1.Copper Prices Strengthened Amid Falling US Dollar Index

LME copper prices closed at $8,585/mt last Friday evening, a rise of 0.25%.Trading volume was 20,000 lots and open interest stood at 255,000 lots. The most active SHFE 2307 copper contract finished at 68,500 yuan/mt last Friday evening, up 0.12%. Trading volume was 25,000 lots and open interest stood at 185,000 lots.

On the macro front, the European Central Bank raised interest rates by 25 basis points as expected, and the market expects the bank to raise interest rates by another 50 basis points. The rise in the euro caused the US index to dive.

In addition, U.S. retail sales data showed that U.S. consumer demand remained strong, and the market expects the Fed to continue to tighten its monetary policy. SMM data shows that as of June 16, SMM copper inventory across major Chinese markets went down 4,800 mt from Monday June 12 and down 15,800 mt from two Fridays ago. The inventory was down 16,300 mt from the same period last year. The continuous reduction of warrants and limited arrivals of domestic and imported copper drove inventories in east China to fall sharply. Spot cargoes were transferred to warrants in south China, growing inventories slightly. High copper prices combined with high spot premiums is expected to weaken downstream demand. Copper prices may remain strong and will mainly affected by macro sentiment.

2. Base Metals Showed Mixed Price Trends The European Central Bank Raised Interest Rates By 25 Basis Points As Expected

SHANGHAI, Jun 19 – LME and SHFE base metals showed mixed price trends

Copper: LME copper prices closed at $8,585/mt last Friday evening, a rise of 0.25%. Trading volume was 20,000 lots and open interest stood at 255,000 lots. The most active SHFE 2307 copper contract finished at 68,500 yuan/mt last Friday evening, up 0.12%. Trading volume was 25,000 lots and open interest stood at 185,000 lots. On the macro front, the European Central Bank raised interest rates by 25 basis points as expected, and the market expects the bank to raise interest rates by another 50 basis points. The rise in the euro caused the US index to dive. In addition, U.S. retail sales data showed that U.S. consumer demand remained strong, and the market expects the Fed to continue to tighten its monetary policy. SMM data shows that as of June 16, SMM copper inventory across major Chinese markets went down 4,800 mt from Monday June 12 and down 15,800 mt from two Fridays ago. The inventory was down 16,300 mt from the same period last year. The continuous reduction of warrants and limited arrivals of domestic and imported copper drove inventories in east China to fall sharply. Spot cargoes were transferred to warrants in south China, growing inventories slightly. High copper prices combined with high spot premiums is expected to weaken downstream demand. Copper prices may remain strong and will mainly affected by macro sentiment.

Lead: LME lead opened at $2,126.5/mt at last Friday’s session, and hiked to $2,135/mt, with its high of $2,145/mt, after trending lower at $2,118/mt, and finally closed up 0.33% at $2,135/mt. Open interest rose 6,253 lots to 127,000 lots compared with the previous trading day, and its trading volume decreased by 1,415 lots to 7,493 lots.

The most-traded SHFE 2307 lead contract opened at 15,415 yuan/mt at last Friday’s night session, and trended higher to 15,535 yuan/mt on elevated LME lead price, and finally closed up 0.49% at 15,505 yuan/mt. Open interest dropped by 1,797 lots to 38,661 lots, and its trading volume decreased by 44,834 lots to 19,364 lots.

On the macro front, the Federal Reserve’s semi-annual monetary policy report showed that the Fed will make decisions on further interest rate hikes, and tightening credit conditions will drag down US economic growth.

Zinc: LME zinc price slid at last Friday’ s session. Delivery to overseas warehouses continued. There was limited support from fundamentals for zinc market.  

SHFE zinc prices closed with losses at last Friday’s session. Robust ferrous metal prices prompted the galvanized plate to start construction. At the same time, Positive policies kept macro sentiment good. Under this circumstance, SHFE zinc prices will probably extend losses.  

3. Yangshan Copper Premiums Plunged Amid Weaker SHFE/LME Copper Price Ratio

As of last Friday, Yangshan copper premiums with a quotation period in July stood at $40-56/mt under warrants during June 12-16, with the average flat from a week earlier. Those stood between $48-63/mt under bill of lading with a quotation period in July, with the average down $3/mt. As of June 16, the SHFE/LME copper price ratio stood at 8.03, and import losses stood at 1,110/mt against the SHFE July copper contract.

