Favourable macro front in China materializes, copper prices struggle to rise [SMM Copper Morning Meeting Summary]

Futures Market: Overnight, LME copper opened at $9,500.5/mt. After an initial rally and subsequent pullback, it touched a low of $9,495/mt, then fluctuated considerably. Near the close, it hit a high of $9,536/mt before pulling back slightly to close at $9,516/mt, up 0.81%. Trading volume reached 11,000 lots, and open interest stood at 294,000 lots. Overnight, the most-traded SHFE copper 2506 contract opened at 77,980 yuan/mt. It fluctuated rangebound in the early session, touching a low of 77,970 yuan/mt, then rallied to hit a high of 78,180 yuan/mt near the close. It eventually closed at 78,160 yuan/mt, up 0.54%. Trading volume reached 18,000 lots, and open interest stood at 168,000 lots.

[SMM Copper Morning Meeting Summary] News: (1) On Tuesday, May 20, the People's Bank of China authorized the National Interbank Funding Center to announce that China's latest one-year Loan Prime Rate (LPR) was 3.00%, down from 3.10% previously; the five-year LPR was 3.50%, down from 3.60% previously.

(2) On the 19th (local time), the call between US President Trump and Russian President Putin concluded, lasting over two hours. Putin issued a statement after the call, saying it lasted over two hours and was very substantive and open. He described the call as very useful and constructive. Russia favors a peaceful resolution to the Ukraine crisis but believes a more effective path to peace should be identified. Putin stated that the resumption of the Istanbul negotiations indicates that, overall, things are moving in the right direction.

Spot: (1) Shanghai: On May 19, SMM #1 copper cathode spot premiums against the front-month 2506 contract were reported at 410-470 yuan/mt, with an average premium of 440 yuan/mt, down 5 yuan/mt MoM. As a large number of delivery warrants have yet to be released, market liquidity remains tight, and suppliers are reluctant to sell mainstream standard-quality copper at low prices. It is expected that warrants will be released today, which will put downward pressure on spot premiums.

(2) Guangdong: On May 19, Guangdong #1 copper cathode spot premiums against the front-month contract were reported at 220-320 yuan/mt, with an average premium of 270 yuan/mt, down 90 yuan/mt MoM. Overall, downstream buying interest remained weak amid high premiums, causing spot premiums to decline significantly.

(3) Imported Copper: On May 19, warrant prices were at $90-100/mt for QP June, with the average price unchanged MoM; B/L prices were at $102-120/mt for QP June, with the average price unchanged MoM; EQ copper (CIF B/L) prices were at $74-86/mt for QP June, with the average price unchanged MoM. Quotes were based on cargoes expected to arrive in mid-to-late May. Overall, the market is paying close attention to the arrival situation in late May. Although the SHFE/LME price ratio has improved, premiums are still on a downward trend.

(4) Secondary copper: On May 19, the price of secondary copper raw materials fell by 300 yuan/mt MoM. The price of bare bright copper in Guangdong was 72,100-72,300 yuan/mt, down 300 yuan/mt from the previous trading day. The price difference between copper cathode and copper scrap was 1,261 yuan/mt, down 406 yuan/mt MoM. The price difference between copper cathode rod and secondary copper rod was 915 yuan/mt. According to the SMM survey, today, secondary copper rod enterprises quoted at premiums of 70 yuan/mt against the futures market. Many secondary copper rod enterprises reported poor transaction conditions, and the final transaction prices were lowered by 50-100 yuan/mt. Due to unsatisfactory copper rod sales, some secondary copper rod enterprises have recently reduced their procurement of secondary copper raw materials and will resume normal procurement after finished product inventories decrease.

(5) Inventory: On May 19, LME copper cathode inventories decreased by 5,050 mt to 174,325 mt. On the same day, SHFE warrant inventories decreased by 1,334 mt to 61,913 mt.

Price: On the macro front, Moody's downgraded the deposit ratings of some major banks, including Bank of America and JPMorgan Chase, citing the downgrade of the US credit rating last Friday and the sharp decline in the US dollar index, which is bullish for copper prices. On the fundamental front, from the supply side, a large number of delivery warrants have not been released, leading to a tight supply of marketable goods and a low willingness of suppliers to sell at low prices. From the demand side, although copper prices fell during the day, transaction sentiment was poor, with just-in-time procurement by some downstream enterprises being the main activity. As of Monday, May 19, SMM's copper inventories in major regions across China increased by 7,200 mt WoW to 139,200 mt, marking the second consecutive week of inventory buildup. Currently, the tight supply of marketable goods provides some support for spot premiums, but factors such as inventory buildup and the expected outflow of warrants today are expected to curb spot premiums. In terms of prices, copper prices are expected to still have some upside room today.

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[The above information is based on market collection and comprehensive evaluation by the SMM research team. The information provided in this article is for reference only. This article does not constitute direct advice for investment research and decision-making. Clients should make cautious decisions and should not rely on this information to replace their own independent judgment. Any decisions made by clients are not related to SMM.]