Copper prices hit an all-time high, stocks plummeted next year, and how the contradiction between supply and demand evolves depends on what the major investment banks say! [annual Review]

In a twinkling of an eye, 2021 is over, and at the beginning of this year, the transition of power in the United States is close to a smooth transition, and market expectations for more stimulus policies for the Democratic Party in the future continue to rise, which has given favorable support to copper prices at the macro level to a large extent in 2021. On the other hand, copper prices continue to rise on the support of tight copper supply, low inventories and good expectations of the global economy for an improvement in the epidemic. Next, let me review the copper market for the whole year!

Price trend

In 2021, after the trend of three-month futures of LME copper fluctuated slightly at the beginning of the year, it began an upward trend. In a short period of one month from the beginning of February to the end of February, Lunchu boosted its price from around 7800 US dollars / ton to more than 9600 US dollars / ton, with a monthly increase of 23%. Since then, the price has stabilized somewhat, operating around 9000 US dollars / ton as a whole. In mid-April, Lunchu started the upward mode again and continued to rise. It reached 10747.5 US dollars per ton on May 10th, an all-time high. Copper prices then fell back and returned to the range of $9000 / tonne-$10000 / tonne until October ushered in another rise, returning to a high of $10000 / tonne, hitting a peak of $10452.5 / tonne, but then stopped the rally. Fall back with fluctuations in the range of $9000 / tonne-$10000 / tonne. Throughout 2021, the rise in copper prices was mainly due to the great impact of the epidemic on the production and transportation of copper mines. While the supply was insufficient, the demand for copper recovered rapidly, and the continued decline in inventories provided support for copper prices. Entering the second half of the year, with the continuous release of new production capacity, copper prices as a whole tend to stabilize.

The main contract of Shanghai Copper is basically in line with the overall trend of Lun Copper for the whole year, with the main contract of Shanghai Copper hitting an all-time high of 78270 yuan per ton in early May, up as much as 35% from the beginning of the year. Followed by a decline, the overall shock operation, hit 76700 yuan / ton in mid-October, setting another high of the year. Since then, it closed above 70000 yuan / ton on December 31.

Spot market, since the beginning of the year, SMM copper electrolysis in the macro, foreign ore supply disturbances and demand growth under the influence of a rise. The average price of SMM copper electrolytic copper rose from 58055 yuan / ton at the beginning of 2021 to 69920 yuan / ton today (31st), an increase of more than 20%, and the highest increase for the year was 30%.

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Relationship between supply and demand

The latest data released by the World Bureau of Metal Statistics (WBMS) show that there is a supply shortage of 188000 tons in the global copper market from January to October 2021 and 691900 tons in 2020. By the end of October 2021, the reported inventory (including LME cancellation warehouse receipts) was 133800 tonnes lower than the level at the end of December 2020. The net deliverable inventory in Shanghai was 25800 tons, while the COMEX inventory decreased by 18100 tons. Demand is measured in terms of apparent data, and blanket blockades may affect trade statistics. Global mine copper production from January to October in 2021 was 17.69 million tons, an increase of 4.6 per cent over the first 10 months of 2020. Global refined copper production from January to October was 20.38 million tons, an increase of 1.3% over the same period last year, with significant increases in China (+ 258000 tons) and India (+ 115000 tons). Global copper demand from January to October in 2021 is 20.57 million tons, compared with 20.7 million tons in the same period in 2020. In the same period, Chinese demand was 11.27 million tons, down 7.3 per cent from the same period in 2020. Global refined copper production in October was 2.0667 million tons, with a demand of 2.0715 million tons.

Domestic inventory: according to SMM statistics, the total inventory of SMM society (including bonded) was 274200 tons on December 31, 2021. Since the beginning of the year, the total inventory of SMM society has increased, reaching a high of 756400 tons in late May, but then stocks began to decline continuously, hitting a historical inventory low of 254800 tons at one point, and stocks fell by as much as 66% during the year, and stocks began to rise recently. The reason for continuing to go to the warehouse in the second half of the year is mainly due to the fact that the smelter entered an intensive maintenance period after July and many of them were overhauled, and encountered power cuts, as well as narrowing the price difference between refined waste and copper, and reusing electrolytic copper downstream.

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As for LME inventory: different from the trend of domestic inventory, LME inventory began to decline after reaching a phased high in mid-April after rising at the beginning of the year, and began to increase after reaching a low in mid-May. In late August, LME electrolytic copper inventory reached a high of 251450 tons this year, and then continued to go to the warehouse. On December 7, LME electrolytic copper inventory was only 74225 tons, a decrease of as much as 70% in a short period of more than three months. LME copper once staged a storm of overcrowding, but then copper inventories rose, with LME electrolytic copper inventories of 89375 tons on December 30th, an increase from its low.

On the other hand, the SMM copper concentrate import index also reflects the supply situation during the year. In 2021, the SMM copper concentrate import index experienced a 'roller coaster'. Affected by the tight supply of copper concentrate at the beginning of the year, TC continued to decline, reaching a low of $29.57 / ton in mid-April, but as more new production capacity was put into production, the copper concentrate supply situation improved. The TC index of copper concentrate imports rose all the way, reaching $65.52 / ton on October 15 and declined slightly recently. On December 31, the SMM copper concentrate import index was 62.90 U.S. dollars per ton, up 112.7 percent from the low of the year, which also reflects the increasing trend of copper concentrate supply.

Prospect of Copper Market in 2022

The long unit processing fee for copper concentrate in 2022 was set at $65 / ton, ending six consecutive declines and an increase of $5.50 / ton compared with 2021. The increase in long order processing fees for copper concentrate reflects the expectation that the overall copper supply will remain loose next year under the background that the expansion of existing mines and new mines will lead to an increase in copper production. However, it is still necessary to pay attention to the short-term disturbance of copper mines in Chile and Peru and the lower-than-expected increase in the production of existing mines.

