Summary

Last week's overseas macro data remains relatively weak, while Fed officials are relatively hawkish, especially as Fed official Bowman has pointed out the possibility of rate hikes, which has put pressure on the market and caused the U.S. dollar to further strengthen relative to other currencies. This week, there will be intensive release of Euro-American PMI data, which will be a good guide for the market.

Key Takeaways

1. Last week, precious metals and copper prices continued to pull back.

In terms of precious metals, last week's COMEX gold rose 0.09%, while silver fell 1.56%; Shanghai gold 2408 contract fell 1.47%, and Shanghai silver 2408 contract fell 3.42%. Among the prices of major industrial metals, COMEX copper and Shanghai copper changed by -1.01% and -1.19%, respectively.

2. Hawkish comments have put pressure on copper prices, waiting for guidance from this week's PMI.

Last week's overseas macro data remains relatively weak, while Fed officials are relatively hawkish, especially as Fed official Bowman has pointed out the possibility of rate hikes, which has put pressure on the market and caused the U.S. dollar to further strengthen relative to other currencies. The running center of copper prices has shifted slightly downward, and this week, there will be intensive release of Euro-American PMI data, which will be a good guide for the market.

3. Precious metal prices are still in a downward trend.

Last week, Fed officials were generally hawkish, once again reducing the probability of interest rate cuts this year. Although GDP in the first quarter was slightly higher than market expectations, initial claims for unemployment benefits and housing sales data were weaker than expected. Expectations for interest rate cuts fluctuated, putting pressure on gold prices, but the decline was limited. In the short term, fluctuations in expectations for interest rate cuts have guided the direction of the U.S. dollar index and U.S. bond yields, and gold prices are still in a downward trend. However, demand for safe-haven assets brought about by the escalation of the situation in the Middle East, as well as guidance for long-term de-dollarization, mean that precious metal prices still have room to rise.

Review of basic metal market.

(1) Observation of COMEX/SHFE copper markets.

Last week, COMEX copper prices shook lower, and the center of gravity shifted slightly downward. Last week's overseas macro data remains relatively weak, while Fed officials are relatively hawkish, especially as Fed official Bowman has pointed out the possibility of rate hikes, which has put pressure on the market and caused the U.S. dollar to further strengthen relative to other currencies. The running center of copper prices has shifted slightly downward, and this week, there will be intensive release of Euro-American PMI data, which will be a good guide for the market.

Last week, SHFE copper prices fluctuated around 78,000 yuan/ton, and the price center moved slightly downward compared to the previous week. Currently, the upward momentum of copper prices is insufficient, but there is also little room for a significant decline. If prices drop to the next level, it may stimulate downstream bids and bring support to prices. Although domestic macro data has performed averagely, the market is generally desensitized, and it is unlikely that it will become a downward driver unless export data weakens. It is highly probable that it will rebound and then decline.

In terms of term structure, the COMEX copper price curve angle has shifted downward, and the near-end of the curve has further converged. The back structure of the near-end monthly difference is also significantly converged. The July contract saw a significant decline in positions before entering the delivery month, and the possibility of a short squeeze has decreased. However, no delivery has been seen on the COMEX yet, and the situation after entering the delivery month is still worth paying attention to.

The SHFE copper price curve has shifted downward compared to before, and the price curve remains in a contango structure. Currently, consumption has not significantly improved, and the price decline has not stimulated more buyers to enter the market for the time being. Therefore, the destocking process has become difficult again, and it is still difficult to expect good performance in the monthly difference.

In terms of positions, from the CFTC positions, last week's non-commercial long positions peaked and fell back, and the price decline corresponded to this situation. The current proportion is at a high level, and there is still room for decline.

Figure 1: CFTC Fund Net Positions

Data source: Wind

Last week, the prices of precious metals and copper fluctuated.

Last week, the copper concentrate index was $2.4/dry ton, an increase of $0.2/dry ton from last week. Antofagasta has finalized a TC of $23.25/dry ton with Chinese copper smelters for the second half of 2024 and the first half of 2025, involving 50% of copper concentrate supply in 2025. The benchmark TC for 2024 copper concentrate long-term supply agreed at the end of last year was $80/dry ton. Supply and demand currently remain stable, and Fubon Copper will soon try to unload materials; shipping dates are generally normal, and spot TC for copper concentrate is expected to continue to hover at low levels.

Figure 2: Copper Concentrate Processing Fee

Data source: SMM

In terms of spot sales, although copper prices fell last week, most enterprises faced capital settlement pressure at the end of the first half of the year, and procurement demand declined slightly. Some processing enterprises still have a bearish outlook on the market and expect a weaker price, so the expectation for receiving goods at this price level is also weakening. Therefore, the market demand was relatively flat this week, and there was little room for further growth overall. The near-month contract price difference widened to around 300 yuan/ton at the end of the week. In addition, in the delivery month next week, and if copper prices do not experience significant volatility, downstream procurement demand will still have room for some recovery as enterprise capital pressure decreases. Therefore, in the background of a high month-to-month difference in Contango structure, it is expected that spot premiums will still remain firm and rise and will run at a subsidy of minus 100 to 0 yuan/ton.

