Favourable macro front continues to take effect, with the risk of short squeeze in COMEX copper still existing. Three major copper futures, including LME copper, SHFE copper, and COMEX 3M copper contract, all hit record highs [SMM News]

SMM May 20 News: China's central bank and multiple government departments unveiled a major property market "stimulus policy package", while the National Development and Reform Commission (NDRC) announced additional measures to consolidate and expand development advantages in the new energy vehicle (NEV) sector. Renewed market expectations for a US Federal Reserve interest rate cut within the year, combined with mounting macro tailwinds and geopolitical risk concerns, triggered sharp rallies in copper, gold, and silver. Amid persistent COMEX copper short-squeeze fears, the metal along with LME copper and SHFE copper all reached record highs since their listings. As of 11:09 on May 20, COMEX copper traded at $5.1585/lb (+2.15%), with intraday highs hitting $5.199/lb - a new all-time peak. LME copper also surged 2.89% to $10,976.5/mt during the May 20 daytime session, breaking its previous record high of $11,104.5/mt. SHFE copper jumped 5.08% to 87,250 yuan/mt, with intraday prices reaching 88,940 yuan/mt - the highest since its 1995 listing.

Market News

[NDRC: More Measures to Consolidate and Expand NEV Industry Development Advantages]Huo Fupeng, Deputy Director of the NDRC's Department of Industrial Development, stated the commission will collaborate with relevant parties to implement pragmatic measures for NEV quality improvement, cost reduction, and production expansion. Key focus areas include: 1) Boosting consumption through trade-in policies, rural NEV promotion, and public sector vehicle electrification to further expand market size; 2) Accelerating technological advancement by supporting R&D in electrification and intelligent technologies to enhance industrial competitiveness.

In a Financial News article, market analysts noted the current period presents a favorable window for mortgage rate liberalization reforms, given strengthening economic recovery and deeper understanding of housing market supply-demand dynamics. Many local governments strongly favor scrapping local mortgage rate floors. Industry insiders predict if most cities remove rate floors, mortgage rates could decline significantly, stimulating rigid and improved housing demand while easing developers' cash flow pressures.

[Beijing Second-Hand Home Transactions Surpass 1,000 Daily Average Post-"May 17" Property Policies]According to Centaline data, Beijing's second-hand home market achieved a daily average of over 1,000 transactions during the first weekend (May 18-19) following the "May 17" property policy adjustments. Specifically, 900+ units traded on May 18 and 1,100+ on May 19, totaling over 2,000 units for the weekend - approaching 2024's mini-spring market activity. Some new residential projects also reported increased sales momentum. Cailian Press)

[PBOC's "Four-Pronged Approach" Boosts Property Market: Shenzhen's Largest Local Agency Reports 117% Surge in Second-Hand Home Transactions] During the first weekend (May 18-19) following the PBOC's four-pronged property market support measures, Shenzhen's largest local agency Leye Home saw a 127% week-on-week increase in second-hand property viewings at its city outlets - reaching the highest level since 2018 and surpassing the historical peak of Q2 2020. Week-on-week second-hand transactions at these outlets surged 117%, with single-day volume on May 19 hitting the highest point since February 2021. (Cailian Press)

[Major Policy Boost for Property Destocking: PBOC to Establish 300 Billion Yuan Relending Facility for Affordable Housing] At the State Council policy briefing held by the State Council Information Office on the afternoon of May 17, PBOC Deputy Governor Tao Ling announced the establishment of a 300 billion yuan relending facility for affordable housing. This initiative encourages financial institutions to support local state-owned enterprises in acquiring completed but unsold commercial properties at reasonable prices, for conversion into affordable housing for sale or lease. The facility will have a 1.75% interest rate, 1-year term (extendable four times), and be available to 21 national banks including policy banks, state-owned commercial banks, postal savings banks, and joint-stock commercial banks. Banks may independently assess risks when extending loans to local state-owned enterprises designated by city governments for property acquisitions. The PBOC will provide relending equal to 60% of principal amounts, potentially leveraging 500 billion yuan in total bank loans. Vice Minister of Housing and Urban-Rural Development Dong Jianguo stated at the briefing that city governments will adhere to "demand-driven acquisitions," organizing local state-owned enterprises to purchase existing commercial housing stock at reasonable prices for conversion into affordable housing. Existing land parcels - whether undeveloped or partially constructed - will be properly disposed of through government repurchase, market transfers, or continued enterprise development, aiming to alleviate real estate developers' difficulties, reduce debt burdens, and promote efficient land resource utilization. 》Click for details

