The Shanghai Futures Exchange's (SHFE) warehouse warrants for copper futures decreased by 397 tonnes day on day to 2,773 tonnes on December 6, leading to a week-on-week increase of 318 tonnes or 12.95%, and an increase of 2,020 tonnes or 268.26% month on month.
SHFE copper price remained stable at about Yuan 68,300/tonne today, while premiums of refined copper in East China fell by Yuan 65/tonne.
Following Bank of America and Morgan Stanley, Goldman Sachs, which has always been bullish, has also issued a warning to the market due to the recent surge in US stocks that investors are currently overly optimistic about the Federal Reserve's interest rate cuts. This trend also applies to the recent continuous rise in copper prices.
From a historical perspective, global asset prices, including non-ferrous metals, typically face a plunge during the interest rate cut cycle after the Federal Reserve maintains high interest rates. This is because of the concentrated embodiment of the pressure on the economy by a long period of high interest rate environment, and the lagging effect of 12-18 months by monetary policies. Judging from the fact that the yield of US two-year and 10-year treasury bonds has inverted for 14 months, a recession may be imminent.
The Eurozone's PPI in October fell by 9.4% year on year, while the PMI further decreased from 47.8 in October to 47.6 in November, indicating an increasingly evident contraction trend. Therefore, investors have fully priced the expectation of the European Central Bank lowering interest rates by 150 basis points in 2024.
According to Mysteel's survey, China's refined copper output in November decreased by 0.63% month on month while increased by 10.76% year on year to 985,300 tonnes. The expected output in December will increase by 1.73% month on month and 13.22% year on year to 1.0024 million tonnes.
Contrary to the growth expectations of supply, domestic cable manufacturers expect consumption to shrink in December after being boosted by orders from the State Grid and the new energy industry in November, mainly because of the demand for fund recovery and stricter shipping restrictions approaching the end of the year.
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. Copper prices rose to the upper edge of the previous range of Yuan 69,000-70,000/tonne, facing huge selling pressure. It is expected that copper prices will show signs of weakness after the positive factors dissipate.
Data Source: SHFE
Data Source: SHFE
Written by Edenlis Huang, huangting@mysteel.com
Edited by Paula Xu, xuzhongping@mysteel.com
