1.Surging copper prices reduced consumption, output of copper rod produced with copper cathode in March unlikely to reach the target

data shows that the national production of copper rod produced with copper cathode in February totaled 503,900 tons, a decrease of 300,600 tons from January, and the operating rate was 39.44%, a month-on-month decrease of 23.53 percentage points. The total output of copper rods in East China was 339,800 tons, and the operating rate was 42.70%; the total output of copper rods in South China was 76,000 tons, and the operating rate was 36.70%

Due to the Chinese New Year holiday in February, copper rod plants using copper cathode as raw material suspended production to varying degrees during the holiday, and output fell sharply. At the same time, the recovery of downstream consumption after the holiday was less than expected, causing the growth of output to fall short of the target level of 520,170 tons, which was eventually recorded 503,904 tons. The overall operating rate in February was 39.44%, a year-on-year increase of 4.59 percentage points from the same period last year (January 2023). Under the influence of the year-on-year recovery of the operating rate and the increase in production capacity, output increased by 77,854 tons year-on-year. Although the actual output in February was lower than the expected level of copper rod plants using copper cathode as raw material, there was still a recovery compared with the same period last year.

Compared with January, copper prices shifted upward in February. The average contract price of SHFE front-month copper contract increased by 265.85 yuan/ton from the previous month. Copper prices remained at a high level, but the price spread between copper rod produced with copper cathode and with copper scrap narrowed.  data shows that the average monthly price spread between copper rod produced with copper scrap in Jiangxi and electric power rod in east China in January stood at 769 yuan/ton, with the highest in the month being 1145 yuan/ton.

Affected by the surge in copper prices in March, it is expected that it will be difficult to reach the planned output.

After the Lantern Festival, the downstream cable factories gradually resumed work, and the operating rate of copper rod produced with copper cathode gradually recovered in early March. However, according to research, affected by weak end-user consumption, the downstream operating rate was also lower than expected. Driven by news of smelter production cuts, copper prices soared to more than 73,000 yuan/ton. New orders at copper rod plants using copper cathode as raw material dropped sharply, and production was mainly based on long-term orders and downstream demand. The weekly operating rate of copper rod plants using copper cathode as raw material has declined since mid-March. It is expected that the output of copper rod plants using copper cathode as raw material in March will be difficult to reach the expected target of 803,630 tons . The market currently generally expects that a substantial increase in copper rod consumption will occur in the next quarter.

In terms of consumption, the trade-in action plan was promulgated during the Two Sessions, in which the upgrading of automobiles and home appliances is initially estimated to create a trillion-dollar market space. However, the promotion of downstream consumption has not yet appeared. It is expected that if copper prices remain high, consumption will hardly see significant growth in March. It is also worth noting that the previously announced news that 12 indebted provinces and cities have suspended some infrastructure projects may have a certain impact on new orders after the year.  will continue to pay attention to the impact.

2.Copper prices fell back after US dollar index rose

LME copper prices opened at $9003/mt and closed with a drop of 1.43% at $8972/mt last evening, with the low-end of $8944/mt and the high-end of $9003/mt. Trading volume stood at 24,000 lots. Open interest stood at 313,000 lots. The most active SHFE 2405 copper contract prices opened at 72420 yuan/mt and finished at 72620 yuan/mt last evening, down 0.89%, with the low-end of 72350 yuan/mt and the high-end of 72750 yuan/mt. Trading volume was 52,000 lots, and open interest stood at 221,000 lots. On the macro front, previous U.S. economic data showed that inflation is still highly sticky, expectations of interest rate cuts have been suppressed, and the U.S. dollar index has risen, which is negative for copper prices. The market is paying more attention to the Fed's interest rate decision and summary of economic expectations. In terms of fundamentals, from the supply side, there is still a large supply of goods in the hands of cargo holders, and some have begun to ship at low prices. Although downstream companies have replenished goods, most are still in a wait-and-see mode, and the overall supply is still ample. In terms of consumption, copper prices remain at a high level, and some processing companies have stopped production to eliminate inventory. It is expected that demand will be difficult to improve before copper prices fall significantly. In terms of price, before the Federal Reserve meeting, the market had strong expectations for the postponement of interest rate cuts, and there was pressure on copper prices.

3. Over the weekend, copper inventories in mainstream regions across the country increased by 6,300 mt 

As of Monday, March 18,  copper inventories in mainstream regions across the country increased by 6,300 mt WoW to 395,400 mt, reaching the highest level in the past five years. The continued rise in copper prices and the low sentiment in downstream receiving goods are one of the reasons for the continuous increase in inventories. Compared with changes in inventories last Thursday, inventories increased in most regions across the country. The total inventory is 176,800 mt higher than the 218,700 mt in the same period last year, of which Shanghai is 126,200 mt higher than the same period last year, Guangdong is 4,600 mt lower, and Jiangsu is 46,900 mt higher.

