Weekly Blog: Fed Inflation, China Construction and ICSG Copper Surplus.

  • Fed officials emphasized concerns about high inflation, and comments from the Fed meeting minutes and Goldman Sachs’ CEO indicated that US rates might remain elevated for an extended period. This has impacted all metals, including precious ones. After reaching a record high of $11,101 last Monday, copper has lost all its gains for the week. This decline was anticipated as prices had been over-inflated. It remains uncertain whether this is a temporary pause or the end of the surge.
  • China experienced a significant surge in floor space under construction in April 2024, jumping by 35.1%, the highest growth since March 2019. This comes after the floor space had contracted in 13 out of the past 15 months. Additionally, new home prices dropped by 3.1% year-on-year in April 2024, marking the fastest decline since July 2015 and the 10th consecutive month of decrease.
  •  Chinese banks have approved $129 billion in loans for whitelisted property projects. In response to actions by the EU and US against Chinese electric vehicles, China is contemplating raising tariffs on certain car imports, as indicated by a business group.
  •  In March, the International Copper Study Group (ICSG) reported a copper surplus of 149kt, the highest for this month since at least 2008. Additionally, the agency noted a rare 3.1% contraction in demand. These numbers have cautioned investors, particularly bulls who had amassed the highest stakes since 2017.
  • Southern Copper, Peru’s third-largest copper producer, has unveiled plans to boost its copper output in Peru by 520,000 mt over the next 8-10 years.
  • LME’s copper inventory (amber) has trended lower, having peaked in October 2023, while those at the CME recently turned lower again. By contrast, Shanghai stockpiles (green) soared in 2024 and remain elevated with few signs of a post-Lunar New Year holiday drawdown.

Outlook

In the coming period, copper prices are expected to trade within a range, and a near-term correction might be necessary. The decline could be moderated as the expiry of CME’s May 2024 futures this week may bring inventory inflows. Reuters anticipates over 100kt of metal entering CME’s warehouses in the next two months.

Copper’s curve remains in backwardation, but speculative investors are still positioned for further upside, and the options skew is still bullish amid supply shortages and booming demand from electrification.

This week, the spotlight will be on inflation indicators, especially the PCE measure. Attention will also be directed towards the second estimate of Q1 GDP growth. Additionally, investors will be closely watching the official PMI from China, set to be released on May 31st, 2024.

Copper’s long positions increased by 9%, while bearish positions decreased by 1% during the reported week. With a bull-bear ratio of 3.10, the metal shows a strong bullish dominance.

Support levels for MCX Jun copper are at 873 and 843, while resistance is anticipated at 915 and 953.

Leave a Reply

Your email address will not be published. Required fields are marked *