Copper prices were running at high levels, eyes on downside room

There were solid economic data in the week ending February 2. LME copper prices during the week surged to a high of $8,704.5/mt during the week, and the most active SHFE copper contract prices soared to the 70,000 yuan/mt mark, giving a blow on bears. On Wednesday, ADP reported that in January, the United States added 107,000 jobs in the private sector, lower than expected at 145,000, the smallest increase since November 2023. Wage growth is also shrinking. The cooling of the labour market has shored up market expectations for subsequent interest rate cuts by the Federal Reserve. The Federal Reserve still left the interest rate unchanged at January policy meeting. The Federal Reserve is currently open to future interest rate hikes. Powell somewhat dispelled market expectations of a rate cut in March. The US dollar briefly rose and stood around 103.5; however, due to already weaker market expectations for an interest rate cut in March, copper prices were not affected too much. The initial annualised CPI of the eurozone in January was recorded at 2.8%. The eurozone still faces multiple challenges in a high interest rate environment; the European Central Bank continued to maintain interest rates unchanged, indicating that it is too early to discuss interest rate cuts. The euro rose in the second half of the week.

In the Chinese market, A-shares weakened in the week ending February 2, depressing domestic macro market sentiment. China's official manufacturing PMI recorded 49.2 in January, and the Caixin PMI recorded 50.8. The domestic economic performance was stable in January, bolstering market confidence for the economy in 2024. Although copper prices gave up some gains in the second half of the week, they still stood at a high level. LME copper prices stood at around $8,500/mt, and SHFE copper prices were around 69,000 yuan/mt.

The continued decline in copper concentrate TCs has raised market concerns about future supply. SMM understands that some smelters may undertake maintenance in advance as a result. Due to higher copper prices and closures at most downstream companies, the operating rates of copper rod plants using copper cathode as raw material dropped significantly, and downstream stocking was poor. The social inventory of copper cathode accumulated as expected. The contango structure has expanded, and spot trades have been dull. Some smelters may have already prepared for export after the CNY holidays. LME copper prices is expected to run at $8,350-8,650/mt in the week of February 5, and SHFE copper prices should stand at 68,000-69,500 yuan/mt. The spot market will be dim, with spot copper trading with discounts of 20 yuan/mt to a premiums of 50 yuan/mt.