High Copper Prices still Bore Pressure amid the Falling US Dollar

SHANGHAI, Jul 25 (SMM) - The European Central Bank raised the interest rates by 50 basis points for the first time in ten years, and the euro and yields of European bonds rose accordingly, dragging down the US dollar index to about 106.5. Last Monday July 18, LME copper prices once fell to $6,955/mt after opening at $7,150/mt, and were supported and rose to $7,470/mt because of the decline in the US dollar. SHFE copper prices stood stable as a whole last week after regaining most of the losses last week on Monday July 18, the 2208 copper contract closed the day with a growth of 5.44% to 57,000 yuan/mt. In the following four trading days, the prices remained rangebound at around 56,000-57,000 yuan/mt, but could not break the resistance at 57,000 yuan/mt.

On the fundamentals, not many incidents occurred to the mines, and the overall TCs remained stable. The smelters also maintained their normal production, and the output will keep increasing in August when the centralised overhaul ends. The closed import window limited the overall import volume, thus the social inventory across China kept declining, and the premiums continued to rise. At present, the SHFE/LME price ratio based on the August contact has not yet improved, but the contango structure of LME 0-3 copper and the high premiums that were aroused by the rapid decline in social inventory are sending positive signals to importers. In the short term, the change in domestic inventory will be highly dependent on the import volume.

On the whole, it has come to the critical point before the FOMC meeting at the end of the month. Recently, the market has released bearish factors completely. The expectation of long-term high inflation has been lowered, and the US Fed is unlikely to raise interest rates by 100 basis points. However, the market still expects the demand from Europe and the US to decline further. Commodities prices are still in a downward cycle even though the fundamentals provide short-term support. The most-traded SHFE 2209 copper contract is expected to move between 54,000-57,000 yuan/mt, and LME copper will trade between $7,200-7,500/mt.

In the spot market, the delivery of long-term orders will come to an end this week, and the market transaction may decline further. Moreover, the tight supply may ease. Therefore, the spot premiums are expected to move between 250-400 yuan/mt this week.