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Copper price rebound or near the end of the market will still be under pressure to run
2023/6/13
With the first half of the "gold three silver four" consumption season is nearing the end, copper prices since mid-April began to gradually retreat weaken. Copper has fallen from a high of $9,183/mt to $7,867/mt, a maximum drop of 16.73%; Shanghai copper has also fallen by about 12.67%, with the main contract hitting a low of $62,690/mt, which has stabilized and recovered. Similar trend in the LME during the same period, but the decline was even steeper, falling by 13% at one point after mid-April.
"The main reason for the current round of copper prices weakening from highs in April is the gradual emergence of macro-level pressures. in April, the continuation of high inflation in the U.S. economy, so that the market at the time for the Federal Reserve to raise interest rates in May reached a unanimous expectation. in early May, the Federal Reserve announced another 25 basis point increase in the target range for the federal funds rate to between 5% and 5.25%, reaching the current round of interest rate hikes since March 2022 The 10th rate hike since the current rate hike cycle in March 2022. Boosted by the Fed's news of another rate hike, the U.S. dollar index opened a phase of rebound trend that has continued so far, bringing a very obvious suppression effect on non-ferrous metals, especially copper prices, and Shanghai copper also showed a significant decline." Hou Yahui, director of non-ferrous research and development at China Hui Futures, said.
Jinrui futures copper researcher Wu Zijie believes that the main reason for the current round of price retreat is the macro and spot on a short period of time to form a combined force. On the macro side, the most optimistic period of overseas expectations for interest rate cuts has passed, and market risks continue to fester against the backdrop of high interest rates. The market's sway on the Fed's rate cut expectations comes from inflation on the one hand, with overseas core inflation data remaining high and leading indicators such as wages and housing rents remaining high from an inflation-driven perspective. On the other hand is the strong employment data for the "hawkish" policy constraints are small. If the Federal Reserve interest rate remains at a higher level above 5% for a longer period of time, a series of liquidity risk events represented by European and American bank risk events are expected to continue to ferment. On the domestic front, the market for the slope of the economic recovery overly optimistic expectations have been repaired. The overall economic growth in the first quarter was relatively strong, and the market is very optimistic about the economic situation in the second quarter where there is a low base effect. But in fact, this year's economic growth showed an important consumption-driven characteristics of the intensity of the moderate. On the spot side, after entering April, the orders of terminal enterprises in the context of the slowdown in external demand superimposed on the recovery of domestic demand on the moderate side, the ring gradually fell, while the supply is relatively and deterministically higher incremental expectations, so in the macro and spot together, copper prices have fallen back significantly.
In fact, the Federal Reserve has used successive interest rate hikes to curb inflation while also putting the "brakes" on the U.S. economy. real GDP grew at an annual rate of only 1.1% in the first quarter of 2023, significantly lower than market expectations. At the same time, the U.S. banking crisis continues to ferment, the successive failures of small and medium-sized banks cast a shadow over the economic outlook, and global copper end consumption is expected to be suppressed to some extent.
What is the current supply and demand situation of copper at home and abroad? Zhan Dapeng, director of non-ferrous metals at Everbright Futures, believes that there are certain differences in domestic and international copper demand. First, overseas supply and demand is expected to be weak, with Europe and the United States to raise interest rates to close to 5%, the recession is expected to further deepen, which also profoundly affects the expectations of the demand for copper in Europe and the United States. Second, there is still a better basis for domestic demand. First, there is still an incremental investment plan for the national network, with a planned investment of 520 billion yuan in 2023, an increase of about 4% over last year; second, the incremental new energy is still significant, with new energy vehicles, photovoltaic and wind power set to grow by 20%-30%; third, the cumulative year-on-year growth rate of real estate completion area reached 18.8%, as As the post-real estate demand, copper demand also contributes to a certain positive increment. Finally, we can also corroborate the difference between inside and outside from the visible inventory. Compared with the peak period of domestic social inventory accumulation, domestic inventory dropped 230,000 tons to 98,400 tons, while LME inventory increased 32,150 tons to 97,650 tons in the same period.
