Copper futures prices showed signs of recovery following the release of US PCE inflation data that aligned with market forecasts, according to a report from Huatai Futures.
On May 28, the main copper contract on the Shanghai Futures Exchange (SHFE) opened at 104,470 yuan per tonne and closed at 104,150 yuan per tonne, representing a decline of 0.51% from the previous trading day's close. During the overnight session, the contract opened at 104,450 yuan and closed at 105,270 yuan, marking a gain of 1.17% from the afternoon session's close.
In the spot market, SMM data showed that spot prices for SMM1# electrolytic copper were at a discount ranging from 180 yuan per tonne to parity against the SHFE June 2026 contract, averaging a discount of 90 yuan per tonne. The June contract initially fell before stabilizing, opening at 103,980 yuan, hitting a low of 103,510 yuan, and closing at 103,830 yuan. A positive spread existed between nearby contracts, and import arbitrage remained unprofitable. Trading sentiment in Shanghai improved slightly. Spot discounts for mainstream brands narrowed as prices fell, with premium-grade copper commanding stronger prices due to tight supply. Various copper products were transacted at different price differentials. The recent dip in copper prices spurred some downstream procurement, leading to a slight improvement in orders from East China, although overall demand improvement was limited. Tightening supply from Changzhou provided support to spot prices, while a narrowing inter-month spread and increased circulating supply contributed to a widening of the spot discount. Multiple factors are at play, and spot copper prices in Shanghai are expected to remain at a discount with overall market pressure.
Key developments include a reported framework agreement for a 60-day memorandum of understanding between the US and Iran to extend a ceasefire and initiate nuclear talks, pending final approval. The memo reportedly aims for "unrestricted passage" in the Strait of Hormuz, with the US potentially gradually lifting its maritime blockade. Iran would commit to not developing nuclear weapons, while the US would discuss sanction relief and unfreezing assets.
On the economic data front, the US April PCE price index rose 3.8% year-on-year, the highest since May 2023, while the core PCE index increased 3.3%, a high since November 2023, largely driven by energy prices amid the Iran conflict. Real consumer spending grew a mere 0.1% month-on-month. The US Q1 real GDP growth rate was revised down to 1.6%, below the market expectation of 2%. Weak consumption, heightened inflation, and the downward GDP revision point to increasing risks of economic stagflation in the US.
On the supply side, Peruvian copper startup Quilla Resources has begun preparations for an IPO, targeting a listing on the Toronto Stock Exchange in 2027. The company is arranging a new financing round ahead of the expected IPO. Quilla has restarted the Chapi copper mine in southern Peru, which began ramping up in February and is expected to reach full capacity in Q4. The company plans to gradually increase Chapi's annual output to 30,000 tonnes, requiring an estimated investment of $200-300 million. CEO Victor Gobitz stated the company is leveraging existing operational assets for faster, lower-cost capacity expansion and is exploring a larger concession near a Freeport-McMoRan operation.
Regarding smelting and imports, the Quadrilateral Security Dialogue (Quad) formally launched a critical minerals initiative, planning to mobilize a total of $20 billion in public and private capital to build a comprehensive critical minerals supply chain. The funding will cover mining, smelting, processing, and waste recycling to establish a stable, autonomous strategic mineral supply system for sectors like advanced manufacturing, AI, defense, and power batteries. The initiative focuses on projects with "Quad linkage," including those within member states, operated by Quad companies, or supplying the Quad market. Funding mechanisms include export credit agencies and development finance institutions using guarantees, loans, equity participation, subsidies, long-term contracts, and insurance to leverage private capital.
On the consumption side, preliminary ICSG data for May shows global apparent refined copper usage increased by only 0.8% in Q1 2026. While usage outside China is estimated to have grown 1.7%, China's apparent demand (excluding changes in bonded/unreported stocks) was largely flat, impacted by a 40% decline in net refined copper imports. China currently accounts for approximately 58% of global refined copper usage. China's bonded warehouse stocks are estimated to have decreased by about 10,000 tonnes in Q1 compared to end-2025 levels.
In inventory data, LME warehouse warrants decreased by 2,200 tonnes to 385,100 tonnes. SHFE warrants fell by 450 tonnes to 94,480 tonnes. As of May 25, domestic spot electrolytic copper inventory in China stood at 245,200 tonnes, unchanged from the previous week.
**Strategy** Copper: Cautiously Bullish Copper prices consolidated at high levels last week, with macro inflation and interest rate pressures capping upside potential, while US-Iran negotiations added volatility. Fundamentally, tight supply and smelter maintenance supported prices, but high prices suppressed downstream demand, leading to weak transactions dominated by rigid demand. Overall inventory changes were limited. The recently released PCE data, which was in line with expectations, initially caused a pullback in copper prices on renewed inflation and rate hike concerns, but prices notably recovered post-data. The SHFE copper price is expected to fluctuate between 103,000 and 106,800 yuan per tonne this week. The recommended operation is to hedge by buying on dips.
Arbitrage: Pause Options: Sell puts
**Risks** Domestic demand declining too rapidly; significant inventory accumulation. Overseas liquidity crunch risk.
Comments