Recently, overseas macro market pressure has increased significantly. In May, the CPI of the United States increased by 8.6% year-on-year, a 40 year high, and the issue of inflation in the United States was refocused. The market is expected to increase the US interest rate by 50 basis points in June, July and September respectively, and it is even expected that the US Federal Reserve may increase the interest rate by 75 basis points at its interest rate meeting in June. Affected by this, the yield curve of US bonds was reversed again, European and American stocks fell across the board, the US dollar rose rapidly and broke the previous high, and all non-ferrous metals were under pressure.

Domestically, the number of newly diagnosed cases of COVID-19 has remained at a low level. Shanghai and Beijing have resumed normal life order. The sporadic new confirmed cases have caused the market to be cautious. There is a certain overlap between the increased pressure in overseas markets and the slight convergence of domestic optimism. From this point of view, the impact of the macro market on copper prices will be reflected in the short term.

However, we should also see that in the middle and late May, the people’s Bank of China cut the five-year LPR by 15 basis points to 4.45%, exceeding analysts’ previous consensus expectations. Some analysts believe that this move has the intention of stimulating real estate demand, stabilizing economic growth and resolving financial risks in the real estate sector. At the same time, many places in China have adjusted the regulation and control policies of the real estate market to promote the recovery of the real estate market from multiple dimensions, such as reducing the down payment ratio, increasing the support for housing purchase with provident fund, lowering the mortgage interest rate, adjusting the scope of purchase restriction, shortening the period of sales restriction, etc. Therefore, the fundamental support makes the copper price show better price toughness.

Domestic inventory remains low

In April, mining giants such as Freeport lowered their expectations for copper concentrate production in 2022, prompting copper processing fees to peak and fall in the short term. Considering the expected reduction of copper concentrate supply this year by several overseas mining enterprises, the continued decline of processing fees in June became a probability event. However, the copper processing fee is still at a high level of more than $70 / ton, which is difficult to affect the production plan of the smelter.

In May, the epidemic situation in Shanghai and other places had a certain impact on the speed of import customs clearance. With the gradual restoration of normal living order in Shanghai in June, the amount of imported copper scrap and the amount of domestic copper scrap dismantling are likely to increase. The production of copper enterprises continues to recover, and the strong copper price oscillation in the early stage has widened the price difference of refined and waste copper again, and the demand for waste copper will pick up in June.

LME copper inventory has continued to rise since March, and has risen to 170000 tons by the end of May, narrowing the gap compared with the same period in previous years. The domestic copper inventory increased by about 6000 tons compared with the end of April, mainly due to the arrival of imported copper, but the inventory in the previous period is still far below the perennial level. In June, the maintenance of domestic smelters was weakened on a month on month basis. The smelting capacity involved in maintenance was 1.45 million tons. It is estimated that the maintenance will affect the refined copper output of 78900 tons. However, the restoration of normal living order in Shanghai has led to a pick-up in the purchasing enthusiasm of Jiangsu, Zhejiang and Shanghai. In addition, the low domestic inventory will continue to support prices in June. However, as import conditions continue to improve, the supporting effect on prices will gradually weaken.

Demand forming underpinning effect

According to estimates of relevant institutions, the operating rate of electric copper pole enterprises may be 65.86% in May. Although the operating rate of electric copper pole enterprises is not high in the past two months, which promotes the finished products to go to the warehouse, the inventory of electric copper pole enterprises and raw material inventory of cable enterprises are still high. In June, the impact of the epidemic on infrastructure, real estate and other industries dissipated significantly. If the copper operating rate continues to rise, it is expected to drive the consumption of refined copper, but the sustainability still depends on the performance of terminal demand.

In addition, as the traditional peak season of air conditioning production is coming to an end, the air conditioning industry continues to have a high inventory situation. Even if the air conditioning consumption accelerates in June, it will be mainly controlled by the inventory port. At the same time, China has introduced the consumption stimulus policy for the automotive industry, which is expected to set off a wave of production and marketing climax in June.

On the whole, inflation has put pressure on copper prices in overseas markets, and copper prices will fall to some extent. However, as the low inventory situation of copper itself cannot be changed in the short term, and the demand has a good supporting effect on the fundamentals, there will not be much room for copper prices to fall.