1、 Trend analysis
This week, copper prices fluctuated widely. As of September 4th, copper prices were reported at 110031.67 yuan/ton, up 0.56% from the beginning of the week and up 37.23% year-on-year.
LME copper inventory
According to data released by the London Metal Exchange (LME). LME copper inventory has slightly increased, with 234175 tons of LME copper inventory as of the weekend, a decrease of 0.04% from the beginning of the week.
Macro wise: The overall macro outlook this week is bearish. Federal Reserve’s Walsh delivered a hawkish speech at the Jackson Hole Global Central Bank Annual Meeting, emphasizing the unwavering 2% inflation target. The probability of a rate hike in September has risen from less than 40% to about 60%, and the probability of a rate hike in December has risen to 90%. The US dollar index rose 0.85% to 99.68 for the week, suppressing copper prices denominated in US dollars. In terms of geography, although the situation between the United States and Iran has eased, the Strait of Hormuz is still closed, and market reactions tend to be sluggish. On the domestic front, the manufacturing PMI in August rebounded by 0.6% to 49.8% month on month, indicating a slight increase in economic activity but still below the boom bust line. Overall, the combination of macroeconomic expectations of interest rate hikes and a strong US dollar continues to suppress copper prices, but there is a certain hedge between domestic peak season expectations and policy support.
Supply side: The continuous deepening of the supply side shortage pattern is the core support for this round of copper prices. The copper concentrate processing fee TC has dropped to a historic low of -194.2 US dollars per dry ton, and the global copper mine supply contraction is gradually reflected – the cumulative global copper mine production from January to June decreased by 1.1% year-on-year, and the production of the main producing country Chile in July decreased significantly by 9.4% year-on-year. The unstable operation of mines in South America and the delayed resumption of Grasberg production have exacerbated the tension at the mining end. In terms of refined copper, the domestic electrolytic copper production in August was 1.147 million tons, a slight increase compared to the previous month but a decrease of 2.1% year-on-year. Refineries are still below the break even line, and it is expected that the production of large-scale refineries will continue to decline slightly in September due to centralized maintenance. At the inventory level, the social inventory of electrolytic copper in China has dropped to 88900 tons, a decrease of 51700 tons compared to the same period last year; The proportion of LME cancelled warehouse receipts is as high as 50.92%, and the risk of forced warehousing still exists; COMEX inventory has continued to rise to historical highs due to the siphon effect of tariffs, further strengthening the regional mismatch pattern of “non US shortage and US surplus”.
Demand side: The demand side presents the characteristics of “traditional weakness and structural differentiation”. The expected operating rate of copper rod enterprises in August is 64.75%, a decrease of 2.26 percentage points compared to the previous month; The operating rate of copper cable enterprises is only 62.25%, and high copper prices continue to suppress downstream purchasing enthusiasm. Air conditioning production has declined year-on-year, and the copper pipe operating rate has weakened. However, copper strips and foils have shown strong performance, and emerging fields such as new energy, energy storage, and AI data centers still provide structural support for copper consumption. Entering the traditional peak season of September, downstream demand has been released to some extent – after copper prices fell, some downstream enterprises bought inventory at low prices, and the operating rate of refined copper rods slightly increased month on month. Although the spot premium has fallen from a high level, it still remains in the range of 300-450 yuan/ton, and the stalemate between “tight supply” and “weak demand” has not fundamentally changed.
Influencing factors:The siphon effect of tariffs continues to reshape the global copper trade flow. The expectation of US refined copper tariffs has triggered cross ocean arbitrage, with a price difference of nearly $550 between COMEX and LME. A large amount of copper resources have flooded into US warehouses, and LME copper inventories have dropped from 400000 tons in May to around 230000 tons. The structural tightness of the scrap copper market – under the constraint of reverse invoicing compliance, compliant sources are scarce, and the price difference between refined and scrap has fallen from a high of 5410 yuan/ton to the range of 3300-3400 yuan/ton. In terms of the risk of forced warehousing, LME cancellations account for over 50% of warehouse receipts, and the recent month’s deep back structure shows that the tight spot market pattern is difficult to effectively alleviate in the short term.
In summary, copper prices have maintained a high and wide range of fluctuations in the interweaving of long and short factors this week. On a macro level, the hawkish stance of the Federal Reserve and the increasing expectation of interest rate hikes constitute the main bearish factors, with the strengthening of the US dollar suppressing copper prices; On the supply side, the historical low of TC in the mining sector, the substantial contraction of global copper production, and the low inventory at home and abroad jointly constitute the “hard bottom” of copper prices; On the demand side, the combination of traditional off-season consumption and high copper prices suppresses downstream procurement, but the structural demand in areas such as new energy and the expectation of the “Golden September” peak season provide marginal room for improvement. The current market pricing logic has shifted from global total supply and demand to regional mismatch under the crucial tax siphon.
In the short term, the core support of mining shortage and low inventory remains unchanged, and the demand during the traditional peak season from September to October needs to be verified. It is expected that copper prices will maintain a high and strong oscillation pattern. The main operating range of Shanghai copper is referenced to 108000-110000 yuan/ton, and the operating range of Luntong 3M is referenced to 14100-14500 US dollars/ton. In the medium term, we need to be wary of the following marginal changes: the gradual recovery of some mines after October, the marginal decline in US copper hoarding demand, and the macro impact that may arise if the September Federal Reserve interest rate hike is implemented. In terms of operation, the bullish trend in copper prices may be maintained under the dominance of the supply side, but attention should be paid to high volatility and risk control when dealing with absolute highs.
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