Copper prices have staged a rapid rally since August, with macro pressures easing, gold and silver rebounding, and ongoing tightness in mine supply alongside the continued tightening of copper resource availability in non-US countries. Shanghai copper has climbed to nearly 110,000 yuan per tonne, while LME copper reached approximately 14,400, followed by a modest pullback after the surge.
On the macro front, short-term pressure has diminished. The US-Iran situation remains unresolved but has not shown any significant escalation for now, leaving crude oil prices rangebound. US inflation growth slowed in July, retail sales fell month-on-month, and expectations for a Fed rate cut in September have continued to weaken. The July meeting minutes revealed that many participants assessed that if inflation fails to recede, further rate hikes may be necessary, a slightly hawkish tone. Earlier, the 10-year and 30-year Treasury yields from US auctions hit multi-year highs, with elevated long-end rates stoking market concerns. On August 19, the Treasury announced an expansion of its long-dated bond buyback program, triggering a notable decline in long-term Treasury yields and a rapid drop in the US dollar index to below 99. Correspondingly, gold and silver staged a strong recovery, temporarily suppressing any signs of correction in the non-ferrous metals complex.
Copper concentrate processing fees have fallen to extremely low levels. The tightening of global copper mine supply is now a widely acknowledged market consensus. According to the International Copper Study Group (ICSG), global copper mine output in the first five months of this year totaled 9.377 million tonnes, down 1.9% year-on-year, with Chile and Indonesia seeing the largest declines. In major producer Chile, copper output from January to May maintained a downward trend year-on-year, though June production rebounded 5.1% to 447,300 tonnes. Peru's June copper output swung to a year-on-year decline of 4.7%, reaching 218,200 tonnes, while cumulative output from January to June rose 1.9% to 1.3626 million tonnes. Reports indicate that First Quantum is accelerating the restart of its Cobre Panama copper mine. Copper concentrate processing fees continue to expand deeper into negative territory, with the SMM spot import concentrate TC index falling to -175.37 US dollars per dry tonne as of last week. Traders are selling at index-linked discounts of 20-25 US dollars per dry tonne, with some transactions concluded at a fixed -180 US dollars per dry tonne. Smelters' acceptance of low-priced resources has declined. China's July copper concentrate imports stood at 2.379 million tonnes, up slightly by 1.9% month-on-month but down 7% year-on-year. Cumulative imports over January to July reached 16.985 million tonnes, down 1.8% year-on-year. As of last week, SMM's copper concentrate inventory at major domestic ports stood at 766,400 tonnes, showing a modest rebound.
Domestic smelters face significant production cut pressure. On a global scale, ICSG data shows refined copper production in the first five months of this year reached 12.055 million tonnes, up 3% year-on-year, with a supply surplus of 221,000 tonnes. Combined output growth in China and the Democratic Republic of Congo rose 6.3%, while other countries saw output decline 1.3%. Domestically, statistics bureau data shows China's July refined copper output at 1.285 million tonnes, down 49,000 tonnes month-on-month and up a marginal 1.3% year-on-year. Cumulative output over January to July increased 4.6% to 8.883 million tonnes, with the cumulative growth rate gradually slowing. SMM data also showed a slight month-on-month decline in July electrolytic copper output, hampered by difficulties in procuring scrap-derived anode copper and concentrated smelter maintenance. August is expected to see only a marginal output recovery as smelter maintenance and challenging anode plate procurement persist. With copper concentrate processing fees at extremely low levels and the price center for sulfuric acid, a smelting byproduct, also declining, smelters' production conditions continue to deteriorate, intensifying pressure for maintenance and output cuts.
Overseas short-squeeze concerns have eased somewhat. Since August, domestic social inventories of electrolytic copper have reversed to an upward trend. As of Thursday this week, SMM electrolytic copper social inventory stood at approximately 134,000 tonnes, a relatively low overall level. Latest SHFE copper total inventory was 69,700 tonnes, with registered warrants at 56,698 tonnes. After the contract rollover, spot premiums remain elevated, with Yangtze River Nonferrous 1# copper spot premiums above 400 yuan per tonne and SMM 1# copper premiums at 350 yuan per tonne, with quality copper supply in short supply. Driven by expectations of US tariffs on imported copper, the COMEX-LME arbitrage window has remained open, continuously diverting global copper resources to the US. From May to August, LME copper inventories declined rapidly, reaching a low of approximately 205,000 tonnes, with registered warrants falling to below 100,000 tonnes. The 0-3 spot premium once surged above 400 US dollars per tonne, sharply elevating short-squeeze risk. However, over the past two days, LME copper inventories have turned to growth, with concentrated deliveries occurring, and the 0-3 spot premium has also pulled back modestly, though it remains elevated. COMEX copper inventories continue to climb from already high absolute levels, with latest total inventory near 740,000 tonnes and registered warrants around 450,000 tonnes.
Demand is constrained by the off-season and high prices. Recently, copper demand has been broadly weak due to the seasonal off-season, elevated copper prices, and high spot premiums. SMM wire and cable enterprise operating rates have fallen to 62.25%, while copper tube enterprise operating rates are below 60%. On Tuesday this week, a modest decline in copper prices triggered downstream bargain-hunting purchases, boosting market trading activity. On the end-use front, cumulative year-on-year growth in grid investment completed during January to June slowed to 4%, while power investment completed declined 3.2% year-on-year. July air conditioner output reached 18.034 million units, with the year-on-year decline widening to 10.1%. Exports have also weakened, and August production schedules still show significant year-on-year declines, mainly reflecting domestic sales. Growth is under pressure due to below-normal high temperatures in South China and the phase-out of national subsidies. July automobile production and sales remained weak year-on-year, falling 0.7% and 0.3% respectively, though new energy vehicle production and sales maintained solid growth, rising 26.8% and 23.7% respectively.
Overall, weakening Fed rate hike expectations and easing concerns over long-end Treasury yields have solidified the bottom for gold and silver, creating a slightly warmer macro environment, though risks of US-Iran escalation remain to be guarded against. On the supply-demand front, tight copper mine supply shows no signs of easing, with processing fees breaching -170, prompting smelters to adopt a cautious procurement stance. The declining price center for sulfuric acid byproduct is adding production pressure on smelters. Domestic refined copper spot supply is slightly tight, while LME copper inventories have temporarily stopped falling, warranting monitoring for sustainability, with the 0-3 spot premium still relatively high. The demand off-season is nearing its end, with high prices providing mild suppression. Supply-side support is set to continue fermenting, keeping copper prices generally prone to gains rather than declines. However, at these absolute high levels, particular attention must be paid to position sizing and risk management.
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