Copper futures surged on lower-than-expected US economic data and COMEX copper short squeeze

US economic data released in the week ending May 17 performed worse than expected. The US dollar index closed lower for consecutive days in the week and fell to around the 104 mark. The US one-year inflation forecast for May was 3.5% at the beginning of the week, higher than market expectations, and Federal Reserve officials also made speeches expressing their firm attitude of not cutting interest rates in the short term; however, the CPI annual rate before seasonal adjustment and seasonally adjusted CPI for April announced on May 15 were 3.4% and 0.3% respectively, both lower than the previous readings. Driven by the COMEX copper short squeeze, LME copper prices surged to exceed $10,400/mt in the middle of the week, and the most active SHFE copper contract hit the 83,000 yuan/mt mark on May 16. The revised annual GDP rate of the eurozone in the first quarter was 0.4%. The euro rose against the US dollar during the week. Japan's annualised GDP in the first quarter was -1.2%. China announced that the annual CPI rate in April was 0.3%. Although the A-share market fell slightly due to the impact of social financing data, it rallied at the end of the week on multiple policies from the People's Bank of China (PBOC) supporting the real estate industry. The domestic macroeconomic sentiment continued to improve, which also provided impetus for the upward trend of copper futures.

Deliveries to overseas markets picked up in the middle of in the week due to the COMEX copper short squeeze. As the export window has opened again, some smelters have the intention to expand their export. In addition, some domestic smelters were overhauled in May, and the arriving shipments in some domestic regions decreased. Spot discounts against SHFE 2406 copper contract expanded from 200 yuan/mt amid the large contango structure after the delivery of the 2405 contract. In the week of May 20, many countries will release flash PMIs for May. The United States may lower its inflation expectations for May, and the US dollar index will be under pressure. With the influx of long funds into COMEX, overseas capital may drive copper futures upward. LME copper is expected to trade between $10,000-10,600/mt and SHFE copper prices will fluctuate between 80,500-84,500 yuan/mt. In China’s spot markets, after the delivery of the SHFE 2405 contract, some sellers increased shipments to generate cash. High copper price will continue to depress downstream consumption. It is expected that the spot discounts will stand at 300-150 yuan/mt against SHFE 2406 copper contract.

According to the model, the price range of the closing price of the most active SHFE copper contract will be [79,700, 84,215], with an average of 81,980. The unit is yuan/mt. The extreme price range is [77,340, 86,030], the normal price range is [78,910, 84,820], and the conservative price range is [80,490, 83,610]. Prices will consolidate at highs. Prices will obtain support in the range of [78,910, 80,490] and meet resistance in the range of [83,610, 84,820].