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**Abstract**
Core Tip: Overall, the current market trend remains supportive of rising copper prices, and we maintain a relatively optimistic outlook. It is expected that next week will see a volatile increase, with a support level at $7,200 and resistance at $7,500. Compared to the Shanghai copper range of 5.15–54,000, spot copper is currently trading between 5.2–5.45 million, while scrap copper is in the range of 4.7–4.9 million.
**First, the Electrolytic Copper Market**
This week’s Shanghai copper price trend has been positive, reaching above 53,000. The premium for good copper in the spot market remains strong, with an average of around 250 yuan/ton. In North China, the premium is still high, reaching nearly 400 yuan/ton, while in South China, it has slightly declined, hovering around 200 yuan/ton or lower. According to our observations, the limited supply of good copper in East China continues to support the premium, although transaction volumes remain low. Most transactions are handled by middlemen who move the goods downstream for processing, and demand from downstream sectors is not significant due to high prices. Looking ahead, we expect the premium for good copper in East China to continue rising next week.
The Shanghai-London ratio this week performed slightly better than expected, but the overall increase was modest, and import losses have also narrowed. The spread is now fluctuating around 500 yuan/ton. From a financial perspective, the current environment is slightly favorable for copper financing. Previously, traders speculated that bonded area copper inventories had dropped to 300,000 tons, but recent data suggests that inventories fell fastest between May and July this year and may rise again until consumption recovers or prices drop.
The spot premium for copper has remained stable, with a slight increase of around $30/ton. The price difference between Shanghai and London is small, and we expect the premium to remain intact next week. However, as the month-end approaches, spot dealers may reduce inventory and withdraw funds, so the Shanghai-London ratio is unlikely to change significantly.
**Second, the Recycled Copper Market**
1. **Scrap Copper Prices and Bright Wire**
This week, scrap copper prices remained largely unchanged, with minor fluctuations. The actual transaction price in the market was stable. The average weekly price of Foshan bright wire was approximately 48,400, showing a slight increase from last week. The performance of scrap copper was better than expected, mainly due to stronger-than-expected copper prices, with minimal corrections. However, the refined price gap remains high, indicating a relative oversupply in the market.
Macroeconomic news was more positive than expected, helping the market avoid a downturn. The Fed minutes did not specify when quantitative easing would end, and China and Europe's manufacturing data exceeded expectations, showing strong economic recovery. From both data and technical perspectives, copper prices are likely to remain strong, though short-term volatility is unlikely.
Currently, the bearish sentiment in the recycled copper market is still strong, and downstream demand has not improved much. Copper smelters are not very eager to purchase, but the large price gap between refined and scrap copper has created some upside potential for scrap copper. With the upcoming "Jinjiuyin" season and the return of PMI data above 50, there is hope for a price rebound in the coming period. However, considering the need for technical adjustment, we recommend waiting for a better opportunity to accumulate scrap copper rather than buying at high prices. The potential impact on scrap copper prices could reach 50,000.
2. **Demand and Financial Challenges in Cable Companies**
According to incomplete statistics, among 38 cable companies, 6 large enterprises with annual production capacity over 10,000 tons (average 33,200 tons) had an average operating rate of 72.12%. Medium-sized companies (annual production 1,000–10,000 tons) had an average operating rate of 54.76%, while small-scale companies (under 1,000 tons) had a slightly higher rate of 57.95%.
In terms of orders, large enterprises averaged 2,083.33 tons, medium-sized ones 254.64 tons, and small ones only 18.90 tons. This is partly due to high temperatures affecting construction projects and declining demand, as well as payment delays causing cash flow issues. One cable company said, “August is still a slow season. Due to weak market demand, orders have declined. Payment delays also make it difficult to manage capital, limiting raw material procurement. This year’s business has generally been weak, and we don’t see signs of improvement in August. Still, we hope ‘Golden September and Silver October’ brings new opportunities.â€
**Third, Downstream Market Analysis**
This week, the ex-factory price of Ningbo Jinlong Hpb58-3 brass rod remained stable at 37,000 yuan/ton, consistent with copper price trends. As copper prices remained in a tight range around $7,300, market orders did not improve, and manufacturers had little room to adjust prices.