Specifically, inventories in Shanghai increased by 3,900 mt to 254,300 mt from last Thursday, while inventories in Jiangsu remained unchanged from last Friday. The decrease in the arrival of imported copper was one of the reasons for the decline in inventory growth. Inventories in Guangdong increased by 2,200 mt to 58,900 mt. There were still more shipments from smelters over the weekend. In addition, weak consumption was far lower than the same period in history. This can also be reflected in the fact that Guangdong's average daily shipments remained at a low level.

Looking ahead, we maintain our view from last Thursday: As far as we know, the arrival of imported copper decreased this week, and the arrival of domestic copper will also decrease. It is expected that the total supply will decrease compared with last week. However, downstream consumption is expected to be weaker than last week. The main reason is the weakening of consumption after the sharp rise in copper prices. Therefore, we believe that this week will present a situation of weak supply and demand, and weekly inventories will continue to rise, but the increase will be smaller than last week.

4.Expectations of domestic production cuts drove copper prices surge

Copper prices surged last week, with LME copper prices approaching $9,000/mt and the most active SHFE copper contract prices exceeding 72,500 yuan/mt. In the United States, the CPI rose more than expected in February, mainly due to rising gasoline prices and housing costs; after the data was released, market confidence in interest rate cuts in March and May declined. "FedWatch" forecasts show that the market expects the probability of a 25-basis-point interest rate cut by the Federal Reserve in June rose to more than 60%, and the market's focus on interest rate cuts turned to the number of interest rate cuts during the year. The US dollar index briefly rose and hovered around 103 again; as the market was still worried about the US banking system, the higher-than-expected CPI data failed to keep the US dollar strong. European Central Bank Governing Council member Stournaras said: "Interest rates must be cut twice before the summer break." The euro against the US dollar remained above the 5-day moving average during the week.

On March 13, the progress of wage negotiations in Japan, known as shunto (or “spring fight”) was optimistic. The salary increase in various industries in Japan has increased sharply compared with 2023. Japan is expected to emerge from the era of negative interest rates. The US dollar against the yen rose but still fluctuated around the 5-day moving average. In the Chinese market, on March 13, the China Nonferrous Metals Industry Association convened domestic mainstream smelters to hold an important meeting on raw materials, and then it was reported that smelters may have production reduction plans; in the afternoon of March 13, LME copper prices surged, and SHFE copper prices jumped during the night trading session. Last week, LME copper prices exceeded $8,970/mt, and SHFE copper prices broke through the 72,000 yuan/mt mark. In addition, the "Action Plan for Promoting Large-Scale Equipment Renewal and Trade-in of Consumer Goods" issued by the State Council was released on the 13th. The person in charge proposed that "equipment renewal is initially estimated to be a huge market with an annual value of over 5 trillion yuan. The replacement of automobiles and home appliances will be favourable for copper-related end-user companies.

During the week, the symposium of copper smelters in Beijing failed to substantially address the difficulties of smelters. Spot TCs for copper concentrates continued to decline. That, combined with news that smelters may reduce production still bolstered copper prices. According to SMM data, social inventories of copper cathode continued to increase to 389,100 mt during the week. High copper prices further suppressed downstream purchasing, and it is unlikely to see an inflection point for social inventory in the short term. Driven by funds, there are no signs of downward trend of copper prices. This week, the attitude of the Federal Reserve will be a market focus, and PMIs from many countries will also be issues; whether there is any news about output cuts by Chinese smelters will be focused. Copper prices may remain high in the short term. LME copper is expected to trade between $8,800-9,050/mt this week and SHFE copper prices will fluctuate between 70,000-73,000 yuan/mt. Spot copper will trade against the SHFE 2404 copper contract. In view of inventories still accumulating and high copper prices, spot trades are expected to be quiet, with spot discounts of 130-50 yuan/mt.

5.Copper Morning Comment: Copper prices rose further as market awaiting Fed meeting

LME copper prices opened at $8992.5/mt last Friday before reaching a low of $8992.5/mt and a high of $9098/mt, and closed at $9074/mt, a gain of 1.82%. Trading volumes were 32,000 lots and open interest stood at 306,000 lots. The most active SHFE 2405 copper contract prices opened at 72930 yuan/mt and finished at 73290 yuan/mt overnight, up 1.23%, with the low-end of 72700 yuan/mt and the high-end of 73440 yuan/mt. Trading volume was 90,000 lots and open interest stood at 233,000 lots. On the macro front, Japanese media stated that the Bank of Japan is making final arrangements to end the negative interest rate policy at this week’s policy-making meeting, and attention needs to be paid to its actual interest rate decision. The Federal Reserve's interest rate decision and dot plot will be released this week, which will affect market expectations for when the United States will start to cut interest rates. Domestically, the balance of broad money (M2) was 299.56 trillion yuan, a year-on-year increase of 8.7%, which has a certain boost to market sentiment. In terms of fundamentals, domestic inventories are still showing a continuous backlog and domestic supply is still relatively ample. However, under the influence of rising copper prices, the recovery of terminal demand has been dragged down. The inventories of processing companies are relatively high. It is expected that the oversupply pattern will further deepen. In terms of price, market sentiment is still affected by the joint production cuts. Before the Federal Reserve releases the dot plot, copper prices are expected to remain high.