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• 2024-10-17

Copper Futures Hit 80,000; Analysts Flag Overheating Risks

In the world of commodities trading, the recent fluctuations in copper and gold prices have sparked a whirlwind of interest among investors and analysts alike. On April 22, a significant surge in Shanghai copper market was observed, where prices confidently crossed the 80,000 yuan per ton psychological barrier, reaching an impressive peak of 81,050 yuan per ton. This impressive figure marks a historic high for copper prices over an eighteen-year period, stirring excitement in the metal futures market.

As trading progressed that day, the Shanghai copper futures closed at a rise of 0.72%, reporting a final value of 79,550 yuan per ton at the end of the trading day. Over the course of the year, the cumulative increase from early March has reached approximately 15%. In parallel, international copper futures saw comparable gains, with a close at 71,010 yuan per ton after a climb of 0.74%. Notably, since early March, COMEX copper futures and LME copper futures have demonstrated respective increases of 16% and 15%, illustrating a global movement toward stronger copper prices.

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According to a report from the U.S. Commodity Futures Trading Commission (CFTC), as of the week ending April 16, institutional investor positions in copper futures have seen a slight increase in long positions to 144,590 contracts, while short positions have declined to 97,021 contracts. This trend has led to a net long position of 47,569 contracts in COMEX copper futures, reflecting a bullish sentiment among investors.

Amidst the backdrop of anticipated supply shortages, analysts from CITIC Securities suggest that the increased buying pressure from funds has contributed to the recent price highs for copper. This sentiment remains robust despite the prevailing hawkish stance of the U.S. Federal Reserve and the inherent weaknesses observed in the copper industry's fundamentals, hinting at a growing risk of price volatility as investors tread carefully through the current market waters.

The upward trajectory of copper prices has been particularly pronounced since March, where a rise characterized by rapid gains has captured the attention of the trading community. Wu Yuxin, a market analyst, noted that macroeconomic indicators such as U.S. non-farm payroll data and Consumer Price Index (CPI) figures highlight sustained inflationary pressures, consequently pushing back expectations for interest rate cuts. The shift in market dynamics has led to a strengthening of the dollar, which typically exerts downward pressure on copper prices, although the market has yet to fully incorporate these developments into pricing.

In light of the robust trading environment in the domestic copper futures market, regulatory exchanges have implemented various measures to mitigate risks associated with highly volatile conditions. The Shanghai Futures Exchange (SHFE) has announced adjustments effective from the close on April 17, raising the price fluctuation limit for copper and international copper futures contracts to 7%. Additionally, the margin requirements for hedging trades have been altered to 8%, while speculative trades will see a margin requirement of 9%.

Furthermore, prior notifications from the SHFE indicated that starting April 12, trading limits would be enforced on copper futures, with a cap of 2,000 contracts for daily positions. However, hedge trading and market-making activities are exempt from these limitations, allowing for greater flexibility amidst regulatory constraints.

On the industrial front, Wu Yuxin remarked that after the substantial price increases, demand from downstream users has decreased, posing risks to companies within the copper rod sector. Expanding price differentials between refined and scrap copper have also weighed heavily on refined copper consumption. He further noted that as we approach the second quarter, significant maintenance periods at copper smelting facilities might lead to reduced output, although for April, reductions may be limited. Nonetheless, inventory depletion could soon follow as maintenance activities commence, though there is a need to remain cautious regarding inventory reductions that may not meet anticipated levels.

CITIC Futures analysts commented that domestic demand has shown slight improvement during the seasonal transition, yet there remains a weakening confidence among companies regarding consistent growth in orders. Last week, the SHFE recorded an increase in copper inventories by 322 tons, bringing the total to 300,000 tons, with this accumulation trend showing signs of slowing. Furthermore, bonded zone copper inventories rose by 0.31 million tons, while LME copper inventories reduced by 2,300 tons to a total of 122,100 tons. High copper prices continue to dampen downstream demand, with global stocks exceeding levels seen in the previous year.

Traders have also cautioned against potential high-level corrections within copper prices in the near term. According to analysts at Founder Futures, the persistent strength of copper prices is largely due to the influx of macroeconomic liquidity into the non-ferrous metals market, coupled with strong support from the supply side. The crossing of the 80,000 yuan per ton mark for Shanghai copper prices also brings them close to peaks observed in 2006, necessitating vigilance against potential liquidity strains that may result in upward price corrections.

Fang Rui, an analyst with Guoyuan Futures, emphasized that the Federal Reserve is set to hold two interest rate meetings in late April and mid-June. Given that market expectations for an interest rate cut in June had been relatively pronounced prior to recent economic data, the metallic and dollar markets have already largely accommodated these perspectives. Recent U.S. economic data has exceeded projections, leading to a cooling of interest rate cut expectations. Should the market anticipate further delays in cuts, new pressure on overseas macroeconomic markets could materialize and potentially cap future increases in copper prices.