SMM5, March 31: halfway through 2019, between pitches. For the copper market, this is not calm 180 days!
The escalation of the Sino-US trade war has dealt a heavy blow to the copper market, and copper prices have suffered a "Waterloo." as of 10:29 on May 31, the Shanghai Copper Index has dropped nearly 5 percent, and businesses have not been able to change the stagnant state of terminal consumption in the high season that businesses are looking forward to. The overhaul of the smelter has kept a small gap in supply, but it is unclear how long it will last as the overhaul ends. May is about to pass and where the market should go in June. SMM will interpret it for you in many ways.
GDP grew by 6.4% in the first quarter of this year, far exceeding expectations. In April, the (PMI) of China's manufacturing purchasing managers index was 50.1%, which remained above the line of prosperity and decline. Moreover, with the support of a series of loose monetary policies of the central bank, the financing costs of domestic small and medium-sized enterprises have been reduced, such as the 267.4 billion yuan targeted medium-term lending carried out by the people's Bank of China in the second quarter of 2019 to facilitate (TMLF) operation. The provision of long-term liquidity for small and micro enterprises and private enterprises, coupled with the 3 per cent tax reduction brought about by VAT reform in April, have provided a big boost to copper industry chain enterprises. At present, the state attaches great importance to solving the problem of difficult financing and high financing cost of small and micro enterprises, and there may be relevant support policies in the future. President Xi Jinping presided over the eighth meeting of the Central Committee for Deep Reform on May 29, saying that the state will innovate and improve macro-control and keep the economy running within a reasonable range. This also shows that the state still has enough room for macro-policy regulation and control. However, it cannot be ignored that the sudden escalation of the Sino-US trade war has put pressure on the copper industry chain in an instant, and there is no shortage of products related to the copper industry chain among the 200 billion tariffs imposed by the US government on Chinese goods imported to the United States. A tax rate ranging from 5% to 25% would greatly increase the cost of copper foreign trade transactions. In the later period, if the tariffs on another 300 billion of goods exported to the United States are finally implemented, the copper industry chain will still be under considerable pressure.
Since April this year, domestic smelters have entered a period of centralized inspection and continue to affect the supply of refined copper in the domestic market. SMM expects to affect a total of about 150000 tons of production capacity in the second quarter. Therefore, due to the tight supply of refined copper caused by maintenance, the supply and demand situation will still maintain a small gap in supply. However, in the near future, the maintenance of smelters will basically come to an end. Among them, Jinlong Copper Industry, Shandong Hengbang, Yuguang Gold lead, Dongying Fangyuan, Yanggu Xiangguang, Qinghai Copper Industry, Shandong Jinsheng, Chifeng Jinfeng maintenance ended one after another in May. The maintenance of Zhongyuan Gold, Xinjinchang Copper, Jiangtong Rich Metallurgical and Ding Copper will also end in June. Smelter capacity recovery will lead to a month-on-month increase in the supply of refined copper in the market, in the context of unboosted consumption, the domestic market will return to the cumulative stock market. SMM expects production to increase by about 30, 000 tons in June from a month earlier. But at the same time, TC continued to fall, falling to $62 to $65 a tonne last week, which could limit smelter profits and could have an impact on new capacity launches in the second half of the year. "correlation Analysis-[SMM Analysis] Forecast of Electrolytic Copper supply in June after maintenance of Copper smelter
The return of imported copper to the profit window is another factor that could put pressure on supply. Despite some losses this week, imports had been profitable for nearly two weeks. Therefore, if foreign trade copper continues to clear customs and enter the domestic trade market in June, it may put pressure on domestic supply and even restore accumulation.
Copper terminal demand in 2019 has not yet seen a significant improvement, consumption performance "peak season is not strong", whether consumption data or domestic copper enterprise start-up rate can support this point.
Global copper consumption from January to March 2019 was 5.29 million tons, compared with 5.72 million tons in the same period last year, according to the World Bureau of Metal Statistics (WBMS). China's apparent demand for January-March was 2.653 million tons, down 6 per cent from a year earlier.
From the start-up rate, SMM data show that although the copper plus material start-up rate is up month-on-month, but compared with the same period in previous years, it is still in a downward trend.
