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Copper prices climbed due to spot shortages
**Abstract**
Copper prices surged over 1% on Thursday, driven by concerns over spot shortages. Investors are optimistic about a potential rebound in China’s copper imports, the world’s largest consumer, while Chile, the top global copper producer, reported a year-on-year decline in April production due to strikes and operational issues. The London Metal Exchange (LME) three-month copper contract closed up approximately 1% at $7,320 per tonne, reversing the previous day’s drop.
**Macro Focus**
The current strength of the U.S. dollar is primarily fueled by investor confidence in the U.S. economy’s cyclical recovery rather than traditional safe-haven demand seen during past crises. This means that the dollar’s upward trend depends largely on the sustainability of U.S. economic growth and how central banks adjust monetary policy. While the exit from quantitative easing (QE) plays a key role in shaping the dollar’s direction, the U.S. economy remains stronger than both Europe and Japan, which is a critical factor. Even if QE continues, the dollar’s bullish momentum is unlikely to stop. From a technical perspective, the dollar’s slight decline on Thursday was just a short-term correction within a broader uptrend. If the U.S. Dollar Index breaks above 86.00, it could potentially rise toward 92.00.
**Domestic Copper Spot Market**
In Shanghai, the spot copper price was quoted between 52,800 and 53,400 yuan per ton on Wednesday, down 550 yuan per ton from the previous day. The premium for standard copper remained around 400 yuan per ton. Despite the recent drop in copper prices following weak global economic outlooks and the anticipated resumption of Indonesia’s Grasberg mine, one of the world’s largest copper mines, the spot market still shows some positive signs. Analysts believe that the global copper market remains tight, though volatility has been low. Some downstream users continue to maintain normal purchasing levels, but overall demand remains weak. Additionally, market participants are hesitant to sell when prices dip, and although premiums have narrowed, they remain relatively stable, which limits transaction volumes. Pingshui copper was offered at a premium of 250 yuan per ton, with most premium grades ranging between 300 and 400 yuan per ton.
**Trading Strategy**
Shanghai copper futures experienced wide fluctuations yesterday, with the 1309 contract falling 200 yuan, or 0.38%. However, overnight trading saw a small rebound of 0.22%. On the fundamentals, the copper premium in the Shanghai Bonded Warehouse rose to $150, signaling improved demand and offering some support to prices. Several major Chinese copper smelters have recently shut down parts of their operations due to a shortage of scrap copper supply, leading to reduced local production. Meanwhile, Chile reported a 1.2% annual decline in copper output for April, impacted by labor disputes and production disruptions. Boston Fed President Rosen Glenn suggested that if the job market and economic conditions continue to improve, the Fed might "gradually" reduce its bond-buying program. This uncertainty around the timing of policy changes has led to a weaker dollar against a basket of currencies. Technically, copper hit a low of $6,762, and the market is currently trading in a narrow range. While short-term sentiment leans bullish, traders are advised to remain cautious and focus on risk management.