Copper prices continue to fluctuate at highs

In May, the copper market operated steadily, with SHFE copper prices fluctuating rangebound around 78,000 yuan/mt. The trends of LME copper and SHFE copper were generally similar, but LME copper outperformed SHFE copper, boosted by factors such as declining inventories and a weaker US dollar.

The market focused on overseas macroeconomic data.

In early May, the UK and the US reached an agreement on the terms of a tariff and trade deal, raising market expectations for an improvement in the global trade environment and leading to a slight rebound in the US dollar index. On May 12, the Ministry of Commerce issued a joint statement on the Sino-US Geneva Economic and Trade Talks, announcing that significant consensus had been reached in Sino-US trade negotiations. This progress significantly boosted market risk appetite, and copper prices strengthened temporarily as a result.

In addition, the US Fed maintained its pause in interest rate cuts at its May policy meeting. Fed Chairman Powell stated that high tariffs could push up inflation and exacerbate pressure on the job market, and that the current monetary policy was in a moderately restrictive range, with a manageable outlook for underlying inflation, making it prudent to maintain a wait-and-see approach. Two days after the Fed announced its latest interest rate decision, several Fed officials reiterated the importance of controlling inflation expectations, believing that uncertainties in trade policy could lead to interest rates remaining elevated for a longer period.

In mid-to-late June, the Fed's policy meeting will be held. According to the CME "FedWatch Tool," the probability of the Fed maintaining interest rates unchanged in June is 95.3%, with a 4.7% probability of a 25-basis-point cut. The probability of the Fed maintaining interest rates unchanged in July is 75.6%, with a 23.4% probability of a cumulative 25-basis-point cut and a 1.0% probability of a cumulative 50-basis-point cut. The impact of the US tariff policy on the market is gradually stabilizing, but the inflation concerns it has triggered and its potential impact on the economy will gradually emerge. Against this backdrop, the financial attributes of copper will continue to weaken.

The shortage of raw materials intensified.

In the week ending May 30, the processing fee for imported copper concentrates was reported at -$43.56/mt, further declining from -$42.61/mt at the end of April. Since turning negative on January 24 this year, the processing fee for imported copper concentrates has continued to fluctuate downward, reflecting persistent pressure on ore supply. In terms of copper scrap, the volume of copper scrap imported from the US has continued to decline since the beginning of this year. Although imports of copper scrap from Japan have increased somewhat, this has been insufficient to offset the decline in imports from the US. As copper prices struggle to rise and fail to stimulate the market to release more supply, it is expected that the volume of imported copper scrap will be difficult to rebound in June. Coupled with the resumption of production by some smelters after maintenance, the tight supply of copper scrap is expected to further intensify in June.

According to SMM data, the operating rates of domestic copper smelters in China have generally shown an upward trend this year. However, around the delivery periods between months, a significant increase in market deliveries has led to a short-term accumulation of copper inventories at the SHFE. Due to limited inflows of imported supplies, the supply of copper cathode remains tight.

Regarding domestic smelters, four smelters are scheduled for maintenance in June, involving the same crude and refined smelting capacity as in May. It is expected to affect production by 22,300 mt, a significant decrease compared to the impact of previous maintenance. Although the scale of planned maintenance at domestic smelters in Q2 gradually narrows in June, the pressure on raw material supply increases instead of decreasing, and the tight supply of copper cathode will persist in June.

According to SMM data, the forecasted operating rate of domestic wire and cable enterprises in May was 84.66%, continuing to rebound from the April level. Demand side, power consumption has maintained a positive trend this year, with overall stable demand from the real estate sector. Notably, since the start of Q2, both newly started and completed construction areas in real estate have rebounded. However, wire and cable enterprises engaged in concentrated procurement of raw materials when copper prices fell in April, and now the inventory of copper rod raw materials has once again accumulated to a high level. Therefore, despite the rebound in demand from the wire and cable sector, the transmission of demand still lags behind.

The production and sales of the air conditioning industry exhibit distinct seasonal characteristics. In June, enterprises have entered a downward production cycle, with production and sales activities set to contract further, and their boosting effect on copper demand will also weaken accordingly.

The automotive industry is in a phase of seasonal rebound, with NEV production continuing to accelerate. Coupled with positive sales performance this year, the industry's copper demand will steadily rebound.

In summary, copper prices will continue to fluctuate at highs in June.

(Source: Futures Daily)