The Shanghai Futures Exchange's (SHFE) warehouse warrants for copper futures fell by 1,102 tonnes day on day to 11,161 tonnes on Aug 3, leading to a week-on-week decrease of 8,552 tonnes or 43.38%, and a decrease of 6,643 tonnes or 37.31% month on month.
SHFE copper price fell to about Yuan 69,000/tonne today, while premiums of refined copper in East China rose by Yuan 120/tonne.
Copper prices fell sharply again today, mainly due to the tightening of market risk appetite caused by the shift in macroeconomic expectations.
The ADP (Automatic Data Processing) in the US surged to 324,000 in July, far exceeding the expected 190,000. The strong employment data has raised concerns among market participants about inflation and concerns about further monetary tightening policies from the Federal Reserve.
In addition, the issue of the US Treasury's excessive issuance of bonds in the third quarter has begun to receive widespread market attention, sparking concerns about the US sovereign credit. Following S&P Global, Fitch downgraded the credit rating of US treasury bonds from AAA to AA+. This downgrade highlights the risk accumulation caused by the massive debt burden in the US, as well as the more challenging financial budget situation in the future.
China's Caixin Manufacturing PMI (Purchasing Managers' Index) fell to 49.2 in July, entering a contraction range. In addition, the index of new export orders in July fell to a new low since October 2022, sparking concerns about demand resilience in the market.
LME (London Metal Exchange) copper futures inventory continued to increase by 1,100 tonnes to 75,275 tonnes, reflecting the sluggish overseas demand. However, the continuous decline in SHFE copper warehouse warrants will limit the downside of copper prices and even lead to short-squeeze risks.
A large copper rod processing enterprise in Central China will conduct maintenance in August, which is expected to have a significant impact on the overall refined copper demand. On the other hand, with the end of smelters' intensive maintenance, the supply of refined copper is expected to become more sufficient.
Overall, the exposure to macroeconomic risks and weak fundamentals will lead to a downtrend in copper prices, but low domestic inventory will limit the downward space. In the long run, the realization of recession risks will increase the probability of a plunge in copper prices.
Data Source: SHFE
Data Source: SHFE
Written by Edenlis Huang, huangting@mysteel.com
Edited by Paula Xu, xuzhongping@mysteel.com