1、 Trend analysis
As shown in the figure above, after the spot copper price broke through the high of 70000 in February, it rose sharply again two months after horizontal consolidation. On May 7, the spot copper price was 74213.33 yuan / ton, reaching a new high since 2011, approaching 75000 yuan / ton. As of the night of the 7th, Luntong reached an all-time high of $10435 per ton, while Shanghai copper reached a new high of $75780 per ton in the past decade. Since the beginning of this year, spot copper has increased by 28.05%%, 72.49%%, approaching the highest price of 74900 yuan / ton on February 15, 2011.
Liquidity is abundant, US dollar declines
Abundant liquidity is indeed an important reason for the sharp rise of commodities in this round. In 2020, some central banks will launch unprecedented monetary easing policy and active fiscal policy, and China’s central bank will further support domestic economic recovery through precise monetary policy. In addition, the US Federal Reserve’s rapid interest rate cut, revised policy framework and improved inflation tolerance have driven the US dollar to weaken significantly, and global commodity prices have risen, with which copper prices have risen.
Lack of mining investment and decline of copper production
The epidemic disrupts the trade flow in the short term, and the lack of mining investment is bound to lead to a shortage of supply in the market. Chile’s lower house of parliament approved a measure on May 6 to impose a progressive tax on copper sales, which may cause more than 80% of the total burden, almost double that of neighboring Peru and parts of Canada, boosting copper prices. This could lead to stagnation in investment in Chile. Chile accounts for more than a quarter of global copper supply. Capital expenditure on copper mining will only increase slightly this year, from US $15.2 billion in 2020 to US $16.2 billion, and will remain at this level in the next two years.
Chile’s copper production in March was the 10th consecutive month of decline. Copper production fell 1.3% in March to 491.72 million tons, affected by new restrictions on transportation and Commerce after the summer vacation in the southern hemisphere. Chile’s copper production fell 2.2% year-on-year in the first quarter of 2021 to 1.4 million tons, according to the National Bureau of statistics.
Carbon emission reduction increases copper demand
The green revolution of electric vehicles and renewable energy also boosted the growth of copper demand, and the green transformation also required more copper as a strong electric conductor. Copper is a key component of sustainable technologies, including electric vehicle batteries and derived clean energy. As the deadline for the Paris Agreement approaches, the political and economic impetus to promote renewable energy and green technology is growing. Compared with the traditional power generation and automobile fuel, electric energy is the best medium carrier in all energy sources, and the input, storage and output of electricity cannot be separated from the most mature and cost-effective conductor material copper. The carbon emission reduction measures at both the power generation end and the power consumption end will promote the use of copper
LME copper stocks continue to decline
LME copper inventory continued to decline, and the current copper inventory level is at a relatively low level.
The transmission of global currency over issuance and the mismatch between supply and demand lead to the rising copper price. Whether the copper price can continue to rise depends on the following factors:
Latest non agricultural data
The U.S. Department of Labor reported on Friday that the U.S. non farm employment data in April was shockingly poor. The number of non farm employment increased by 266000, the unemployment rate reached 6.1%, and the income increased by 0.7%. All this shows that there is a lack of growth in low skilled jobs. Taking into account the fact that the number of people in the past two months has dropped by 78000, the figure in April is particularly weak.
The production capacity of the mine that has been put into production has increased, and the copper production may increase
COVID-19 has affected the production of copper in some countries, but this year, benefiting from the capacity increase of the recently launched mines, global production is expected to grow by 3.5%. This year and next, the large-scale copper mines put into operation include kamoa kakula in the Democratic Republic of Congo, quellaveco in Peru, Spence SGO in Chile (already put into operation) and Quebrada Blanca qb2, as well as udokan in Russia. In addition, many small and medium-sized copper mines will be put into operation. ICSG predicts that in 2022, with the increase of production capacity of Mines put into operation this year, the commissioning of new projects and the expansion of old mines, as well as the continuous improvement of epidemic situation, the global output is expected to achieve a growth of about 3.7%.
In terms of refined copper, this year and next, with China and the Democratic Republic of Congo fully recovering from the global blockade and continuous negative impact, the global refined copper production will achieve an annual growth of 3%. It is estimated that by 2021 and 2022, the output of primary electrolytic refining (from concentrate and hydrometallurgy SX-EW) in the world will increase by 2.9%, of which the growth rate of hydrometallurgy output is relatively low, with the growth rate of 0.6% in 2021 and 2.2% in 2022.
There is a certain seasonal regularity in copper
Historically, if divided by quarter, the current price difference of copper and aluminum usually appears relatively low in the first quarter, relatively high in the second quarter, and in the third and fourth quarters, it is in the stage of strength adjustment; From the perspective of month, the price difference between futures and cash tends to rise from February to may, weakens from May to July, remains relatively strong from August to October, and weakens again from November to January. In fact, this law is dominated by the traditional low and peak season factors of copper market.
Phasing out economic stimulus
China is the world’s largest consumer of industrial metals. Last year, economic stimulus measures and infrastructure spending to stimulate the economy led to a 38% increase in copper imports. Analysts said that China could gradually withdraw from the economic stimulus measures, which could cool the copper market in the coming months. Once the inventory of industrial enterprises tends to be stable, coupled with the slowdown of China’s credit, it may lead to a correction of copper prices.
Difficult for downstream enterprises
The continuous rise of copper price makes it difficult for processing enterprises to do so. Affected by the high copper price, the demand for some copper materials, orders for copper poles and wires and cables decreased significantly. Research shows that high copper prices have forced cable companies to delay delivery or stop some production lines due to financial pressure. The price difference of refined copper and scrap copper is high, which has reached about 3015 yuan / ton. The demand for raw materials for smelting and processing of recycled copper is strong, and the supply of scrap copper is tight. Because it is in the peak consumption season, the growth of white household appliances consumption supports the demand for copper tubes, while new energy vehicles and electronic industries also drive the sales of copper strips and copper foil.
At present, in the traditional peak season of the second quarter, domestic nonferrous downstream processing enterprises are faced with a sharp rise in raw material prices. Meanwhile, some enterprises have not yet fully purchased their own orders. Faced with the soaring raw material costs caused by the rapid rise in nonferrous metal prices and the insufficient bargaining power of some downstream products, the rise in raw material prices will undoubtedly weaken the serious profitability of enterprises, Bring adverse effects on business operation
Comparison of spot copper price trend chart in 2011
To sum up, due to the mismatch between supply and demand and loose funds, the copper price soared to a high level in more than a decade. According to the seasonal pattern of copper, may is still the peak demand season, but the latest non-agricultural data of the United States is poor, which affects the market confidence to a certain extent. The country may stabilize the commodity prices and withdraw from the monetary easing policy, and the downstream may slow down due to high price procurement. In May, the copper price is still strong, but compared with the copper price in 2011, it may continue to rise strongly or have greater pressure. It is expected that the copper price will mainly fluctuate from a high level in May.