Home / Metal News / [SMM Report] China Copper Market Review 2021 and Forecast

[SMM Report] China Copper Market Review 2021 and Forecast

iconFeb 10, 2022 13:27
Source:SMM
Looking back at 2021, the global economy recovered in the post-pandemic era. The copper prices experienced a sharp gain, and then moved rangebound for an extended period of time.

SHANGHAI Feb 10 (SMM) - Looking back at 2021, the global economy recovered in the post-pandemic era. The copper prices experienced a sharp gain, and then moved rangebound for an extended period of time. With the continued decline in new COVID cases and the lifting of the pandemic prevention and lockdown measures, the market was optimistic over the economic recovery in the first half of the year. At the same time, many countries still maintained low interest rates and loose credit.

The People’s Bank of China (PBoC) prioritised stability with paramount importance. The United States implemented a new round of bailout bills, and the $1.9 trillion fiscal stimulus bill expanded the market’s risk appetite and bolstered the market’s confidence. The continued economic recovery amid the broad global inflation expectations has provided upward momentum to the copper prices.

The copper prices rose in the first half of 2021, with LME copper prices hitting a record high of $10,747.5/mt. SHFE copper prices surged and hit 78,270 yuan/mt, the highest since May 2006. The domestic copper consumption was poor against the record-high copper prices in the first half of 2021. And the “pessimism" of the industry chain was transmitted from the upstream to the downstream sectors. The cash flow issues of enterprises intensified, and the terminal consumption was suppressed. The downstream operating rates were well below those in the same period of previous years. The spot discounts remained for an extended period of time amid the high social stocks.

The US Federal Reserve as well as the central banks in Europe have been continuously managing market expectations since June 2021. The market expectations for a tapering of bond purchases and early interest rate hikes grew after the inflation and unemployment rate have met the Fed’s expectations. The US dollar entered an upward track amid a stronger hawkish tone of the Fed and the approach of a pivot of the global liquidity.

In order to control the gains in the commodity prices and mitigate the impact of the high copper prices on downstream demand and terminal consumption, the National Food and Strategic Reserves Administration (NFSRA) begun to offer copper reserves since early July, and the total volume in the three copper reserves offerings stood at 110,000 mt. In this scenario, the copper prices moved at low levels. The copper prices returned to an upward track in October.

The intensifying global energy crisis caused inflation concerns. And LME copper staged a short squeeze, with the proportion of cancelled warrants reaching as high as 92.2% at one point, lowering the inventory available to the lowest level since 1974. The inflation expectations and low inventory bolstered the copper prices to a high of 76,330 yuan/mt. With the domestic intervention in the coal prices in late October, the prices of industrial products fell across the board, and the copper prices also fell to the previous level.

The supply of imported cargoes in the market was tight at the year-end, and the inventory remained low. On top of that, the suspension of the issuance of value-added tax (VAT) invoices by the customs left the input invoices scarce, pushing the spot premiums to exceed 2,000 yuan/mt, the highest in a decade. Market transactions entered a stalemate. However, the high premiums quickly dropped, and the emergence of the Omicron COVID variant put the global market on edge. The risk aversion sentiment pushed up the US dollar index, and the copper prices returned to below 70,000 yuan/mt.

As the impact of the COVID weakened, the market's focus returned to overseas macro policies. The expectations of early interest rate hikes amid inflation concerns have restrained copper prices, but the current low inventories underpinned the copper prices. The copper prices will remain rangebound as the inventory has not seen a pivot.

China Copper Market Review 2021

The bull commodity market in 2021 has basically come to an end. The LME copper prices hit a high of $10,747.5/mt in 2021.

The Federal Reserve managed the market expectations over the tapering of its bond purchases at the FOMC meetings since the middle of the year. The high inflation has turned the Fed and the European Central Bank (ECB) from a dovish to a hawkish stance, suppressing the prices of major assets to a certain extent.

In China, the NFSRA offered copper reserves in three batches to the market in mid-2021 to curb the rapid gains in commodities prices, and the measures paid off, thanks to the fact that the NFSRA built up reserves in large volumes in 2020.

Accurate and sustainable fiscal policies, flexible and appropriate monetary policies as well as benign regulations of real estate under the background that houses are for living in, not for speculation were confirmed at the meeting of the Political Bureau of the Central Committee of the CPC at the end of 2021. This will ensure rational and sufficient domestic liquidity in 2022.

On the fundamentals, the inventory is expected to rise slightly in 2022 and 2023 in view of the release of large volumes of new and expanded smelting capacity in two to three years. The market shall watch the contribution of the new energy sector to the overall marginal growth of copper consumption.

The domestic new smelting capacity will increase by 660,000 mt/year in 2022, including Daye Nonferrous’s (Yangxin Hongsheng) 400,000 mt/year new capacity in Q1, the 180,000 mt/year new capacity at Zhongtiaoshan Nonferrous Metals’ Northern Copper which is expected to be commissioned in Q4 as well as the 80,000 mt/year technologically upgraded capacity at Tongling Jinguan in Q2. The increment of copper cathode output in 2022 will mainly come from the 300,000 mt/year capacity at Dongying Fangyuan which was resumed by the end of November 2021, which will reach full production in the first quarter of 2022.

The slight ample supply of copper concentrate amid the concentrated release of new capacity at global mines is expected to bolster TCs/RCs in 2022. This, combined with the profitable production of sulphuric acid, is expected to increase the domestic copper cathode output by over 4.5%.

On the consumption front, the overall financing demand and financing amount will hardly see a significant increase in 2022 after some domestic real estate companies have undergone debt issues. The market will focus on the new housing completions which was depressed in 2021, but the floor spaces of new housing starts are expected to remain sluggish under the requirements of that houses are for living in, not for speculation.

The overall copper consumption by home appliances is expected to decrease slightly due to the potential decline in export orders and the potential growing substitution of copper with aluminium. The infrastructure and new energy sectors will be the key driving force for copper consumption in 2022.

It was proposed at the Central Economic Work Conference to moderately advance infrastructure investment, and the Conference set the tone for stable infrastructure construction in 2022. The new energy consumption will maintain a high growth rate driven by new energy vehicles (NEVs), photovoltaics and wind power.

In the long run, it will be difficult to find expansion of smelting capacity in China after 2023, while the refining capacity will keep growing. And the domestic raw material structure will change. The copper scrap and copper anode market will gradually become the focus of markets. In terms of imports, Europe and Malaysia have introduced related policies.

But according to the market’s feedback, there was an only short-term impact of the policies. The resumption of work and the production of the recycling and dismantling systems in Europe and the United States after the impact of the COVID diminishes will translate into a steady growth in the overall supply of copper scrap.

The domestic copper scrap inventory has declined rapidly amid rising copper prices. In the absence of a mature recycling and dismantling system in China, the domestic copper scrap supply can hardly see substantial increase in the short term. And the substitution of copper cathode by copper scrap will depend on the volatility of copper prices.

In general, the domestic copper consumption will see slow growth from 2022 to 2023, and there will be a slight surplus in the domestic copper cathode market. The new energy sector will boost the growth of copper consumption during 2024-2025, and the domestic raw material side will face a structural transformation.


To access full SMM China Copper Industry Chain Annual Report 2021-2025, please contact Michael Jiang at michaeljiang@smm.cn or T: +86-21-51666812 |M:+86-1522-1415-920.

copper

For queries, please contact Lemon Zhao at lemonzhao@smm.cn

For more information on how to access our research reports, please email service.en@smm.cn

Related news