Copper Futures Surge before Falling, Negative Feedback on Fundamentals

In the week ending May 24, SHFE copper prices surged before falling from Tuesday, and a significant pullback occurred after the US Fed's hawkish speech early Thursday morning. In the US market, the Fed’s latest monetary policy meeting minutes indicated a preference to keep interest rates at a 23-year high due to a rebound in Q1 inflation, delaying rate cuts again. Consequently, the yield on the US 10-year Treasury rose, the dollar rose to the 105 level, and US stocks, gold, and silver fell. Copper fully rolled back its early-week gains. LME copper price fell below $10,500/mt, and SHFE copper price fell below the 85,000 yuan/mt level. In Japan, the 10-year Treasury yield rose to 1%, the highest in 11 years and also the highest of yield curve control (YCC), with the market betting over a 50% chance of a rate hike by the Bank of Japan in the July meeting. In the Chinese market, A-shares were strong at the beginning of the week but fell sharply on Thursday due to macroeconomic headwinds, dragging down SHFE copper price to some extent. Fundamentally, spot market sentiment shifted from pessimistic to slightly optimistic as copper prices fell. However, new orders for copper semis producers were limited and operating rate at copper rod plants declined. According to SMM data, domestic copper cathode social inventory continued to build up to 415,100 mt, and bonded warehouse inventory also grew due to exports and imports. LME inventory saw a significant build-up during the week, with Asian warehouses increasing stocks due to Chinese smelters’ exports. The COMEX copper short squeeze eased after bears actively prepared for delivery, but inventory is still declining.

Currently, some institutions are wary of the negative feedback on consumption brought by this rapid rise in copper price. In the week of May 27, on the macro front, market focus is China's PMI and US PCE data. On the fundamentals side, end-users should monitor whether there are signs of inventory reduction and downstream procurement activity after the price drop. It is expected that LME copper will trade between $10,200-11,000/mt, and SHFE copper will trade between 82,500-87,500 yuan/mt. There will be limited room for spot discounts to narrow, with a discount of 320-240 yuan/mt.

The model predicts the price range for the closing price of the most-traded SHFE copper contract to be [82,075, 89,485], with an average of 86,090 yuan/mt. The unit is yuan/mt. The extreme price range is [79,250, 92,310], the normal price range is [81,130, 90,430], and the conservative price range is [83,020, 88,540]. The price in the week of May 27 is expected to move rangebound at highs, obtaining support at [81,130, 83,020]. Resistance range is [88,540, 90,430].