On May 13, the domestic copper market once again staged an independent short-squeeze rally, seemingly detached from broader macroeconomic trends. The main Shanghai copper futures contract for June 2024 (2606) surged strongly during the session, hitting an intraday high of 108,900 yuan per tonne before closing at 108,510 yuan per tonne, up 1.67%. This brings it within striking distance of the 109,000 yuan threshold. Spot prices followed suit with significant gains, with the Yangtze River 1# copper price quoted at 108,800 yuan per tonne, soaring over 2,000 yuan in a single day. Against the macroeconomic "headwinds" of a strong U.S. dollar index and nearly shattered expectations for Federal Reserve rate cuts, why has copper managed to stage such a robust and seemingly counterintuitive rally?
**Macroeconomic Fog and Liquidity "Black Hole"** The current macroeconomic backdrop is not actually favorable for copper prices. The U.S. April CPI surged to 3.8% year-on-year, hitting a new high since May 2023. Stubborn inflation has completely overturned market expectations for Fed rate cuts, with the prospect of sustained high interest rates directly pushing up the U.S. dollar and financing costs. Simultaneously, the domestic metals trading sector is experiencing a liquidity squeeze triggered by a crackdown on "invoice irregularities." Tax authorities are intensifying efforts to combat fraudulent trade and circular invoicing, leading to a cash flow crunch for many small and medium-sized traders in the near term, with over half of spot transactions affected by defaults or delays. Logically, the combination of macroeconomic pressure and domestic liquidity tightening should weigh on copper prices, yet the market has moved in the opposite direction. The core driver behind this is an extreme supply-demand mismatch at the industry level.
**Rigid Supply Ceiling: Mine Shortage and Geopolitical Disruptions Converge** The fundamental strength supporting copper prices stems from a nearly unshakeable "rigid ceiling" on the supply side. A prolonged decade of insufficient global mining capital expenditure, coupled with declining ore grades, has led to a collective "deceleration" in output from major copper-producing nations. Chile's state-owned Codelco reported a nearly 10% year-on-year drop in March production, while output from the Escondida mine, operated by BHP, fell by over 15%. Furthermore, the restart of Indonesia's Grasberg copper mine has been delayed until the end of 2027. Risks of increased mining taxes following Peru's elections, along with sulfur supply shortages (a key raw material for copper smelting) exacerbated by escalating tensions in the Middle East, are further tightening expectations for global copper concentrate supply.
**New Demand Narrative: The "Resilience" of AI and Tech Cycles** In stark contrast to the "tightness" on the supply side, the demand side is undergoing a paradigm shift from "traditional infrastructure" to "technology-driven" growth. Copper prices are no longer solely dependent on the real estate sector. Long-cycle technological demands—such as AI computing power, data center construction, grid upgrades, and new energy—are providing strong "resilience" for copper consumption. This new demand, characterized by rigid growth, has significantly smoothed out the volatility associated with traditional economic cycles, providing copper with solid buying support even amid macroeconomic headwinds.
In the spot market, although downstream buyers exhibit caution towards high prices, with transactions primarily consisting of essential, small-lot purchases, the dual drivers of mine shortages and booming tech-related demand make copper prices prone to further increases in the near term, with limited downside.
**Outlook and Operational Recommendations** Looking ahead, it is advisable to focus on the following three key dimensions: 1. **Peru's Election Process and Middle East Situation:** These two major geopolitical variables will directly determine marginal changes in mine supply and smelting costs. 2. **Follow-up Impact of China's "Invoice Crackdown":** Monitor whether the liquidity squeeze will lead to forced selling in the spot market or, conversely, strengthen holders' resolve to support prices. 3. **Fund Flows Following LME Copper's Technical Breakout:** Copper prices have broken out of a long-term consolidation range. Be vigilant for intense battles between technical buying and macro-driven short positions.
Operationally, downstream enterprises are advised to maintain procurement based on immediate needs, replenishing inventories appropriately on dips and avoiding blind chasing of rallies. Investors may seek opportunities for tactical long positions during pullbacks, relying on fundamental support, but must strictly guard against the risk of sharp corrections stemming from sudden shifts in macro sentiment.
Based on a comprehensive forecast, the reference range for domestic copper prices tomorrow is expected to be between 106,000 and 110,000 yuan per tonne.
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