SHANGHAI, Jan 11 (SMM) — Copper prices, which has the strongest financial attributes of non-ferrous metals, fell initially before rising in 2020. Copper prices plunged in Q1 amid the COVID-19 pandemic and the oil war between US, Russia and Saudi Arabia, with LME copper prices falling to $4,371/mt. The biggest drop for the year in LME copper prices stood at 31%. SHFE copper prices slumped to 35,300 yuan/mt, the lowest since October 2016, with the biggest drop of 29.3%.
With eased domestic lockdowns against COVID-19, domestic economic activities recovered in April, improving economic data. Risk appetite picked up on the back of domestic RRR cuts and interest rate cuts and currency issue in the United States; On fundamentals, supply disruptions and logistics issues in South America led to a reduction in copper cathode supply, while recoveries in domestic consumption exceeded expectations, resulting in supply shortages. This pushed copper prices to rebound.
The increase in copper prices slowed down significantly in the third quarter, and prices hovered rangebound at highs. SHFE copper prices exceeded 50,000 yuan/mt and fluctuated around 51,500 yuan/mt. LME copper prices rose from $6,300/mt to around $6,850/mt, failing to exceed $7,000/mt.
In the fourth quarter, the European Central Bank increased debt purchases and the US issued $900 billion debt relief bill after the presential elections. As such, copper prices hit a seven-year high, with LME copper prices reaching $8,028/mt, and rebounding nearly 83% during the year. SHFE copper prices surged to 59,640 yuan/mt, the highest since 2013, and a gain of 69% during the year. Market activity has increased significantly compared to 2019. Trading volumes jumped from 36.5 million lots in 2019 to 57.1 million lots, an increase of nearly 21 million lots. Copper prices are expected to trend higher in 2021 amid expectations over inflation, and market activity is expected to increase further.
2020 was also a choppy year for the spot market. SMM average price of #1 copper cathode stood at 48,821.61 yuan/mt, and the average premium stood at 61.09 yuan/mt. Spot premium in 2019 stood at 89.08 yuan/mt. The average premium of standard-quality copper stood at 48.95 yuan/mt, compared to 64.45 yuan/mt in 2019.
In the first quarter, domestic consumption and downstream processing were basically stagnant amid COVID-19. In this scenario, social inventories accumulated to 550,000 mt, expanding spot discounts to around 200 yuan/mt. Downstream purchases hardly occurred. As SHFE copper prices fell by daily limits in March and hit a four-year low, speculative dip buyers entered. Improved domestic consumption combined with industrial
accidents on the raw material end bolstered spot premiums to 150-200 yuan/mt in Q4. Strong demand lowered inventories for three consecutive months to a record low of 162,000 mt.
The opening of the import window drove large inflows of imported copper from Chile and Australia into the domestic market from June. Spot premiums stabilised around 100 yuan/mt and inventory accumulated to 338,900 mt.
The high season in Q4, together with lower imports since July lowered inventory to below 200,000 mt, bolstering spot premiums to 150 yuan/mt. Market participants refrained from entering the market at the end of the year, muting trading. Settlement across big companies amid limited liquidity resulted in spot discounts.
Overall supply will remain tight in the short term and sellers will thus obtain negotiation power over pricing in 2021. Trades will improve driven by long-term contracts for 2021. This combined with consumption improvements on the back of policy supports in new energy and real estate sectors should buoy spot premiums to a high level.
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