1.SMM Morning Comment For SHFE Base Metals December 22

Copper
LME copper prices opened at $8535/mt and closed at $8606/mt in last evening trading, a gain of 0.12%, with the low-end of $8531.5/mt and the high-end of $8630/mt. Trading volume was 15,000 lots, and open interest stood at 280,000 lots. The most active SHFE 2402 copper contract prices opened at 68660 yuan/mt and closed at 69000 yuan/mt last evening, up 0.28%, with the high-end of 69100 yuan/mt and the low-end of 68610 yuan/mt. Trading volumes stood at 31,000 lots and open interest stood at 148,000 lots. On the macro front, the final annualized quarterly rate of real GDP in the United States in the third quarter was 4.9%, lower than the expected 5.20%. This has strengthened the market’s expectations for an interest rate cut that the United States will consider as early as next year. The U.S. index weakened and copper prices rebounded. In terms of fundamentals, from the supply side, the current supply of copper is still tight, and due to the seasonal reduction in port efficiency at the end of the year, the inflow of imported copper during the week was also lower than expected. It is expected to enter the market in large quantities next week. In terms of consumption, although copper prices have fallen slightly, they are still at a high level. Downstream purchasing sentiment has not picked up. Many copper rod factories have shut down their furnaces. Some companies with normal production said that current orders are poor and inventories are gradually increasing. Under high copper prices, market demand is generally suppressed. There will be limited room for copper price increases.

 

 

 

 

2. Sharp drop in US dollar and promising domestic economy bolstered copper prices

Copper contract prices remained high in the week ending December 15. Prices dropped early in the week before rebounding on the US dollar falling below 103. The US non-farm payroll data for November recorded 199,000, higher than the previous reading and expectations. Although the US employment data was stronger than expected, the market did not waver in that the Federal Reserve would suspend interest rate hikes in December. But the market increased its bets on the postponement of the Federal Reserve's interest rate cut in 2024; the US dollar index thus rose to 104 along with US debt. The November CPI data recorded 3.1% as expected, which reassured the market that the Federal Reserve would remain on hold at the December interest rate meeting. Expectations of interest rate cuts by the Fed in 2024 grew, sending the dollar plummeting. That buoyed copper prices. On Thursday, the Fed announced that it would keep interest rates stable; the US dollar fell below 103, pushing up copper prices.

The market generally expects the European Central Bank to continue suspending interest rate increases in December, and expectations for an interest rate cut by the bank in March next year increased. The euro rose against the US dollar, closing with gains for four consecutive days. The market expects the Bank of England to suspend interest rate hikes in December, but its "hawkish" attitude is unlikely to be reversed. There is no clear direction for the timing and extent of interest rate cuts next year. The Economic Work Conference of the Central Committee of the Communist Party of China gave new directions for monetary and fiscal policies in 2024, and social financing increased year-on-year. Market sentiment continued to improve, and copper futures contract prices rose further.

 

 

 

 

 

3. Analysis On How Heightened Red Sea Tension Amid Palestinian-Israeli Conflict Will Affect China's Copper Cathode Imports

In recent days, there has been a surge in attacks on vessels in the Red Sea, prompting several international shipping companies to announce the suspension of operations in the area. The Suez Canal-Red Sea route, a key link between Asia, Africa, and Europe, connects the Red Sea to the Mediterranean and is a global maritime hub.

The Mandeb Strait, a strategic link between the Red Sea and the Gulf of Aden, crucial for Indian-Atlantic oceanic travel, is significant. With the affected firms holding over 50% of global container market share, shipping suspensions may hike trade transport costs and impact global shipping and supply chains significantly.

China's copper cathode imports from Europe, including countries like Poland, Serbia, Bolivia, and Russia, often start at the Netherlands' Rotterdam port, Europe's largest. They travel through the Mediterranean, Suez Canal, Red Sea, into the Indian Ocean, then through Malacca Strait, South China Sea, and on to Hong Kong, Shanghai, and parts of Japan and Korea.

In 2023, China's monthly copper imports from Europe, excluding Russia, average 9,000 mt. With some Russian copper arriving overland, total sea-borne imports from Europe are about 20,000 mt/month, 7% of China's monthly copper cathode imports. The short-term market impact is limited. LME stocks are at 168,000 mt with the share of canceled warrants climbing to 21%. Global shipping disruptions suggest a potential inventory drop.

Vessels avoiding conflict reroute via Cape of Good Hope, facing ~30% higher transport costs and 10-14 extra days at sea (varying with ship speed), increasing fuel costs by hundreds of thousands of dollars. Medium to long-term, supply chain inefficiencies and rising costs could dampen demand and worsen eurozone inflation, possibly prompting monetary policy changes that may impact commodity prices.

 

 

 

 

 

4.Copper inventories in the domestic bonded zones grew

As of Friday December 22, copper inventories in the domestic bonded zones grew 100 mt from December 15, according to the latest SMM survey. Inventories in the Shanghai bonded zone grew 400 mt to 8,200 mt. Inventories in the Guangdong bonded zone dipped 300 mt to 2,000 mt. The SHFE/LME copper price ratio continued to weaken during the week, gradually closing the import window for spot cargoes. The market trading also weakened due to the year-end factor. There are only three trading days on the LME in the week of December 25. Lacking improvement in the SHFE/LME copper price ratio, bonded inventory accumulation should continue.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.China’s copper scrap imports hit multi-year high in November

Data from the General Administration of Customs shows that China’s copper scrap imports in November were 182,900 mt, an increase of 17.8% month-on-month and 13.2% year-on-year, setting a multi-year high. The overall supply of domestic copper scrap in November was still tight, and the willingness to purchase imported goods increased. In addition, copper scrap imports in October were mostly profitable, driving imported copper scrap to arrive in China in November.