Mid-Year Long-Term Contract Negotiations Remain Unresolved, Macro Risk-Aversion Sentiment Guides Copper Prices Lower [SMM Macro Weekly Review]

Last Friday, geopolitical risks escalated rapidly across the globe, and the strengthening of the US dollar index weighed on copper prices. Mid-week, the US Fed maintained its benchmark interest rate unchanged, and retail sales data for May fell short of expectations, causing the US dollar index to pull back amidst fluctuations. Copper prices remained rangebound, lacking sustained upward momentum ahead of the conclusion of year-end negotiations. Although the US maintained its forecast for two interest rate cuts this year, some Fed members turned hawkish, and Powell emphasized inflation uncertainties and the possibility of it remaining elevated, leading to renewed US dollar strength. Copper price performance became more correlated with geopolitical developments in the short term, with futures markets mostly fluctuating considerably. This week, LME copper prices have been weak, with significant downward pressure on prices from high levels, and market sentiment has turned cautious, fluctuating from $9,750/mt to below $9,600/mt.

On the fundamental front, Antofagasta and Chinese smelters commenced their second round of negotiations this week, with the outcome of mid-year negotiations still pending. In the short term, spot tender volumes continue to show a downward trend due to production cuts at Kamoa-Kakula. For copper cathode, the release of warrants following the delivery of the SHFE copper 2506 contract this week has suppressed spot premiums, and the US dollar-denominated copper market has also been sluggish. The market has entered a short-term off-season, but the backwardation structure in the forward months continues to widen. Overall, both supply and demand in the market are weak.

Looking ahead to next week, geopolitical conflicts on the macro front are intensifying, significantly increasing market risk aversion. Meanwhile, the unresolved Sino-US tariff negotiations have added to market uncertainties, putting sustained pressure on copper prices in the short term. LME copper prices are expected to fluctuate rangebound between $9,500-9,700/mt next week, while SHFE copper prices are expected to fluctuate between 77,000-79,000 yuan/mt. On the spot front, it is expected that enterprises will face increased pressure to clear inventories and receive payments by mid-year. In the short term, spot premiums are expected to continue to decline due to demand and trading factors. Spot prices against the SHFE copper 2507 contract are expected to range from a discount of 20 yuan/mt to a premium of 100 yuan/mt.