Shanghai copper futures rebounded in a low-volume session on June 9th. The main July 2024 contract opened lower and then fluctuated higher, closing at 104,650 yuan per tonne (+580 yuan, +0.56%) by 15:00. Trading volume shrank to 83,818 lots (-49,934 lots), while open interest decreased by 2,442 lots to 161,000 lots. The market action suggests that macro headwinds (strong U.S. jobs data and rate hike expectations) have been partially digested. A temporary boost in risk appetite came from signals of a potential U.S.-Iran ceasefire deal within days. This, combined with continued inventory drawdowns in China and deeply negative treatment charges (TCs) for copper concentrate, provided support for dip-buying, leading to a price rebound.
However, with the upcoming Federal Reserve policy meeting (featuring Governor Waller's first vote) and the release of U.S. CPI data on Wednesday, neither bulls nor bears were willing to add significant positions, resulting in the current low-volume consolidation pattern.
Macro Context: Shifting from Panic Pricing to Awaiting Confirmation
Two key variables drove today's sentiment recovery.
First, geopolitical de-escalation hopes emerged as former President Trump claimed a U.S.-Iran peace deal was in its final stages, to be signed within days, which would reopen the Strait of Hormuz. Iran's UN envoy also expressed hope for a deal by the end of June. Although no formal agreement exists, markets traded on the theme of "risk premium retracement," with crude oil pulling back from highs and the U.S. dollar adjusting slightly, easing pressure on base metals. Caution is warranted, as sentiment could quickly reverse if the agreement faces further delays or conflict escalates on the Lebanon front.
Second, aggressive tightening bets have paused. Last Friday's stronger-than-expected U.S. non-farm payrolls (+172k) pushed December rate cut expectations below 30%, with Goldman Sachs delaying its forecast for the first rate cut to 2027. After a weekend of digestion, markets entered an "evidence waiting period." The next catalysts are the U.S. May CPI data on Wednesday (expected at 4.2% year-on-year) and core PCE on Thursday. The 2-year U.S. Treasury yield around 4.15% already prices in considerable tightening, making a significant further surge unlikely unless CPI data is substantially hotter than expected. This provides a brief respite for copper prices.
Domestically, China's Ministry of Housing has outlined plans to renovate approximately 770,000 kilometers of underground pipelines during the "15th Five-Year Plan" period, underpinning medium-to-long-term copper demand expectations from urban infrastructure renewal. However, this does not alter the short-term seasonal demand weakness.
Fundamentals: Mine Tightness is Real, Seasonal Demand Softness is Reality
The mine supply side remains the strongest support. The spot TC index for domestic copper concentrate has fallen below -$110 per dry metric tonne, residing in historically extreme negative territory, indicating an unaltered tight concentrate market. Chile's April production hit a 23-year low, Grasberg's restart has been delayed, and Kamoa-Kakula's short-term production has been revised down, pointing to persistent supply-side constraints. Driven by potential U.S. Section 232 tariff expectations, COMEX copper inventories continue to climb (a hoarding effect), while visible inventories in non-U.S. regions (LME + SHFE) are declining. LME copper stocks have dropped to a two-month low, and SHFE inventories have fallen consecutively to a new low for the year.
On the smelting and demand side, marginal weakening is evident in the off-season, but resilience remains. Traditional sectors (construction, outdoor infrastructure) are dampened by high temperatures and elevated prices. However, structural bright spots are clear: May passenger vehicle exports reached 784,000 units (+75.1% year-on-year), with new energy vehicle retail penetration hitting 62.9%. June solar module production scheduling stands at 38.13 GW (up 4.03% month-on-month), with May capacity utilization at 40.2% (up 6.2 percentage points month-on-month) as centralized project bidding commences. Submarine and communication cable sectors maintain high operating rates. Imports of copper ore and unwrought copper from January to May fell by 1.0% and 7.0% year-on-year, respectively, reflecting forced production controls by smelters due to low TCs, rather than a collapse in demand.
In the spot market, the price decline to around 104,000 yuan per tonne has stimulated downstream buyers to restock for essential needs, slightly widening the spot premium. Widened import losses of around 800 yuan are discouraging customs declarations. Overall trading is dominated by rigid demand, with traders adopting a wait-and-see approach.
Marginal Significance of Canada's McIlvenna Bay Copper Mine Start-up
Eldorado Gold announced the first production of copper concentrate from the underground McIlvenna Bay mine in Saskatchewan, progressing towards its rated capacity of 4,900 tonnes per day, with commercial production expected in Q3. The project's annual capacity is approximately 40,000-50,000 tonnes of copper equivalent (including by-products of zinc, lead, gold, and silver), contributing about 0.2%-0.3% to global supply. This will not alter the broader copper concentrate shortage but signifies a marginal improvement in North America's copper self-sufficiency. Long-term, it helps diversify concentrate sources and reduce reliance on South American supply concentration, though it has no immediate material impact on TCs/RCs.
Outlook and Trading Suggestions
The short-term logic is defined by a range. The upper resistance is seen at 106,500-107,000 yuan per tonne (previous highs + potential Fed hawkishness + risk of hot CPI). The lower support lies at 103,000-103,800 yuan per tonne (low social inventories + tight mines with negative TCs + dip-buying). The key drivers, in order of importance, are: 1) whether a U.S.-Iran deal materializes, 2) Wednesday's CPI data, 3) Thursday's PCE data, and 4) the late-June results of the U.S. Section 232 copper tariff investigation.
Price Scenarios:
Base Case (60% probability): CPI meets or is slightly below expectations, slightly easing tightening fears. Copper trades range-bound with a stronger bias, testing 106,000 yuan.
Bullish Case (20%): A formal U.S.-Iran deal is signed and CPI is below expectations, significantly boosting risk appetite. Prices could test 106,800-107,200 yuan in the short term.
Bearish Case (20%): CPI significantly exceeds expectations or the ceasefire deal falls apart, strengthening the dollar and reviving risk-off sentiment. Prices could test support at 103,200-103,500 yuan.
Trading Suggestions:
Industrial clients (processors/traders): Consider staggered pricing or buying hedges below 103,800 yuan to lock in raw material costs. Consider staggered selling hedges on rallies above 106,500 yuan. Chasing shorts is not advisable currently; deep dips in a tight supply environment represent buying opportunities.
Investors/Speculators: Await directional clarity after Wednesday's CPI release. If CPI meets expectations and prices stabilize around 103,500-104,000 yuan, consider a light long position with a stop-loss at 103,200 yuan, targeting 106,000-106,500 yuan. If CPI is significantly hot or the ceasefire agreement collapses, adopt a wait-and-see approach or consider short-term shorts.
Key metrics to watch: LME cancelled warrant ratios, Yangshan copper premium trends (to verify actual import demand), and COMEX-LME spreads (reflecting tariff expectation shifts).
In summary, today's rebound is a technical recovery driven by a confluence of factors: temporary relief from macro headwinds, underlying support from tight mine supply, and geopolitical de-escalation hopes. It does not signify a trend reversal. The medium-term bullish thesis for copper (structural mine supply gap + AI/new energy demand) remains intact. Short-term price action is constrained by Fed policy uncertainty and geopolitical risks. A range-trading approach between 103,500-106,500 yuan is advised, awaiting guidance from the CPI data and the Fed meeting for the next directional move.
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