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Fundamentals

Macro: China's April Caixin manufacturing PMI was 49.5, falling back to the contraction range, which was reflected by weak demand during the peak season. Besides, US April Nonfarm Payrolls was 253,000 after quarterly adjustment, higher than the expected value of 180,000 and the previous value of 165,000. Meanwhile, the US April unemployment rate was 3.4%, lower than the expected value of 3.6% and the previous value of 3.5. The US data is preferable, but the recession expectation remains unchanged.

Industry: Southern Copper produced 223,000 tons of copper in the first quarter of 2023, an increase of 4.1% YoY, mainly due to a nearly 50% YoY increase in Cuajone copper mine production, thanks to higher ore grades and fully restored operational capacity. In addition, 351,700 tons of copper were produced by Codelco in the first quarter, a decrease of 9.2% YoY.

Inventory: As of Friday, May 5th, SMM national copper inventories in mainstream areas increased by 4,600 tons to 168,100 tons from last Friday. Currently, the total inventory is 28,500 tons lower than the 196,600 tons before the Chinese New Year, but it is still 48,100 tons higher than the same period last year. Furthermore, the industry may enter the replenishment cycle in 2023, and there is still some support for copper prices.

In general, macroscopically, China's April manufacturing PMI fell back to the contraction range unexpectedly, indicating that China's domestic economy added a little momentum in the second quarter, and the demand in peak seasons was insufficient. In addition, coupled with the deterioration of the U.S. banking crisis, the market risk increased, forming a certain suppression of copper demand. At the same time, after the Labor Day holiday, downstream buyers kept the wait-and-see attitude, resulting in copper accumulation. Nonetheless, copper's de-stocking trend has not changed, which will be a great support for the copper price. From a technical point of view, the pressure above the copper price is still significant, but the space below is limited. With the price correction, downstream replenishment will start soon, and traders should not be overly bearish on copper prices.

Technical Analysis

Regarding the daily chart, copper gains support at the low of March and rebounds after deep retracements in April, suggesting a double-bottom pattern. Meanwhile, MACD forms a death cross with the opening showing a narrowing trend and stays at the oversold area. According to this pattern, the rebounding momentum is stronger than the descending one. Therefore, aggressive traders should go long at lows flexibly.  

Trading Recommendations

Trading direction: Long

Entry price: 8600

Target price: 9000

Stop loss: 8400

Support: 8400/8200

Resistance: 8800/9000