[Three Major Initiatives! "Significant Property Measures" Target Down Payments, Loan Rates, etc.] On the afternoon of May 17, the property market received multiple policy boosts as the PBOC and other authorities issued three notices adjusting housing provident fund loan rates, commercial loan rate floors, and down payment ratios. The People's Bank of China announced a 0.25 percentage point reduction in individual housing provident fund loan rates effective May 18, 2024. First-home loan rates for terms under 5 years (inclusive) and over 5 years will adjust to 2.35% and 2.85% respectively, while second-home rates for the same terms will be no lower than 2.775% and 3.325%. On the same day, the People's Bank of China (PBOC) issued a notice regarding adjustments to commercial personal housing loan interest rate policies. The notice mentioned abolishing the nationwide policy floors for first-home and second-home commercial personal housing loan interest rates. The PBOC and the National Financial Regulatory Administration also released a joint notice on the same day, proposing to lower the minimum down payment ratio for first-home commercial housing loans to no less than 15% and for second-home commercial housing loans to no less than 25% for resident households purchasing commodity housing with loans. 》Click for details

[NBS: Industrial Value-Added of Enterprises Above Designated Size Grew 6.7% YoY in April, Economic Recovery Momentum Continued]National Bureau of Statistics (NBS) data showed that in April, the industrial value-added of enterprises above designated size rose 6.7% YoY in real terms. On a MoM basis, it increased 0.97% from March. From January to April, industrial value-added grew 6.3% YoY. Breaking down by sector, the mining sector increased 2.0% YoY, manufacturing grew 7.5%, and the electricity, heat, gas, and water production/supply sector expanded 5.8%. In April, under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core, all regions and departments earnestly implemented the decisions and deployments of the CPC Central Committee and the State Council. Adhering to the general principle of pursuing progress while ensuring stability, they fully and faithfully applied the new development philosophy on all fronts, accelerated the creation of a new development paradigm, steadily promoted high-quality development, and intensified macro policy implementation. Production and demand maintained steady growth, employment and prices showed overall improvement, social expectations continued to strengthen, and high-quality development made solid progress, keeping the national economy generally stable with sustained recovery momentum.》Click for details

[US Core CPI Annual Rate Falls to Near Three-Year Low, Market Expectations for Fed Interest Rate Cuts Strengthen]Before US market open on Wednesday local time, the US Department of Labor released April's Consumer Price Index (CPI) data. The headline CPI annual rate stood at 3.4%, matching expectations, while the monthly CPI growth of 0.3% slightly undershot the 0.4% forecast. More critically, the core CPI annual rate further pulled back to 3.6%, hitting its lowest level since April 2021 while meeting expectations. Market expectations for US Fed interest rate cuts strengthened. Bolstered by confidence from CPI data, swap market pricing for the first interest rate cut in September surged above 70%, while the probability of two cuts by year-end also exceeded 50%.》Click for details

[JPMorgan: BHP Needs $50 Billion to Successfully Acquire Anglo American]JPMorgan analysts released a report stating that BHP would need to raise its latest offer by approximately 30% to fairly reflect the value of UK-based mining company Anglo American PLC. In other words, BHP would need to commit $50 billion to complete the acquisition. BHP previously launched a takeover bid for Anglo American, but both offers were rejected. The company's bids were £25.08 per share (total value £31.1 billion, equivalent to $39.1 billion) and £27.53 per share (total value £34.0 billion, equivalent to $42.7 billion). Anglo American claimed the latest offer still significantly undervalues the company. JPMorgan analysts stated that after reevaluating the value of Anglo American's copper assets, they raised the target share price to £27.75 per share. They also indicated that Anglo American's current share price trades at a 13.6% discount to the implied value of BHP's offer, suggesting the market perceives a low probability of BHP's successful acquisition. JPMorgan estimates Anglo American's fair acquisition price at £32 per share, with a total value of approximately £39.5 billion ($50 billion). 》Click for details

[Chile's Copper Commission Raises 2024 and 2025 Copper Price Forecasts]Chile's Copper Commission (Cochilco) revised upward its copper price forecasts for 2024 and 2025 on Thursday. It now expects an average copper price of $4.30 per pound this year, up from the previous forecast of $3.85. For 2025, the projected average copper price is $4.25 per pound, revised upward from $3.90. Cochilco forecasts a copper supply deficit of 364,000 mt this year and 278,000 mt in 2025.

