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Market participants: there is not much "bubble" in the rise of copper prices.
Jul 17,2020 09:02CST
translation
Source:Futures daily
The content below was translated by Tencent automatically for reference.

SMM Network News: since the second half of the year, domestic and foreign non-ferrous metal prices have reached new highs one after another, and the market trading atmosphere is hot, especially the outstanding performance of copper prices. After both spot prices have broken through the 50, 000 mark, the upward momentum has not decreased. The main contract of Shanghai copper futures rose nearly 5% on Monday to close at 52880 yuan per ton, setting a new closing high since June 2018. Can the rising trend of copper prices continue after the current rebound breaks through the upward trend? Market participants believe that the current copper market is rapidly rising under macro and industrial resonance, and there is a demand for high-level consolidation in the short term, but under the premise that the logic of the rise will not be shaken, it is still expected to rebound continuously in the medium and long term.

Macro-dominance and multi-factor resonance promote the rebound of copper price

"this round of copper price rise is unexpected, but it is reasonable. Surprisingly, copper prices were not expected to rise to such a level, and it is reasonable that there are strong macro and supply and demand fundamentals behind the rise in copper prices. " Zhang Weixin, a non-ferrous researcher at CITIC Construction Investment Futures, told Futures Daily that at present, the world's major economies are coming out of the "dark moment" of the epidemic, and the overall trend of the global economic situation continues to improve. in particular, various domestic economic data are showing signs of exceeding expectations, which boosted market sentiment. At the same time, the epidemic caused a time mismatch between supply and demand in the copper market. At present, demand has gradually recovered, but the supply is still facing greater uncertainty, resulting in tight copper supply and continuous digestion of stocks.

According to Ji Xianfei, a non-ferrous analyst at Guotai Junan Futures, the current macro drive is mainly reflected in two aspects: first, the market is full of liquidity, and the people's Bank of China cut re-lending and rediscount interest rates in July to reduce the cost of capital of banks. at the same time, the issuance of epidemic-resistant special treasury bonds and follow-up local government special bonds in July, as well as supporting infrastructure and small and medium-sized banks to replenish capital, increased capital risk appetite. Second, inflation expectations rebounded, with the increase in domestic investment, the recovery of overall market demand, and the continued repair of industrial product prices as a whole, which will strengthen future inflation expectations and form positive feedback on copper and other related commodities.

Gao Weihong, a non-ferrous researcher at Jinrui Futures, told reporters that the sharp rise in copper prices came from the resonance between fundamentals and macro benefits and thus formed a greater impetus, under the unprecedented stimulation of monetary and fiscal policies of various countries, seeing the recent better-than-expected macro data from Europe, the United States and China, macro sentiment gradually improved, especially the recovery of the stock market, driving market enthusiasm.

It can be said that the core driver of the current copper price mainly comes from the macro aspect, and behind the rebound in copper price is the expectation of inflation and the expectation of economic recovery. because the financial attribute of copper is strong, it is more sensitive to market risk. At the same time, the fundamental theme magnified the rebound in copper prices, such as the serious disturbance in copper supply and the higher-than-expected recovery of downstream demand. " Cao Yangdao, an analyst at the East Securities Derivatives Research Institute.

Supply disturbance threatens the balance of supply and demand in copper market

Gu Fengda, a non-ferrous metals analyst at Guoxin Futures, said that the current overseas epidemic has a greater impact on the copper market, because the global copper resource supply is mainly from South America, of which Chile and Peru account for about 40% of the global copper resource supply. Despite efforts by South American governments and large mine operators to maintain production this year, recent outbreaks of new crown pneumonia in Chile and Peru have seen a slowdown in some new projects and a decline in operating costs and efficiency. at the same time, a number of copper mining unions are planning strikes and demonstrations. It is expected that under the background of increasing interference factors of copper mines in South America in the second half of the year, the subsequent limited increment of copper supply will be a high probability event.

"from the supply side, the production disturbance of Chilean copper mines has increased, and Chilean copper mines are expected to decrease by 400000 tons for the whole year, while mine construction in Peru continues to resume, but copper concentrate will not be transported to China until at least mid-late August. Or it may limit the production of copper smelters that rely heavily on overseas raw materials." Ji Xianfei said. From the consumer point of view, with the improvement of investment in the construction market and consumption of household appliances, the demand related to wires and cables and copper pipes and poles remains high, and copper consumption in July will still show the characteristics of the peak consumption season. He expects the shortage of copper supply to reach 83200 tons in the third quarter, and the pace of destocking will accelerate from July to September.

