1. Price trend
After the spot copper price broke through a high of 70,000 in February, it rose sharply again after two months of sideways trading. On May 7, the spot copper price was 74213.33 yuan/ton, a record high since 2011, approaching 75,000 yuan/ton. As of the night trading on the 7th, Lun Copper hit a record high of US$10,435/ton, and Shanghai Copper hit a record high of RMB 75,780/ton in the past ten years. Since the beginning of this year, spot copper has increased by 28.05%% from the beginning of the year and 72.49%% year-on-year, approaching the highest price of 74,900 yuan/ton on February 15, 2011.
2. Abundant liquidity, the U.S. dollar goes down
Abundant liquidity is indeed an important reason for the sharp rise in this round of commodities. In 2020, the central banks of some countries have introduced unprecedented monetary easing policies and proactive fiscal policies. my country's central banks will further support domestic economic recovery through precise monetary policies. In addition, the Federal Reserve’s rapid interest rate cuts and the revised policy framework to increase tolerance for inflation have driven the US dollar to weaken sharply. Global commodity prices have generally risen, and copper prices have risen accordingly.
3. Lack of mining investment, copper production decline
The epidemic has disrupted trade flows in the short term, and the lack of mining investment will inevitably lead to a shortage of supply in the market. The Chilean House of Commons approved a measure on May 6 to impose a progressive tax on copper sales, which may cause more than 80% of the total burden, which is almost twice that of neighboring Peru and parts of Canada, which will affect copper prices. Boost. This may cause investment in Chile to stagnate. Chile accounts for more than a quarter of global copper supply. Capital expenditures for copper mining will only increase slightly this year, from 15.2 billion U.S. dollars in 2020 to 16.2 billion U.S. dollars, and will remain at this level for the next two years.
Chile's copper production in March has been the 10th consecutive month of decline. Copper production fell 1.3% in March to 491,72 million tons, which was affected by new restrictions on transportation and commerce after the summer vacation in the southern hemisphere. According to Chile’s National Bureau of Statistics, Chile's copper production fell 2.2% year-on-year to 1.4 million tons in the first quarter of 2021.
4. Carbon emission reduction increases copper demand
The green revolution of electric vehicles and renewable energy has also boosted the growth of copper demand, and the green transition also requires more copper as a strong conductor of electricity. Copper is a key component of sustainable technologies, including electric vehicle batteries and derived clean energy. As the deadline for the Paris Agreement gets closer, the political and economic impetus to promote renewable energy and green technology is getting stronger. Compared with traditional power generation methods and automobile fuels, electric energy is the best intermediary carrier among all energy sources, and the input, storage, and output of electricity cannot be bypassed by the most mature and cost-effective conductor material—copper. Carbon emission reduction measures on both the power generation side and the electricity side will promote the use of copper
5. LME copper stocks continue to decline
LME copper inventories continue to decline, and the current copper inventory level is at a relatively low level.
The conduction of global currency oversupply and the mismatch of supply and demand have caused copper prices to rise steadily. Whether the copper price can continue to rise is affected by the following factors.
6. The latest non-agricultural data
On Friday, the US Department of Labor reported that the non-agricultural employment data in the United States was shockingly poor in April. The number of non-agricultural employment increased by only 266,000, the unemployment rate reached 6.1%, and income increased by 0.7%. All this shows the lack of growth in low-skilled jobs. Considering that the number of people has been revised down by 78,000 in the past two months, the number in April is particularly weak.
7. The production capacity of the mines that have been put into operation will increase, and the copper output may increase
The new crown epidemic has affected the production of copper mines in some countries. However, this year, benefiting from the recent increase in production capacity of mines, global production is expected to increase by 3.5%. This year and the next two years, the large-scale copper mines in production include KamoaKakula in the Democratic Republic of the Congo, Quellaveco in Peru, Spence-SGO in Chile (in production) and QuebradaBlanca QB2, as well as Udokan in Russia. In addition, there will be many small and medium-sized copper mines in production. ICSG predicts that in 2022, with the increase in production capacity of this year's mines, the commissioning of new projects and the expansion of old mines, coupled with the continued improvement of the epidemic situation, global production is expected to achieve a growth of about 3.7%.
In terms of refined copper, this year and next, as China and Congo (DRC) fully recover from the global blockade and continued negative effects, global refined copper production will achieve an annual growth of 3%. It is estimated that by 2021 and 2022, the world's primary electrolytic refining (from concentrates and hydrometallurgical SX-EW) production will increase by 2.9%. Among them, the growth rate of hydrometallurgical production is relatively low, and the growth rate in 2021 will be 0.6%. The annual growth rate is 2.2%.
8. Copper has a certain seasonal pattern
From a historical point of view, if divided by quarter, the current price difference between copper and aluminum will usually appear relatively low in the first quarter, relatively high in the second quarter, and in the third and fourth quarters in the strength adjustment stage; if viewed by month, the current price difference tends to From February to May is the rising phase, from May to July it weakened, from August to October it remained relatively strong, and from November to January it weakened again. This pattern is actually dominated by the traditional low and peak seasons of the copper market.
9. Gradually withdraw from economic stimulus
China is the world's largest consumer of industrial metals. Last year’s economic stimulus measures and infrastructure spending to stimulate the economy led to a 38% increase in copper imports. Analysts said that China may gradually withdraw from economic stimulus measures, which may cause the copper market to cool in the next few months. Once the inventory of industrial enterprises stabilizes, coupled with the slowdown of Chinese credit, it may lead to a correction of copper prices.
10. Difficult for downstream companies
The continuous rise in copper prices has made it difficult for processing companies to do so. Affected by high copper prices, the demand for some copper materials, copper rod orders, and wire and cable orders have decreased significantly. Research shows that high copper prices have forced cable companies to delay delivery or stop some production lines due to financial pressures. The price difference of refined copper and scrap copper is high, and it has reached around 3015 yuan/ton. The demand for raw materials in the 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 consumption growth of white goods supports the demand for copper pipes, and the new energy vehicles and electronics industries also drive the increase in the sales of copper strips and copper foils.
At present, domestic non-ferrous downstream processing companies are facing a sharp increase in raw material prices in the traditional peak season of the second quarter. At the same time, some companies have not fully purchased their own orders. Faced with the sharp increase in raw material costs caused by the rapid increase in non-ferrous metal prices, some companies have bargained for downstream products. In the case of insufficient growth capacity, the increase in raw material prices will undoubtedly weaken the serious profitability of the company, and bring adverse effects to the company’s operations.
11. Comparison of spot copper price trends in 2011
Copper prices soared to more than a decade high due to the mismatch of supply and demand and loose funds. According to the seasonality of copper, May is still the peak demand season, but the latest US non-agricultural data is poor, which affects market confidence to a certain extent. , The country may stabilize commodity prices withdraw from monetary easing policies, and downstream purchases may slow down due to high prices. Copper prices remained strong in May. However, compared with the 2011 copper prices, the continued strong rise may be under greater pressure. It is expected that copper prices will mainly fluctuate at a high level in May.
Related listed companies: Jiangxi Copper (600362), Tongling Nonferrous Metals (000630), Yunnan Copper (000878).