Spot Market

As copper futures on major exchanges repeatedly hit record highs, downstream copper demand weakened.

Spot Market: According to SMM, Shanghai spot copper saw significantly weaker trading activity on the 20th due to volatile copper prices. Suppliers faced strong selling pressure, leading to a sharp decline in spot premiums. Early in the morning session, suppliers quoted mainstream standard-quality copper at discounts of 290-280 yuan/mt, while high-quality copper such as CCC-P and Jinchuan (plate) was offered at discounts of 280-260 yuan/mt. Entering the main trading period, the premium/discount range shifted lower. Mainstream standard-quality copper saw partial transactions at discounts of 300-290 yuan/mt, while high-quality copper like CCC-P and Jinchuan (plate) partially traded at discounts of 290-280 yuan/mt. Downstream buyers demonstrated strong bargaining power for immediate spot purchases, with deals concluded at discounts of 350-330 yuan/mt. Before 11:00 AM, both standard and high-quality copper prices edged lower - mainstream standard-quality copper partially traded at discounts of 330-320 yuan/mt, while high-quality copper saw partial transactions at discounts of 310-300 yuan/mt. The 20th witnessed extreme market conditions as soaring copper prices significantly dampened downstream demand, with limited consumption growth. Suppliers reported record-high discounts against front-month contracts. It is expected that spot premiums will continue to expand on May 21.

Regarding spot copper in South China: According to the SMM survey, Guangdong's inventory has declined for four consecutive days, primarily due to limited arrivals. Despite the continuous decline in inventory, downstream manufacturers are in a wait-and-see state and unwilling to purchase more due to the record-high copper prices. Suppliers have to continuously lower premiums to secure sales, resulting in only a small volume of transactions. As of 11 a.m., the front-month contract for high-quality copper was quoted at a discount of 340 yuan/mt, standard-quality copper at a discount of 400 yuan/mt, and SX-EW copper at a discount of 460 yuan/mt. Finally, it is necessary to continue monitoring the impact of warrant outflows on the spot market. Currently, Guangdong's warrant volume stands at 38,287 mt, a decrease of 1,665 mt from the previous day. Overall, with copper prices reaching record highs, spot trades have been sluggish, and premiums have continued to decline.

Inventory

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As of Monday, May 20, SMM's nationwide mainstream copper inventory decreased by 7,600 mt WoW to 402,800 mt, pulling back from the year's high. Compared to the inventory changes last Thursday, most regions across the country saw a decrease in inventory, with only Jiangsu experiencing an increase. Total inventory is 280,100 mt higher than the 122,700 mt recorded in the same period last year. Specifically, inventory in the Shanghai region decreased by 1,800 mt WoW to 276,900 mt, due to a poor SHFE/LME price ratio and a decline in imported copper arrivals. Inventory in the Jiangsu region slightly increased by 100 mt WoW to 53,400 mt. Despite the high copper prices weakening downstream consumption, arrivals remained limited, resulting in relatively small inventory changes in the region. Inventory in the Guangdong region decreased by 2,800 mt to 50,500 mt, due to reduced arrivals and low outflows from warehouses, which is also reflected in the sustained low daily average outflows from warehouses in Guangdong.

Looking ahead at the domestic copper inventory outlook, smelters are expected to continue increasing exports, coupled with maintenance activities at smelters. Additionally, according to SMM, this week's imported arrivals are also expected to be limited, leading to a projected decrease in total domestic supply. Regarding downstream consumption, with copper prices reaching record highs, downstream manufacturers are in a wait-and-see state and generally unwilling to purchase. Therefore, SMM expects a weak supply and demand situation this week, with a possible slight decrease in weekly inventory.

