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Fundamentals

During the Asian session on Friday (June 23), amid the Chinese holiday, copper futures oscillated quite sharply to the downside and are currently trading around $8538.The dollar strengthened yesterday as Powell released further hawkish comments. Market concerns over future demand offset support from a sharp reduction in LME available stocks.The copper price fell after surging higher to a high of $8711, a record high since May 2; however, the price fell sharply overnight to a low of 8548 and closed at 8575, forming a relatively long upper shadow line.The copper price has been on the rise since the end of May at around 7850, whose main logic is the expected growth in demand from low inventories and the stabilization of the world economy, especially the stimulation of China's interest rate cut on bullish sentiment.The logic of this increase has largely been fulfilled as well. But in the long run, inventories are unlikely to continue to fall lower.In the context of global copper oversupply, the probability of the copper price falling from the highs in the second half of the year is greater, with the overall downward trend dominating.

In terms of inventory, overseas copper inventory is still at a low level, although it has picked up from a low level. Domestic copper inventories continue to be depleted and are also at lows.

From the supply side, the first thing is the loose supply on the mining side. Data released by the International Copper Study Group (ICSG) shows that the cumulative global copper mine production from January to March was 5.301 million tons, a total increase of 2.04% YoY. This year, with the release of new production and expansion projects at major overseas copper mines, copper is expected to increase by about 840,000 metal tons, comparable to 2022.

From the demand side, this year's copper terminal industry data show that China's domestic investment, air conditioning, and automobile production are not as expected, which still needs further efforts at the policy level.In addition, the copper downstream processing industry started weakly.Traditional areas are still to be recovered, and new energy is to be developed.

On the macro side, high interest rates abroad will be prolonged, which will undoubtedly drag down overseas economies.With continued interest rate hikes overseas, the pressure of global economic recession has increased and manufacturing data from various countries is poor.Data show that the ISM Manufacturing Index in the US registered 46.9% in May, having contracted for seven consecutive months. Eurozone manufacturing activity also shrank sharply, with the Manufacturing PMI recording 44.8% in May, a new low since May 2020.In the first quarter of this year, China's manufacturing industry once improved under the policy boost, but then weakened again. China's official Manufacturing PMI in May was 48.8%, below the threshold, and the social financing in May was even weaker. There is still much room for policy to stabilize growth.

Technical Analysis

Daily Chart: The copper price has been on the rise from the end of May after gaining support near 7850 to the highest point of this round, which is close to 900 points of increase, and is in a resistance-intensive range of 8600-8700. Yesterday's round of rallies has shown weakness, and there is a tendency for bulls to profit-taking.Leaving a long upper shadow line, the price is likely to start a retracement, with support below at the 8200 line of the 7900-8700 pivot.

Trading Recommendations

Trading direction: Short

Entry price:8550

Target price: 8200

Stop loss: 8800

Support:8350\8250

Resistance: 8711\9000