Futures: Market digests interest rate cuts' boost to copper prices
SHFE copper price fell to about Yuan 69,100/tonne today, while premiums of refined copper in East China rose by Yuan 5/tonne.
The market has largely digested the expectation that the Federal Reserve will likely start cutting interest rates in March 2024. The exchange rate of CNY/USD appreciated by over 7.1 as the People's Bank of China emphasized policy control over the exchange rate at its fourth quarter meeting and enhanced expectations of China's economic recovery. Considering the weak performance of the US dollar index, it is expected that the CNY exchange rate will further appreciate, thereby suppressing the rise of domestic copper prices.
Obstacles to shipping caused by overseas geopolitical crises are gradually easing, as evidenced by the sharp decline in futures prices related to European shipping costs today after a continuous surge. Most non-ferrous metal prices have also changed their long-standing upward trend.
Meanwhile, the expectation of a decrease in overseas copper supply remains the main factor supporting copper prices. In addition, according to Mysteel's survey, the supply gap of Chinese copper scrap will expand from 177,000 tonnes in 2023 to 477,000 tonnes, and overseas supply will also become more tense with the implementation of emission peak policies and economic development needs.
Previously, the market generally predicted a global copper oversupply in 2024, but it is now believed there will be a shortage of 200,000 to 600,000 tonnes in 2024. Whether the copper price has fully reflected this significant fundamental shift still needs to be verified. However, falling US real estate prices, tightening expectations for business operations, and economic performance amid the US Federal Reserve's historic cycle of interest rate cuts all seem to indicate the impending recession.
The LME copper futures warehouse rebounded to 166,775 tonnes on December 28, while the proportion of cancelled warrants decreased to 17.06%. At the same time, China's copper social inventory has risen with weakened demand and increased import clearance. The short-term supply contradiction is not yet obvious.
Overall, tight supply expectations are still supporting copper prices. However, from a historical perspective, current economic data indicates that the economic cycle is in an early recession, so copper prices have a high probability of facing a significant decline in 2024 and a gradual rebound. Meanwhile, China's economic resilience will support overall demand and enhance the bottom of copper prices.
Data Source: SHFE
Data Source: SHFE
Written by Edenlis Huang, huangting@mysteel.com
Edited by Paula Xu, xuzhongping@mysteel.com
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