In April, the operating rate of refined copper rod-making enterprises was 78.28%, up 1.1% from the previous month, but still down 5.43% from the same period last year. This is reflected in the copper terminal is the wire and cable. From January to April this year, the investment in the national power grid project was 80.3 billion yuan, down 19.1 per cent from the same period last year.
In April, the operating rate of copper plate, strip and foil enterprises was 73.16%, down 2.29% from the previous month and 7.53% from the same period last year. SMM expects the start-up rate of copper strip and foil enterprises to be 73. 47 per cent in May.
Although the real estate market in the first quarter of this year showed a "small spring" trend, but the government control of the housing market shows no sign of loosening. In the first quarter, the completed area of housing fell 10.8% from the same period last year, of which the completed area of office buildings fell sharply by 30.8%, continuing the decline in the completed area of the housing market last year. The state's attitude towards preventing real estate overheating appears to remain unchanged, so it is unclear whether the housing completion area data for June will improve.
Automotive field is also an important consumer terminal of copper, including vehicle cables, heat dissipation tanks, integrated circuits and discrete devices. But after a cold winter in 2018, the car market did not improve in 2019. According to statistics from the China Association of Automobile Industries, passenger car sales in April were 1.5749 million, down 22.01% from the previous month and 17.73% from the same period last year. At present, the state strongly supports the development of new energy vehicles, and various favorable policies come one after another, and it is expected that the support of relevant policies will not weaken in June. However, in the context of the month-on-year decline in fuel vehicle sales, it may be difficult to make up for the gap.
Although most of the copper consumer market is weak, but the performance of copper pipe is still good. The opening rate of copper pipe enterprises was 91.79% in April, and SMM expects the start-up rate to rise 1.5% to 93.24% in May from the previous month, basically unchanged from the same period last year. This shows that the demand for air conditioning, which is the main terminal downstream of copper pipe enterprises, is still supported to a certain extent. Overall sales of household air conditioners from January to April 2019 were 57.973 million, up 1.5 per cent from a year earlier, according to industry online data. Of these, total shipments of household air conditioners in April were 17.701 million, up 2.9 per cent from a year earlier.
The performance of the high-precision copper strip corresponding to smartphones is also relatively bright, which is also related to the improvement in domestic mobile phone shipments in April. The domestic mobile phone market shipped 36.53 million units in April, a positive increase of 6.7 per cent for the first time after five consecutive months of negative year-on-year growth, according to figures released by the Ministry of Industry and Information Technology. So if mobile phone shipments can still show a big increase in June, there will also be a boost for high-precision copper strips.
At the same time, the continuous tightening of scrap copper supply can also increase the consumption of refined copper to a certain extent. Due to the narrowing of the price gap of refined copper and the continuous tightening of environmental protection policy, the consumption of copper scrap has been restrained to a certain extent, and the consumption trend of refined copper instead of copper scrap has become clear. In April, the operating rate of copper scrap rod-making enterprises was 66.98%, a decrease of 4.27 percentage points from the previous month and 7.12 percentage points from the same period last year. And SMM expects the start-up rate of scrap copper rod enterprises to continue to fall to 61.63% in May, a decrease of 5.36 percentage points from the previous month and 10.28 percentage points from the same period last year. Therefore, after entering June, the formal implementation of "scrap six" is also approaching, so the tightening of scrap copper supply can support the consumption of refined copper to a certain extent.
To sum up, SMM believes that:
On the supply side, the centralized maintenance of smelters is basically drawing to a close in June, and about 50 to 600000 tons of new output will soon be released in the second half of this year, superimposed on the opening of the current profit window for imported copper. Or in June will form a greater supply pressure on the refined copper market. However, if spot TC prices continue to fall or will have an impact on the capacity to be released by smelters, it may improve the imbalance between supply and demand to some extent.
On the demand side, markets such as the power grid, real estate and the car market are not performing well, and even if smartphones can restore market confidence a little, the boost to copper terminal consumption is still limited due to restrictions on the size of high-precision copper strip. If the situation of terminal consumption is not boosted by the better news, I am afraid it will not be able to improve. The tightening of scrap copper supply can be a positive factor in boosting refined copper consumption, and the SMM will continue to observe how much it can boost in June. Judging from the current situation, the fundamental situation is not optimistic.
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