Market sentiment is bullish, copper prices hold up well [institutional commentary]

On Wednesday, the most-traded SHFE copper contract extended its rebound, while LME copper fluctuated upward overnight. The domestic backwardation structure (B structure) for nearby months narrowed. Trading in the spot copper cathode market was sluggish on Wednesday, with downstream buyers mainly engaging in just-in-time procurement due to concerns over high prices. Domestic copper maintained a discount of 25 yuan/mt. Yesterday, LME inventory fell to 186,000 mt. On the macro side, US Fed Vice Chair Jefferson stated that uncertainties stemming from tariff policies could potentially drag down US economic growth and push up inflation. The US Fed's monetary policy is prepared to respond as necessary, and it remains unclear whether the impact of tariffs on prices will be short-term or persistent. Domestically, China's aggregate financing to the real economy (AFRE) in April increased by 1.16 trillion yuan, with new yuan-denominated loans reaching 280 billion yuan. The M1-M2 spread widened to -6.5%, continuing to expand. The expansion of government bond issuance was the core factor driving the growth in April's AFRE. A package of incremental financial policies effectively boosted market confidence. On the industrial front, according to media reports, amid the US-China trade truce, copper scrap that had been piling up for weeks in Salt Lake City, US, began destocking. This copper scrap originated from old air conditioners, demolished buildings, and rusty cars. Currently, US scrap metal merchants are striving to resume exports of copper scrap to China. In 2024, US copper scrap exports to China reached 440,000 mt, equivalent to approximately 380,000 mt of copper metal content.

The US-China truce agreement has boosted investors' risk appetite while dampening demand for safe-haven assets. US Fed officials lean towards maintaining a cautious and hawkish stance, with market expectations suggesting that the first rate cut of the year may occur after September. China's April AFRE rebound, exceeding expectations, reflects a sustained positive momentum in infrastructure, driving continuous growth in demand for industrial metals. On the fundamentals side, disruptions at major overseas mines persist, with global apparent copper cathode inventory remaining low and Yangshan copper premium high. Domestic downstream consumption is steadily recovering, providing strong support for copper prices. It is expected that copper prices will hold up well in the short term.

(Source: Jinyuan Futures)