At the close of trading on Wednesday, basic metals fell across the board, and copper and nickel fell sharply. Among them, LME copper closed down 440 US dollars, or 4.05%, to 10,419 US dollars/ton, the biggest one-day decline so far this year. New York copper fell 1.13%.

In addition, LME nickel closed down $938, or more than 4.40%, to $20,366 per ton; LME aluminum closed down $89, or about 3.12%; LME zinc closed down $77, or 2.63%; LME lead fell $22, or 3.12%; and LME tin closed down $814, or 2.15%.

The analysis points out that there are several possible reasons for the sharp drop in copper prices. First, after the copper price reached a new high, investors began to make a profit. IG chief market analyst Chris Beauchamp pointed out that investment funds have flooded into the copper market in the past few months and achieved good returns, but now, they are gradually beginning to make a profit.

Commerzbank analysts pointed out in a report that although copper prices hit an all-time high of around $11,100 per ton on Monday, there was no clear cause for the rise. Although the market explains the rise in copper prices due to reasons such as long-term supply concerns to expected growth in demand, these factors are not new and are insufficient to support the price increase on the scale of copper prices.

Second, Peru's copper production is likely to increase in 2024.

On Wednesday night, Victor Gobitz, head of the Peruvian Mining and Energy Association (SNMPE), said that the current surge in copper prices to record highs will inspire mining companies in Peru to take steps to resolve bottlenecks in production. These efforts are likely to increase the mine's marginal production by 5% to 10%.

Despite this, Gobitz is more inclined to conservatively estimate that copper production is expected to reach 2.8 million tons in 2024, but this figure itself has set a record.

Third, the decline in copper prices may also be related to the recent weakness in copper demand.

The analysis points out that although China's ore supply is tight and the processing capacity of the huge domestic refining industry is low, as the world's largest consumer of copper, China's import demand is still sluggish. As a result, copper stocks climbed to a four-year high, for the first time since records began in 2017. Moreover, the delivery price of copper from bonded warehouses is much lower than the price set by the London Metal Exchange (LME), reflecting weak physical demand.

Despite this, copper prices have risen by nearly 22% so far this year, mainly because speculators are betting that copper will be more important in the future, as the wave of electrification is driving demand for copper growth. Whether it is electric vehicles, data centers that support artificial intelligence, or power grid facilities expanded to meet surging electricity demand, it is accelerating globally. Furthermore, the Chinese government recently introduced some policies to support the economy, which also makes people expect China's demand for copper to increase.

Meanwhile, Jeff Currie, who was the head of the product research department at Goldman Sachs for nearly 30 years and is now the chief strategy officer of Carlyle Group's Energy Path team, pointed out that although copper prices have risen, due to the high investment costs of new mines, large companies prefer to expand their supply chains through mergers and acquisitions of other companies rather than develop new mining projects. For example.$BHP Group Ltd (BHP.US)$They want to buy copper mines owned by British and American resources to increase their copper production and become the world's largest copper producer.

The Federal Reserve postponed expectations of interest rate cuts, and oil prices fell three times in a row

Early Thursday morning Beijing time, the Federal Reserve announced the minutes of the FOMC meeting. The results show that the Federal Reserve lacks confidence in the progress of inflation. Federal Reserve officials expect to wait longer to cut interest rates, and even many policymakers intend to raise interest rates further once the risk of inflation is rekindled.

The Federal Reserve's hawkish conclusion weighed on the market's interest rate cut expectations, and Goldman Sachs CEO Solomon even directly predicted that the Fed would not cut interest rates in 2024. Affected by this, the US dollar strengthened, the decline in US stocks widened, and crude oil prices fell in response.

Overnight on Wednesday, oil prices fell for the third consecutive trading day, by more than 1%. WTI crude oil futures for July closed down $1.09, or more than 1.38%, to $77.57 per barrel. Brent crude oil futures for July closed down $0.98, or more than 1.18%, to $81.90 per barrel.

The main reason for the drop in oil prices is that the minutes of the Federal Reserve meeting showed that the Fed may postpone interest rate cuts due to continued inflation. Higher interest rates mean higher borrowing costs, which can inhibit economic growth and oil market demand, such as affecting consumers' demand for gasoline.

Price analyst Phil Company Flynn pointed out that the market is very concerned about gasoline demand in the US because there are signs that consumers are starting to cut spending due to the impact of inflation. He believes that unless this situation changes, the market outlook may be somewhat bleak.

Meanwhile, data released by the US Energy Information Administration (EIA) on Wednesday showed that last week, US EIA crude oil inventories increased by 1.83 million barrels, while the market originally expected a decrease of 1.92 million barrels. The previous value fell by 2.508 million barrels. In addition, stocks of refined oil products have also increased, while gasoline inventories have declined less than expected. U.S. crude oil inventories increased less than market expectations, and oil prices partially recovered their decline earlier in the session.

Furthermore, from a geopolitical perspective, the risk premium caused by the tense situation in the Middle East region is being reduced, and there is little support for oil prices. At the same time, the news that Iranian President Ibrahim Lehi died in a helicopter accident did not have a significant impact on the market, and the market did not think it would affect Iran's oil policy.

Currently, the physical crude oil market continues to weaken, and people are less worried about oil shortages in the short term. This can be seen from the fact that the premium of the first-month Brent crude oil contract compared to the next month's contract has dropped to the lowest level since January, indicating that the market is also not very optimistic about future oil prices.

Looking ahead, the market focus is on the OPEC+ meeting to be held on June 1. At this meeting, major oil producers are expected to continue to maintain production reduction measures to prevent global oil oversupply and support oil prices.

Editor/Somer