According to Wu Zijie, overseas copper supply and demand is on the loose side. This year, economic growth in Europe and the United States has fallen back, resulting in relatively low consumption, from the perspective of inventory, since mid-April, overseas inventories accumulated around 50,000 tons. On the domestic side, the spot is a bit tighter, supply, June overhaul is more concentrated; consumption, prices fell in May, after the consumption toughness has emerged. In addition, imports due to overseas logistics problems, the overall import source is low, resulting in domestic spot tension. since mid-April, according to agency data, the accumulated reduction of 150,000 tons of domestic inventory, back down to a low level of 200,000 tons or less.
For the future market of copper, Zhan Dapeng believes that, in the medium term, along with the economic recession in Europe and the United States from the expected into reality and the domestic economy to stabilize growth and adjust the structure of the pressure, the current round of copper prices downward trend is not complete, the price center of gravity is expected to move further down. But in the short term is not pessimistic, with the end of the interest rate hike cycle in Europe and the United States and the U.S. debt ceiling issue postponed, overseas macro exist sentiment continues to moderate expectations; domestic economy, although there is a certain pressure, but the market for stable growth policy expectation is significantly higher, before the policy good cash or will become the main expected factors to support copper prices. In addition, from a fundamental point of view, the actual domestic copper demand performance in May is not weak, compared to the beginning of the month sharply higher, the market is expected to weaken copper demand and tired warehouse situation did not materialize. So short-term copper prices or performance off-season is not light, continue to show oscillating rebound market, but the rebound is not a quick fix, the off-season under the decline in demand has become a realistic factor limiting copper prices back up, the trend is clear before the long and short divergence is still large, but also affect the copper price back up rhythm, it is recommended that downstream enterprises continue to layout at low.
"The recent macro expectations to repair the good, but the actual drive is still short. Overseas, the high interest rate environment is expected to continue, liquidity, recession and other risks are difficult to say clear. On the domestic side, driven by a relatively strong service sector overlaid with a low base effect, policy is expected to remain fixed in the short term. If copper prices continue to rebound, de-stocking is feared to be less than seasonal, and spot drag intensifies." Wu Zijie said.
"The main reason for the current round of copper prices weakening from highs in April is the gradual emergence of macro-level pressures. in April, the continuation of high inflation in the U.S. economy, so that the market at the time for the Federal Reserve to raise interest rates in May reached a unanimous expectation. in early May, the Federal Reserve announced another 25 basis point increase in the target range for the federal funds rate to between 5% and 5.25%, reaching the current round of interest rate hikes since March 2022 The 10th rate hike since the current rate hike cycle in March 2022. Boosted by the Fed's news of another rate hike, the U.S. dollar index opened a phase of rebound trend that has continued so far, bringing a very obvious suppression effect on non-ferrous metals, especially copper prices, and Shanghai copper also showed a significant decline." Hou Yahui, director of non-ferrous research and development at China Hui Futures, said.
Jinrui futures copper researcher Wu Zijie believes that the main reason for the current round of price retreat is the macro and spot on a short period of time to form a combined force. On the macro side, the most optimistic period of overseas expectations for interest rate cuts has passed, and market risks continue to fester against the backdrop of high interest rates. The market's sway on the Fed's rate cut expectations comes from inflation on the one hand, with overseas core inflation data remaining high and leading indicators such as wages and housing rents remaining high from an inflation-driven perspective. On the other hand is the strong employment data for the "hawkish" policy constraints are small. If the Federal Reserve interest rate remains at a higher level above 5% for a longer period of time, a series of liquidity risk events represented by European and American bank risk events are expected to continue to ferment. On the domestic front, the market for the slope of the economic recovery overly optimistic expectations have been repaired. The overall economic growth in the first quarter was relatively strong, and the market is very optimistic about the economic situation in the second quarter where there is a low base effect. But in fact, this year's economic growth showed an important consumption-driven characteristics of the intensity of the moderate. On the spot side, after entering April, the orders of terminal enterprises in the context of the slowdown in external demand superimposed on the recovery of domestic demand on the moderate side, the ring gradually fell, while the supply is relatively and deterministically higher incremental expectations, so in the macro and spot together, copper prices have fallen back significantly.
