Mine shutdown production will plummet by 200000 tons "Copper Age" coming?

SMM News: due to the severe disturbance of the new crown pneumonia epidemic to the production activities of the copper industry, LME copper futures reached a five-month high on June 26th, rising as high as US $6006 / ton in intraday trading. Chile's state-run copper company (Codelco), the world's largest copper miner, has announced a temporary shutdown of copper refineries and foundries in its second-largest mine, Chuquicamata, to prevent further spread of the new crown virus.

Recently, with the continuous increase in the number of confirmed cases in Chile, the pressure on local epidemic prevention and control has increased sharply. According to data released by the Chilean Ministry of Health, there were 4296 new confirmed cases of crown pneumonia in Chile on June 26, with a total of 263360 confirmed cases, 165 new deaths and 5068 deaths.

As the epidemic continues to worsen in Chile, mine restrictions are still likely to escalate and the supply side of the copper market still faces disruption. Chilean Copper Commission (Cochilco) estimates that Chilean copper production will fall by 200000 tons, accounting for about 3.5 percent of Chile's total production in 2019, Chilean Mining Minister Baldo Prokurica said on June 26th, due to the growing impact of the new crown pneumonia epidemic on the copper industry.

Chile's state copper said it would suspend smelting at the Chuquicamata mine, which has a capacity of more than 300,000 tons and was upgraded for most of 2019, after a third worker died of Xinguan pneumonia. With regard to the shutdown incident, Cao Yang, a non-ferrous analyst at the East Securities Derivatives Research Institute, told Futures Daily that if the smelter was shut down for a long time because of the epidemic, the resumption of overseas smelting capacity in 2020 would be even more hindered, or even continue to shrink. As for the specific impact on the scale of production, it also depends on the time and scale of the shutdown.

"it can be seen that global mine operations have been greatly disturbed by the new crown pneumonia epidemic so far this year, but governments are trying to maintain the resumption of production and work, as economic growth and the demand for social employment have completely outweighed the threat of the epidemic in some overseas areas. existing large mine operations in South America are still struggling to maintain, but the slowdown in some new projects, declining operating costs and efficiency, and limited potential subsequent increments will be high probability events." Guoxin Futures Nonferrous researcher Gu Fengda said.

Gu Fengda told Futures Daily that in view of the great uncertainty of the epidemic in South America, there are still some risks in the global supply of copper concentrate. Due to the great controversy over the supply disturbance in all links of the copper industry chain, the current copper concentrate import processing fee TC is deadlocked at the low level of US $50 / ton, and there is less supply in the spot market, suggesting that the supply of overseas copper mines is still tight. According to industry statistics, the growth rate of global copper production will slow to about 1% in 2020 from the previous forecast of 3%. The current new crown epidemic interferes with the mine end by nearly 1%, and the global conservative forecast interference rate is 2%. 3%.

Huang Zhiming, a non-ferrous researcher at Jinrui Futures Research Institute, told Futures Daily that the current drivers of copper prices mainly come from macro stimulus policies and expectations of policy increases. Us Treasury Secretary Nuchin said a new stimulus package is likely to be passed in July, capital market liquidity is expected to continue to ease, and the stimulus policy is good for copper prices. At the same time, the copper market is also in a state of low inventory, the last period of copper inventory has been at a low level of less than 100000 tons, which has brought strong support to the copper price. Although the peak consumption season has gradually passed, inventories are still rapidly decaying, indicating that copper demand is still there, coupled with supply-side support, copper prices are still strong.

Cao Yang believes that the core driver of copper prices at this stage lies in macro factors, mainly from inflation expectations. In the short term, macro factors are bullish to support or will continue. From a micro point of view, on the one hand, the epidemic has obvious interference on supply, especially on the mine end. Because of the worry about the second epidemic in resource countries, the market may price in advance in this area, the profits at the smelter end are under pressure, and the release of production capacity is restricted. Overseas smelters and domestic marginal production capacity are relatively sensitive to profits, and the growth of refined copper supply will continue to be limited. On the other hand, domestic demand has gradually begun to recover, while external demand has also seen some signs of stabilization. The most direct manifestation of supply and demand is the continuous elimination of inventory, especially in the domestic market and bonded areas. The macro and micro factors resonate, which forms a strong upward drive to the copper price.

From a fundamental point of view, Huang Zhiming analysis believes that the current epidemic in South America continues to spread, mine-side supply risk concerns are unabated. While the smelter is affected by the previous shipment, the shortage of copper concentrate supply from June to July reflects that the refinery maintains a low operating rate, and the domestic electrolytic copper supply is difficult to pick up. The price difference of fine waste is back to more than 1500 yuan / ton, and the substitute advantage of scrap copper begins to appear. However, consumer performance is still not weak, domestic inventories continue to fall, and spot supply is tight. Global inventory levels are close to low, driven by domestic demand and overseas economic recovery.

From the perspective of the macro and financial environment, Gu Fengda believes that in 2020, non-ferrous metals represented by copper, as strong cyclical commodities, tend to show a certain degree of resilience in the stage of concentrated outbreak of the crisis, but from the current rebound and epidemic forecasts, copper prices in the second half of 2020 do not rule out the possibility of a double dip. In terms of the current trend, he believes that the current financial market has great ups and downs, and the non-ferrous metal plate represented by copper has risen greatly in the early stage, which will limit further action energy, and the two-way fluctuation of copper at absolute high prices is expected to increase in the short term. It is suggested that the intertemporal structure of copper in Shanghai is mainly set.

In addition, the financial nature of non-ferrous metals represented by copper will be weakened obviously before 2020, but as central banks start a new round of interest rate cuts and easing on a scale rarely seen in history this year, and the manufacturing powers represented by China have stepped up efforts to stimulate the real economy, on the premise that the epidemic in the new crown is expected to ease, the global shortage of copper mines will ease slightly in the second half of 2020, and the copper market will have a stronger margin of safety after the pullback. To this end, Gu Fengda suggested that industrial customers use virtual inventory and hedging transactions to flexibly adjust their exposure risk, non-ferrous metal customers are mainly short-term operations and intertemporal positive sets, and pay attention to the possibility of a double dip under the crisis in the medium and long term. the strategic layout of the industry should wait for the opportunity of the general trend of bargain-hunting layout.

In Cao Yang's view, copper prices will continue the upward trend, the first target is the level of copper prices before the epidemic, LME copper first looks towards 6100 US dollars / ton. In the second half of the year, in addition to the trading macro expectations, the repair of the balance sheet of supply and demand in 2021 is also expected to become a trading point. He believes that the short-term risk point may not lie in fundamental factors such as phased accumulation of expectations, but we need to pay more attention to the risk of repeated macro expectations, mainly the changes in inflation expectations and market risk preferences.

However, Huang Zhiming believes that there are contradictions in both macro and fundamental aspects of the current copper price. Copper prices benefited from global stimulus and rose along with US stocks and oil prices. However, recently, US stocks have been continuously weak, but the performance of copper prices is still strong, mainly from the support of the fundamentals of the copper market. The combination of low inventory and supply interference makes copper prices easy to rise and difficult to fall, and the recent strength of copper prices may continue. "

But in the medium term, Huang Zhiming believes that the recovery of copper supply in Peru will be reflected in the later stage, while the seasonal decline in domestic consumption restrictions continue to go to the treasury, coupled with the fact that US stocks have begun to show a significant decline, the macro and fundamental support of the copper market has a weakening trend, and copper prices are expected to have a process of falling in the later stage.

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