SMM Review and Outlook of Copper and Aluminum Market in 2023-2024

At the 2023 (8th) SMM Electrical Materials Industry Annual Conference and Conductor Wire Industry Exhibition, the SMM Industry Research Department GM provided an outlook for the copper and aluminum market in 2024.

Macro
Manufacturing PMI of the world's major economies still shows relatively weak global economic recovery.

The global manufacturing PMI in October was 47.8%, ending the three consecutive months of upward trend. The global manufacturing PMI has been running below 50% for 13 consecutive months, and the global manufacturing industry shows a volatile downward trend. In particular, PMI performance in Europe performance was unsatisfactory.

The OECD predicts that as the global economic recovery remains fragile, the global economy will grow by only 2.7% in 2023, slowing expectations. Also, it expects two "moderate" interest rate cuts in the second half of 2024.

Fundamentals

Capacity, production, cost and profit
Variable is major newly expanded mines among global copper mines, and focus should be laid on refined copper production problems in 2025, stemming from tight copper concentrate.

In 2023, China's copper cathode production growth rate will continue to decline after exceeding a ten-year high.

The output of copper cathode is predicted from the aspects of China's incremental raw material source structure of copper cathode in 2023 as well as the estimated changes in copper cathode production by region in 2023.

Aluminum supply side: China's capacity has hit the ceiling, and the industry's operating rate is increasing YoY.

♦From 2013 to 2015, domestic aluminium industry experienced overcapacity, with the industry suffering losses and operating rate operating at a low level.
♦From 2016 to 2017, the National Development and Reform Commission and other three ministries and commissions issued Document No. 656, on the issuance of the "Action Plan for Cleaning up and Rectifying Illegal and Violating Projects in the Aluminum Industry" in April, withdrawing industry's illegal capacity.
♦From 2018 to 2019, with the gradual advancement of the domestic aluminum production capacity replacement project, the capacity has gradually returned to around 43.2 million mt.
♦Since 2020, capacity has been gradually transferred to Yunnan and other regions, and the domestic aluminum operating capacity reached its peak of 45.5 million mt.
♦Shandong, Xinjiang, Inner Mongolia and Yunnan are highly competitive in aluminium growth, accounting for 58% of domestic capacity.
♦The "3060" peak carbon dioxide emission target promises a broad prospect of low-carbon aluminum. The proportion of wind-solar powered aluminum capacity in Yunnan and western China will continue to increase, with an expected mass transfer of thermal powered aluminum in Shandong, Henan and other areas.
The overall water level in the upper reaches of reservoirs in Southwest China is better YoY, and aluminum production cuts decreased YoY.
♦The total power generation in Yunnan from January to August was 243.155 billion kWh, of which hydropower generation reached 176.550 billion kWh, down 13.9% YoY, accounting for about 73% of the total in Yunnan.
♦From January to September, Yunnan’s aluminum output reached 3.09 million mt, down 3.1% YoY. We see low probability of additional output cuts in Yunnan in Q4.

Highly Profitable Aluminum Smelter

In September 2023, domestic alumina continued to rebound, while electricity costs stabilized with slightly fluctuation. Coal price purchased by some self-owned power plants slightly increased MoM. The full cost of domestic aluminum reached 15,640 yuan/mt, up 0.51% MoM.
In January 2023, domestic average spot price of aluminum was about 19,538 yuan/mt, and the average industry profit was about 3898 yuan/mt, up 26% MoM and 268% YoY.

Import and Export
China's copper cathode imports from January to October in 2023 decreased by 5% YoY. In the long run, the decrease will continue due to the rising domestic production and falling financial attributes.

Specifically, from January to October 2023, China's copper cathode imports were 2.82 million mt. With falling financial attributes, the correlation between import volume and import profit and loss has further strengthened.

Aluminum import and export: The overseas aluminum ingot trade pattern has changed, and imports from Russian aluminum have increased.

♦According to customs data, China's total primary aluminum imports from January to Septembe 2023 were about 956,100 mt, up 163.93% YoY. Total exports were about 112,900 mt, down 41.31% YoY. The total net imports reached 843,200 mt, up 496.16% YoY.
♦On the country of origin, the main sources for China’s primary aluminium imports in September 2023 was the Russian Federation, India, Australia and other countries. Among them, the total amount of primary aluminum imported from the Russian Federation in September 2023 was approximately 152,900 mt, up 234.77% YoY and 16.58% MoM, accounting for 76.15% of the total domestic imports, ranking first.
♦The overseas aluminum ingot trade pattern has changed in 2023. The domestic aluminum ingot import window has been closed for a long time, but there is still an inflow of some Russian aluminum. Based on the long-term import orders as well as future changes in import profits and losses, SMM predicts that in 2023, the total net imports of primary aluminum may exceed 1.17 million mt.

