Capital outflows weighed down copper prices

On the macro front, recent U.S. economic data has shown a moderate decline, particularly with an unexpected cooling in the job market. The market thus expected an earlier rate cut. The US dollar index fell to around 104 during the week. U.S. Treasury yields continuously declined this week. Although manufacturing activity in the Eurozone slowed in May, comprehensive economic indicators still show a recovery trend. After the recent rate cut, the European Central Bank has not yet made a clear statement on the subsequent rate cut path. China's manufacturing slightly declined in May, and the A-share market continued to fall. However, the Caixin services PMI exceeded expectations in May, improving confidence of the market. With the support of the central bank's monetary policy and fiscal policy, the domestic economy remains generally stable. Although the withdrawal of bulls weighed on copper prices, the decline in the US dollar index underpinned copper prices. LME copper price showed resilience after falling to around $10,000/mt, while SHFE copper price fluctuated between 80,000-81,500 yuan/mt.

On the fundamentals, copper inventories in LME Asian warehouses continued to increase, but inventories at COMEX and LME North American warehouses continued to decrease. Against the backdrop of tight shipping capacity in Asia, the reduction in inventories in North America has increased the potential for a short squeeze. Spot premiums in Shanghai continued to rise during the week, and the decline in copper prices stimulated end-user buying, improving copper cathode consumption. However, domestic copper cathode production in May exceeded expectations, and the high contango structure lowered costs for sellers, with the inventory destocking yet to appear. The gradual export of domestic smelters may weaken the support for LME copper. LME copper is expected to trade at $9,800-10,400/mt next week and SHFE copper at 78,000-82,000 yuan/mt. With the increase in warrants, spot quotes are likely to rise, with spot copper trading with a discount of 50 yuan/mt to a premium of 50 yuan/mt.