The Shanghai Futures Exchange's (SHFE) warehouse warrants for copper futures decreased by 200 tonnes day on day to 2,573 tonnes on December 7, leading to a week-on-week increase of 1,043 tonnes or 68.17%, and an increase of 1,820 tonnes or 241.7% month on month.
SHFE copper price decreased to about Yuan 67,900/tonne today, while premiums of refined copper in East China fell by Yuan 95/tonne.
The US ADP employment growth in November was 103,000, lower than the expected 130,000. The recent slowdown in several macroeconomic data has boosted market participants' expectations for the Federal Reserve's interest rate cut in 2024. However, owing to stronger bets on European interest rate cuts, the upward trend of the US dollar index has been temporarily suspended.
If the US November NFP data to be released on Friday is also weaker than expected, once again boosting in market optimism sentiment can be expected. However, copper prices have shifted to falling this week, indicating a subsidence of the support for copper prices from interest rate cut expectations. The pressure of recession will gradually become the main influencing factor.
Based on Wind, the highest probability of the US falling into recession in 2024 is 71%. According to the New York Federal Reserve, the US is most likely to experience an economic recession in the first half of 2024. The surge in refinancing costs for American companies and the drag on consumption by the Chinese real estate industry will resonate with the expectation of copper oversupply in 2024, triggering a panic drop in copper prices at some point in time.
According to Mysteel's survey, China's refined copper social inventory increased by 6,000 tonnes to 59,000 tonnes compared to the previous week, mainly because of an increase in imported and domestic spot supply, as well as suppressed demand in downstream markets near the end of the year due to fund settlement.
Correspondingly to the gradual easing of supply, the expected output of refined copper rod sample enterprises in China will shrink by 6.22% month on month in December, according to Mysteel's survey. Even the copper tube output, which was previously believed to improve due to increased air conditioning scheduled production, is currently being concerned by most market participants because of poor actual sales.
Overall, the expectation of interest rate cuts by the Federal Reserve and supply disruptions are the main logic driving up copper prices. However, an economic recession cannot be ignored. Even if the SHFE futures back expands to over Yuan 500/tonne today, copper prices still showed a weak trend. It is expected that copper prices will gradually decline in December.
Data Source: SHFE
Data Source: SHFE
Written by Edenlis Huang, huangting@mysteel.com
Edited by Paula Xu, xuzhongping@mysteel.com
