1. Long-term contract negotiations for copper concentrates commence in mid-year, copper prices fluctuate rangebound in the short term

On the macro front, the auction results for 20-year US Treasury bonds were poor on Wednesday, and the 10-year US Treasury yield rose by over 11 basis points (BP) on Thursday. The market remains cautious about potential quantitative easing (QE) operations by the US Fed, with the US dollar index briefly returning above 100 before slipping again. In China, the marginal value-added of industrial production in April pulled back, while retail consumption increased slightly. Overall growth remained steady. On Wednesday, the People's Bank of China (PBOC) cut the 1-year and 5-year loan prime rates (LPR) by 0.1%, continuing to release domestic liquidity. This week, LME copper fluctuated rangebound near $9,500/mt, while SHFE copper also fluctuated rangebound below 78,000 yuan/mt.

On the fundamental front, Antofagasta initiated negotiations for long-term contracts for the second half of 2025 in Japan this week. Due to news of production cuts from overseas smelters, spot treatment charges (TC) for copper concentrates have stabilized in the short term. For copper cathode, with the LME Asia Metal Week held in Hong Kong, China this week, the spot market was sluggish. Outflows from LME Asia warehouses accelerated, and the market held a relatively pessimistic sentiment towards the premium of US dollar-denominated spot copper in late May. Domestically, after the delivery of the SHFE copper 2405 contract, spot premiums continued to decline, falling to around 100 yuan/mt in east China this week. Downstream restocking sentiment increased as prices dipped, with inventory stabilizing after pulling back.

Looking ahead to next week, with the release of liquidity both domestically and internationally, copper prices are expected to have strong support at the bottom. Before the conclusion of mid-year long-term contract negotiations, copper prices are likely to remain in a tug-of-war between sellers and buyers. It is expected that LME copper will fluctuate rangebound between $9,350-9,550/mt, while SHFE copper will fluctuate between 77,000-78,000 yuan/mt. On the spot front, with the temporary slowdown in domestic inventory buildup and strong downstream consumption support after a sharp decline in premiums, amid tight deliverable copper supplies, attention should be paid to the arrival of imported copper at customs and the tug-of-war between supply and demand for stockpiling ahead of the Dragon Boat Festival. Spot prices against the SHFE copper 2506 contract are expected to range from a premium of 100-250 yuan/mt.

2.Market demand weakens, operating rate of copper wire and cable enterprises may have peaked 

This week (5.16-5.22), the operating rate of SMM copper wire and cable enterprises was 82.34%, down 1.05 percentage points MoM and up 6.47 percentage points YoY, falling short of the expected operating rate by 1.64 percentage points. The operating rate of copper wire and cable enterprises failed to rise as expected this week, mainly due to the gradual weakening of growth in new orders and the gradual depletion of orders on hand, making it difficult for enterprises to achieve further production growth. From the perspective of end-use demand, the peak period for market demand release has temporarily passed, and the market has returned to calm. A major enterprise told SMM that as of now, although its copper consumption for production in May increased by approximately 6% YoY, the value of its new orders this month decreased by nearly 20% YoY, indicating weak growth in new orders. Consequently, the operating rate of copper wire and cable enterprises may decline in the future. By sector, only State Grid-related orders have shown relatively good performance, while orders for new energy power generation have decreased most significantly, with no optimistic performance observed in the civil and infrastructure sectors. In terms of inventory, raw material inventory was recorded at 17,700 mt this week, down 1.25% MoM, while finished product inventory was recorded at 19,140 mt, down 2.1% MoM. In addition to the weak growth in demand for copper wire and cable itself, the growth in orders for aluminum wire and cable has also squeezed the operating rate of copper wire and cable production. Under the influence of these two factors, SMM expects that the operating rate of copper wire and cable enterprises will decline by 1.36 percentage points MoM to 80.98% next week (5.23-5.29), which is still 5.05 percentage points higher than the same period last year.

