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Copper Prices to still have Upward Momentum

Issued at 2022-12-16



Copper Prices to still have Upward Momentum amid Favourable Policies in China and Low Global Copper Inventory.

On the macro front, although the US non-farm payrolls in November were stronger than expected, US Federal Reserve Chairman Powell’s dovish speech triggered expectations that the Fed would slow down its interest rate hikes in December.

SHANGHAI, Dec 13 (SMM) - On the macro front, although the US non-farm payrolls in November were stronger than expected, US Federal Reserve Chairman Powell’s dovish speech triggered expectations that the Fed would slow down its interest rate hikes in December. And the CME FedWatch Tool’s poll showed an 80% probability of a 50 basis point hike in the interest rates by the US Fed in December. The European Central Bank said that it might raise interest rates by 50 basis points in December in order to contain the soaring consumer prices, which sent the US dollar index lower, thus supporting copper prices. Market players are now waiting to see whether the upcoming US November inflation data will show an accelerated fall on a year-on-year basis. Given the cloudy outlook for the US economy, market players will be more cautious in their judgement of neutral interest rate and the degree of economic recession.

The macro policies in China were bullish. China will further loosen its pandemic prevention and controls. On December 7, the joint prevention and control mechanism of the State Council announced 10 new measures for pandemic prevention, which shows that the pandemic prevention and control policy has taken an important step towards a more precise and scientific direction. Since November, Chinese regulators have repeatedly issued favourable real estate policies, from encouraging home purchases to supporting property developers, with the focus still on stalled real estate projects and ensure housing delivery to home buyers. However, only after property developers obtain loans and embark on their construction projects, can the real estate consumption improve. The market sentiment will be volatile.

In terms of fundamentals, on November 25, Freeport-McMoRan set its copper concentrate TCs and RCs for next year at $88/mt and ￠8.8/lb respectively, the highest since 2017, and up from $65/mt and ￠6.5/lb in 2022. Sellers and buyers both agreed that new projects and the production growth of existing projects would lead to abundant copper concentrate supply next year. As the SHFE/LME copper price ratio kept falling in November, the customs clearance of imported copper may be inhibited in December. With the opening of export window, some smelters may deliver their cargoes to the Shanghai International Energy Exchange. Disturbed by multiple factors, the domestic copper cathode output is estimated to fall on a month-on-month basis for the first time in nine years in December. Copper supply in the spot market was tight. SMM statistics showed that the domestic copper social inventories fell further to 104,800 mt as of December 9, and LME copper inventory dropped below 90,000 mt, with the proportion of cancelled warrants still on the rise. The decline in global copper inventories underpinned copper prices. As December is the traditional off-season and deliveries of orders placed by power grid operators were basically completed in November, the relaxation of pandemic controls across the country may provide limited boost to copper consumption this month.

The market seems to have reached a consensus that the US Fed would slow down the pace of its interest rate hikes as soon as in December. Both supply and demand in the copper market will be weak. The demand may be less resilient than the supply in late December when the impact of the off-season intensifies. To sum up, positive macro expectations may shore up copper prices, but the upside room will be limited by potential accumulation of copper inventory. SMM sees the most-traded SHFE copper contract between 64,000-67,000 yuan/mt in December and LME copper between $8,200-8,600/mt.



Source: news.metal.com



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