Copper Prices Face Downside Risks amid Multiple Factors

In Q1, supported by the tight global supply of copper concentrates, the center of copper prices shifted significantly higher YoY, with the most-traded contract climbing to a historical high of RMB 83,320/mt. During the Qingming Festival, affected by the US "reciprocal tariff" policy, copper prices plummeted, dropping to a low of RMB 71,320/mt, a decline of RMB 12,000/mt from the year's peak, representing a drop of over 14%.

Supply side, the expansion of the Kamoa-Kakula and Oyu Tolgoi mines, along with the commissioning of the new Malmyz mine, is expected to drive a 2.3% increase in global copper mine production in 2025. Meanwhile, capacity expansion in China, as well as the commissioning of new capacities in Indonesia, India, and the DRC, will boost refined copper production by an estimated 2.9% in 2025. Despite the simultaneous growth in copper mine and refined copper capacities, the global tight supply pattern of copper concentrates is expected to persist.

Currently, copper concentrate treatment charges (TCs) have remained in negative territory for several months. As of May 23, spot TCs fell to -$44.25/dmt. In May, the cost of producing refined copper from copper concentrates exceeded domestic spot prices by RMB 4,705-5,455/mt. On one hand, the higher production cost of refined copper compared to domestic selling prices provides support for copper prices from the cost side; on the other hand, it may dampen smelters' production enthusiasm, constraining a significant increase in refined copper output.

Previously, influenced by changes in market supply-demand patterns, the domestic refined copper import window closed while the export window opened, prompting domestic smelters to actively expand export trade to secure profits. Data shows that in April, domestic refined copper exports increased by approximately 10,000 mt MoM, while net imports decreased by 15,000 mt MoM. With sufficient copper concentrate supply and an increase in smelters' operating rates, refined copper production rose by approximately 10,000 mt MoM.

From the perspective of raw material reserves, domestic imports of copper concentrates, copper scrap, and copper anodes increased MoM in April, laying the foundation for enterprises' production in May. Entering May, with the refined copper export window remaining open and the scale of production resumptions at refined copper enterprises exceeding that of maintenance, domestic refined copper production is expected to maintain a relatively high level.

Against the backdrop of a surge in US copper product imports, China has emerged as the main supplier leveraging its cost and capacity advantages, driving up domestic copper semis export demand. In April, exports of unwrought copper and copper semis increased by nearly 10,000 mt MoM, while imports either decreased or slowed in growth, resulting in a 40,000 mt drop 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, with weekly declines of 2.62%, increases of 0.27%, declines of 1.05%, and declines of 0.50%, respectively. Among them, copper consumption in the air conditioning and new energy sectors both declined 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, from May 1-26, NEV retail sales reached 574,000 units, up 2% MoM from April, while nationwide passenger vehicle producers' wholesale NEV sales reached 620,000 units, down 3% MoM from April.

The trend of global inventory continuing to shift towards the US is notable. As of May 29, SHFE and LME copper warrants fell to 32,000 mt and 152,000 mt, respectively, with MoM declines of 6% and 25%.

Looking ahead, amid intensified volatility in the US and Japanese stock, bond, and currency markets, and as the domestic copper market gradually enters the off-season, copper prices still face downside risks.

Please note that this news is sourced from https://www.cnmn.com.cn/ShowNews1.aspx?id=462157 and translated by SMM.