Minmetals Securities: Copper prices are easy to rise, difficult to fall, and interest rate cuts are expected to open up upward space

The Zhitong Finance App learned that Minmetals Securities released a research report saying that recently, market preferences have picked up, compounded by increased market expectations for the Fed's interest rate cuts, and the overall strength of the non-ferrous sector. The resurgence of US copper tariffs, compounded by low LME inventory levels, LME overcrowded positions, and Shanghai Copper also broke through the fluctuation range and operated strongly. Looking ahead to the future market, the second half of the year will focus on the 232 survey results and implementation time. Until the 232 US copper tariff is implemented, copper prices will rise easily and will not fall. Currently, the Federal Reserve is expected to cut interest rates in September. As monetary and fiscal policies support the economy, if more favorable macroeconomic data is implemented in the future, the copper trend is expected to gradually get closer.

Minmetals Securities's main views are as follows:

After the conflict between Israel and Iran, focus on issues such as liquidity and the implementation of US and copper tariffs

After the war between Israel and Iran ended, the market focused on the Fed's interest rate cut expectations. Recently, Federal Reserve Chairman Powell has also relaxed about interest rate cuts. Trump has repeatedly reiterated his hope that Powell will cut interest rates and is considering a dovish candidate to take over as the next chairman of the Federal Reserve. According to the CME, the Federal Reserve is expected to cut interest rates 3 times this year, and the probability of cutting interest rates in September is close to 75%.

US copper tariff expectations are disrupted, and the US siphon effect has led to tight spot stocks in non-US markets. Affected by the US 232 survey, Comex copper stocks have reached more than 200,000 short tons, an increase of 123% from the beginning of the year, while LME inventories fell 66% from the beginning of the year to an all-time low, making it extremely prone to overcrowding. The siphoning effect of US copper has led to tight spot stocks in non-US markets. The LME spot settlement price once exceeded 10,000 US dollars/ton, and the premium compared to the 3-month LME futures contract was over 300 US dollars/ton. In terms of price spread, the current premium of US copper to Lun copper is around 13%.

Production cuts in overseas smelters are gradually being implemented, and Chinese smelters are still expected to cut production

Overseas production cuts are expected to take the lead: According to SMM, at the beginning of the year, Glencore already achieved production cuts at the PASAR smelter in the Philippines; subsequently, Japan's Saganoseki smelter and Glencore's Mount Isa smelter in Australia also planned production reduction plans.

Domestic production cuts are still expected: the current domestic TC spot is -44.8 US dollars/dry ton. Recently, the Kamoa copper mine lowered its guideline by 155,000 tons, further increasing the copper shortage pattern. Against the backdrop of a shortage of copper ore and copper scrap, we believe that small and medium-sized smelters in China are still expected to cut production.

The macroeconomy and demand side are still facing uncertainty, waiting for the inflection point to be established

Before the implementation of the 232 US copper tariff, the price of copper easily rose and fell: currently, the market implied a tariff of about 13%. If US copper is similar to steel and aluminum (the tax rate was 25% at the beginning, then increased to 50%), the price spread will expand further. Before tariffs were implemented, copper prices would rise and fall easily.

If monetary and fiscal policies support the economy, the copper price inflection point can be expected: although the US economy is still facing uncertainty, the economy is expected to achieve a soft landing under the underpinning of monetary and fiscal policies. If more favorable macroeconomic data is implemented in the future, the copper price trend will gradually get closer.

Trade tariffs are facing uncertainty, but the relationship between China and the US is currently easing: recently, negotiations between China and the US on rare earths are progressing well; however, the US tariff exemption period is coming to an end, and there is still a risk of repeated tariffs in the future.

China's demand side weakened marginally in the second half of the year, but the impact on copper prices was limited: the Chinese landscape was in a rush to buy in the first half of the year, or demand was overdrawn in the second half of the year. Against the backdrop of low inventories, the impact on copper prices is expected to be limited.

Risk Alerts

The uncertainty brought about by the geographical conflict; the uncertainty brought about by US policy: for example, whether interest rate cuts are in line with expectations, whether the tariff policy will be upgraded, whether US copper tariffs will be implemented as scheduled; the risk that demand falls short of expectations; the risk that smelters fail to cut production as scheduled; etc.; and the global economy has declined or even declined beyond expectations.