1、 Trend analysis
According to monitoring data from Business Society, copper prices have been soaring since early March, with prices skyrocketing above 70000 yuan. In late March, they surged and fell back. As of the end of the month, the copper price at the beginning of the month was 68803.33 yuan/ton, and at the end of the month, the copper price rose to 71925 yuan/ton, with an overall increase of 4.54% and a year-on-year increase of 4.59%.
According to the current chart of the Business Society, copper futures prices in March were generally higher than futures prices, with the main contract being the expected price in two months. The overall copper price is bullish in the future.
According to LME inventory, LME copper inventory fell first and then rose in March. As of the end of the month, LME copper inventory was 117900 tons, a decrease of 2.86% compared to the beginning of the month.
Copper mine production reduction, copper smelting enterprises clustering to reduce production, supply side tightening, expectations of Fed rate hikes, and rising copper prices:
Copper mine production reduction
In recent months, there have been many reports of large-scale copper mines reducing production worldwide. As one of the largest copper mines in the world, the production of Escondida copper mine has been affected by the decline in mine grade and the drought in central Chile, leading to its start of production reduction. Furthermore, due to suspected unconstitutionality, the Panamanian government has ordered First Quantum Minerals to cease its operations at the Cobre copper mine in the country. In addition, Anglo American Group’s copper mines have also announced a significant reduction in copper production expectations. The production reduction measures of these large copper mines directly affect the supply to copper plants. China’s dependence on foreign copper concentrate is as high as 80%, which reduces its pricing power for copper. As a result, the reduction in copper production has led to a significant decrease in processing costs for the copper concentrate smelting process in China.
Copper concentrate processing fees TC/RC have fallen to a ten-year low
Due to the continuous decline in copper concentrate processing fees TC/RC and the loss of profits for smelters, industry expectations for production reduction are constantly strengthening. The current TC of copper concentrate is $15.29/ton, a significant decrease of 83.73% from the high point of $94/ton in September last year, which is the lowest point in nearly a decade. Under recent price levels, smelters are gradually experiencing increasing losses. If the smelter purchases spot copper concentrate for production, the current loss is about 1400 yuan/ton. If the smelter uses long single copper concentrate for production, the current profit is about 900 yuan/ton. The continuous decline in copper concentrate processing fees is due to the fact that the expansion rate of crude refining capacity in domestic copper smelters is greater than the supply rate of copper concentrate. It is expected that processing fees will continue to decline, possibly reaching negative numbers. Even domestic smelters undergoing maintenance may not be able to reverse the decline in processing fees.
Copper smelting enterprises hold a meeting to discuss production reduction in groups
Under the huge losses borne by copper concentrate smelters, copper smelting enterprises choose to reduce production in groups to cope. On March 13th, the China Nonferrous Metals Industry Association organized a symposium on copper smelting enterprises in Beijing, with 19 domestic copper smelting enterprises participating. At the meeting, these enterprises reached a consensus on adjusting the smelting production pace, strictly controlling the expansion of copper smelting capacity, and responding to the Self Discipline Convention of the China Nonferrous Metals Industry. And this directly represents that the supply side of domestic copper plants will experience a tightening rhythm in the future. Therefore, copper prices have started another wave of increase.
Expectations of Fed interest rate cuts raise copper prices:
Although the specific time for the Federal Reserve to cut interest rates in 2024 has not been determined, its entry into a rate cutting cycle is certain, and the March interest rate meeting also clearly conveyed a dovish attitude. The Fed’s interest rate cut has a significant impact on the entire commodity market.
Future influencing factors:
Lido:
Supply is expected to tighten
UBS stated that Chinese smelters will undergo larger scale maintenance in the second quarter of 2024, affecting production capacity of up to 3 million metric tons. They believe that processing and production without long-term contract constraints will lead to a tightening of copper supply, further triggering a surge in copper prices. And they also expect a global shortage of 7.3 metric tons in copper this year.
Growth in demand for new energy
As of the end of 2023, the proportion of copper consumption structure in China’s new energy industry has increased to 14%, becoming the third largest copper demand industry, second only to power generation and construction. Against the backdrop of the continuous increase in the market share of China’s new energy industry and the influx of new energy enterprises overseas, the demand for copper in China will continue to grow in the future.
Expectations of Fed rate hikes
The bullish sentiment towards the copper market in overseas markets remains strong, and investors’ expectations for the Federal Reserve’s interest rate cut in June continue to strengthen, which provides support for metal prices.
Negative:
Downstream real estate downturn
The proportion of copper consumption structure in the real estate industry is 19%. According to data, investment in real estate development in China decreased by 9.0% year-on-year from January to February this year; The sales area of newly-built commercial housing decreased by 20.5% year-on-year; The newly started residential area has decreased by 30.6%; The completed residential area has decreased by 20.2%; Residential sales area decreased by 24.8%. Overall, the sluggish real estate market has to some extent affected the demand for copper.
Downstream fear of heights intensifies
At present, downstream consumption of copper is relatively flat. Downstream demand is not as good as copper prices, and facing high pressure from processing factories, there are basically orders for on-demand procurement. The pressure on national treasury inventory remains high, and the spot market is weak.
Exploding enthusiasm and retreating
The news of production reduction by copper smelting enterprises is gradually being digested, and the scale and timing of the reduction are still unclear, making it difficult to determine the extent of the impact on production.
Based on the above situation, under the joint influence of multiple factors at home and abroad, copper prices have remained stable at a high level, and the industrial economy has also shown a positive development trend. However, as the second largest downstream pillar, the real estate market is sluggish, with weak demand and a serious fear of high prices in the downstream market. Only low-priced goods are available to suppress copper prices. It is expected that copper prices will mainly fluctuate at high levels in the short term.