disrupted by US tariffs, the market will shift more pricing components to demand in May and June.

Liu Chao, Senior Nonferrous Metals Researcher at BOC International Futures Research and Consulting Department: Peru's Antamina mine produced 435,400 mt of copper in 2023. The mine is jointly owned by Glencore, BHP, Teck Resources, and Mitsubishi Group, with a copper grade of 1.23% and a zinc grade of 1.03%. Due to the mine's significant global share of metal production, the sudden accident has caused some disruption to copper and zinc supply, driving copper prices higher again. The duration of the mine's suspension has not yet been finalized, and the short-term impact continues.

In the long term, copper concentrate TCs continue to decline, and mine supply tightness is intensifying. Current copper concentrate TCs are significantly lower than the full-year long-term contract TCs, and the suspension of copper mines further strengthens the expectation of tight supply, supporting copper prices.

Zhong Yuan, Investment Consulting Department at Anliang Futures: If we view TCs as an asset price, similar to stock prices that accelerate sharply before ending, the continuous decline of TCs in negative territory in 2025 is the final stage of the bullwhip effect transmission in the industry chain. At this stage, positive news for copper mines may reinforce the downward trend of TCs. Conversely, if positive news emerges and TCs do not fall, it may signal a bottoming out.

[Institutional Diagnosis]: Over the past two weeks, the destocking of domestic refined copper social inventories has accelerated. What are the main factors driving this? How long will the destocking trend last?

Wang Yunfei, Head of Investment Consulting Department at Shanjin Futures: We believe the recent continuous decline in refined copper inventories is mainly due to two reasons: First, the transfer of inventories under the tariff backdrop. From the inventory distribution, the proportion of domestic inventories in the global total has been declining recently, while US copper inventories have risen significantly. The transfer of inventories has undoubtedly accelerated the decline in domestic inventories. Second, the front-loading effect of domestic power copper consumption. Although the planned growth rate of power investment in 2025 appears to slow compared to 2024, data up to Q1 shows that the actual growth rate is significantly better than the same period in 2024, thus providing a significant boost to copper demand. The current destocking trend may slow down in the latter part of Q2. On one hand, the rush export effect brought by tariffs will fade, and overseas inventories will gradually face demand tests. On the other hand, the actual demand growth in China, especially in the power sector, may gradually slow down, and the off-season effect is expected to cool overall demand.

Xiao Jing, Senior Researcher at SDIC Futures Research Institute: The reciprocal tariff turmoil had a significant systemic impact on LME copper during the Qingming Festival holiday, with substantial losses for overseas long-positioned funds. In contrast, the early-month copper price slide provided a favorable opportunity for domestic mid- and downstream players to restock. After SHFE copper quickly stabilized near 71,000, the price rebound was mainly supported by peak season consumption. During this period, spot price adjustments led the gains, and the Shanghai-Guangdong premium widened. By late April, SMM's domestic social inventories had also accelerated their decline to below 200,000 mt, close to the destocking levels of 2022 and 2023. Strong domestic consumption is mainly due to: 1) In response to Trump policy risks, the output inertia of various manufacturing sectors has been strong since Q4 last year, and most key tracked industrial products maintained high output and export growth rates in Q1; 2) This year's power grid investment has been strong, with the sector's investment growth rate reaching 24% in Q1, significantly boosting copper wire and cable demand; 3) Under the expectation of US tariffs on the copper industry, US copper prices hit highs, and the US-LME price spread widened, continuously attracting cross-border transfers of copper spot logistics, including from China. Under multiple factors, this year's peak season copper consumption has been strong. Looking ahead, the relatively resilient domestic sector remains the power grid, while other electromechanical products, as the largest export area to the US, face higher uncertainty. In March, the convergence of home appliance product growth rates was already observed, which will negatively impact copper consumption. We initially believe destocking may continue until mid-May, around the 150,000 mt level.

Liu Chao, Senior Nonferrous Metals Researcher at BOC International Futures Research and Consulting Department: The decline in copper concentrate inventories is closely related to supply in South America. During the domestic summer, which is winter in South America, copper concentrate production declines, and domestic imported ore port arrivals decrease, leading to a drop in domestic ore inventories. It is expected that domestic ore shortages will persist until late August, when rising temperatures in South America will increase copper mine operating rates, boosting domestic ore supply.

Zhong Yuan, Investment Consulting Department at Anliang Futures: Currently in the traditional peak season, periodic destocking is normal, but the statistics I have seen do not show a significant or accelerated destocking trend. Based on experience, destocking will likely continue at least until the end of the 2505 contract.

[Institutional Diagnosis]: Currently, copper prices are still in a corrective rebound phase. Considering the current macro and supply-demand dynamics, can the rebound in copper futures be sustained?

Wang Yunfei, Head of Investment Consulting Department at Shanjin Futures: From a macro perspective, there are no positive factors on the demand side. The slow progress of US tariff negotiations and the impact of rate hikes on demand will gradually manifest. Domestically, although policies are in place, their implementation remains highly restrained, and we believe this approach will not change in the short term, so a surge in demand is unlikely. On the supply side, although ore supply is tight, smelting output remains high. As long as there is no significant downward adjustment in annual mine output expectations, the full-year refined copper supply-demand balance is unlikely to show a deficit. Therefore, we conclude that copper prices have largely entered a phase of considerable fluctuation, with current prices at the upper end of the range, making further rebound unlikely.

Xiao Jing, Senior Researcher at SDIC Futures Research Institute: SHFE copper extended its gains this week, but the most-traded contract has not yet effectively filled the Qingming Festival gap, indicating significant pressure at the gap level. The SHFE copper rebound is largely complete, and the market will likely return to fluctuation, while remaining vigilant against sudden statements from the US government. The impact of systemic shocks has shifted from short-term bursts to medium-term pressure, suggesting a need for greater imagination regarding overseas uncertainties. Copper remains an industrial metal, and with a shift in consumption expectations, it is more likely to be configured as a risk asset.

Liu Chao, Senior Nonferrous Metals Researcher at BOC International Futures Research and Consulting Department: Current macro tariff wars and trade barriers have led to a downward revision of global economic growth, reducing overall demand. The pullback in the US dollar and China's policy front-loading have strengthened demand expectations, amplifying market uncertainty. On the fundamental side, US-China tariff increases have significantly impacted imported copper scrap, reducing domestic copper scrap supply. Supply shortages and insufficient demand have made the strong fluctuation characteristics of copper prices evident, and this structure is expected to continue.

Zhong Yuan, Investment Consulting Department at Anliang Futures: For the full year of 2025, copper prices are likely to fluctuate considerably, with anything above 80,000 defined as a bubble! Therefore, after copper prices rebound to key levels, the momentum may be hindered!