SHANGHAI, Jan 10 (SMM) - SHFE copper prices closed at 66,260 yuan/mt on December 30, 2022. In 2022, copper prices surged before plunging, with a roller-coaster ride seen during the year.
Prices rose to as high as 77,270 yuan/mt in March 2022, and dropped to a low of 53,400 yuan/mt in July. The most active SHFE copper contract fell by 3,860 yuan/mt or 5.5% in 2022.
The SMM average daily spot price of #1 copper cathode stood at 69,840 yuan/mt on January 4, 2022 and closed the year at 66,185 yuan/mt. The spot price dropped by 3,655 yuan/mt in 2022, a decline of 5.23%.
SMM reported that #1 spot copper traded with a daily average premium of 520 yuan/mt on April 18, 2022, the highest in the first half of the year. According to the survey then conducted by SMM, the accumulation of imported and exported cargoes at ports resulted in high costs of port storage and demurrage. In addition, pandemic control weakened the efficiency of customs clearance and transportation. On October 18, 2022, the SMM annual average daily premium of #1 copper cathode reached the highest for the year of 880 yuan/mt. SMM believed at the time that the continuous increase in inventory would not sustain high premiums. Downstream buyers pushed for lower prices, and the overall trading was subdued.
Annual copper output increased 3.07%
According to the latest SMM data, China's copper output in December 2022 was 870,000 mt, down 3.3% month on month, and flat year on year. This is 17,900 mt lower than the expected 887,900 mt. The output totalled 10.28 million mt from January to December, a year-on-year increase of 3.07% or 306,200 mt.
In December, domestic copper cathode output fell month on month and was lower than expected. This is due to the following reasons: 1. Four smelters were undergoing maintenance in December, and the impact of maintenance on production was more than expected. 2. Affected by the COVID-19 pandemic, the output of some smelters also missed expectations. 3. The output growth contributed by two newly commissioned smelters was lower than expected. 4. Some smelters that had met their output targets for 2022 ahead of schedule controlled production in December.
SMM predicts that the output growth was mainly contributed by higher output with copper concentrate, followed by the improvement in logistics in Africa and higher copper anode production in Africa. The growth of copper anode imports was 200,000 mt higher than in 2021, securing raw materials of domestic copper cathode output. Notably, however, the supply of copper scrap declined sharply in 2022 due to the pandemic and precipitous declines in copper prices.
According to SMM statistics, domestic social inventory of copper cathode grew before falling, with the inflection point of inventory in mid-March. As of Friday December 30, the domestic copper inventory totalled 98,000 mt.
The total domestic social inventory has fallen since March, and has been at a historically low level. This has bolstered the backwardation structure of SHFE copper in as the spot premiums. The power rationing in August took a toll on both the supply and demand of copper cathode, and the impact on consumption was even greater.
SMM believes that the substantial depletion of inventory was mainly attributable to the supply side. The output of domestic smelters missed expectations. Imports were also limited. The long closed import window in the first half of the year kept imports at low levels. The consumption failed to lower domestic inventories until the second half of the year, which picked up amid tight copper scrap supply and improved end-user demand.
Review of copper market consumption in 2022
In recent years, power supply investment has become the key driver of copper consumption, and the power grid have hardly performed well. State Grid planned to increase investment by 1.2% in 2022, but this failed to boost copper consumption significantly due to higher raw material prices. Affected by the COVID-19 pandemic, some State Grid’s and local projects have been deferred to 2023, and the delivery volumes to the State Grid declined substantially. Orders of new energy related cable industries grew during the year.
Copper consumption driven by real estate is in a downward trend, dragging home appliances and other related industries for a long time. The real estate chain related plumbing and bathroom sectors as well as home appliance sector reported no significant improvement, and the operating rate of copper pipes was weaker than that of the same period of 2021. Copper pipe plants said that positive news from the real estate industry have boosted market confidence, but it will take time for relevant policies to pay off. Market pessimism is unlikely to improve any time soon.
The performance of traditional automobile and electronics industries was poor, while the new energy industry remained brisk. SMM understood that the average amount of copper used in new energy vehicles is around four-fold that of traditional vehicles. In October 2022, the output of NEVs grew slower and totalled 768,000, a year-on-year increase of 106%. Concerns over subsidy reduction policy drove automakers to rush to install batteries in September and October 2022, pushing up the prices of battery-grade lithium carbonate. Expectations of weaker demand and the pressure from raw materials have slowed the growth in the consumption of the NEV industry.
Copper prices to fall before rising in 2023
From a fundamental point of view, SMM expects that the supply of copper concentrate will be large in 2023, and overseas copper smelting capacity will contribute to output after 2024.
SMM expects that the raw materials of copper would be produced into finished copper products before flowing into the Chinese market. The supply of blister copper would be a key factor affecting copper cathode supply in 2023. The weakening of domestic and overseas copper demand in the first half of 2023 will put downward pressure on prices.
On the whole, SMM believes that under the influence of factors such as macroeconomic expectations, stronger demand and changes in fundamentals, copper prices would fall and then surge in 2023.
