[SMM Analysis] the inflection point of Guangdong electrolytic copper inventory has shown that it may continue to fluctuate higher in the future.

SMM7 March 21: the inventory of electrolytic copper in Guangdong rose and fell sharply in 2020. Affected by the epidemic at the beginning of the year, the inventory reached an all-time high, and reached a peak on March 4, and then continued to decline, from a peak of 119400 tons to 10900 tons before the Dragon Boat Festival on June 24, a decrease of 108500 tons, a decrease of 90.87%. Guangdong inventory continued to rise after the Dragon Boat Festival. As of July 21, Guangdong inventory has risen to 29400 tons, up 18400 tons from the lowest level, or 167%. (the specific trend is shown in the figure below)

We believe that there are several reasons for the continuous increase in inventory after the Dragon Boat Festival.

Looking forward to the future: we believe that the possibility of another surge in shipments is very small, the transfer of goods and imports of copper from different places will not increase significantly, and the future will be mainly supplied by domestic copper from neighboring provinces and a normal amount of imported copper; the increase or decrease of inventories depends more on consumption. According to our latest research, the operating rate of the vast majority of downstream enterprises in Guangdong has been declining since July, and the number of new orders has also declined month-on-month, and it is generally expected that there will not be a significant improvement before mid-August. In addition, the price difference of refined copper remains high and scrap copper replaces refined copper, which is another important reason for the weak consumption of electrolytic copper. To sum up, we expect that the inventory of electrolytic copper in Guangdong will show a fluctuating trend in the short term.