1.Copper Prices Strengthened Overnight on Lower US Dollar Index

LME copper closed at $9,111/mt last evening, a gain of 1.13%. Trading volume was 13,000 lots and open interest stood at 262,000 lots. The most active SHFE 2303 copper contract finished at 69,950 yuan/mt overnight, up 1.32%. Trading volume was 21,000 lots, and open interest stood at 124,000 lots. On the macro front, the U.S. dollar index fell as a number of strong economic data released earlier enhanced market expectations for the Fed to continue raising interest rates. As of Monday February 20, copper stocks in mainstream markets tracked by SMM increased 4,500 mt to 329,900 mt compared with Friday February 17. Despite limited arriving shipments of imported copper, downstream consumption has weakened, growing inventories. At present, the total inventory has increased by 133,300 mt compared with 196,600 mt before Chinese New Year holidays. Only Shanghai saw inventory declines over the weekend, while the inventory in Guangdong and Chongqing increased. Those in other regions did not change much. SMM understood that several copper rod plants stopped production due to overly high finished product inventory. This can be also reflected in the precipitous decline in daily average shipments from Guangdong warehouses. Although the recent performance of the US dollar index is strong, the domestic macroeconomic front is positive. Copper prices are expected to remain rangebound at high levels.

 

 

 

 

 

 

 

 

2. Yangshan Copper Premiums under B/L Exceeded Those under Warrants amid Slow Recovery of Domestic Copper Consumption

 Yangshan copper premiums with a quotation period in March stood at $17-32/mt under warrants during February 13-17, and between $15-35/mt under bill of lading (B/L) with a quotation period in March. As of February 17, the SHFE/LME copper price ratio stood at 7.71.

The recovery of domestic copper consumption has been slow after Chinese New Year holiday. Downstream purchasing remained lukewarm even as SHFE copper prices moved rangebound. Import losses against the SHFE front-month copper contract stood at 500-800 yuan/mt during the week. The demand for warrants was also sluggish.

 In terms of B/L, the arrivals were deferred due to chronic import losses and lower shipping efficiency of Chilean ports caused by sea tides. The overall arrivals will remain low in the near future. Sellers raised the premiums in anticipation of tight arrivals in March. In this scenario, Yangshan copper premiums under B/L outstripped those under warrants.

 

 

 

 

 

 

 

 

 

 

3. Inventory in Guangdong Increased amid Weak Consumption, Spot Quotes Fell Again

In Guangdong, spot quotes trended lower last week mainly due to growing inventory driven by weakening downstream consumption. As of Friday, total inventories in Guangdong stood at 58,800 mt, a growth of 3,300 mt from a week earlier.

The increase in orders at downstream cable plants was insignificant. Meanwhile, copper rod produced with copper scrap was more desirable due to a wider price spread between copper scrap and copper cathode. Consequently, some small and medium-sized copper rod plants halted their production early last week. SMM understood that more copper rod plants will cut the production this week.

4. Consumption Expectations Have Not Been Fulfilled, Macro Sentiment Dominated Copper Prices

The recent spectacular employment data in the United States, the higher-than-expected inflation rate, and resilient consumption data have made the market gradually realise that anti-inflation is a protracted battle. Coupled with the "hawkish" speeches of Federal Reserve officials, foreign investment institutions have adjusted their expectations for future interest rate hikes by the Fed. The US dollar stemmed declines and rebounded to above 104.5 during the week, capping the gains of copper futures prices.

In Europe, the European Commission raised its economic growth forecast for the EU and the eurozone to 0.8% and 0.9% this year respectively. Although the European Commission is relatively optimistic about the economic growth in Europe this year, the European economy still faces multiple challenges, especially the uncertainty brought about by the Ukraine crisis. In China, the People's Bank of China (PBOC) announced on February 15, 2023 that in order to maintain reasonable and sufficient liquidity in the banking system, it initiated a 499 billion yuan medium-term lending facility (MLF) operation and a 203 billion yuan open market reverse repurchase operation on February 15. The operation fully met the needs of financial institutions, and the domestic macro economy remained positive.

Fundamentally, a recovery has been seen across the entire industry chain, but the pace of recovery is slower than expected. New orders from end-users were limited, and most of the market players across the copper industry chain restocked on demand.

In aggregate, the domestic macroeconomic expectations remain positive, but the continued gains of the US dollar during the week have prevented copper prices from reaching higher levels. The market shall keep an eye on the important data in the United States due this week, such as the US producer price index and the core PCE price index. If the data exceed market expectations, the dollar will continue to strengthen and put pressure on copper prices. The most active SHFE copper contract prices are expected to move between 67,500-69,500/mt this week, and LME copper will trade between $8,800-9,050/mt.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.Copper Inventory in Major Chinese Markets Added 4,500 mt over Weekend

 As of Monday February 20, copper stocks in mainstream markets tracked by SMM increased 4,500 mt to 329,900 mt compared with Friday February 17. Despite limited arriving shipments of imported copper, downstream consumption has weakened, growing inventories. At present, the total inventory has increased by 133,300 mt compared with 196,600 mt before Chinese New Year holidays. Over the weekend, inventories grew in Guangdong and Chongqing, while those in Shanghai declined. Inventories in the other regions changed little. Inventory in Shanghai decreased by 1,700 mt to 190,900 mt, and inventories in Guangdong increased by 5,200 mt to 64,000 mt. Those in Chongqing increased by 1,000 mt to 11,000 mt.

The reason for the inventory decline in Shanghai over the weekend is that the arrivals of imported copper were still scarce, while the downstream buyers were restocking normally. There will be arrivals of imported copper in the near term. A small inflow of imported copper and more importantly, the poor consumption, have driven a big inventory growth in Guangdong. SMM understood that several copper rod plants stopped production due to overly high finished product inventory. This can be also reflected in the precipitous decline in daily average shipments from Guangdong warehouses.

The market shall pay attention to whether the customs clearance of imported copper will increase. In addition, due to the weakening of downstream demand at the end of the month, we expect that the inventory will continue to increase this week.