[SMM Macro Weekly Review] Geopolitical Situation Remains Volatile, Copper Prices Rise but Overall Demand Softens

At the start of this week, the market continued to trade on shifting sentiment around US-Iran negotiations and passage through the Strait of Hormuz. Iran initially indicated that merchant vessels could transit the Strait of Hormuz, which marginally improved risk appetite and kept copper prices fluctuating at highs. However, Trump subsequently stated that extending the ceasefire agreement was highly unlikely, Iran denied restarting a second round of negotiations in the near term, and renewed uncertainty over the Strait of Hormuz situation pushed risk-off sentiment higher. By mid-week, Trump signaled an extension of the ceasefire with Iran without setting a clear deadline, and indicated that a new round of talks could resume as early as Friday, boosting risk appetite and sending copper prices higher again. On Thursday, however, renewed obstacles in US-Iran negotiations and escalating regional tensions strengthened the US dollar index, capping copper prices on the upside. Overall, the macro theme this week remained the repeated swings in risk appetite driven by shifting US-Iran negotiation expectations, keeping copper prices hovering at highs.

On the fundamentals side, supply side, arrivals of imported copper increased marginally, but domestic copper supply remained tight due to smelter maintenance and relatively tight copper scrap supply. Demand side, with copper prices persistently elevated, downstream purchasing sentiment was generally cautious, with just-in-time procurement dominating for most of the week, and acceptance improving only marginally after price pullbacks. Inventory side, as of Thursday, April 23, SMM's nationwide copper inventories in major regions fell to 258,900 mt, with destocking continuing but the pace narrowing noticeably. Overall, the supply-demand imbalance this week was relatively small, with low inventories and tight domestic arrivals continuing to support prices, while high copper prices continued to weigh on downstream purchase willingness.

Looking ahead to next week, the macro narrative is expected to remain largely unchanged for now. If US-Iran talks continue to progress, there is still room for risk appetite to recover, but given the repeated setbacks in negotiations and unresolved Strait of Hormuz disruptions, copper prices are likely to continue hovering at highs. Fundamentals side, increased import arrivals will provide some supply supplement, but tight domestic supply and continued inventory drawdowns should continue to support prices on the downside. LME copper is expected to fluctuate in the range of $13,100–$13,550/mt, and SHFE copper in the range of 101,500–104,500 yuan/mt. Spot side, against a backdrop of elevated absolute prices, downstream demand is expected to remain driven by just-in-time procurement, with spot prices against the SHFE copper front-month contract expected to range from a discount of 30 yuan/mt to a premium of 150 yuan/mt.