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The copper market still focused on domestic credit liberalisation, expectations of interest hikes on recovering overseas economies, and the overall low inventories entering 2022. The domestic inventory will start to increase approaching the CNY, but the domestic copper prices are expected to gain strong support, and the overseas prices will rise as well.
Faced with the downward pressure on the economy, the People’s Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission, and China Insurance Regulatory Commission frequently suggested that the tight monetary policy should be relaxed. In the regular meeting of the Monetary Policy Committee of the People’s Bank of China in Q4 2021, it was even more clearly emphasised that the economy should grow steadily, and the cross-cyclical adjustment should be strengthened combined with counter-cyclical adjustment. The effect of the easing monetary policy implemented in Q4 2021 is expected to be reflected in Q1 2022, which will prop up the spot and futures market.
The Fed unexpectedly delivered a hawkish stance amid strong macro data, and the interest hikes may be advanced this year. This will restrain the inflation expectations from growing too fast. But after the market fully digests the hawkish attitude, the transactions prices will return to the upward trend in the long run, and the overseas prices are expected keep rising.
According to SMM survey, the copper cathode output in December 2021 stood at 870,300 mt, which was far higher than the market expectations and hit a new high in H2 2021, as most copper smelters have completed their maintenance, and some smelters have resumed their production from accidents rapidly. The shortage of copper anode was gradually alleviated, as the imports returned to normal in November after the port congestion in South Africa eased slightly. Only a few smelters in coastal provinces still lacked copper anode and could not produce in full capacity.
At the same time, the copper smelters had high raw material inventories as the supply of copper concentrate stabilised. The temporary shutdown of the ports in north China did not drag on the copper concentrate consumption by the smelters in north-west China. Based on the current market, the impact of the upcoming Beijing Winter Olympics is insignificant on the smelters in north China, and the export window will stay open as the SHFE/LME copper price ratio keeps falling. The smelters will basically keep their production in full capacity in January 2022.
However, the social inventory remained low as of January 11. Although some copper cathode cargoes arrived at domestic ports recently, they were stored in the bonded areas amid closed import window. The bonded inventory is likely to increase more significantly in the traditional off season during the CNY. The unusually low domestic social inventory of copper cathode will provide strong support for the domestic spot and futures prices, so the copper prices are unlikely to fall below 68,500 yuan/mt.
SMM sees SHFE copper between 68,800-71,000 yuan/mt in January and LME copper between $9,500-9,800/mt.
Source: SMM