3.Lack of positive news, volatility remains the main theme 

May 23: Overnight, LME copper opened at $9,463.5/mt, dipping to a low of $9,433.5/mt shortly after the opening bell. It then fluctuated upward, reaching a high of $9,519.5/mt near the close, ultimately closing at $9,519.5/mt, up 0.34%. Trading volume reached 14,000 lots, and open interest stood at 287,000 lots. Overnight, the most-traded SHFE copper 2506 contract opened at 77,730 yuan/mt, dipping slightly to a low of 77,600 yuan/mt shortly after the opening bell. It then fluctuated upward, reaching a high of 77,910 yuan/mt near the close, ultimately closing at 77,820 yuan/mt, down 0.12%. Trading volume reached 20,000 lots, and open interest stood at 153,000 lots. On the macro front, Trump's tax reform bill narrowly passed the House of Representatives and was sent to the Senate for review. US Treasury yields pulled back from recent highs, and the US dollar rose on Thursday after three consecutive days of declines, with LME copper dropping slightly. On the fundamental side, from the supply side, warrant liquidation has been significant, but warehouse inventories have not decreased as expected. As of Thursday, May 22, SMM copper inventories in major regions across China increased slightly by 700 mt from Monday to 139,900 mt, up 7,900 mt from last Thursday, marking the second consecutive week of inventory buildup, though the buildup was less pronounced than the previous week. On the demand side, copper prices fell yesterday, leading to better trading at lower prices. Currently, low-priced supplies have been largely purchased, and it is expected that the center of the premium will struggle to rebound today. In terms of prices, with no more positive news in the market, it is expected that the upside potential for copper prices will be limited today.

4.As the aftermath of the trade war lingers, the import pattern of secondary copper in China is accelerating its restructuring

The latest data from the General Administration of Customs (GAC) shows that in April 2025, China's imports of copper scrap and shredded copper scrap exhibited a trend of "MoM recovery but YoY contraction," with monthly imports reaching 204,700 mt, up 7.92% MoM but down 9.46% YoY. From January to April, cumulative imports totaled 777,000 mt, a slight decrease of 0.81% YoY (HS code 74040000).

       I. Drastic Changes in Regional Patterns: A "Three-Kingdom" Drama of the US, Japan, and Thailand

       Looking at the breakdown of import sources, there has been a significant shift in the current structure of import sources, with traditional dominant player, the US, continuing to cede market share. Data from March-April shows that US copper scrap exports to China exhibited characteristics of "double declines": in March, exports were 22,500 mt (down 28.41% MoM and 51.51% YoY), with its market share in China dropping to 11.85% and its ranking falling to second place; in April, although exports increased slightly by 4.98% MoM to 23,600 mt, they still fell sharply by 43.98% YoY, with its market share further shrinking to 11.52% and its ranking being overtaken by Thailand, falling to third place.

       In stark contrast is the strong rise of the Asian supply chain. Japan's exports to China reached 32,700 mt in April, up 21.02% MoM and 13.78% YoY against the trend, securing the top spot with a 15.96% share. Additionally, the Thai market saw exports of 25,000 mt that month, surging 26.9% MoM and 60.98% YoY, becoming the second-largest supplier. The synergy of the Asian regional supply chain is becoming increasingly prominent.

    II. Aggravation of Structural Shortages, Dual Pressures from Policy and Market

       Looking ahead, according to SMM, the current supply of secondary copper raw materials in the market remains extremely tight, with both domestic and imported sources in short supply. Despite the continued market demand, many traders are actively seeking ways to import secondary copper raw materials, but overseas offers are scarce, making it difficult to achieve large-scale purchases. Furthermore, affected by Trump's tariff policies, traders generally reject US sources, which are more likely to be absorbed in local markets such as Japan and Thailand. In the coming months, imports are expected to maintain a trend of "declining volumes but rising prices," with the market shares of Japan and Thailand expected to exceed 18% and 14%, respectively, while the US share may fall below the psychological threshold of 10%. (The following presents import data by country for March-April 2025.)

5. Spot traders' sentiment to dump cargo is evident, with the center of premium continuing to move downward

News on May 22:

       Today, spot #1 copper cathode against the SHFE copper 2506 contract was quoted at a premium of 110-160 yuan/mt, with an average quoted premium of 135 yuan/mt, down 140 yuan/mt from the previous trading day. The SMM #1 copper cathode price ranged from 77,970 to 78,200 yuan/mt. In the morning session, SHFE copper prices rose from 77,760 yuan/mt to 78,060 yuan/mt, and then fluctuated around 78,000 yuan/mt. The BACK price spread between futures contracts for the next month continued to narrow to around 250 yuan/mt.

       At the beginning of the trading session, suppliers lowered their quotes from yesterday's levels, with mainstream standard-quality copper quoted at around a 140 yuan/mt premium. Subsequently, other sources continued to lower their quotes, triggering a market sell-off. However, it was difficult to conclude transactions for JCC and other sources at premiums of 120-140 yuan/mt. Smelters offered quotes between 100-120 yuan/mt, while premiums in Jiangsu ranged from 80-120 yuan/mt. Non-registered copper was traded at around a 40 yuan/mt premium. Low-priced transactions were better during the day.

       Tomorrow is Friday. Currently, low-priced sources have been largely purchased, and warrant inventory has decreased significantly. However, warehouse inventory has not decreased as expected. It is anticipated that the center of the premium will still struggle to rebound significantly tomorrow.