The copper market has seen notable fluctuations throughout December 2024. As the month closed on December 31, the Shanghai Copper Index recorded a minor decline of 0.03%. The rise and fall of copper prices were tightly linked to domestic economic indicators and global policy shiftsThe anticipation from significant domestic conferences and a slight improvement in the manufacturing Purchasing Managers' Index (PMI) during November facilitated copper prices to peak at 75,860 yuan per ton in December, reflecting a surge of 1,660 yuan since the start of the monthHowever, as December progressed, overseas market sentiment shifted towards a hawkish stance from the U.SFederal Reserve, resulting in a robust dollar index that put downward pressure on copper pricesBy mid-December, the main copper futures contract dropped to a low of 73,560 yuan per ton, reverting to the volatility range observed in November

The onset of January carries with it increasing uncertainties from overseas economic activities, while domestically, the approach of the traditional holidays signals a seasonal slowdown in copper consumption and investment caution in market transactions.

On December 19, the Federal Reserve concluded its meeting by cutting interest rates by 25 basis points but revised its future outlook, forecasted to reduce rates twice in 2025 instead of four times as initially anticipatedAdditionally, the anticipated interest rate midpoint for 2025 was raised by 50 basis points to 3.9%. Chair Jerome Powell conveyed that the economy is “approaching or has reached” a juncture where slowing or halting rate cuts become a considerationHe emphasized that further reductions would require observable progress in managing inflation, indicating a shift in the Fed's monetary policy focus from primarily stabilizing the labor market towards balancing inflationary pressures with employment stability.

The inflation expectations in the United States witnessed an uptick, following Fed announcements relaying an overall hawkish sentiment

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The Fed has raised its growth and inflation expectations for both 2024 and 2025. The projections for GDP growth in 2024 have increased by 0.5 percentage points to 2.5%, while 2025's expectation has been adjusted up by 0.1 percentage points to a forecasted growth of 2.1%. Inflation expectations for 2024 were elevated to 2.4%, and for 2025, to 2.5%, reflecting a growing concern over persistent inflationAs of December 31, 2024, the yield spread between 10-year and 2-year U.STreasury yields reached a peak of 0.32%, indicating a renewed sense of risk encircling the long-term sentiments in the marketplaceThe implied inflation rate based on 10-year Treasury yields rose to 2.34%, compared to a nadir of 2% in early September 2024. These indicators suggest that the Fed remains vigilant regarding potential inflationary resilience and possible rebounds.

According to data from the U.SCensus Bureau, the American population grew by approximately 3.3 million in 2024, with a significant portion, close to 85%, attributed to immigration

This surge is heralding the fastest population growth in the U.Ssince 2001. The influx of net international migration has helped alleviate some of the labor shortages faced in various sectorsAs of October 2024, U.Sjob vacancies stood at an impressive 77.44 million, a decline of 10.04 million from the start of the year, whereas average hourly earnings in non-farm employment observed a year-over-year growth deceleration from an annual average of 4.52% in 2023 to 4% in 2024.

The manufacturing sectors in both the U.Sand Europe have been experiencing a tumultuous recoveryOn December 2, 2024, S&P Global reported that the U.Smanufacturing PMI for November stood at 49.7, merely flirting with the expansion thresholdHowever, the follow-up report on December 16 saw this PMI drop to 48.3 in December, marking a retreat from the previous value and defying expectations for a modest growthNotably, production outputs in the manufacturing sector reflected significant declines, hitting a nearly four-year low

Although the services PMI soared to 58.5, marking the highest level since October 2021, the underlying dynamics within the economy maintain a split disposition, with the manufacturing sector continuing to lag as compared to the services sectorSimilarly, the Eurozone's manufacturing PMI register was a lackluster 45.2 in December, slightly below forecasts and unchanged from prior readings.

Given these circumstances, speculation within overseas markets maintained a cautious toneBy the close of December 2024, the net long positions for non-commercial COMEX contracts were marked at 1,804, a stark decline of 8,121 contracts compared to the end of NovemberSimilarly, net long positions in LME contracts decreased by 1,598 lots to 20,095. Historical trends suggest that speculative flows are intricately influenced by the health of the manufacturing PMIs in the U.Sand Europe, which remain weak, thereby constraining the willingness to engage in riskier commitments.

Looking ahead, domestic copper consumption is poised to transition into a seasonal lull

The upcoming Spring Festival period typically heralds a dip from January through February in copper demand, a seasonal accumulation of copper stocks generally begins in January and tapers off by March, contributing to reduced spot market premiumsHistorical data since 2019 shows that the average premium for grade 1 electrolytic copper is around 138.6 yuan per ton, with January premiums averaging merely 89.12 yuan, further sinking to 7.37 yuan through FebruaryThis pattern suggests limited consumption-driven demand fluctuations around the Spring Festival holidayMoreover, Shanghai copper prices have witnessed a downward trend in January over the years, with a noted average decline of 1.39% across the past seven instances.

In this environment laden with uncertainties, particularly regarding overseas macroeconomic developments, market participants would do well to remain vigilant against potential risks and volatility impacting short-term pricing

Yet, considerations for a more optimistic long-term prognosis for copper emergeOn one front, the ongoing formulation of stimulus policies aimed at invigorating national economic growth appears to be gaining momentum, supported by pro-growth monetary and fiscal strategies, including a shift towards ‘extraordinary counter-cyclical adjustments.’ This bodes potential benefits for overall copper demand moving into 2025. Moreover, factors related to supply constraints are anticipated to exert upward pressure on copper pricesIn talks held on December 5-6, 2024, major domestic smelting firms negotiated with international copper producers to set long-term processing fees at $21.25 per ton and 2.125 cents per pound for 2025 copper concentrate contractsWith the TC (treatment and refining charges) anticipated to fall below the breakeven line for smelters and a predicted global shortfall in copper concentrate expected to reach 800,000 tons, the ramifications on refining operations might just be unfolding.

Additionally, emerging economies, particularly India and ASEAN nations, are progressively investing in infrastructure development, which may further bolster copper consumption