According to SMM, the global copper concentrate is still in tight balance in 2021, and China's electrolytic copper production is expected to increase by 650000 tons to 9.95 million tons in 2021, a growth rate of 7 per cent, slowing to about 5 per cent in 2022. In terms of recycled copper, the high copper price squeezed out the channel inventory in the first half of the year, and the supply elasticity weakened obviously in the second half of the year. On the demand side, the red warning of "double control" in many places in China in 2021 began to shift from damage supply to consumption. The manufacturing industry in developed countries in Europe and the United States is gradually recovering and the sea freight is rising, and the export power is weakening. In addition to the electronics industry, new energy and other areas, there are no obvious bright spots in domestic demand. It is expected that in 2022, under the dual pressure of weakening real estate and exports, China's consumption will be weaker than that of overseas markets. at the same time, in the face of shrinking liquidity and loose copper supply around the world, the focus of copper prices will shift down to around US $8600 / ton. the focus of domestic operation is about 63500-64000 yuan / ton.

The supply of electrolytic copper in Guangdong is expected to increase by 162000 tons in 2022, and the impact of copper scrap will be 142000 tons. In 2022, the demand for electrolytic copper in Guangdong will increase by at least 200000 tons, and optimistically, it can increase by 243000 tons. As a result, SMM expects a supply gap of at least 38000 tons to a maximum of 101000 tons. In terms of the balance of supply and demand, SMM expects both long-term and zero-order prices to rise in 2022 compared with 2021; in view of the rising trend, it is reported that the willingness to sign long orders in 2022 is generally higher than last year.

From the perspective of raw materials, the supply and demand of scrap copper is tight, and the price difference between electrolytic copper and bright copper narrows. From the point of view of the finished product, the supply and demand of waste copper is tight, and the price difference between recycled copper rod (low oxygen rod) and electrolytic copper rod (oxygen free rod) narrows. SMM believes that the recycled copper rod industry capacity supply has been gradually saturated, close to excess, insufficient supply of raw materials, manufacturers of raw materials competition will be more intense. When copper prices fall, the general price of scrap copper will resist falling, leading to a narrowing of the fine waste price gap. With the expected decline in copper prices next year, the fine waste price spread may not be ideal. Therefore, there is a risk of continuous loss in production in the recycled copper rod industry next year, resulting in a reshuffle.

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Institutions look at the market

ANZ predicts that the price of copper will stay at US $9500-10000 per ton in 2022; the production and sales of lithium copper foil are strong, and manufacturers are intensive to expand production.

(ICSG), an international copper research group, predicts that the global refined copper market is expected to be oversupplied by 328000 tons in 2022.

Edward Meir, an analyst at ED&F Man capital markets, predicts that the supply glut in 2022 is based on the assumption that refined copper production will increase by 3.9 per cent, the biggest increase in eight years, and copper demand is expected to increase by 2.4 per cent.

Daniel Briesemann, commodities analyst at (Commerzbank), a German commercial bank, reiterated expectations of adequate supply in the global copper market in 2022, "so the market is likely to catch its breath before it may later turn into a structural supply shortage."We believe that the expected glut should offset the sharp rise in prices. We expect prices to withdraw moderately as supply improves. Copper prices will be at $9500 a tonne by the end of next year."

British broker Liberum, forecasts copper prices of $7800 a tonne in 2022 and $6698 a tonne in 2023

Standard Chartered Bank (Standard Chartered), forecasts copper prices of $9150 a tonne in 2022 and $8300 a tonne in 2023.

"with low inventories and relatively light positions, copper is likely to continue to fluctuate and vulnerable to macro fluctuations, while Malaysia's new regulations are tightening the scrap metal market," MORGAN STANLEY said. We believe that as supply grows faster than demand, supply will turn into a surplus and prices will fall in the second half of 22. "

Qiu Zuxue, general manager of the Investment Center of Societe Generale Securities Institute of Economics and Finance / chief analyst of metals and new materials, said that in 2021, the global demand for copper for new energy vehicles, domestic charging piles and domestic wind power photovoltaic is 41, 1 and 1.14 million tons respectively; while from 2021 to 2023, the demand for copper in emerging fields is 156,178 and 2.04 million tons respectively. It is estimated that the proportion of total copper demand is 6.44%, 7.15% and 7.92%, respectively.

Chen Xinzhi, group vice president of Foshan Nanhai Yucheng Metal Investment Co., Ltd., said that the short-term supply of recycled copper continues to be tight. In the long term, the epidemic will be further brought under control, the US infrastructure will be restarted and household appliances will be upgraded, and the global copper supply will accelerate, and the average annual copper regeneration will reach 35-400000 tons after 2022.

"the long-term outlook for copper remains bullish, but compared with this year, the market looks set to pause next year," said Karen Norton, a senior base metals analyst at Refinitiv, who expects copper to run a modest surplus next year.

Goldman Sachs said fears of a property slowdown in China had been exaggerated, saying gains from investments in electric cars, renewable energy and Electroweb outweighed policy easing in real estate and machinery. Mine supply is expected to grow 3.9 per cent to nearly 22 million tonnes next year, with a projected 328000 tonne surplus in the refining market, according to the International Copper Research Group.

Bank of America expects demand to remain strong next year and not run a surplus until 2023. It expects the average price to be $9813 a tonne next year and $8375 a tonne in 2023.

Demand for copper in decarbonization efforts will increase, JD Morgan forecasts that copper will account for more than 40 per cent of total demand growth in the 25 million-tonne market next year. JD Morgan predicts that the total demand for copper in the energy transformation will increase from 1.8 million tons this year to more than 3 million tons in 2025.