In fact, the Federal Reserve has used successive interest rate hikes to curb inflation while also putting the "brakes" on the U.S. economy. real GDP grew at an annual rate of only 1.1% in the first quarter of 2023, significantly lower than market expectations. At the same time, the U.S. banking crisis continues to ferment, the successive failures of small and medium-sized banks cast a shadow over the economic outlook, and global copper end consumption is expected to be suppressed to some extent.
What is the current supply and demand situation of copper at home and abroad? Zhan Dapeng, director of non-ferrous metals at Everbright Futures, believes that there are certain differences in domestic and international copper demand. First, overseas supply and demand is expected to be weak, with Europe and the United States to raise interest rates to close to 5%, the recession is expected to further deepen, which also profoundly affects the expectations of the demand for copper in Europe and the United States. Second, there is still a better basis for domestic demand. First, there is still an incremental investment plan for the national network, with a planned investment of 520 billion yuan in 2023, an increase of about 4% over last year; second, the incremental new energy is still significant, with new energy vehicles, photovoltaic and wind power set to grow by 20%-30%; third, the cumulative year-on-year growth rate of real estate completion area reached 18.8%, as As the post-real estate demand, copper demand also contributes to a certain positive increment. Finally, we can also corroborate the difference between inside and outside from the visible inventory. Compared with the peak period of domestic social inventory accumulation, domestic inventory dropped 230,000 tons to 98,400 tons, while LME inventory increased 32,150 tons to 97,650 tons in the same period.
According to Wu Zijie, overseas copper supply and demand is on the loose side. This year, economic growth in Europe and the United States has fallen back, resulting in relatively low consumption, from the perspective of inventory, since mid-April, overseas inventories accumulated around 50,000 tons. On the domestic side, the spot is a bit tighter, supply, June overhaul is more concentrated; consumption, prices fell in May, after the consumption toughness has emerged. In addition, imports due to overseas logistics problems, the overall import source is low, resulting in domestic spot tension. since mid-April, according to agency data, the accumulated reduction of 150,000 tons of domestic inventory, back down to a low level of 200,000 tons or less.
For the future market of copper, Zhan Dapeng believes that, in the medium term, along with the economic recession in Europe and the United States from the expected into reality and the domestic economy to stabilize growth and adjust the structure of the pressure, the current round of copper prices downward trend is not complete, the price center of gravity is expected to move further down. But in the short term is not pessimistic, with the end of the interest rate hike cycle in Europe and the United States and the U.S. debt ceiling issue postponed, overseas macro exist sentiment continues to moderate expectations; domestic economy, although there is a certain pressure, but the market for stable growth policy expectation is significantly higher, before the policy good cash or will become the main expected factors to support copper prices. In addition, from a fundamental point of view, the actual domestic copper demand performance in May is not weak, compared to the beginning of the month sharply higher, the market is expected to weaken copper demand and tired warehouse situation did not materialize. So short-term copper prices or performance off-season is not light, continue to show oscillating rebound market, but the rebound is not a quick fix, the off-season under the decline in demand has become a realistic factor limiting copper prices back up, the trend is clear before the long and short divergence is still large, but also affect the copper price back up rhythm, it is recommended that downstream enterprises continue to layout at low.
"The recent macro expectations to repair the good, but the actual drive is still short. Overseas, the high interest rate environment is expected to continue, liquidity, recession and other risks are difficult to say clear. On the domestic side, driven by a relatively strong service sector overlaid with a low base effect, policy is expected to remain fixed in the short term. If copper prices continue to rebound, de-stocking is feared to be less than seasonal, and spot drag intensifies." Wu Zijie said.
Hou Yahui believes that copper prices have rebounded somewhat since the low, but there is still some pressure of uncertainty in the macro. The Fed may keep interest rates unchanged at its June 13-14 meeting, but Powell also hinted that it is ready to continue raising rates at the July meeting or in the future if necessary. This means that the rally in the dollar index will continue, which is not a very "friendly" signal for non-ferrous metals, especially copper prices. At the same time, the domestic market for the introduction of strong stimulus policy is expected to gradually weaken, with the end of the peak season, the supply side of the incremental release, the copper market supply and demand structure will tend to relax. late May began the current round of copper price rebound or near the end, after the market copper prices or performance for the pressure to run mainly.
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