This week, the copper market gave the impression that it neither rose successfully nor fell as expected. The main copper contract on the Shanghai Futures Exchange closed at 105,150 yuan per ton on Friday, with no significant changes throughout the week. It only rose by 0.1%, while the copper price on the London Metal Exchange was $13,745 per ton, rising by only 0.2% within the week. Although the price is still high, the upward-breaking force has weakened significantly.
The problem does not lie in the copper itself, but in the changes in macro expectations. The non-farm employment data in the United States in May greatly exceeded market expectations, so the market immediately re-evaluated the space for the Federal Reserve to take action. Previously, many people still hoped for a rate cut, but now there is a possibility of another interest rate hike this year. If the US dollar rises, commodities measured in US dollars will be affected, and copper is no exception. It has been rising in the first half of the week, but then started to fall in the second half of the week. Such a trend is very common.
Another disruptive force is the Middle East region. The US-Iran relations have been fluctuating recently, sometimes showing signs of reconciliation, but there is also a possibility of a war outbreak. The market's psychological state is constantly changing, and copper prices will fluctuate up and down due to geopolitical premium.
However, from the fundamental perspective, copper is not so bad. The strongest support is that the problem of tight mine supply has not been alleviated. The processing fee for copper concentrate continues to fall, and the mainstream transaction price in the spot market has already dropped below -$110 per ton. Such a situation is already very serious. The processing fee has already been so inverted that it means there is a shortage of mine resources, and the smelters' situation is also not good. The pressure of losses has increased, and the possibility of reduction in production and maintenance has also increased. The reduction in the supply of refined copper is a fact, not just people's subjective speculation.
Another overlooked risk is that the risk appetite of investors is also declining. This week, due to concerns about the artificial intelligence bubble, US technology stocks were impacted, and the performance forecasts of chip companies were not satisfactory, making the market more cautious. Although copper has a long-term logic benefiting from electrification, energy transition, and data center construction, from a short-term perspective, it still belongs to a risk asset. When the overall environment is conservative, funds are less likely to chase high prices.
The current copper market is not complicated: the bottom is supported by the pressure of tight mine supply and inventory digestion, while the top is suppressed by the impact of the appreciation of the US dollar, interest rate expectations, and weakened seasonal demand. Either side has the reason to say so, so the price has been fluctuating up and down within a relatively high level. The sharp fluctuations are likely to occur, but a single-sided trend is unlikely to happen. The copper market's upward risk of chasing high prices is very high, and expecting a sharp decline is not guaranteed to happen.
