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[agency Review] the replenishment of the imported copper consumption industry chain will drive the plate upstream.
Sep 15,2020 10:34CST
Source:Citic Securities
The content below was translated by Tencent automatically for reference.

SMM News: the early copper plate rose mainly from the bottom of the valuation repair. The factors that we judge that copper prices will remain strong in the future include: 1) reduced real consumption of copper and concerns about invisible inventories, with global explicit inventories at historic lows of 570000 tons; 2) public health events continue to disturb the mine side, long-term impact or higher-than-expected; 3) steady economic recovery and continued liquidity easing. The seasonal strengthening of consumption opens the replenishment market of the industrial chain, which is expected to drive the copper price to hit 7000 US dollars / ton this year. With the increase in the certainty of earnings in the third quarter and the rise in valuation of pro-cyclical sectors, copper companies are expected to usher in Davis double-click, the core recommended Luoyang Molybdenum Industry (3.03, 0.09, 3.06%), Jiangxi Copper, Zijin Mining (5.72, 0.13, 2.33%).

The stock was less than expected during the off-season, and historically low copper inventories supported the rise in copper prices.

As of September 11, 2020, we estimate that the global explicit inventory of copper amounts to 553000 tons, which is the lowest in nearly five years, and the copper price is more flexible under any mismatch between supply and demand. Among them, 1) although the domestic cathode copper import window opened from June to August, we estimate that the real consumption of copper by the possible collection and storage behavior in the same period is about 240000 tons, so that domestic social stocks are still at the lowest level of 338000 tons in the same period in nearly five years after the off-season depletion of stocks; 2) since the gradual restart of overseas economies in May, Asia, Europe and the Americas have successively opened the elimination of copper stocks, and LME copper stocks are currently at a 10-year low.

The new round of replenishment of the industrial chain is expected to drive copper prices to hit 7000 US dollars / ton.

From the monthly dimension, 1) the power sector: the high operating rate of wires and cables was maintained at nearly 100%, the cumulative growth rate of power investment was maintained at 40% year-on-year, and the cumulative growth of Electroweb returned to positive year-on-year growth; 2) in the construction sector, the scissors gap of real estate completion began to narrow again after the disturbance of public health events; 3) Automobile / consumer goods sector: automobile production achieved positive growth compared with the same period last year, and air-conditioning production began to re-enter the seasonally strong point in October; 4) exports: copper exports improved month-on-month for two consecutive months with the sustained recovery of the overseas economy. We expect domestic monthly consumption from September to November to gradually increase from 1.11 million tons to 1.23 million tons, and the replenishment of the industrial chain under low inventory is expected to drive copper prices to hit 7000 US dollars / ton.

The phased improvement of supply in the third quarter is limited, and the long-term impact of public health events on the mine side may exceed expectations.

Since July, logistics in large copper-producing countries have gradually returned to normal, and domestic copper concentrate imports have rebounded to 1.795 million tons, an increase of 19.7% month-on-month. However, the impact of public health events continued. Domestic copper concentrate imports fell again to 1.587 million tons in August. Copper production in Peru and Chile still fell 2.2% and 4.4% in July compared with the same period last year. We expect global copper production in the second half of the year to be the same as last year. At present, overseas leading copper enterprises take production maintenance as the primary task, which is limited by the labor shortage under the personnel isolation policy, and the mine maintenance and mine expansion projects are limited or postponed, which may affect the copper output in the next 1-2 years.

Liquidity persistence + recovery signals are becoming clear, and the long-term upward trend of copper prices is clear.

The Fed lattice chart shows that nominal interest rates in the United States are expected to remain low until 2022. China's total social finance rose 63.1% year-on-year in August, superimposed by rising inflation expectations under a slow economic recovery. the loose environment of negative interest rates in the medium-term dimension clearly supports copper prices. IMF forecasts global economic growth of-4.9% and 5.4% in 2020 / 2021. Based on the correlation between copper demand and economic growth, we expect copper consumption to grow by-1.7% and 5.2% in 2020-2021. Supply and demand will maintain a tight balance and the structure will continue to improve. The upward trend of the copper price center is clear, and we expect the average price of 2020 pound 2021 copper to be 6000pound $6500 per tonne.

Risk factors:

Mine-side disturbances were lower than expected; the global economic recovery was weaker than expected; and changes in Fed monetary policy.

Investment strategy:

The signal of global economic recovery is clear, public health events have a long-term impact on the mine end, and the continuous improvement of supply and demand pattern supports the central upward trend of copper price in the next 1-2 years. At present, copper stocks are still at an all-time low after the off-season, and a new round of industry chain replenishment market is expected to drive copper prices to hit 7000 US dollars / ton. The valuation of companies in the copper industry is still at the center of history, and the certainty of performance has improved since the third quarter, and copper stocks are expected to usher in a double-click by Davis. The core recommends Luoyang Molybdenum Industry (03993), Jiangxi Copper Industry (00358) and Zijin Mining (02899). It is recommended to pay attention to the western mining and Minmetals resources ( (01208).

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