Tariff Implementation Coupled with Strong US Dollar, Copper Prices Pulled Back Under Pressure at the End of the Week [SMM Macro Weekly Review]

On the macro front, this week international markets mainly traded around the escalation of the US-Iran conflict and the implementation of US tariff policies. The Iran situation worsened further, intensifying concerns over shipping and crude oil supply disruptions in the Strait of Hormuz. Rising oil prices fueled inflation expectations. Meanwhile, the US imposed tariffs of 10% to 12.5% on 60 economies, and initial jobless claims came in lower than expected, boosting the US dollar index and further weighing on copper prices. As of 10:00 a.m. Beijing time on July 24, LME copper had pulled back from this week's high of $13,934/mt to $13,360/mt, down $304/mt, or about 2.18%; the most-traded SHFE copper contract fell from 106,760 yuan/mt to 104,740 yuan/mt, a cumulative decline of 2,070 yuan/mt, or about 1.94%.

Fundamentals side, as of July 23, SMM national mainstream copper inventories stood at 109,200 mt, down 14,200 mt from the previous week but up 1,900 mt from Monday. Shanghai and Jiangsu saw slight inventory buildup, and the support from continuous destocking to copper prices has weakened somewhat. Supply side, market circulating cargoes increased compared with earlier periods and suppliers' willingness to sell rose. Coupled with the expectation that previously canceled LME warrants and imported copper would gradually arrive at ports from month-end to early next month, the tight domestic spot supply situation is likely to ease marginally. Demand side, the market remains in the traditional consumption off-season. High copper prices and high premiums continued to dampen downstream procurement. Downstream enterprises mainly restocked on a hand-to-mouth basis with limited willingness to chase higher prices. The tug-of-war between low inventories and weak demand is gradually tilting towards supply improvement and demand weakness.

Outlook for next week, on the macro front, attention should still be paid to the potential impact of the US-Iran conflict on the Strait of Hormuz and energy facilities. Further escalation could continue to push up oil prices and inflation expectations. Combined with the implementation of US tariff policies and the resilience of the labor market, the US dollar index may still hold up well, putting pressure on copper prices. Fundamentals side, low inventories will still limit downside room for copper prices. However, with expectations of imported copper arrivals strengthening, domestic circulating cargoes increasing, and inventories in Shanghai and Jiangsu showing signs of rebound, the support from tight spot is expected to weaken further. LME copper is expected to trade in the $13,400-$13,750/mt range, while the most-traded SHFE copper contract is expected to trade at 103,500-105,700 yuan/mt. Overall, the market may consolidate on a subdued note.