The US Neutral Rate May Remain for a Long Time, Copper Prices Under Pressure

Market: Overnight, LME copper opened at $10,605/mt, initially reaching a high of $10,605/mt before trending downward, touching a low of $10,363/mt at the end of the trading session, and finally closing at $10,396/mt, with a decline of 3.94%. Trading volume reached 36,000 lots, and open interest was 344,000 lots. The most-traded SHFE copper contract opened at 84,500 yuan/mt, initially reaching a high of 85,080 yuan/mt before trending downward, touching a low of 83,880 yuan/mt during the session, and closing at 84,260 yuan/mt, with a decline of 2.79%. Trading volume reached 131,000 lots, and open interest was 215,000 lots.

News: (1) US Fed May Meeting Minutes: Several officials are willing to tighten policy further if necessary. The neutral rate may be maintained longer than previously expected. Officials discussed the need to keep rates unchanged for a longer period or to cut rates if the labour market weakens. Some officials noted the risk of overly loose financial conditions. After the minutes were released, traders reduced bets on multiple rate cuts by the Fed this year. (2) According to SMM, from Monday to Wednesday May 22 this week, LME Asian warehouse copper cathode stocks increased by a total of 7,500 mt, with Busan warehouse increasing by 2,000 mt and Kaohsiung warehouse increasing by 5,500 mt, mainly due to previous deliveries from domestic smelters. A large amount of domestic copper cathode is expected to be delivered in the future.

Spot: (1) Shanghai: On May 22, 1# spot copper cathode against the 2406 contract was quoted at a discount of 350-300 yuan/mt, with an average discount of 325 yuan/mt, down 15 yuan/mt from the previous trading day. Yesterday morning, copper prices continued to retreat, and some downstream buyers chose to restock at lower prices to meet the demand gap suppressed by previous high copper prices. Although spot premiums saw a slight pullback, they remained low. The market is currently dominated by a wait-and-see sentiment. If copper prices continue to fall today, premiums are expected to rise slightly.

(2) Guangdong: On May 22, 1# spot copper cathode against the current month contract was quoted at a discount of 460-400 yuan/mt, with an average discount of 430 yuan/mt, down 40 yuan/mt from the previous trading day. Overall, both inventory and copper prices fell, but downstream buyers did not restock, and spot premiums continued to decline.

(3) Imported Copper: On May 22, import premiums were -$30 to -$10/mt, QP June, with an average premium down $15/mt from the previous trading day; bill of lading import premiums were -$25 to -$10/mt, QP June, with an average price down $2.5/mt from the previous trading day; EQ copper (CIF bill of lading) was -$62 to -$52/mt, QP June, with an average price down $10/mt from the previous trading day, with quotes referencing late May and early June port arrivals. Yesterday, general pyrometallurgy warrants were found trading around -$25/mt. Yesterday, the import profits against the June contract was around -1,446 yuan/mt, with LME copper 3M-June at C75.35/mt, and the June-July spread widening to around C41/mt. The market only had some demand for ETA early June bills of lading, but suitable sources were limited, resulting in sluggish transactions.

(4) Secondary Copper: On May 22, copper scrap prices fell by 200 yuan/mt. Guangdong bare bright copper prices were 76,300-76,500 yuan/mt, down 200 yuan/mt from the previous trading day, with the price difference between copper cathode and copper scrap at 4,373 yuan/mt, down 243 yuan/mt from the previous trading day, and the price difference between copper rod made using copper cathode and using copper scrap at 2,170 yuan/mt. According to SMM, the implementation of "reverse invoicing" varies across regions. Copper rod plants using copper scrap implementing "reverse invoicing" lowered their copper scrap procurement prices due to increased tax burdens, while provinces that have not implemented the policy have a price advantage.

(5) Inventory: On May 22, LME copper cathode inventory increased by 2,050 mt to 110,250 mt; SHFE warrant inventory decreased by 120 mt to 224,155 mt.

Prices: On the macro level, the US Fed May meeting minutes showed that several officials are willing to tighten policy further if necessary. The long-term neutral rate may be higher than previously expected, which is bullish for the dollar and bearish for copper prices. Additionally, the arrival of Chinese copper cathode at LME Asian warehouses led some speculative longs to close their positions. On the fundamentals side, copper prices saw a pullback yesterday, with some downstream buyers restocking at lower prices, but many are still waiting for further price drops. Sellers are still waiting for downstream purchases, and according to SMM, some smelter inventories have reached warehouse limits. If copper prices continue to fall, the market is expected to see a slight recovery. In terms of prices, suppressed demand is putting upward pressure on copper prices.