Macroeconomic Optimism and Policy Support to Continue To Drive Up Copper Prices

The pressure on the US banking industry has eased and the White House and House Republicans have reached an agreement on the debt ceiling issue. As such, Goldman Sachs lowered its forecast for the probability of a US recession in the next 12 months to 25%, boosting market confidence. Anticipations of a soft landing strengthened.

The weekly employment data shows that the US job market is gradually cooling down. As of June 9, according to the CME FedWatch Tool, the probability of the Fed keeping interest rates untouched in June is 71.3%, and the probability of raising interest rates by 25 basis points is 28.7%. The US dollar index is expected to fall and the pressure on copper prices weakened. Eurozone economies cooled down across the board. The GDP of the eurozone in the first quarter continued to decline by 0.1 percentage point from the fourth quarter of 2022, shrinking for two consecutive quarters. That indicates the eurozone has fallen into a technical recession.

According to the import and export data released by China, the overseas economic situation is not promising. The export environment has deteriorated, and export orders have decreased significantly. Inflation continued to fall in May, and the downward pressure on inflation is still relatively strong. Affected by the decline in prices of commodities and raw materials, PPI continued to fall in May. The domestic economic recovery slowed down. Exports fell by 7.5% in May, and export orders dropped significantly. After entering the second quarter of the year, the recovery of domestic consumption has slowed down, and export has weakened. In order to boost domestic demand, many places have introduced real estate optimisation policies, and many banks have adjusted deposit rates to provide liquidity for the market. Affected by the positive macro news, copper prices continued to rise.

Fundamentally, domestic consumption is relatively resilient. Active dip buying increased new orders while consumption weakened again after SHFE copper prices rose. According to SMM survey, the operating rates at copper rod plants using copper cathode dropped 6.2 percentage points last week as new orders decreased noticeably.

A barrage of positive policies will continue to bolster copper prices. Notably, after copper prices rise, new orders will be suppressed. And the support from fundamentals for copper prices will be weak. The most active SHFE copper contract prices are expected to move between 66,000-67,500/mt this week, and LME copper will trade between $8,200-8,550/mt. In China's domestic spot market, SHFE copper inventories fell by 10,000 mt last week, tightening supply. This will further boost sellers’ confidence to raise their quotes. This week, spot premiums will fall to 150-200 yuan/mt before the delivery of the SHFE June contract, and sellers will raise spot premiums to above 400 yuan/mt after delivery.