Last week, market trading was muted as the SHFE/LME copper price ratio continued to weaken. Yangshan copper premiums continued to fall. Sellers of cargoes under warrants had locked in profit previously and completed deliveries of most of the cargoes to the domestic spot markets before the delivery of the June contract. There were few inquiries under warrants amid the sharp declines in the SHFE/LME copper price ratio. Sellers took huge profits from arbitrage operations previously and barely faced any pressure, refraining from lowering quotes noticeably.

In terms of bills of lading, demand was mainly driven by traders rushing to complete their mid-year targets. Meanwhile, arriving shipments have increased recently and the market expects the SHFE/LME copper price ratio to fall further. Quotes thus dropped sharply.

As of last Friday, traded import premiums for high-quality pyro-copper stood at $50-53/mt under warrants, and $46/mt for mainstream pyro-copper. Those for hydro-copper stand at $38/mt. On the B/L front, premiums stand at $55/mt for high-quality copper, $48/mt for mainstream pyro-copper, and $40/mt for hydro-copper.

With the inflows of LME cargoes after delivery, the SHFE/LME copper price ratio is not promising. The gradual opening of the export window is likely to drive exports by domestic smelters, which will help adjust the SHFE/LME copper price ratio.

As of Friday June 16, copper inventories in the domestic bonded zones decreased 8,900 mt from June 9 to 78,900 mt, according to the latest SMM survey. Copper inventories in the Guangdong bonded zone dipped 2,500 mt to 5,500 mt, and inventories in the Shanghai bonded zone fell 6,400 mt to 73,400 mt. There were large volumes of shipments from bonded zone inventories under warrants ahead of the delivery of the SHFE June copper contract. Last week, trades under warrants were quiet as import losses exceeded 1,000 yuan/mt. Arriving shipments in the bonded zones should grow slightly this week amid concentrated shipments arrivals from LME warehouses. Meanwhile, the gradual reopening of the export window will drive some domestic mainstream smelters to export cargoes. Inventories in the domestic bonded zones are expected to accumulate amid the falling SHFE/LME copper price ratio.

4. A Series Of Macroeconomic Policies In China And Overseas Helped Copper Prices Break Through The 68,000 Yuan/Mt Mark

The US CPI fell more than expected in May, and the Federal Reserve kept interest rates untouched, which was in line with market expectations. However, two 25-basis-point rate hikes are expected to lie ahead in the future. The Fed pausing interest rate hikes pushed the US dollar lower further. And risky assets including copper edged up.

The support for copper prices from the fundamentals will be weak in the long run as US demand is still shrinking. In the eurozone, the European Central Bank (ECB) raised interest rates by 25 basis points as expected in order to prevent a spiral increase in inflation. This restrained the US dollar, pushing up copper prices. The ECB lowered its GDP growth forecast for 2023 and 2024, and demand will face contraction in the foreseeable future. Notably, Japan may adjust YCC in the future due to the inflation pressure, which will continue to put pressure on the US dollar. 

In China, the economic data slowed down across the board in May, with real estate sales and investment falling sharply, and informal financing and M2 going down. The recent continuous contraction of CPI and PPI data indicates that the economy has been gradually declining since China scraping controls over the Covid-19 pandemic. The lack of demand means that the support from fundamentals for copper prices is weak. Nonetheless, a barrage of policy support such as favourable new energy vehicle policies, deposit rates cuts in a bid to release liquidity and favourable real estate policies issued by local governments have driven copper prices to soar.

As of Friday June 16, the social inventories of copper cathode in China recorded 93,600 mt, down 15,800 mt compared with 109,400 mt on Friday June 9. The inventory decline provided certain support for copper prices. However, new orders at copper semis plants weakened significantly.

5.Copper Prices Strengthen As Fed Pauses Interest Rate Hike

LME copper closed with a gain of 1.01% at $8,528/mt overnight. Trading volume stood at 22,000 lots. Open interest stood at 254,000 lots. The most active SHFE 2307 copper contract finished at 68,160 yuan/mt overnight, up 0.44%. Trading volume was 29,000 lots and open interest stood at 188,000 lots.

On the macro front, the Federal Reserve kept interest rates unchanged as expected, but hinted that borrowing costs would rise another 50 basis points by the end of December. The US dollar index rebounded after falling. In terms of fundamentals, since the Federal Reserve announced the CPI data, copper prices have jumped higher. Yesterday, copper prices remained at around 68,000 yuan/mt, depressing downstream buying interest. Spot quotes fell. Sellers refrained from selling with prices lower than the delivery price.

The overall transaction was poor. In terms of consumption, copper prices surged to high levels amid the traditional off-season. It is expected that processing companies will purchase as required. Copper prices are expected to remain strong as the Fed suspended interest rate hike in June.