I. Market Review: Spot and Futures Show Strong Correlation, Copper Price Moves Higher
On Monday (July 21st), all metal prices rose across the board. The main contract of copper in Shanghai continued its strong performance. It opened higher and moved higher throughout the morning session. By 10:15, it closed up by 1,150 yuan/ton, with an increase of 1.47%, and the closing price was 79,460 yuan/ton, marking the largest single-day increase in recent times.
The trading activity in the spot market has simultaneously increased, and the sellers' confidence in maintaining the price has strengthened. The premium pattern has continued. Although the downstream market has seen an upward trend in bullish sentiment, the purchases have mainly been for essential needs, and the transactions have been relatively cautious. Since last week, the main reason for the stabilization and rebound of copper prices has been the closure of the overseas arbitrage window, the favorable domestic policies, and the rising expectations of the Fed's interest rate cut.
Data from the Changjiang Nonferrous Metals Network shows that the spot price of 1# copper in the Yangtze River region is reported at 79,760 yuan per ton, up 1,050 yuan per ton from last Friday, with a premium of 300 yuan per ton.
II. Macro Perspective: Policy and expectations of interest rate cuts are intertwined, and market risk appetite has recovered.
1. Overseas end:
• The US CPI rose moderately in June, with retail sales increasing by 0.6% month-on-month (exceeding market expectations), highlighting the economic resilience and easing the pressure of "recession trading".
• Within the Federal Reserve, there is an increasing divergence on the issue of interest rate cuts: the hawkish faction advocates for tightening to curb inflation, while the dovish faction (such as Governor Woolery) is concerned about the slowdown in private sector employment (private sector employment growth slowed significantly in June), and calls for an interest rate cut in July. Although the interest rate cut in July has not yet been implemented, the dovish stance of officials like Woolery still supports the recovery of market risk appetite.
The "Equivalence Tariff 2.0" has seen a marginal reduction in its impact on the market, and the sentiment in the capital market has partially recovered.
2. Domestic end:
• Policy measures have been released in a concentrated manner to provide positive incentives: The National Development and Reform Commission and other seven departments jointly issued the "Several Measures to Encourage Foreign-Invested Enterprises to Make Re-Investments within the Country", further deepening the reform of foreign investment utilization; The Ministry of Industry and Information Technology's data shows that the year-on-year growth rate of industrial output value of large-scale enterprises in the first half of the year was 6.4%, demonstrating strong growth resilience.
The chief engineer of the Ministry of Industry and Information Technology, Xie Shaofeng, emphasized that efforts will be made to promote industrial upgrading, optimize supply, enhance the resilience of the industrial chain, and provide support for the stable operation of the industrial economy. The Ministry of Commerce pointed out that China's foreign trade has remained the world's top performer, with the scale of service trade exceeding one trillion US dollars and foreign investment reaching over 700 billion US dollars. These achievements have further strengthened market confidence.
III. Fundamental Analysis: Shortage at the mining end coexists with easing supply, and demand shows significant differentiation.
1. Supply side:
The shortage of mining resources overseas remains unchanged, but the LME inventory has continued to rise. The second-quarter reports of major mining companies mainly focused on increasing production. The supply of refined copper from overseas is gradually easing.
• Domestic inventories have slightly increased. The B structure for the near-month contract has shifted to a neutral level. With the return of imported supplies, there are signs that the tight domestic market balance is beginning to ease.
• The construction of the Daxie Port in Ningbo (with a construction period of one year) may affect the delivery speed of imported scrap copper. Additionally, China has imposed a 10% tariff on recycled copper imported from the United States. As a result, the supply of recycled copper will be tight in the second half of the year.
2. Smelting sector: There will be a peak period for maintenance from September to November (with production capacity reaching its peak in October), and the impact on output is mainly concentrated in October and November, which may further intensify the tightness of the spot market and support the copper price.
3. Demand Side:
• Copper rod industry: The inventory level is relatively high. Under the backdrop of declining demand, the benefits are limited. The production rate of copper rod enterprises has decreased since May. It is expected that the process of inventory reduction will continue in the second half of the year. Cable enterprises are facing cost pressure due to the rising copper price, and the expansion of production capacity is restrained.
• Cable manufacturing industry: The overall开工rate has risen from January to May (the early Spring Festival supported production in February), but the continuous rise in copper prices has restrained the release of production capacity.
• Air conditioning industry: Production shows a seasonal pattern of "first decline then growth", with no new pressure on inventory. With active exports and policies to stimulate consumption, demand is expected to increase and be concentrated in the fourth quarter.
IV. Comprehensive View: Short-term stabilization and recovery, medium-term focus on policy and supply-demand dynamics
The current upward trend of copper prices is driven by the synergy of macro and policy factors: There are differences in expectations for overseas interest rate cuts, but the dovish signals are dominant. Domestic policies for stable growth (such as optimizing supply and attracting foreign investment) have boosted market confidence. Although there is a shortage of copper in overseas mines, supply is expected to ease. Domestic social inventory has also loosened, but the peak of smelting maintenance (from October to November) may exacerbate the spot shortage. Coupled with the effective medium-term cost support logic, it is expected that the copper price will stabilize and recover after confirming the support in the short term.