At the same time, Gu Fengda said that at present, in the context of low global inventories, the supply disturbance of the copper market has driven the rising water structure of Hulun and Hulun. According to the data, if the global apparent consumption of refined copper is about 25 million-26 million tons for the whole year, the current global exchange inventory is less than 500000 tons, and the traceable copper social inventory resources are also very limited. The LME non-exchange and private inventory announced by LME for the first time is only 160000 tons, making the total consumption weeks of refined copper stocks that can be tracked around the world less than two weeks, which is at a historically low position. As a result, the function of inventory to adjust the supply and demand of copper price is facing failure, and the tight supply of spot resources, insufficient deliverable inventory in the industry, and high positions in futures and derivatives are important signals that prices may break through the upward trend.

Where will the copper price go under the interweaving of long and short positions?

At present, the global epidemic is not over, it will take some time for the economy to recover, and there are still some differences in the industry as to whether the short-term copper price has rebounded too quickly. Gao Weihong told reporters that the sharp rise in the current round of copper prices includes supply theme speculation, so copper prices may face a more intense long-short game after innovation. "from a fundamental point of view, the current copper price is somewhat overvalued, but in the third quarter copper fundamentals continue to interfere with supply, copper price support is still relatively strong. Macroscopically, it is currently in a critical window of economic recovery at home and abroad, and before the overseas epidemic is fully brought under control, the sustainability of the global economic recovery is in doubt. " He said.

Gao Weihong believes that the current long-empty factors in the copper market are intertwined, and the negative factors mainly come from the disturbance to the economy and demand side caused by the epidemic, as well as the actual situation of copper production in Chile, while the positive factors are the sustained economic recovery, the continued increase in stimulus policies, and the new disturbance to supply caused by the epidemic. He advised investors not to blindly chase higher, but to consider doing long every pullback. For industry-related enterprises, in the current situation of high copper price fluctuations, adhere to the purpose of hedging, to stabilize corporate profits as the premise of reasonable hedging, while considering the use of options and other derivatives to increase risk management means.

In Cao Yang's view, the recent strong pull in copper prices will deviate from the fundamentals of the domestic copper market in the third quarter, but the future trend of copper prices is still expected to be a macro factor, if the macro expectations are not significantly adjusted, it is difficult to reverse the upward trend of copper prices. At the same time, due to periodic changes in the fundamentals, copper prices may be adjusted at high levels. He said that the duration of the current rebound in copper prices may be relatively long, the current rebound time is to see the first half of next year, from the space point of view, LME copper futures see 6800 US dollars / ton, it is suggested that we can wait for the copper price phase to adjust, the trend of the midline layout is more than one.

However, Zhang Weixin believes that there is not much "bubble" in the rise in copper prices. Copper as a mature commodity variety, its publicly traded price is highly authoritative, although there are not many arguments at this stage to infer the level to which copper prices can rise, but as long as macro and basic profits occupy a dominant position, copper prices will continue to rise, and it is necessary to guard against the phased decline in domestic demand in the third quarter and the gradual recovery of overseas copper supply. For enterprises, because the inventory of upstream enterprises is not high at this time, there is no urgent need to sell hedging when a round of upward trend continues; for downstream enterprises, considering the potential risks, it is recommended to buy hedging appropriately, but the proportion should not be too high.

"with the profit pressure accumulated by the excessive increase in short-term large categories of assets, the intensification of the game among superimposed powers and signs of a second rebound in overseas epidemics, the expectation of a rapid recovery of global economic growth in the second half of the year may be shaken. It is suggested that the stock market and commodities should be treated rationally and the risk of high two-way volatility should be treated with caution." Gu Fengda said that the near-strong and far-weak BACK structure of current copper prices continues, mainly due to the theme of non-ferrous short-term supply disturbances and domestic low inventory support prices, in the face of the threat of high volatility risk, it is suggested that proper control of unilateral exposure can seize cross-city and intertemporal structural opportunities.

Ji Xianfei finally told reporters that copper prices are a barometer of economic expectations in the future, and if the economy can continue to recover, it will also form a sustained and strong pulling effect on current prices. At the same time, the weakness of the US dollar and LME forced positions are also expected to drive copper prices upward. He believes that under the circumstances that the current upward driving logic has not changed, there is still upward space for copper prices, and according to the judgment of the macro and micro markets, the pattern of strong copper prices is expected to continue throughout the third quarter. It is suggested that investors are mainly bullish thinking, and the pullback may be a good entry point for bulls.

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