1.Copper Prices Rebounded Sharply as Dollar Fell on Market Awaiting Fed Interest Rate Decision 

LME copper prices closed at $8,782/mt last evening, up 0.92%. Trading volume was 17,000 lots and open interest stood at 244,000 lots. The most active SHFE 2305 copper contract finished at 68,110 yuan/mt overnight, up 1.07%. Trading volume was 55,000 lots, and open interest stood at 156,000 lots.

On the macro front, market expectations that stress in the banking sector may keep the Fed and Bank of England from raising or raising interest rates sharply this week. In addition, concerns over the banking crisis eased, prompting some investors to cautiously return to high-risk assets. And the US dollar index fell overnight. In terms of fundamentals, warrants in Shanghai have been offered for sale recently, and imported copper is still flowing into the spot market, which may deal a certain blow to the quotes in the spot market. In addition, near the end of the month, in order to meet the demand for long-order delivery, some traders received goods at low prices in the market to support the spot transaction price.

Copper prices rebounded yesterday, but due to little change in consumer demand, downstream buyers pushed for lower prices. Refineries were not willing to sell cargoes, and the overall transaction was quiet. In terms of consumption, due to the limited increase in demand, most of the trades were done at lower prices, and it is expected that there will be little demand improvement in the short term. Copper prices rebounded sharply as the market awaited Fed interest rate hike.

 

 

 

 

 

2. Copper Prices Rebounded Slightly as Market Awaiting Fed Interest Rate Decision

LME copper prices closed at $8613/mt last Friday evening, up 0.93%. Trading volume was 16,000 lots and open interest stood at 246,000 lots. The most active SHFE 2305 copper contract finished at 66,910 yuan/mt last Friday evening, up 0.33%. Trading volume was 33,000 lots, and open stood at 146,000 lots.

On the macro front, the stock prices of Credit Suisse in Europe and the First Republic Bank of the United States fell further. The market still has concerns about the banking crisis and is more worried about the economic recession caused by the tightening monetary policy.

On the fundamentals, as of Friday March 17, SMM copper inventories in major Chinese markets decreased 36,200 mt from last Monday to 226,200 mt, down 44,900 mt from the two Fridays ago. This is up 29,600 mt from pre-CNY level. Specifically, compared with last Monday, inventories in most of the regions were destocked, mainly due to the sharp drop in copper prices last week, which significantly boosted the enthusiasm for downstream procurement. This resulted in an increase in outbound volumes. In addition, the import window opened last week, and it is expected that some goods will flow into the domestic market from the bonded area this week, which will grew spot cargoes market. In terms of prices, Europe and the United States are urgently combating the banking crisis, and market concerns eased. Copper prices have been restored due to the impact of macroeconomics. It is expected copper prices will move narrowly.

3. SMM Copper Price Forecast for March 2023 from Supply-Demand and Macro Perspective

Macro front:

Silicon Valley Bank announced bankruptcy on March 10 after its business was severely jeopardised by prolonged period of US interest rate hikes. Subsequently, the US Fed unveiled a new bank financing plan, and the Treasury Department said it would allocate $25 billion in support of this plan, leading the market to believe that the chance of the US Fed raising interest rates by 50 basis points in its March meeting would be zero. In the short term, the spillover effect of Silicon Valley Bank's collapse will be limited. In order to fight rising unemployment rate and financial risks, the US Fed will probably raise interest rates by merely 25 basis points in March, which will have limited impact on copper prices. Market sentiment will become neutral after panic sentiment is faded. In the medium and long run, considering that some US banks are still under tremendous liquidity pressure, the US Fed seems unlikely to tighten its monetary policy significantly. In addition, the impact of high inflation and high interest rates on the US economy is shifting from manufacturing and real estate sectors to consumption, which could steer the US Fed's monetary policy, thus befitting risky assets like copper.

Fundamentals:

Supply: The domestic copper production is expected to grow in March, but copper imports may fall steeply on a YoY basis as the import window has long been closed. Moreover, the current SHFE/LME copper price ratio will cripple the inflows of bonded copper into the domestic market. As such, copper supply looks set to tighten in March.

Demand: SMM estimates that the average operating rate of domestic copper processing enterprises will rise 7.96 percentage points MoM and 2.58 percentage points YoY to 72.59% in March. With the arrival of the peak season, copper consumption is poised to recover further.

Price forecast: The impact of macro factors will gradually recede. With inflation in the US in a downward trend, market players are betting on the US Fed to slow down interest rate hike again. Weak supply and seasonal demand recovery will drive copper stocks to drop, thus buoying up copper prices.

SMM sees the most-traded SHFE copper contract moving between 67,500-70,500 yuan/mt in March and LME copper between $8,700-9,150/mt.

4. Copper Inventory in Major Chinese Markets Decreased

As of Monday March 20, SMM copper inventories in major Chinese markets decreased 7,500 mt from last Friday to 218,700 mt, down 43,700 mt from Monday March 13. This is up 22,100 mt from pre-CNY level. Over the weekend, only several areas saw a decrease in inventory, and the inventory in most other areas was flat compared with last Friday. Inventories in Shanghai decreased 6,500 mt to 218,100 mt, those in Jiangsu decreased 1,000 mt to 21,600 mt, and those in Zhejiang decreased 100 mt to 2,500 mt. The inventories in other regions were flat compared with last Friday.

Over the weekend, Jiangsu, Zhejiang and Shanghai saw destocking mainly because copper prices fell sharply last week, which prompted downstream buyers to purchase actively. Given the profit of copper imports, the imports of copper in Shanghai increased over the weekend, even as the inflow of imported copper in Guangdong was not large. It is expected that there will be additional imports this week, and the supply will increase. If the demand improves, it is expected that the inventory will still be depleted this week.  But the destocking rate is expected to slow down compared with last week.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.Lower Copper Prices Led to Significant Order Increases at Downstream Sectors

Wire and cable: Last week, wire and cable enterprises actively scheduled production as finished product inventory continued to decline. According to SMM survey, copper prices fell at the end of the week, attracting buyers. The speed and quantity of delivery to downstream enterprises significantly improved. Cable companies have also taken advantage of low prices to purchase raw materials and actively produced. From the perspective of terminal consumption, as the weather got warmer, projects continued to resume normal construction, and demand for civil power lines continued to pick up. According to SMM, the actual delivery volume to the State Grid in the first quarter was fairly good, and pent-up orders placed before the COVID-19 pandemic had been carried out. But there was no significant growth in real estate sector. Overall, as the seasonal peak season approaches and the copper prices drop, cable consumption will continue to improve.

Enamelled wire: The industry was operating steadily last week, with orders increasing. Enamelled round wire enterprises said that their orders remained stable last week. With the exception of the decrease in export orders due to the impact of the international situation, domestic orders have steadily increased, especially after the sudden plunge in copper prices during the week. However, some enterprises indicated that downstream customers stood on the sidelines, and still worried about whether the increase in orders can sustain.