1．Copper Inventory in China Bonded Zone Up 13,300 mt on Week

  The copper inventories in the domestic bonded zones increased 13,300 mt from January 7 to 216,900 mt as of Friday January 14. The inventory rose for three straight weeks.

The inventory in Shanghai bonded zone rose 10,500 mt on the week to 188,000 mt, while that in Guangdong bonded zone added 2,800 mt to 28,800 mt. The import and export windows both closed this week, hence the customs clearance was quiet. The Yangshan Copper premiums kept dropping in the past week, and some goods that arrived at the ports were stored into the bonded zone, pushing up the total inventory.

 

 

 

 

2、Copper Inventory in Major Chinese Markets Added 200 mt From Monday

As of Friday January 14, the copper inventory across major Chinese markets added 200 mt from Monday January 10 to 86,600 mt, which is quite rare recently.

The inventory in Shanghai rose greatly by 7,200 mt to 69,000 mt, and that in Guangdong and Jiangsu dropped by 2,600 mt and 3,800 mt respectively to 9,100 mt and 5,300 mt. Tianjin saw a decrease of 900 mt to 800 mt. The inventories in Guangdong and Jiangsu dropped more significantly amid less arrivals and restocking demand ahead of the Chinese New Year. Tianjin saw a decline in inventory mainly because the local COVID-19 pandemic has prompted some smelters to ship their goods to east China, resulting in lower inventory in Tianjin and rising inventory in Shanghai. The inventory increase in Shanghai was also partly contributed by the slight increase in imports that cleared the customs.

Looking into next week, as more downstream companies will take the CNY holiday, the demand will weaken further. Hence the inventory will enter the upside trajectory.

 

 

 

3、Copper Prices to Gain Strong Support from Macro Economy and Low Inventory

The copper market still focused on domestic credit liberalisation, expectations of interest hikes on recovering overseas economies, and the overall low inventories entering 2022. The domestic inventory will start to increase approaching the CNY, but the domestic copper prices are expected to gain strong support, and the overseas prices will rise as well.

Faced with the downward pressure on the economy, the People's Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission, and China Insurance Regulatory Commission frequently suggested that the tight monetary policy should be relaxed. In the regular meeting of the Monetary Policy Committee of the People's Bank of China in Q4 2021, it was even more clearly  emphasised that the economy should grow steadily, and the cross-cyclical adjustment should be strengthened combined with counter-cyclical adjustment. The effect of the easing monetary policy implemented in Q4 2021 is expected to be reflected in Q1 2022, which will prop up the spot and futures market.

The Fed unexpectedly delivered a hawkish stance amid strong macro data, and the interest hikes may be advanced this year. This will restrain the inflation expectations from growing too fast. But after the market fully digests the hawkish attitude, the transactions prices will return to the upward trend in the long run, and the overseas prices are expected keep rising.

According to SMM survey, the copper cathode output in December 2021 stood at 870,300 mt, which was far higher than the market expectations and hit a new high in H2 2021, as most copper smelters have completed their maintenance, and some smelters have resumed their production from accidents rapidly. The shortage of copper anode was gradually alleviated, as the imports returned to normal in November after the port congestion in South Africa eased slightly. Only a few smelters in coastal provinces still lacked copper anode and could not produce in full capacity.

At the same time, the copper smelters had high raw material inventories as the supply of copper concentrate stabilised. The temporary shutdown of the ports in north China did not drag on the copper concentrate consumption by the smelters in north-west China. Based on the current market, the impact of the upcoming Beijing Winter Olympics is insignificant on the smelters in north China, and the export window will stay open as the SHFE/LME copper price ratio keeps falling. The smelters will basically keep their production in full capacity in January 2022.

However, the social inventory remained low as of January 11. Although some copper cathode cargoes arrived at domestic ports recently, they were stored in the bonded areas amid closed import window. The bonded inventory is likely to increase more significantly in the traditional off season during the CNY. The unusually low domestic social inventory of copper cathode will provide strong support for the domestic spot and futures prices, so the copper prices are unlikely to fall below 68,500 yuan/mt.

SMM sees SHFE copper between 68,800-71,000 yuan/mt in January and LME copper between $9,500-9,800/mt.

 

 

 

4、Copper Prices to Remain at the Current Level with Strong Support

The copper prices edged lower and moved between 69,000-70,500 yuan/mt last week. The Federal Reserve's meeting minutes in December 2021 indicated that it may start to scale back its balance sheet after the first interest rate hike, which will be earlier and faster than in history. This statement significantly exceeded market’s expectations and triggered sharp fluctuations in asset prices. However, the assets tend to be impacted in a short term as the market logic may return to a strong economic growth period after quickly digesting the hawkish signal of the Federal Reserve.

The market still needs to pay attention to the US non-farm payrolls as well as the domestic and overseas CPI and PPI before judging the domestic and overseas policy trends. China will maintain relatively loose policies before the Chinese New Year to ensure the steady operation of the overall economy, and the scissors difference between PPI and CPI is expected to narrow before CNY. The domestic macro may continue to improve, which will stabilise the copper prices.

According to SMM statistics, the domestic copper cathode output in December far exceeded market expectations and stood at 870,300 mt, a month-on-month increase of 5.38% and a year-on-year increase of 0.97%, the highest in H2 2021, mainly driven by the ending of maintenance at smelters at the year-end, the rapid recovery of some smelters from the industrial accidents as well as the year-end busy production.

On the raw material side, the shortage of copper anode supply has been gradually alleviated. With the slight improvement of the shipping issues at the ports of South Africa, the import of copper anode basically returned to normal in November. Only a small number of smelters in coastal provinces underwent a slight shortage of blister copper and have not yet reached full production. Meanwhile, domestic social inventories have declined further on the month, and the high apparent consumption signifies that the domestic consumption is still resilient. As such, the copper prices will have solid supported at 69,000 yuan/mt.