In February, the U.S. dollar index surged and fell back. The market was still trading in expectations of a rate cut by the Federal Reserve. During the month, copper contract prices dropped to a low before rebounding, fluctuating at highs. The Federal Reserve on January 31 kept interest rate unchanged. Subsequently, Federal Reserve Chairman Powell's hawkish tone and better-than-expected employment data changed the market's prediction of an interest rate cut within the year. The U.S. dollar index rose again, with a high close to 105. As the U.S. January CPI data also exceeded expectations, the U.S. dollar index stayed above 104 for many days. SHFE copper trading was suspended during the Chinese New Year holiday, and LME copper prices reached a low of $8,127/mt. Powell’s hints about interest rate cuts caused the dollar to fall, bolstering copper prices.
U.S. sanctions on Russian metals led to price gains for nickel, aluminium and other metals, pushing up copper prices. The European market recovered slightly in February. The French PMI exceeded expectations and the previous reading, bolstering European stock markets. The euro against the US dollar strengthened. The Nikkei index has broken through historical highs several times and was still rising, and the U.S. dollar declined against the yen.
Chinese A-share market bottomed out and returned to above 3,000 on the back of Reserve Requirement Ratio (RRR) cut in early February and lower 5-year Loan Prime Rate (LPR). Domestic macroeconomics pushed up copper contract prices after the CNY holiday.
Consumption of copper cathode was weak. After the CNY holiday, inventories at social warehouses accumulated noticeably, weakening support for copper prices. Consumption will remain weak in March. The tight ore supply has been priced in, and smelters maintenance and whether to reduce production will become the focus of market. According to SMM, the China Nonferrous Metals Industry Association will hold a "Copper Smelter Symposium" in Beijing on March 13, mainly to address a series of issues such as raw material shortages. U.S. employment and CPI data in March will continue to guide the trend of the US dollar. If CPI cools down more than expected, the probability of an interest rate cut in June may continue to increase. The US dollar will hardly have upward momentum. In this scenario, copper contract prices will continue to be strong; meanwhile, the U.S. debt issues may lead to market concerns over the U.S. economy. China's "Two Sessions” has improved China's confidence over development. LME copper is expected to trade between $8,400-8,700/mt in March and SHFE copper prices will fluctuate between 68,000-70,000 yuan/mt.
