Copper prices have slightly decreased this week. As of October 23rd, the copper price was reported at 108765 yuan/ton, a decrease of 1.78% from the beginning of the week and a year-on-year increase of 27.27%.
LME copper inventory
According to data released by the London Metal Exchange (LME). LME copper inventory has slightly increased, with 280674 tons of LME copper inventory as of the weekend, up 0.20% from the beginning of the week.
Macroscopically, the US September CPI was 3.7% year-on-year and the core CPI was 2.6%, both exceeding expectations. Energy prices were the main driving force, and the market’s pricing for a 25BP interest rate hike in December rose to over 75%. The US dollar strengthened in sync with real interest rates, directly suppressing the financial attributes of copper. The interest rate meeting at the end of October is likely to remain unchanged, but the trading logic of “maintaining high interest rates for a longer period of time” is still strengthening. Coupled with the situation in the Middle East and the weakening of the Asia Pacific equity market, the macro background of copper price pressure remains unchanged.
Supply side: The spot TC of copper concentrate has further dropped to -241.51 US dollars per dry ton, and the negative value depth continues to expand. The structural contradiction of tight raw materials in the smelting side shows no signs of easing. The concentrated maintenance of domestic smelters in October and November has further intensified the pressure on concentrate consumption. But the key change in the supply narrative this week is the landing of labor management negotiations in Escondida, the lifting of strike risks, and the end of the Centinela strike. The extreme supply disturbance premium that was previously included in the price is facing concentrated backlash, and the qualitative pressure of “tight but not lacking” on the mining side outweighs the narrative of “shortage realization”.
On the demand side: After the holiday, the operating rate of refined copper poles rebounded to 73.27%, and the operating rate of wires and cables was 69.79%, showing a significant improvement compared to the previous period. Power grid investment is still the most determined basic demand. However, the high copper prices also have a clear impact on the downstream willingness to replenish inventory – terminal purchases are mainly for essential needs, and proactive replenishment is weak, while traditional fields such as real estate and home appliances continue to be a drag. There is no risk of collapse on the demand side, but there is also a lack of elasticity to amplify positive feedback in price declines.
Influencing factors:
The true marginal pricing variable for this week is not in the mining sector, but in the ‘geographic redistribution’ of inventory. The price difference between COMEX and LME has narrowed from a peak of about $3000/ton to about $310/ton, significantly reducing the arbitrage economy of moving copper to the United States. LME’s US warehouse inventory flowed in 29000 tons per day, and the total inventory rose to 273000 tons, directly falsifying the narrative of “copper shortage in non US regions”. At the same time, the domestic social inventory has been reduced, and the spot premium in East China has widened to 710 yuan/ton. The mismatch of weak external and strong internal inventory has provided stronger bottom support for Shanghai copper than London copper.
In summary, the decline in copper prices this week is essentially the result of “tariff arbitrage premium reduction+macroeconomic tightening expectation resonance”, rather than a trend deterioration in supply and demand fundamentals. At the macro level, before the release of the Federal Reserve’s interest rate and PCE data, funds are unlikely to have a radical willingness to go long, and the clearance of tariff premiums has not completely ended. Short term copper prices are likely to remain weak and volatile. However, the deep negative value of TC in the mining sector, the depletion of domestic social inventory, and the widening of spot premiums have jointly established clear bottom constraints, resulting in a low probability of losing the 100000 mark.
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