Since July, copper prices have largely moved within a narrow range, facing significant macro-systemic pressure. While the supply side provides support, demand remains weak and stable, with Shanghai copper hovering around 102,000 to 105,000 yuan per tonne.
Macroeconomic Pressures Persist
Recently, macro-systemic pressures have been fluctuating, with uncertainty surrounding the Federal Reserve's interest rate hike expectations. The US June CPI rose 3.5% year-on-year, and core CPI increased by 2.6%, both showing a clear decline from previous periods and coming in below market expectations. The June PPI rose 5.5% year-on-year, also lower than expected, easing inflation concerns and delaying expectations for Fed rate hikes. However, renewed escalation in US-Iran tensions has pushed crude oil prices higher. The US dollar index hovers around 101, US Treasury yields remain elevated, and gold and silver continue to show weakness. Coupled with a global adjustment in tech stocks, market risk appetite is poor, keeping the non-ferrous metals sector in a volatile pattern. Federal Reserve Chair Warsh declined to provide forward guidance on rates, stating a "zero tolerance" for inflation and a commitment to restoring price stability, mentioning that options to curb inflation include using interest rates, a stance perceived as slightly hawkish. China's second-quarter GDP grew 4.3% year-on-year. In the first half of the year, the year-on-year declines in fixed asset investment, infrastructure investment, and real estate development investment all widened, indicating continued pressure in traditional sectors.
Tight Mine Supply Continues
The long-term tightness in copper concentrate supply is now a widespread market consensus. This year, copper concentrate treatment and refining charges (TC/RCs) have continued to expand in negative territory. As of last week, the SMM spot import concentrate TC index fell to -$146.15 per dry metric tonne. Some smelters still have rigid restocking needs. The inverted TC/RCs continue to squeeze smelter profit margins, with current levels having fallen below the general psychological threshold for smelters of -$120 per tonne, increasing disagreements between buyers and sellers. Smelters have become significantly more cautious about accepting low-priced material. Simultaneously, the traditional fixed TC/RC pricing model faces challenges, with some companies beginning to adopt index-based pricing.
According to the International Copper Study Group (ICSG), global copper mine production in the first four months of the year totaled 7.446 million tonnes, a slight year-on-year decrease of 1.4%, with significant production declines in Indonesia and Chile. Chile, a major producer, has maintained a year-on-year decline in copper output this year, with May production falling 12.9% year-on-year to 423,600 tonnes. Peru's copper production from January to May increased 3.3% year-on-year to 1.14 million tonnes. China's copper concentrate imports in June were 2.335 million tonnes, showing slight declines both year-on-year and month-on-month. Cumulative imports for January to June were 14.609 million tonnes, a marginal cumulative year-on-year decrease of 0.9%. As of last week, SMM data showed copper concentrate inventories at mainstream Chinese ports stood at 648,200 tonnes, slightly on the low side.
Increased Pressure for Domestic Smelter Production Cuts
From a global perspective, according to ICSG, global refined copper production in April was 2.423 million tonnes, down 152,000 tonnes month-on-month, with a monthly supply deficit of 145,000 tonnes, reversing the surplus state of previous months. Cumulative production for the first four months was 9.711 million tonnes, a cumulative year-on-year increase of 4%, with a supply surplus of 239,000 tonnes, mainly benefiting from high production growth in China and the Democratic Republic of Congo, while Chile saw a larger production decline. Domestically, data from the National Bureau of Statistics shows China's refined copper output in June was 1.334 million tonnes, an increase of 70,000 tonnes month-on-month and up 4% year-on-year. Cumulative output for January to June was 7.608 million tonnes, a cumulative year-on-year increase of 5.2%. However, SMM's electrolytic copper production in June showed a slight month-on-month decline due to unexpected maintenance at smelters and tight raw material supply. In July, maintenance, restarts, and new capacity ramp-ups coexist, with electrolytic copper output expected to see a slight recovery. Regarding the smelting by-product sulfuric acid, prices were generally lowered across regions last week. Although it still provides an important profit supplement for smelters, the extremely low TC/RCs, which have fallen below smelters' psychological price levels, have significantly increased the pressure for maintenance and production cuts.
Copper Resources Tighten Outside the US
After late June, the destocking pace of domestic electrolytic copper social inventories accelerated. As of this Monday, SMM electrolytic copper social inventories fell to 107,300 tonnes, nearly halving compared to the end of June and now below the level of the same period last year. Shanghai Futures Exchange copper inventories also destocked smoothly, falling below 80,000 tonnes last week, with the latest warrant volume at 35,000 tonnes, at a relatively low level. With inventories declining rapidly and rainfall in many areas stimulating downstream restocking, by mid-July, the spot premium for Yangtze River Nonferrous 1# copper quickly rose above 400 yuan per tonne, and the SMM 1# electrolytic copper spot premium also climbed to 400, indicating a clear tightening in spot supply. Since late May, LME copper inventories have also declined rapidly, with the latest total at 295,000 tonnes, a monthly decrease of about 60,000 tonnes. Registered warrant volumes fell to 129,000 tonnes, and the 0-3 cash-to-three-months spread has narrowed to near contango, indicating tightening copper inventories outside the US. Under expectations of US copper tariffs, the COMEX-LME arbitrage window has remained open, shifting global copper resources to the US. COMEX copper inventories continue to climb from an already high absolute level, with the latest total rising to 698,000 tonnes and registered warrants at 450,000 tonnes.
Demand Still Weighed Down by Off-Season
Recently, copper demand has been dragged down by the seasonal off-season, though overall it remains somewhat resilient. After June, the operating rate of SMM electrolytic copper rod enterprises has largely stabilized slightly below 70%, at 65.1% last week. The operating rate for wire and cable enterprises remains around 70%. Overall orders are relatively平淡, with grid-side demand providing rigid support. Last week, with copper prices fluctuating at high levels in a near-month stronger, far-month weaker pattern, downstream sentiment was cautious, with weak willingness to place purchase orders. After mid-June, the operating rate for copper tube enterprises fell below 65%. On the terminal side, cumulative completed investment in power grids from January to May increased 13.2% year-on-year, and cumulative completed investment in power sources rose 4.1% year-on-year. Air conditioner exports turned to year-on-year growth in June, and recent high temperatures in Europe, India, and other regions may further boost China's air conditioner exports. Automobile production and sales in June remained weak year-on-year, falling 1.2% and 3.2% respectively. Production and sales of new energy vehicles continued their recovery, growing 26% and 23.6% respectively.
Overall, in an environment of a strong US dollar and weak gold and silver, copper prices remain under pressure. On the supply-demand front, the issue of tight mine supply is prominent, with copper concentrate TCs falling below -$140 per tonne, widening disagreements between buyers and sellers. Although by-product sulfuric acid revenue provides a supplement, the extremely low TC levels are increasing pressure on smelters to conduct maintenance and cut production. Domestic spot supply of refined copper is tightening, with inventories declining rapidly. Holders continue to withdraw metal from LME warehouses and transfer it to the COMEX market, tightening copper resources outside the US. Demand is hampered by the off-season but still has rigid support. The supply side provides strong support. The main obstacle to short-term copper price increases lies in macro pressures. Overall, prices are more likely to rise than fall. For reference only.
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