Summary: On the fundamentals front, although demand for refined copper rod has yet to show obvious improvement and domestic copper remains at a sustained discount, inventories have shown relatively clear signs of peaking. Trading on expectations of the future peak season has begun to gain strength, underpinning copper prices.
View: On the fundamentals front, although demand for refined copper rod has yet to show obvious improvement and domestic copper remains at a sustained discount, inventories have shown relatively clear signs of peaking. Trading on expectations of the future peak season has begun to gain strength, underpinning copper prices.
On the macro front, the broad direction of recovery has not changed. Eurozone manufacturing PMI remains strong, but the pandemic is spreading again in some regions and the threat of variant strains persists. The services sector remains in a weak recovery, so the realization of a synchronized global economic recovery still faces uncertainties.
On the market front, U.S. Treasury yields have retreated and the U.S. dollar index has kept declining, which should continue to support commodity prices. However, given the sound recovery momentum of the U.S. economy and pandemic-related uncertainties, the scope for further dollar declines in the near term is expected to be limited.
Overall, copper prices are trending stronger on the back of a pullback in the U.S. dollar index and expectations of recovering peak-season consumption. However, given that the dollar's near-term downside is limited and that peak-season demand may not materialize as expected, we believe the copper price rally should be treated with caution in the short term.
Trading strategy: Hold light long positions in CU2106 futures contracts.
Risk warnings: COVID-19 pandemic, economic recovery falling short of expectations, and peak-season demand missing expectations.
1. Market Review
This week, Shanghai copper prices generally traded at high levels, with the center of gravity around RMB 69,300/ton, while LME copper showed a smoother trend. Despite pullbacks, the upward trend since mid-April remained intact.
2. Market Analysis
2.1 Overseas Macro
Tensions once flared on the Russia-Ukraine border, but Russia subsequently announced a troop withdrawal, easing market risk aversion.
The U.S. economy continues to recover, with initial jobless claims declining and manufacturing sentiment improving further. Biden said he is willing to compromise on the infrastructure bill and proposed tax increases on high-income earners.
The ECB kept policy unchanged at its April meeting and maintained a dovish monetary policy stance, while eurozone countries face inflationary pressures.
Recently, the U.S. dollar and U.S. Treasury yields have both been falling, providing clear support to asset prices. The global pandemic picture remains divergent; worsening outbreaks in some regions have once again weighed on global economic prospects. Meanwhile, good U.S. pandemic control limits the dollar's downside. Near-term attention should focus on the Fed policy meeting outcome and dollar performance.
2.2 Domestic Macro
Preparations for the national carbon market have entered a critical period. Regulations on carbon emission rights trading are being accelerated, and rules on carbon market registration, trading, and settlement will be released as soon as possible. The NDRC is formulating a specific action plan for peaking carbon emissions before 2030 and will, under that framework, issue a series of implementation plans covering coal, power, steel, petrochemicals, chemicals, and other sectors.
According to the National Bureau of Statistics, monitoring of market prices for 50 important means of production in 9 major categories in the national circulation sector shows that in mid-April, compared with early April, prices of 31 products rose, 17 fell, and 2 were flat. Among them, live pigs (foreign three-way crossbreed) were priced at 23.4 yuan/kg, up 2.2% month on month.
Xu Zhong, Deputy Secretary-General of the National Association of Financial Market Institutional Investors, said the carbon trading market is essentially a financial market and should be built in line with the laws of financial market development. In practice, pricing efficiency is crucial to the carbon trading market, requiring such basic conditions as trading mechanisms, an investor base, derivative instruments, and corresponding financial market regulatory rules.
According to the State Administration of Foreign Exchange, preliminary estimates show that China's current account continued to run a surplus in Q1 this year, though the scale moderated from the high in Q4 2020. For the full year, a surplus of reasonable scale is expected.
The NDRC and seven other departments issued the Interim Measures for the Administration of Auto Parts Remanufacturing to regulate remanufacturing behavior and market order, ensure the quality of remanufactured products, and promote the standardized development of the industry. The Interim Measures, containing eight chapters and 36 articles, are based on the realities of China's auto parts remanufacturing industry and set out clear provisions on enterprise qualification conditions, recycling management of old parts, and remanufacturing production management.