Copper, upward correction

Copper prices have recently experienced significant fluctuations, showing a trend of initial decline followed by a rebound. In early April, affected by the US's imposition of "reciprocal tariffs," the entire market was filled with anxiety, which significantly dragged down copper prices. Copper prices plummeted after the Qingming Festival, dropping to a low of 71,320 yuan/mt. After the market collectively vented its pessimism, it gradually returned to calm. Additionally, signs of easing emerged in the tariff war initiated by the US, causing copper prices to refocus on fundamental factors and gradually recover.

Weakening Financial Attributes

In April, global financial markets closely monitored the US tariff policy, experiencing two phases: a concentrated release of panic sentiment followed by its easing.

In early April, affected by the US's "reciprocal tariff" policy, global stock markets suffered heavy losses. Risk-averse sentiment drove US Treasuries and the Japanese yen higher, while the non-ferrous metals sector weakened across the board.

After the rapid release of market panic, on April 9, the US announced a temporary suspension of imposing high "reciprocal tariffs" on some trading partners. This led to significant gains in European and US stock markets, with the non-ferrous metals sector staging a broad-based rebound. By this point, most of the impact from the trade conflict had been absorbed by the market, and global markets gradually returned to calm.

The US Fed will hold its interest rate-setting meeting in early May. The negative impact of the US tariff policy on the market has already weakened, but its influence on inflation and economic growth will continue to be reflected in US macroeconomic data. The macroeconomic environment in May is expected to remain stable overall, with its impact on copper prices likely to diminish.

Tight Supply

Recently, overseas mine operations have remained generally stable, with only sporadic disruptions. According to SMM, protesters in the Cusco region of Peru have blocked the entrance to Glencore's Antapaccay copper mine since March 30. Additionally, in mid-April, a worker at KGHM's Sierra Gorda copper mine in Chile died, halting mine production. Sierra Gorda's copper production in 2024 was 146,000 mt, with little actual impact on global copper concentrate production.

Since March, there have been signs of easing in the copper concentrate supply environment. In mid-March, the Panamanian government indicated it would allow First Quantum to export 120,000 mt of copper concentrate and permit the restart of the power plant serving the mine. Freeport, which had not exported any copper concentrate this year, obtained an export quota of approximately 1.27 million mt of copper concentrate. Additionally, there is room for some production release from projects like Teck Resources' Quebrada Blanca Phase II and Oyu Tolgoi Phase II.

For the week ending April 18, the processing fee for imported copper concentrates was reported at -$34.71/mt, down $3.82/mt WoW. The current level of processing fees for imported copper concentrates has remained negative for three consecutive months and continues to weaken.

According to SMM's survey, some domestic smelters still have maintenance plans in May. Considering the potential impact of the downward shift in the copper price center on smelters' production enthusiasm, the tight supply situation for ore is expected to ease in May.

Affected by the downward shift in the copper futures price center and suppliers of copper scrap raw materials holding back cargoes, the price spread between copper cathode and copper scrap narrowed significantly in April, even dropping to 450 yuan/mt in mid-April, the lowest level since late October 2023. The sharp decline in copper prices significantly reduced the sales volume of copper scrap suppliers. Copper anode production only saw slight increases from some secondary copper rod enterprises switching production. Copper anode production from ore is constrained by factors such as tight supply in the copper concentrate market and continuously falling spot TCs, making it difficult to significantly increase production. Currently, the impact of the foreign trade environment on copper scrap imports is gradually being reflected, with imported copper scrap volumes unlikely to rebound in April. Additionally, suppliers of copper scrap raw materials are holding back cargoes, waiting for copper prices to rise, which will exacerbate the tight supply of copper scrap in April.

Although the processing fee for imported copper concentrates has remained negative, it has not significantly impacted smelter production. Although Tongling Nonferrous Metals announced maintenance in March, the operating rate of domestic copper smelters, as surveyed by SMM, has continued to rise, reaching 87.68% by the end of March. This is mainly due to factors such as high copper prices, as well as high prices for by-products like sulphuric acid and gold. The number of smelters planning maintenance in China in Q2 has significantly increased, with multiple smelters having maintenance plans from April to June. We estimate that the impact of maintenance on copper cathode production will be concentrated in April and May.

Stable Consumption Boost

The operating levels of copper cathode rod enterprises have been better than in the previous two years this year, mainly due to insufficient production of secondary copper rods rather than driven by growth in end-use demand. The rebound in terminal wire and cable consumption will be offset by high inventory levels in the copper rod industry, making it difficult for the consumption rebound to effectively form new and significant demand.

The production and sales of the air conditioning industry exhibit distinct seasonal characteristics. May will mark the beginning of the downward cycle in air conditioning production, with air conditioning inventory likely to accumulate again at high levels. Therefore, copper demand from the air conditioning sector will experience a seasonal decline in May.

May is a seasonally recovering period for the automotive industry. As trade-in subsidies for the automotive industry have been in place for several years, some demand has already been fulfilled in advance, and the actual boosting effect of consumption on production is expected to be relatively limited.

Overall, driven by supply factors, copper prices are expected to continue their upward recovery in May.

(Source: Futures Daily)