Copper Prices Bore Pressure from the Macro Factors

SHANGHAI, May 16 (SMM) - Last week, base metals prices bore pressure from the rising US dollar and the depreciating RMB. The US Fed raised interest rates by 50 basis points as scheduled, and decided to start shrinking its balance sheet in June. Powell said at a press conference that they may raise interest rates by 50 basis points at each of the next two meetings, and temporarily ruled out the possibility of the 75-basis-point rate hike. The endpoint of the interest rate hike will be considered until the rate reaches a neutral level.  The US non-farm payrolls data in April exceeded expectations, supporting the Fed to stick to the current tightening monetary policy. The geopolitical tension between Russia and Ukraine escalated, and all diplomatic channels between the two countries have been interrupted. In China, the official manufacturing PMI in April was 47.4, and the scale of social financing increased by 910.2 billion yuan, 946.8 billion yuan less than the same period last year, and far less than the expected 2,032.9 billion yuan. As the overall downward pressure on the economy increases, the National Standing Committee will promote the sustainability and quality of foreign trade, and help maintain the supply chain of the industry.

On the supply side, the maintenance of smelters is concentrated in April and May. CICC and Fuye will extend the maintenance period, while Southeast Copper, Daye Nonferrous, and Zijin Copper will also start maintenance in May. Therefore, domestic output in May is likely to record an annual low. The market can see plapbale output growth after phase I of Fangyuan and Xiangguang resume the production in June. Meanwhile, the copper import window has been widely opened, but copper import has not improved significantly for the moment.  Affected by the pandemic situation in Shanghai, the overall customs declaration has not been restored yet. Therefore, domestic supply will remain weak in the short term, and the increase in supply may appear in the second half of June. On the demand side, the pandemic has greatly affected the dismantling of copper scrap and the raw material procurement of scrap-users, resulting in a shortage of raw materials in the market. Some secondary copper rod producers stopped or cut the production when facing difficulty in purchasing raw materials and low profits, which is beneficial to the copper cathode consumption to a certain extent. The demand is recovering from the pandemic, but the terminal consumption is still poor. Outdoor work for construction and power grid projects has been suspended, hence the demand for cables declined, resulting in fewer new orders received by copper rod enterprises. It is expected that the domestic demand will pick up after June. Copper inventories have gradually become visible, and LME inventories have increased by 96,000 mt from low. On the supply side, the domestic copper cathode output is expected to remain low in May, but the terminal consumption keeps falling, resulting in weak support for copper prices on the fundamentals. Copper prices are likely to drop along with extensive pessimism. The most-traded SHFE 2206 copper contract is expected to trade between 70,000-72,500 yuan/mt, and LME copper will trade between $9,000-9,400/mt.

In the spot market, there is only one trading day left before the delivery of SHFE 2205, and the spread between the front-month and next-month contracts quickly dropped to 150 yuan/mt in the backwardation structure. Spot premiums in the Shanghai market fell when the imported copper flowed into the market. On the last trading day, the market will start to offer quotes over the June contract, hence the quotes of premiums are of utmost concern. After the delivery of SHFE 2205, with the continuous inflow of imported copper, the premiums in Shanghai may continue to decline. Spot premiums are expected to move between 200-300 yuan/mt this week.

Disclaimer:

The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.