In 2023, after two years of decline, copper prices rose strongly. At present, London copper has risen to more than 9,000 US dollars, a new high in the second half of the year. Shanghai copper, although affected by the appreciation of the RMB, increased slightly, but also has stood at more than 68,000 yuan/ton. In the past, based on our pessimistic view of the economy, we judged that the trend of copper price was downward. However, the resilience of the economic performance continued to exceed expectations, and the supply and demand balance also continued to exceed expectations, making the trend of copper price deviated from our judgment, and actually showed an upward trend from July 2022. What’s the logic behind the higher copper price despite expectations that the global economy will remain under pressure in 2023? This article will share our thoughts.

The Backdrop for the Market is Not So Weak Fundamentals and Strong Expectations.

A less weak fundamental is one in which the pool is not as large as expected. Our earliest expectation was that copper stocks might turn in November 2022, but that didn’t happen. Although the bonded copper inventory did hit bottom and rebounded in late November, the accumulation speed was very slow. After 50 days so far, the absolute value of the accumulation was only 30,000-40,000 tons. The corresponding inventory of LME and the warehouse of the previous period also did not show a significant increase. Continued low inventories have kept copper prices highly resilient to macro gains.
Strong expectations are mainly at the macro level, including two aspects, one is the soft landing of the US economy, the other is the strong growth of the Chinese economy. The former comes from easing inflationary pressure and the resilience of employment, while the latter comes from optimized epidemic prevention and control and expectations of a real estate rebound.

In addition, China will optimize epidemic prevention and control in December 2022, and by the end of the Spring Festival, it is expected to basically achieve universal immunization, so the gold, silver and gold in 2023 will be a very strong peak season worthy of expectation. If you add in the low expectations for the first quarter of 2023, it adds up to an expectation that supply and demand will tighten again in the second quarter of 2023. In anticipation of this, copper prices have a good basis to rise.
It’s hard to guess where the top will be based on current trends, as sentiment has been overly optimistic and possibly irrational, but from a trading perspective, it’s not a good time to be long. Compared to 2021, it was also a sharp rise in the first quarter. In 2021, the market was unanimously optimistic about the trend of economic recovery from the impact of the epidemic, while in 2023, more people believed that the economy would face downward pressure. In other words, even if copper prices rise strongly in the short term, its highs and sustainability remain highly uncertain.

Overall, copper prices may still have the potential to rise, but the long strategy is no longer appropriate, it is recommended to wait for market sentiment after the short side entry opportunity.