Figure 3: Shanghai copper premiums

Data source: SMM

Domestic market electrolytic copper spot inventory is 403,900 tons, an increase of 7,800 tons from the 20th and 9,200 tons from the 24th; the inventory in the Shanghai market continued to increase this week due to the end of the month and the pressure of enterprise settlement in the first half of the year, downstream purchasing demand declined, consumption was generally average, so inventory rose again. Guangdong market inventory continued to increase, mainly due to the fact that there are still imports of copper and smelters arriving in the market, and downstream demand is also limited. This week, the accumulated inventory of electrolytic copper spot in the bonded areas of Shanghai and Guangdong was 82,800 tons, a decrease of 11,500 tons from the 20th and 13,100 tons from the 24th; bonded area inventory decreased because of repair of imported copper prices during the week and some imported copper flowed in; at the same time, the bonded areas still have export actions to LME, so inventory decreased.

Figure 4: Global refined copper inventory (including bonded areas)

Data source: Wind

This week, the processing fee of 8mm copper rods in various mainstream markets in China rebounded overall, and the price increased significantly. Some markets returned to normal levels before. Copper rod companies still have bright spots in their transactions, but the delivery performance is not ideal; enterprises producing recycled copper rods face material difficulties and their production and sales performance is not stable; the price difference between refined waste rods and forward copper discounts continued to narrow since late February. Overall, the challenges facing copper rod companies currently lie more in the slow delivery of orders due to financial constraints. As we enter the second half of the year next week, the recent financial constraints are expected to ease somewhat, and the actual execution efficiency of orders deserves attention. At present, the trading of recycled copper rods will return to the hands of traders, and the demand for recycled copper rod spot in the market still has a continued trend. It is not ruled out that precision copper rod orders will deliver recycled copper rods.

Figure 5: Refined copper-scrap copper price differential

Precious metals market review

(1) Precious Metals Market Monitor

Last week, the precious metal prices on COMEX shook and ran after a correction; COMEX gold and silver ran in the range of 2304-2351 US dollars/ounce and 28.9-30.1 US dollars/ounce respectively. Federal Reserve officials expressed generally hawkish views last week, reducing the probability of interest rate cuts this year. Although first-quarter GDP was slightly higher than the market expected, initial jobless claims and home sales data unexpectedly weakened, and interest rate expectations fluctuated, gold prices were generally under pressure, but the decline was limited.

(2) Ratio and Volatility

Last week, gold and silver rose and fell alternately, and the ratio of gold/silver fluctuated narrowly; copper fell more than gold, and the ratio of gold/copper rose; crude oil prices rebounded somewhat, and the ratio of gold/oil followed a downward trend.

Figure 6: COMEX gold/COMEX silver

Figure 7: COMEX gold/LME copper

Figure 8: COMEX gold/WTI crude oil

With the continuous decline of gold VIX, the short-term downward trend of gold prices has not ended yet.

Figure 9: Gold Volatility

Data source: Wind

In recent periods, the impact of RMB exchange rates has weakened. The spread between gold and silver inside and outside showed a rebound last week, and the comparison between gold and silver indoors and outdoors fluctuated narrowly.

Figure 10: Precious Metal Inside and Outside Spread

Figure 11: Gold Inside and Outside Ratio

(III) Inventory and Holding Positions

In terms of inventory, COMEX gold inventory was 17.581 million ounces last week, an increase of about 5,000 ounces from the previous period, and COMEX silver inventory was about 297.07 million ounces, an increase of about 250,000 ounces from the previous period; SHFE gold inventory was about 10.6 tons, an increase of 1.4 tons from the previous period, and SHFE silver inventory was about 1,051 tons, an increase of about 366 tons from the previous period.

Figure 12: COMEX Precious Metal Inventory

Figure 13: SHFE Precious Metal Inventory

Data source: Wind

In terms of positions, SPDR gold ETF positions decreased by 2.9 tons to 829 tons month on month, while SLV silver ETF positions increased by 144 tons to 13,606 tons month on month; last week, non-commercial total positions of COMEX gold were 324,000 lots, of which non-commercial net long positions decreased by 2,262 lots to 285,000 lots, and short interest decreased by 5,407 lots to 39,000 lots; non-commercial long positions still held the upper hand, accounting for a share around 63%, which was lower than last week, while non-commercial short positions fell to around 8.5%.

Figure 14: COMEX Gold Holdings

Figure 15: COMEX Gold Holding Ratio

Figure 16: COMEX Silver Holding Positions

Figure 17: COMEX silver holding ratio

Market outlook

At present, the upward momentum of copper prices is insufficient, but it is also difficult to see a significant downward space in the short term. If prices fall further, it may stimulate downstream bids to reduce inventory and support prices. Although domestic macro data performance is average, the market is basically desensitized. If it is not because of weak export data, it may also be difficult to become a downward driver. Most likely, after the rebound, the consumption will remain weak, and the market will fall again and look for the bottom.

In the short term, the fluctuation of interest rate cut expectations guides the trend of the US dollar index and US bond yields, and the price of gold is still in a downward trend. However, the escalation of the situation in the Middle East brings about safe-haven demand, and under the guidance of long-term de-dollarization, precious metal prices still have upward space.

Focus and risk warning

US ISM manufacturing PMI, minutes of the Fed meeting, non-farm data, etc.