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Copper Prices may Fluctuate with some Downward Potential this Week amid the Depreciation of RMB
2022-9-26
Last week, copper prices bore huge pressure from the macro front. The US Fed raised the interest rate by 75 basis points at the FOMC meeting in September, which was in line with market expectations. However, the key of the meeting was the dot plots. The Fed may raise the interest rate by another 100-125 basis points during the year and will continue the rate hike in 2023. The target of this round of interest rate hikes has risen from the previous 4.25%-4.5% to 4.75%-5%. The Fed's hawkish attitude exceeded market expectations, causing huge volatility. Undoubtedly, the US dollar surged. Besides, the weakening of other non-US economies also provided support for the US dollar. In September, the initial manufacturing PMI of Germany, France and the euro zone all fell into the contraction range and weakened month-on-month. As of last Friday, the US dollar index stood at a high of 112, and LME copper prices declined rapidly under pressure.
On the fundamentals, with the support of infrastructure investment and the improvement of new energy and real estate, the domestic consumption is quite resilient in the short term. Last week, the social inventory and bonded zone inventory continued to decrease due to the peak season of September and October and the tight supply of copper scrap. Overseas, LME copper has been delivered for a week, with a total volume of 23,000 mt. The previous expectation of tight spot supply was significantly weakened, which could no longer support the copper prices.
At present, the macro environment is bearish, and the pressure of the high US dollar index on copper prices will not ease in the short term. But the fundamental contradiction is not prominent. And the boost of Chinese consumption will offset the decline in overseas consumption. Copper prices may fluctuate with some downward potential this week amid the depreciation of RMB. The most-traded SHFE 2011 copper contract is expected to trade between 58,500-61,800 yuan/mt, and LME copper will trade between $7,200- 7,650/mt.
In terms of spot, under the expectation of a sharp drop in copper prices, the downstream may restock actively early this week. However, the trading activity will decline significantly after the effects of end-month and end-quarter factors subside. After September 26, the market will gradually quote against the next-month Fapiao (Chinese invoice), but the transactions will not be officially opened until October 10 due to the long-term suspension of SHFE futures market during the National Day holiday. The risks brought by the long-term intermittentence will also weaken the spot trading activity. Spot premiums are expected to move between 420-600 yuan/mt this week.
On the fundamentals, with the support of infrastructure investment and the improvement of new energy and real estate, the domestic consumption is quite resilient in the short term. Last week, the social inventory and bonded zone inventory continued to decrease due to the peak season of September and October and the tight supply of copper scrap. Overseas, LME copper has been delivered for a week, with a total volume of 23,000 mt. The previous expectation of tight spot supply was significantly weakened, which could no longer support the copper prices.
At present, the macro environment is bearish, and the pressure of the high US dollar index on copper prices will not ease in the short term. But the fundamental contradiction is not prominent. And the boost of Chinese consumption will offset the decline in overseas consumption. Copper prices may fluctuate with some downward potential this week amid the depreciation of RMB. The most-traded SHFE 2011 copper contract is expected to trade between 58,500-61,800 yuan/mt, and LME copper will trade between $7,200- 7,650/mt.
In terms of spot, under the expectation of a sharp drop in copper prices, the downstream may restock actively early this week. However, the trading activity will decline significantly after the effects of end-month and end-quarter factors subside. After September 26, the market will gradually quote against the next-month Fapiao (Chinese invoice), but the transactions will not be officially opened until October 10 due to the long-term suspension of SHFE futures market during the National Day holiday. The risks brought by the long-term intermittentence will also weaken the spot trading activity. Spot premiums are expected to move between 420-600 yuan/mt this week.
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