Copper product activity in the market remained largely unchanged, but with two consecutive weeks of price rebounds, finished copper product prices rose. According to copper rod manufacturers, lead brass rods are currently priced low, but demand is limited. On the other hand, small, high-quality copper rods are more active, suggesting growing demand for high-precision products. In mid-August, copper processing companies reduced orders due to off-season conditions, leading to lower operating rates and limited raw material replenishment. Additionally, rising copper prices have made some buyers hesitant to purchase at high levels. However, with the approach of “Jinjiuyin,†inventory operations are expected to increase at the end of August. Despite market concerns, procurement intensity is not expected to be too high. Demand for copper products is likely to improve in September.
In the cable industry, orders over the past two months have remained stable, but the operating rate has slightly declined due to hot weather and seasonal factors. According to surveyed manufacturers, in addition to the market downturn, some merchants' delayed payments have also affected production. Previously, the collapse in copper prices caused many companies to face tight capital chains, and bank loans are now difficult to obtain. Thus, capital turnover remains a challenge for some businesses. However, as the weather cools down and infrastructure projects increase, the demand for cables is expected to rise.
**Fourth, Futures Market Analysis and Forecast**
This week, copper prices rebounded near the bottom, showing a small range of volatility with strong support around $7,200. The chart below illustrates the trend:
[Image: http://i.bosscdn.com/blog/zl/y2/01/308240819225393.jpg]
From a macroeconomic perspective, the Fed meeting minutes indicated a high probability of slowing bond purchases in the future, reducing the risk of commodity suppression. US real estate data exceeded expectations, showing increasing stability in recovery. We believe the likelihood of a September QE exit is relatively low, and the Fed will continue to gradually release this expectation to minimize market impact. After China’s HSBC manufacturing PMI rose above the threshold in August, the US Markit manufacturing PMI hit a five-month high of 53.9. Although France remains weak, the Eurozone PMI reached a 26-month high, and Germany performed strongly. Positive economic data from previously underperforming regions suggests that the global macroeconomic outlook will gradually improve in the coming period.
According to the Chilean Copper Industry Council, the average production cost for electrolytic copper in 2012 was $2.22 per pound in Chile, $2.65 in Africa, $2.12 in Asia, $1.99 in Latin America, $2.22 in North America, $2.38 in Oceania, $2.63 in Western Europe, and $2.18 in CIS countries. The global average production cost is $2.15 per pound. However, over the past decade, Chilean copper producers have seen their costs increase by 4.5 times. According to data from the Copper Industry Committee, investment per ton of refined copper increased from $4.5 million in 2003 to $20.5 million in 2013. At the beginning of the century, the production cost per ton of copper in Gaby mine was $10 million, while now, the Escondida and Quebrada Blanca mines require $35 million per ton. The main reason for this increase is stricter environmental regulations and higher costs in equipment, services, engineering, and construction. Mining camp costs have risen by 40% in the past three years. We believe that the rapid growth in mining costs will support copper prices.
On the technical level, the repeated bullish signals have been confirmed, and a significant upward move has occurred. Positions, volume, and price are well aligned, and the moving average system remains in a bull market. Institutional investors have shown a net increase in positions, indicating improved risk appetite. Technical analysis still supports a bullish outlook.
In summary, the current trend remains favorable for rising copper prices, and we maintain a relatively optimistic view. It is expected that next week will see a volatile increase, with support at $7,200 and resistance at $7,500. Compared to the Shanghai copper range of 5.15–54,000, spot copper is expected to trade between 5.2–5.45 million, while scrap copper is likely to stay within 4.7–4.9 million.