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Copper prices climbed due to spot shortages
**Abstract**
Copper prices surged over 1% on Thursday, driven by concerns over short-term supply disruptions. Investors are optimistic about China’s improved copper imports, the world's largest consumer, while Chile, the top global copper producer, reported a year-on-year decline in April output due to strikes and operational challenges. The London Metal Exchange (LME) three-month copper contract closed up around 1% at $7,320 per tonne, reversing Wednesday’s loss. This move highlights growing market anxiety over potential supply bottlenecks, especially as key producers face ongoing production issues.
**Macro Focus**
The recent strength of the U.S. dollar is largely attributed to investor confidence in the country's economic recovery rather than traditional safe-haven demand. As the U.S. economy shows more resilience compared to Europe and Japan, the dollar has gained momentum. While the Federal Reserve's tapering of quantitative easing (QE) remains a key factor, the sustainability of economic growth will ultimately determine the dollar’s trajectory. Even if QE continues, the long-term upward trend of the dollar seems unlikely to reverse. From a technical perspective, the dollar’s slight pullback on Thursday was just a temporary correction. If the U.S. Dollar Index breaks above 86.00, it could potentially rise toward 92.00.
**Domestic Copper Spot Market**
In Shanghai, spot copper was quoted between 52,800 and 53,400 yuan per ton on Wednesday, down 550 yuan from the previous day. The premium for standard copper remained at 200 yuan per ton. Despite the recent price drop, some analysts believe the global copper market remains tight. Although demand from downstream sectors is still weak, the market sentiment remains cautiously positive. With uncertainty surrounding global economic growth, copper prices have faced pressure. However, traders are holding onto their stocks, limiting transaction volumes. Pingshui copper was offered at a 250-yuan premium, while most premiums ranged between 300 and 400 yuan per ton.
**Trading Strategy**
Shanghai copper saw significant volatility yesterday, with the 1309 contract falling 200 yuan, or 0.38%. Overnight, copper rebounded slightly, rising 0.22%. Fundamentally, the Shanghai Bonded Warehouse copper premium reached $150, indicating stronger demand and supporting price stability. Some major Chinese smelters have temporarily shut down due to scrap copper shortages, which has reduced local copper output. Meanwhile, Chile’s April copper output fell by 1.2% year-over-year, further tightening the supply side. Boston Fed President Rosen Glenn suggested that if economic conditions continue to improve, the Fed may “modestly†reduce its bond purchases. This uncertainty has weakened the dollar against other currencies. Technically, copper hit a low of $6,762, but the market is currently trading within a narrow range. While there is a short-term bullish outlook, investors should remain cautious and focus on risk management.