Copper prices fell back after hitting new highs in May

SHFE and LME copper prices, driven by multiple factors including macroeconomic factors and the COMEX copper short squeeze, continued to rise in May. However, when copper prices climbed to record highs, copper cathode consumption faced immense pressure. By the end of May, as macro sentiment cooled and the COMEX short squeeze sentiment faded, copper prices began to fall back. The US Fed maintained its current policy unchanged at its May meeting, while the US April unemployment rate and non-farm payrolls far exceeded expectations. The cooling employment data led the market to anticipate an earlier rate cut by the Fed. In mid-to-late May, the US dollar index fell from above 105 to around 104, and copper futures began to accumulate upward momentum. LME copper prices exceeded $10,000/mt, while SHFE copper prices climbed above 80,000 yuan/mt. Meanwhile, COMEX copper inventory fell below 20,000 mt and continued to decrease, leading to a short squeeze in the COMEX July contract, with the price spread between COMEX and LME copper once widening to around $1,000/mt. That also boosted the sentiment in the LME and SHFE copper markets. On May 20, LME copper prices once climbed above $11,100/mt, while the most-traded SHFE copper contract almost touched the 89,000 yuan/mt mark. Shorts in the COMEX market actively prepared for delivery, and long funds withdrew, leading to a pullback in copper futures prices. At the end of May, positive news emerged again from China's real estate market, with many first-tier cities optimising housing purchase restrictions and credit policies. However, the impact of these new real estate policies on copper prices was limited. Meanwhile, China's official Manufacturing PMI for May recorded 49.5, falling below the expansion territory. Thus, copper futures prices fell.

In June, copper prices continued to decline, but downstream consumption showed a brief improvement, and social inventory slightly decreased after the Dragon Boat Festival. SHFE copper inventory remains at a historically high level, while spot discounts and contract spreads continue to attract spot traders to convert spot cargoes into futures warrants; LME copper inventory increases mainly occurred in Asian warehouses, mostly due to exports from Chinese smelters and traders in late April and early May; COMEX copper inventory continued to decline, posing a risk of another short squeeze. The SMM average operating rate of copper semis producers will slightly rebound in June, promoting a destocking cycle in social inventory. LME copper prices are expected to fluctuate between $9,600-10,500/mt, while SHFE copper prices are expected to fluctuate between 78,000-84,000 yuan/mt.