SMM: copper Market Prospect under the conversion of New and Old consumption momentum [Electrotechnical Summit]

At the 2021 China Electrotechnical Materials Industry Summit hosted by Shanghai Nonferrous Network (SMM), Ye Jianhua, director of SMM, looked forward to the copper market under the conversion of new and old consumption kinetic energy. SMM predicts that on the supply side, the tension in copper concentrate will gradually ease, turning into a surplus in 2022, and the growth rate of China's electrolytic copper production in 2022 is expected to slow to about 5% from 7% in 2021. On the consumption side, although consumption improved in the fourth quarter, it is relatively weaker than in the same period in previous years. Up to now, the support of traditional terminal consumption is deteriorating, and the low delivery volume of the national network leads to the weakening of cable consumption, and the copper consumption is not optimistic, but the new energy and photovoltaic field will bring new demand. SMM expects that due to the risk of macro liquidity contraction and a small oversupply of fundamentals, the focus of copper prices is expected to shift down to $8600 / tonne in 2022.

Global macro market

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.

There seems to be a downward pressure on the road to global manufacturing recovery. As measured by the appreciation of the US dollar, the absolute price of copper fell in terms of constant value (relative concept), while the depreciation of the US currency suppressed both purchase demand and demand. The appreciation of the US dollar has increased the willingness to produce in non-US copper regions, as copper is denominated in US dollars, the US dollar appreciates and production costs are reduced. Most of the copper-producing areas are in South America, Southeast Asia and other regions.

The high inflation data plunged the market into fears of economic "stagflation". The US CPI index has exceeded the target set by the Federal Reserve, recording a high of more than 5.0 per cent in a row. PPI continues to rise rapidly, and the upward pressure on upstream prices continues to be transferred to consumers.

The ISM manufacturing industry in the United States has seen a peak decline, but it is still resilient. The inventory of the leading manufacturing PMI in the ISM manufacturing industry in the United States has been about 8 months compared with the same period last year.

Supply shortages, soaring prices of raw materials, Europe is mired in an "energy crisis". The soaring prices of natural gas, thermal coal and crude oil have greatly pushed up the cost of power generation in Europe and the United States. As of October 17, the European electricity Trading Center data show that the average electricity price in most parts of Europe has exceeded 100 euros / MW hours.

Domestic manufacturing PMI new export orders fell back to the contraction range from May and accelerated in the third quarter, indicating a weakening of export support to the economy. The issuance of special bonds accelerated in the fourth quarter, and major projects were accelerated, laying out ahead of schedule for the growth of infrastructure investment next year.

PPI in the middle and upper reaches of the industry reached a new high, high raw material prices boosted upstream profits, and the processing profit space in the middle and lower reaches was seriously squeezed. In the face of downward pressure on the economy, monetary and credit policies are loosening steadily.

The tense pattern of copper concentrate is gradually alleviated.

China already accounts for half of the world's copper consumption, but the GAP between China and its own supply of electrolytic copper has not been effectively repaired, which means that China needs to import a large amount of electrolytic copper from overseas every year.

Over the past decade, the degree of self-sufficiency of Chinese copper concentrate has continued to decline, and the imbalance between supply and demand has gradually deepened. The degree of self-sufficiency of Chinese copper concentrate has dropped from 40% in 2010 to 23.5% in 2021. To meet China's copper consumption, China needs to be highly dependent on overseas copper raw materials.

Copper mine shipping interference relief, the gradual release of new expansion capacity, spot since mid-April TC low continued to rise. Medium-and long-term sulfuric acid is difficult to continue to support smelter profits, TC, RC profit share rebounded.

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SMM estimates that the new expansion of overseas copper concentrates will reach 1.1 million metal tons in 2022. The new expansion projects of major overseas copper mines will be concentrated in 2021-2023. It is worth considering that the global copper supply will face a major turning point in 2024 or 2025. The main driving force of the growth of domestic electrolytic copper production this year is still the increase in the supply of copper concentrate, but the smelting of recycled copper raw materials is the plate with the greatest marginal change. in the long run, the structure of raw materials in Chinese copper smelters will change. Starting from 2024, there will be more overseas roughing projects than the Chinese market, which may change the trend of the continuous growth of China's imports of copper concentrate into other forms of inflow into the Chinese market. The tight balance of global copper concentrate in 2021, taking into account the factor of disruption, is that the gap narrowed and turned to surplus in 2022.

SMM expects China's electrolytic copper production to increase by 650000 tons to 9.95 million tons in 2021, a growth rate of 7%. The growth rate will slow to about 5% in 2022, mainly due to the contributions of Huiying, Yangxin Hongsheng, Zijin and Dongying Fangyuan.

The import window closed in the first half of the year, and imports of electrolytic copper for the whole year are expected to fall sharply from last year's all-time high of 4.52 million tons. The import window was closed for a long time, and the global shipping capacity was tight, and the import of electrolytic copper decreased significantly in the second half of the year. Since mid-late June, the price has gradually improved, the popularity of the US dollar copper market has returned, and the import window opened in mid-August to stimulate the Yangshan copper premium to rise sharply.

Infrastructure projects VS consumer goods industry

Although consumption improved in the fourth quarter, it was relatively weaker than in the same period last year.

"Click to view SMM metal data

The low delivery volume of the Copper National Network has led to a weakening of cable consumption. In 2020, the investment in the Electroweb project fell by 6.2% and increased by 2.8% in 2021. 2021 State Grid plans to increase investment by 2.8%, but taking into account the rise in raw material prices, the resulting copper consumption is not optimistic. Electroweb investment during the 14th five-year Plan period is expected to be nearly 3 trillion yuan, although it is significantly higher than 2.57,2 trillion yuan during the 13th five-year Plan and 12th five-year Plan period and 17% higher than the total Electroweb investment during the 13th five-year Plan period. but the value of attention is the direction of investment and the pressure of unit consumption brought about by rising material prices.

Up to now, the support of traditional terminal consumption has deteriorated step by step. New real estate construction and cooling began in May, and without strict control of housing speculation, it will be difficult for real estate to support copper consumption in the long run. Export-boosted consumption since Q4 in 2020 has gradually begun to show pressure, and the problem of "lack of core" will also affect automobile production, but the actual consumption is also worthy of "concern".

The new energy policy is positive, and the increase in consumption in 2021-2025 is expected to drive copper consumption of about 5.65 million tons. Cheap access to the Internet represents that the cost of photovoltaic power generation is financially close to that of traditional energy, mainly fossil energy. With the reduction of electricity prices, the competitiveness of photovoltaic is becoming stronger and stronger, indicating that China's photovoltaic and wind power have entered a new stage.

In terms of recycled copper, high copper prices squeezed a large number of recycled copper channel inventory outflow in the first half of 2021, which added to the excessive expansion of recycled copper consumption in Jiangxi, aggravating and weakening the elasticity of recycled copper supply in the second half of the year. The virus is rampant to restrict the production and transportation of scrap copper in Malaysia, coupled with strict customs inspection, the amount of imported recycled copper is weaker than the previous month. In the first half of the year, the high copper price squeezed the inventory out of the channel, and the elasticity of supply weakened obviously in the second half of the year.

SMM expects that due to the risk of macro liquidity contraction and a small oversupply of fundamentals, the focus of copper prices is expected to shift down to $8600 / tonne in 2022.