Outlook

As previously anticipated by SMM, with the continued positive impact of macroeconomic factors and the market's ongoing concerns about the risk of a short squeeze in COMEX copper, SHFE copper has broken through its previous record high, while copper futures on the three major exchanges—LME copper, COMEX copper, and SHFE copper—all reached new record highs during trading on the 20th. Regarding inventory, due to the deterioration of the import price ratio and limited imported arrivals, SMM's nationwide mainstream copper inventory has experienced a slight destocking. Additionally, LME copper and COMEX copper inventories have maintained a destocking state, providing inventory support for copper prices. Currently, copper prices are underpinned by strong optimism driven by favourable macro front developments. For the outlook of copper, caution is warranted regarding the risk of a pullback if copper prices break through previous highs and some funds take profits amid fading macro sentiment trading. On the demand side, elevated copper prices have suppressed procurement demand from downstream processing enterprises, keeping market activity subdued. Following subsequent warrant releases, spot supply will become more ample, with SMM projecting sustained pressure on premiums and discounts. For future macro front developments, attention should also be paid to whether China announces additional supportive policies for sectors like automobiles and real estate, as well as US employment data and Federal Reserve monetary policy meeting minutes that may influence the US Fed's interest rate decisions. Additionally, risks of escalating geopolitical conflicts warrant vigilance.

Market Voices

[Goldman Sachs' Former Head of Commodities: Buy Copper Now - It's the "Best Trade" Available!]Jeff Currie, former head of commodities research at Goldman Sachs and now chief strategist for Carlyle Group LP's energy pathways division, recently stated that copper's supply tightness will drive significant price appreciation, expressing strong confidence in this opportunity. Currie projects copper prices will reach $15,000 per ton in the coming years.

Citi Research reports indicate that copper futures on COMEX and the London Metal Exchange (LME) have attracted speculative bullish capital totaling $25 billion (approximately 180 billion yuan).

Dongwu Futures' research note states: On the macro front, heightened expectations for overseas interest rate cuts combined with multiple domestic property sector support policies have elevated market risk appetite. Fundamentally, tight copper concentrate supply conditions remain unresolved, with May production cut scales expected to expand further, while downstream demand shows resilience - providing fundamental support under passive restocking dynamics, keeping copper prices firm.

COFCO Futures analysis notes that North America's COMEX copper inventories are currently at historically low levels. Since last year, COMEX copper stocks have remained at record lows, and this year inventories have further declined to approximately 21,000 mt amid relatively robust US refined copper demand - marking the lowest seasonal level in six years. Meanwhile, prolonged Panama Canal drought has strained overall shipping capacity, affecting South American refined copper shipments. Although freight capacity is gradually recovering, shipment lead times remain around 30-35 days, making near-term replenishment difficult. Additionally, major overseas traders hold expectations for future price increases and are stockpiling refined copper, accelerating the depletion of overseas inventories. Consequently, multiple converging factors have caused COMEX copper prices to diverge from LME copper trends, charting a historic independent bull run. Z45/>Everbright Futures' research report points out: Against the backdrop of robust issuance of massive U.S. medium- and long-term bonds, boosted interest rate cut expectations, and continuous rollout of domestic pro-growth policies, the macro environment maintains a relatively optimistic market atmosphere and risk appetite, with abundant liquidity keeping copper prices strong. Additionally, regarding the much-watched COMEX copper squeeze incident, both domestic and overseas copper markets attracted significant capital inflows this year. However, COMEX primarily serves the North American market with relatively low demand and inventory levels. When the inventory-to-open interest ratio rapidly dropped to historically low levels, it was eventually exploited by bulls. The COMEX incident exposed the strain on copper inventories, and resolving the crisis requires diverting copper deliverable to COMEX from shipments bound for China and LME warehouses—a process needing time. Currently, COMEX copper open interest remains elevated, suggesting potential continued market sentiment boosts. In the short term, without witnessing pivotal turning-point events, the upward trend may persist, but the widening divergence between expectations and reality means long positions carry both rewards and risks—position sizing should be managed prudently.

China Securities' futures research report notes: With a bullish macro environment domestically and overseas, coupled with macro-driven capital inflows, copper prices are expected to hold up well in the near term. SHFE copper has reached historical highs, while some bulls in COMEX copper have taken profits. Combined with cooling overseas economic data, we maintain cautious optimism toward copper price peaks. Furthermore, while overseas market trading risks can only mobilize cargo flows—potentially alleviating inventory pressure in China over the next month—global inventory buildup pressure may remain challenging to ease.

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[SMM News] Macro Front Favors Continuous COMEX Copper Squeeze Risks; LME Copper, SHFE Copper, and COMEX Copper All Hit Record Highs