Long-term contract negotiations concluded in mid-year, macro front resonates, driving copper prices up [SMM Macro Weekly Review]

On the macro front, copper prices have recently shown a pattern of fluctuating upward amid a mix of macroeconomic disruptions and expectations of easing geopolitical tensions. Since mid-June, LME copper has gradually broken away from its previous high-level consolidation and adjustment, surging above $9,900/mt, while SHFE copper has also risen to nearly 80,000 yuan/mt. The driving factors mainly stem from two aspects: First, the positive development of the macroeconomic environment. Trump announced a temporary end to the Israel-Iran conflict and pushed for negotiations between the US and Iran, significantly alleviating market risk aversion. Meanwhile, senior Fed officials have released dovish signals, with multiple officials hinting at a possible interest rate cut as early as July if inflation remains mild. As market concerns over the Fed's policy independence intensify and expectations for future interest rate cuts rise, the US dollar index has pulled back sharply, falling to its lowest level since 2022, providing significant support for copper prices. Second, anticipated changes in tariff and trade policies have added elasticity to copper prices. The White House has stated that there are no plans to extend the tariff suspension period beyond July 9th, with the market anticipating potential tariff impacts and their effects on global supply chains and the cost side, pushing up the risk premium for copper prices.

On the fundamental front, the results of Antofagasta's mid-year negotiations with Chinese smelters were finalized this week, with the mid-year TC long-term contract price falling to $0/mt, indicating a continued tight balance in copper concentrates for 2025-2026. For copper cathode, the LME backwardation structure has widened significantly this week. A deteriorating SHFE/LME price ratio has driven domestic smelters to export. Meanwhile, domestic inventory has continued to decline, and domestic premiums have also risen significantly at month-end. Overall, supply appears tight.

Looking ahead to next week, geopolitical conflicts are expected to ease on the macro front, while the surge in US copper prices will guide LME copper upward. It is anticipated that LME copper will fluctuate between $9,800-$10,000/mt, and SHFE copper will fluctuate between 78,500-80,500 yuan/mt. On the spot front, the concentrated export of domestic smelters combined with low inventory will tighten domestic supply, but a weak supply and demand situation is expected to form under high copper prices. It is anticipated that spot prices against the SHFE copper 2507 contract will range from a premium of 50 yuan/mt to a premium of 200 yuan/mt.