US economic data in May showed weakness, with the US dollar index decline pushing up copper prices [SMM Macro Weekly Review]

Macro, the US May manufacturing data contracted for the third consecutive month, coupled with ADP job additions far below expectations and initial jobless claims rising to an eight-month high, indicating a weakening labour market and declining economic momentum. Meanwhile, Trump repeatedly called for the US Fed to cut interest rates and announced that from Wednesday, steel and aluminum import tariffs would be raised from 25% to 50%, putting pressure on the US dollar, with the US dollar index pulling back to a six-week low. Against a backdrop of market risk aversion and policy games, Sino-US tariff negotiations signaled easing. Amid macro positives and fundamental headwinds, copper prices found some support, with LME copper rising to around $9,750/mt and the most-traded SHFE copper contract advancing to around 79,000 yuan/mt.

Fundamentally, spot TC for copper concentrates remained stable this week, with short-term mine shutdowns in Canada and Chile, but the overall impact was relatively small. Overseas large traders have been massively cancelling LME warrants, with the cancellation ratio now exceeding 60%. At the same time, the SHFE/LME price ratio declined, leading domestic smelters to gradually position for exports, with domestic inventory at persistently low levels and further downside room. The SHFE backwardation structure continued to narrow, while the LME backwardation structure widened, showing a clear divergence between domestic and overseas markets.

Looking ahead to next week, as the US Fed's June interest rate decision approaches, the market is betting on a nearly 95% chance that the Fed will not cut interest rates. However, with debt maturities approaching, weak employment data, and ongoing pressure from the Trump administration, there remains significant uncertainty over the Fed's path to cutting interest rates. It is expected that LME copper will fluctuate between $9,500-9,800/mt and SHFE copper between 77,500-80,000 yuan/mt next week. On the spot side, there is a trend of domestic and imported cargoes accumulating in bonded zones, with both domestic and overseas backwardation structures likely to widen. Spot prices against the SHFE copper 2506 contract are expected to range from a discount of 40 yuan/mt to a premium of 200 yuan/mt.