Is there still room for copper prices to fall? [SMM Analysis]

In the early hours of September 19, the US Fed unexpectedly cut interest rates by 50 basis points, initiating a new round of rate cuts. Subsequently, on September 24, the central bank announced RRR cuts, interest rate cuts, and reductions in the mortgage rate on existing home loans. This round of domestic policy was strong, significantly boosting market expectations. Copper prices surged, and as of 11:30 on September 30, the futures closing price was 79,050 yuan/mt. With the end of the National Day holiday, the future trend of copper prices is under scrutiny. How will copper prices perform in the near term? SMM will analyze from both macro and fundamental perspectives.

Fundamentally, copper prices are influenced by both supply and consumption sides. During the National Day holiday, many companies halted production, reducing consumption and leading to a significant increase in copper cathode inventories after the holiday. According to SMM data, as of Thursday, October 10, copper inventories in major regions nationwide increased by 4,700 mt to 203,600 mt compared to Tuesday, and by 38,100 mt compared to pre-holiday levels. However, considering the production cuts by domestic smelters, the supply of domestic copper is expected to decrease, and the replenishment of imported copper is relatively limited. Therefore, overall, the total supply of copper cathode is expected to decrease. On the consumption side, although copper prices fell to some extent after the holiday, which should be favorable for consumers, the actual situation is not as expected. The downstream consumption market remains sluggish with a strong wait-and-see sentiment. SMM survey data shows that the operating rates of key downstream industries such as wire and cable and copper rod have declined compared to pre-holiday levels. This indicates that although some positive signals have been released at the policy level, boosting the market, the recovery of the downstream consumption market still requires time. Overall, despite some current uncertainties, SMM still predicts a future trend of supply reduction and gradual demand growth.

Additionally, current copper price fluctuations are more influenced by macro news. Since the US Fed's aggressive rate cuts, data shows that the US economy and job market remain resilient. Specifically, on October 9, the US announced that the unadjusted CPI annual rate for September recorded 2.4%, marking the sixth consecutive month of decline but higher than market expectations. Coupled with previous strong non-farm payrolls data, market expectations for future US Fed monetary policy have changed significantly. Fed officials also stated that shifting policy to neutral over time is appropriate, and the probability of a 25 basis point rate cut in November has risen significantly. The market generally believes that the Fed will continue to adopt a relatively loose monetary policy during the rate cut cycle. In the short term, both domestic and overseas markets show a generally warm macro perspective, which may benefit copper prices. Continued attention is needed on US economic data performance after entering the rate cut cycle to assess its potential impact on copper price trends.

In summary, the focus in H2 remains on boosting demand. If the policy measures at the end of September effectively drive positive economic data in October, and considering the difficulty in significantly improving raw material supply issues, copper prices may receive some mid-term support. Therefore, SMM expects limited downside for copper prices, with more anticipation for positive signals from market performance in October and subsequent months.