Expectations of domestic production cuts drove copper prices surge

Copper prices surged last week, with LME copper prices approaching $9,000/mt and the most active SHFE copper contract prices exceeding 72,500 yuan/mt. In the United States, the CPI rose more than expected in February, mainly due to rising gasoline prices and housing costs; after the data was released, market confidence in interest rate cuts in March and May declined. "FedWatch" forecasts show that the market expects the probability of a 25-basis-point interest rate cut by the Federal Reserve in June rose to more than 60%, and the market's focus on interest rate cuts turned to the number of interest rate cuts during the year. The US dollar index briefly rose and hovered around 103 again; as the market was still worried about the US banking system, the higher-than-expected CPI data failed to keep the US dollar strong. European Central Bank Governing Council member Stournaras said: "Interest rates must be cut twice before the summer break." The euro against the US dollar remained above the 5-day moving average during the week.

On March 13, the progress of wage negotiations in Japan, known as shunto (or “spring fight”) was optimistic. The salary increase in various industries in Japan has increased sharply compared with 2023. Japan is expected to emerge from the era of negative interest rates. The US dollar against the yen rose but still fluctuated around the 5-day moving average. In the Chinese market, on March 13, the China Nonferrous Metals Industry Association convened domestic mainstream smelters to hold an important meeting on raw materials, and then it was reported that smelters may have production reduction plans; in the afternoon of March 13, LME copper prices surged, and SHFE copper prices jumped during the night trading session. Last week, LME copper prices exceeded $8,970/mt, and SHFE copper prices broke through the 72,000 yuan/mt mark. In addition, the "Action Plan for Promoting Large-Scale Equipment Renewal and Trade-in of Consumer Goods" issued by the State Council was released on the 13th. The person in charge proposed that "equipment renewal is initially estimated to be a huge market with an annual value of over 5 trillion yuan. The replacement of automobiles and home appliances will be favourable for copper-related end-user companies.

During the week, the symposium of copper smelters in Beijing failed to substantially address the difficulties of smelters. Spot TCs for copper concentrates continued to decline. That, combined with news that smelters may reduce production still bolstered copper prices. According to SMM data, social inventories of copper cathode continued to increase to 389,100 mt during the week. High copper prices further suppressed downstream purchasing, and it is unlikely to see an inflection point for social inventory in the short term. Driven by funds, there are no signs of downward trend of copper prices. This week, the attitude of the Federal Reserve will be a market focus, and PMIs from many countries will also be issues; whether there is any news about output cuts by Chinese smelters will be focused. Copper prices may remain high in the short term. LME copper is expected to trade between $8,800-9,050/mt this week and SHFE copper prices will fluctuate between 70,000-73,000 yuan/mt. Spot copper will trade against the SHFE 2404 copper contract. In view of inventories still accumulating and high copper prices, spot trades are expected to be quiet, with spot discounts of 130-50 yuan/mt.