SMM Review of Copper Prices in April

SHANGHAI, May 16 (SMM) - Copper prices fell after increasing in April. At first, the US faced increasing risks of debt default since Congress failed to reach an agreement on the debt ceiling issue. The market speculated that in June, the US Treasury Department may run out of funds, and the credit market may further deteriorate. Overseas economies are more likely to fall into a deep recession. In addition, the acquisition of the First Republic Bank intensified the market’s worries about liquidity in the banking sector. As a result, risky assets such as copper fell sharply amid the strong risk aversion sentiment in the market. After the Labour Day holiday, the US Fed raised the rate by 25 basis points as expected, and the subsequent dovish speech indicated that the probability of the Fed stopping raising rates in June was high, which suggests that the suppressing effect of the US dollar index on copper prices will reduce. The European Central Bank (ECB) slowed down the pace of rate hikes and raised the rate by 25 basis points as anticipated, casting a weaker impact on the US dollar index. However, the ECB later stated that it would continue the rate hike in June to quell inflation as the core inflation in Europe remained high, which will be bearish for the US dollar. The Caixin China General Services PMI for April fell from the previous reading of 57.8 to 56.4, while the General Manufacturing PMI recorded 49.5, showing a unsustainable Chinese economic recovery regardless of the short-term growth of downstream demand.

On the fundamentals, copper cathode supply remained stable. The mines could maintain normal operation, and some imported spots flowed into the Chinese market as the SHFE/LME copper price ratio grew amid dropping copper prices in mid-to-late April. As a result, the SMM Imported Copper Concentrate Index (monthly) for April bounced back from $77.5/mt to $83.38/mt. In terms of raw materials, copper scrap supply tightened as copper prices slumped in mid-to-late April, which may further drag down the RCs of blister copper. On the demand side, the operating rates of copper semis producers dropped amid a slow recovery of downstream demand, which further slowed down the decline in spot copper cathode inventory in China. LME copper and Comex copper inventories were also on the rise. In general, copper prices gained weaker support from the inventory.