Inventory buildup and significant outflow of warrants suppress spot copper premiums [SMM Copper Morning Meeting Summary]

Futures Market: Overnight, LME copper opened at $9,510.5/mt, initially dipped to a low of $9,490/mt, then fluctuated considerably upward. It approached a high of $9,572/mt near the close and ultimately settled at $9,554.5/mt, marking a 0.4% increase. Trading volume reached 13,000 lots, and open interest stood at 290,000 lots. Overnight, the most-traded SHFE copper 2506 contract opened at 77,880 yuan/mt, dipping to a low of 77,720 yuan/mt early on. It fluctuated upward during the session, reaching a high of 78,160 yuan/mt. After a slight pullback near the close, it continued to rise to a high and ultimately settled at 78,140 yuan/mt, up 0.36%. Trading volume reached 26,000 lots, and open interest stood at 165,000 lots.

[SMM Copper Morning Meeting Summary] News: (1) A new round of interest rate cuts on deposits is underway, with multiple banks, including ICBC, BOC, and CCB, lowering interest rates on various products such as current deposits, fixed deposits, and notice deposits. As the "interest rate cut wave" for bank deposits continues, certificate of deposit (CD) products, once considered a "powerful tool for attracting deposits," are gradually falling out of favor. Recently, several banks have simultaneously lowered interest rates on fixed deposits and CD products. Currently, CD products are on the verge of fully entering the "1% era."

(2) Iranian President Ebrahim Raisi stated that US President Donald Trump mentioned both "peace" and "threats," asking, "Which one should we believe?" The day before, as Trump departed the UAE on a special flight, he claimed that Iran had received a US proposal on the nuclear agreement and warned Iran to act swiftly to resolve the decades-long dispute.

Spot: (1) Shanghai: On May 20, SMM #1 copper cathode spot prices against the front-month 2506 contract were quoted at a premium of 340-440 yuan/mt, with an average premium of 390 yuan/mt, down 50 yuan/mt MoM. Today, with a significant outflow of warrants expected, spot premiums are anticipated to decline further. However, due to tight supplies of mainstream cargoes, some suppliers are expected to refuse to budge on prices.

(2) Guangdong: On May 20, Guangdong #1 copper cathode spot prices against the front-month contract were quoted at a premium of 150-230 yuan/mt, with an average premium of 190 yuan/mt, down 80 yuan/mt MoM. Overall, with warrants flowing out and moderate buying interest from end-users, suppliers have no choice but to lower prices to sell, leading to a continued decline in premiums.

(3) Secondary Copper: On May 20, the price of secondary copper raw materials rose by 100 yuan/mt MoM. Guangdong bare bright copper prices were 72,200-72,400 yuan/mt, up 100 yuan/mt from the previous trading day. The price difference between copper cathode and copper scrap was 1,365 yuan/mt, up 105 yuan/mt MoM. The price difference between copper cathode rod and secondary copper rod was 1,120 yuan/mt. According to an SMM survey, due to recent heavy rain in Guangdong, many secondary copper rod enterprises have requested yards to load goods as soon as possible during procurement. If secondary copper raw materials get wet, they need to be dried overnight before weighing, affecting the production rhythm of secondary copper rod enterprises. However, copper prices are currently fluctuating downward, while suppliers are still refusing to budge on prices when selling. The circulation of secondary copper raw materials in the market has marginally decreased.

(4) Inventory: On May 20, LME copper cathode inventory decreased by 3,575 mt to 170,750 mt; on the same day, SHFE warrant inventory decreased by 16,175 mt to 45,738 mt.

Price: On the macro side, US Fed officials have made more cautious statements about the economy and doubled down on their concerns about the economic impact of the Trump administration's trade policies. Meanwhile, traders are looking forward to the upcoming talks between the US and Japan, which may include discussions on exchange rates as part of a trade agreement. The US dollar weakened again on Tuesday, which is bullish for copper prices. On the fundamental side, from the supply side, there is a shortage of mainstream cargo, and suppliers are not inclined to sell at low prices due to the tight supply. From the demand side, after the copper prices fell in the morning, downstream buyers began to purchase at lower prices, and both the market's purchasing sentiment index and sales sentiment index improved during the day. Factors such as inventory buildup and the expected significant outflow of warrants today are expected to suppress spot premiums. However, the current market has some support for spot premiums due to the shortage of mainstream cargo. In terms of price, it is expected that there will be some support for copper prices today.

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[The above information is based on market collection and comprehensive assessment 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 decisions. 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.]