Copper prices face downside risks

In Q1 this year, supported by the tight global supply of copper concentrates, the center of copper prices shifted significantly higher compared to last year, with the most-traded contract climbing to a historical high of 83,320 yuan/mt. However, during the domestic Qingming Festival holiday, affected by the US's "reciprocal tariff" policy, copper prices plummeted, falling to a low of 71,320 yuan/mt, a drop of 12,000 yuan/mt from the year's peak, representing a decline of over 14%. Looking ahead, the center of copper prices is expected to move further downward.

Supply side, with the expansion of the Kamoa and Oyu Tolgoi mines and the commissioning of the new Malmyz mine, global copper mine production is expected to grow by 2.3% in 2025. Meanwhile, the continuous expansion of China's capacity, along with the start-up of new capacities in Indonesia, India, and the DRC, will ultimately drive a 2.9% YoY increase in copper cathode production in 2025. Despite the simultaneous growth in copper mine and copper cathode capacities, the tight global supply of copper concentrates is expected to persist.

Currently, copper concentrate treatment charges (TCs) have remained in negative territory for multiple months. As of May 23, spot TCs fell to -$44.25/dmt. In May, the cost of producing copper cathode from copper concentrates exceeded the domestic spot price by 4,705-5,455 yuan/mt. When considering the profit from sulphuric acid sales, the domestic sales loss for copper cathode narrowed to -3,266 to -2,516 yuan/mt. Long-term contract TCs remained at $23.25/dmt. After accounting for the profit from sulphuric acid sales, the domestic sales loss for copper cathode ranged from -2,751 to -700 yuan/mt. The fact that the production cost of copper cathode exceeds the domestic selling price, on one hand, supports copper prices from the cost side; on the other hand, it may dampen the production enthusiasm of smelters, constraining a significant increase in copper cathode production.

Previously, influenced by changes in the market supply-demand pattern, the domestic import window for copper cathode closed, while the export window opened. Domestic smelters actively expanded export trade to secure profits. Data shows that in April, domestic copper cathode exports increased by approximately 10,000 mt MoM, while net imports decreased by 15,000 mt MoM. Coupled with the sufficient supply of copper concentrates and the increase in smelters' operating rates, copper cathode production increased by approximately 10,000 mt MoM in April.

From the perspective of raw material reserves, domestic imports of copper concentrates, copper scrap, and copper anode increased MoM in April, laying the foundation for production in May. Entering May, with the continuous opening of the export window for copper cathode and the scale of production resumptions at copper cathode enterprises exceeding that of maintenance, domestic copper cathode production is expected to remain at a high level.

Driven by the US's tariff reduction policy, the country's imports of copper products have increased significantly. Data shows that the US's imports of copper cathode in January, February, and March were 58,000 mt, 76,000 mt, and 123,000 mt, respectively. In April, imports exceeded 170,000 mt, hitting a record high. UBS analysts expect that approximately 250,000 to 300,000 mt of additional copper will flow into the US market between March and May, indicating that the US refined copper imports in H1 have nearly reached the full-year level of 2023.

Against the backdrop of a surge in US copper product imports, China has emerged as the primary supplier, leveraging its cost and capacity advantages, driving up domestic demand for copper semis exports. In April, exports of unwrought copper and copper semis increased by nearly 10,000 mt month-on-month (MoM), while imports either decreased or slowed down in growth MoM, resulting in a 40,000 mt decline in net imports. Despite robust export demand, the characteristics of the off-season for domestic downstream copper enterprises began to emerge in the last week of May.

SMM survey data shows that the weekly operating rates of copper cathode rod, secondary copper rod, wire and cable, and enamelled wire enterprises were 70.64%, 22.14%, 82.34%, and 83.90%, respectively, decreasing by 2.62 percentage points, increasing by 0.27 percentage points, decreasing by 1.05 percentage points, and decreasing by 0.50 percentage points MoM. Among them, copper consumption in the air conditioning and new energy sectors both decreased MoM. Specifically, the total production schedules for household air conditioners in China for May, June, and July were 23.3 million units, 20.978 million units, and 18.4206 million units, respectively, showing a month-on-month decline. In the NEV market, retail sales from May 1 to 26 reached 574,000 units, up 2% MoM from April, while nationwide passenger vehicle producers' new energy wholesale sales reached 620,000 units, down 3% MoM from April.

The trend of global copper inventories continuing to shift towards the US is significant. As of May 29, SHFE and LME copper warrants decreased to 32,000 mt and 152,000 mt, respectively, with MoM declines of 6% and 25%. As of May 28, COMEX copper inventories increased to 179,700 mt, up 37% MoM. This data change reflects that copper inventories are shifting from the Asian and European markets to the US market.

Looking ahead, although the early release of future demand for US imports has provided short-term support for copper prices, copper prices still face downward risks amid intensified volatility in the US and Japanese stock, bond, and currency markets, as well as the gradual entry of the domestic copper market into the off-season for purchases and sales.

(Source: Futures Daily)