The Zhitong Finance App learned that Societe Generale Securities released a research report saying that the sustainability of the “Federal Reserve's interest rate cut+tight copper mine+demand recovery” has yet to be verified: if energy prices rise significantly in the second quarter due to supply disturbances and demand recovery, it will lead to a re-inflation environment without improved demand, which in turn will lead to a downturn in interest rate cut expectations. On the other hand, fundamentals are facing a data verification period. From the demand side, the second and third quarter is the peak production season. The market will judge the intensity of downstream demand restoration by observing the extent of removal of high inventories. If the removal of stocks is not as strong as expected, then copper prices will face correction from strong expectations to weak reality.

Societe Generale Securities's main views are as follows:

The Federal Reserve kept the interest rate target range unchanged, and expectations of interest rate cuts were revived, boosting copper and gold prices

The Federal Reserve's March interest rate meeting announced that it would keep the federal funds rate target range unchanged at 5.25%-5.5%, in line with market expectations. The Federal Reserve raised the economic growth forecast for this year and next two years to 2.1% and the unemployment rate to 4% and 4.1% respectively; the median GDP increase for 2024-2026; the core PCE forecast for this year was raised to 2.6%; the bitmap still shows the expectation that interest rates will be cut 3 times in total.

Powell's speech after the meeting reiterated that policy interest rates may peak and that it is appropriate to cut interest rates at some point this year; he confirmed that progress in inflation is a condition for cutting interest rates, and that if the labor market is significantly weak, measures will be needed. The interest rate meeting was interpreted by the market as a partial pigeon, and the prices of copper and gold have risen markedly.

Copper prices broke through the upper box limit in March and continued to rise (a slight correction after rising to 9,100 US dollars/74,000 yuan), which is related to expectations of overseas interest rate cuts, production cuts in domestic smelters, and anticipated stimulus from the Chinese consumer goods trade-in policy.

Strong supply-side expectations: concentrate shortages are expected to spread to the refining process

Overseas copper disturbances still exist. Codelco said the Radomiro Tomic copper mine suspended mining activities due to the accident, and workers initiated a strike (the mine produced 315,000 tons in 2023). The average TC price of imported copper concentrate fell to a new low in nearly ten years, causing domestic smelters to take a wait-and-see attitude; on March 28, the CSPT team once again proposed a joint production reduction, recommending a 5-10% reduction in production, and did not set procurement guidance processing fees for spot copper concentrate for the second quarter (80 US dollars/ton and 8.0 cents/lb in the first quarter). However, looking at the refining process, the actual production of refined copper increased by 10% year-on-year in January-February, that is, supply is still in the expansion range, and actual production cuts in the smelting process were implemented as early as the second quarter.

Demand side is weak reality: Shanghai copper reserves are obvious, high copper prices inhibit downstream procurement demand, and policy incentives are increasing

Societe Generale Securities pointed out that compared with the strength of the upstream supply side, the continuous rise in copper prices disrupted the pace of downstream production. The recovery in capacity utilization rates for various types of copper materials after the holiday season was weak. The level of copper reserves worldwide, and domestic copper reserves in particular have surpassed the same period in previous years, while spot stocks remained stagnant.

In terms of domestic policy, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”, which implements four major actions: equipment renewal, consumer goods trade-in, recycling, and standard upgrading. It proposes to carry out trade-in of durable consumer goods such as automobiles, home appliances, and home furnishings to promote the gradual consumption and renewal of automobiles. Unblock the consumer chain for home appliances, and encourage and support consumers to trade used appliances for energy-saving appliances.

Looking ahead to the future market, there may be factors affecting copper prices. The persistence of strong expectations of “Federal Reserve interest rate cut+tight copper mines+recovery in demand” since March has yet to be verified:

(1) The Federal Reserve's interest rate cut expectations are lowered, and the US dollar is passively strengthened: if energy prices rise significantly in the second quarter due to supply disturbances and demand recovery, it will lead to a re-inflation environment where demand is not improving, which in turn will lead to a decline in interest rate cut expectations; in addition, the US economy is still resilient. Non-US economies tend to cool down, and the dollar may passively strengthen, both of which adversely affect copper prices;

(2) Fundamentals face a data verification period: first, on the supply side, whether strong expectations of China's smelting production cuts can be implemented as scheduled; second, on the demand side. The second and third quarter is the peak production season. The market will judge the repair intensity of downstream demand by observing the extent of removal of high inventories. If the removal efforts are not as strong as expected, copper prices will face correction from strong expectations to weak reality.