Inventory
As the expected inventory buildup did not appear in 2023, copper cathode inventory at historic lows pushed the spot premium and SHFE backwardation structure strengthened.
Long-term low inventory sustained spot premium, but premiums came under pressure in October due to ample supply.

Downstream operating rates and consumption
In the first three quarters of 2023, the average operating rate of China's major copper semis industries was 70%, an increase of 3 percentage points YoY.

Trends of aluminum downstream operating rate: the extrusion sector is better than the same period last year, and the aluminum plate, strip and foil sector has improved MoM

Downstream monthly operating rate interpretation:
The average operating rate of aluminum extruders stood at 49.80% in September, up 1.35 percentage point MoM, and 10 percentage points YoY, SMM survey showed. The increasing order volume and operating rate of some large enterprises in September made up for the declining orders from small and medium-sized enterprises to a certain extent. Among them, the overall construction extrusion sector still had a strong off-season atmosphere. Driven by the policy of guaranteed housing delivery, demand from completed projects has recovered. However, affected by the collapse of major real estate developers, market confidence was insufficient. Coupled with the high fluctuations in aluminum price in September, the watch-and-wait sentiment in the downstream has become stronger and they were prudent on purchasing. In addition, the growth of industrial profiles has slowed down compared to August, mainly due to the decrease in demand for photovoltaic profiles. According to SMM research, downstream module manufacturers have accumulated inventory. Coupled with the recent surge in aluminum price, they have appropriately reduced purchases, giving priority to digesting the inventory in the factory. In the automobile profile sector, the order volume and operating rate of leading companies remained high.

Having entered the traditional peak season since September, many aluminum plate and strip companies reported that demand picked up somewhat seasonally. Large companies generally had orders in hand for about a month. The overall operating rate of the industry had subsequently increased, and the production departments of large and medium-sized enterprises had few holiday plans during the Mid-Autumn Festival and National Day holidays. In September, some downstream customers of packaging foil began to prepare goods for New Year's Day, Christmas and other holidays, which promoted a significant increase in packaging foil production and sales MoM. The operating rate in the industry increased as a result. On the other hand, the growth rate of battery foil in September was slightly lower than expected. Some companies reported that some battery foil companies began to destock again in September, and new orders decreased. October was still the traditional peak season, and the overall aluminum plate and strip market remained vigorous. However, a few companies reported that their new orders was weak, thus were particularly pessimistic about the market situation in November after entering the off-season. The annual aluminum plate and strip production is expected to decrease by about 5% YoY.

In the first three quarters of 2023, the export of copper-related products boosted China's copper consumption. Net exports of copper semis were 244,000 mt in physical content, an increase of 54,000 mt YoY.

In 2023, State Grid plans to invest more than 520 billion yuan mainly in aluminum conductors.

According to the annual procurement plan of State Grid, there will be 31 more bid projects in 2023 than in 2022, with UHV and smart power grid being the focus of investment this year. The construction of UHV will reduce the copper investment unit consumption of the State Grid.
It takes China for only 30 years to achieve carbon neutrality, which is much shorter than other developed countries.

Due to the tight time frame and high starting point, carbon neutrality is a big challenge for China.

As the pioneers of the industrial revolution, developed countries such as the European Union, the United Kingdom, the United States, Canada, Japan, and Russia have reached peaks, giving them enough time to achieve carbon neutrality by 2050.

However, it is more challenging for China to achieve carbon peak by 2030 and carbon neutrality by 2060, especially considering the reality of China’s high-carbon energy consumption structure and annual carbon emissions exceeding 10 billion mt.

In 2023, the new energy field and the home appliance sector will be the main growth forces driving copper consumption; real estate still exerts medium and long term pressure on copper and aluminum consumption, which will drag down related industries such as home appliances and traditional power for a long time; spanning from power generation, power transmission to power consumption, the new energy industry chain promoted the trend of incremental changes in copper consumption; new energy (fields such as photovoltaic power generation) has driven the proportion of aluminum used in electricity to exceed that in the construction field. The new energy field is the main engine driving the growth of copper consumption in the future.

Global copper cathode visible stocks have gradually recovered since mid-July

As global copper cathode production is expected to further increase, it will be difficult for consumption to support the decline in copper cathode inventories in the future.

The supply and demand balance in global copper cathode

The problem of copper supply falling short of demand is unavoidable in the medium and long term
SMM predicts that the main operating range of LME copper price in the next 2-3 quarters will be $7,500-8,400/mt, and SHFE copper will be 63,000-68,500 yuan/mt. In the second half of next year, copper price will start to rise again with expected strengthening liquidity and the restoration of market confidence.

Aluminum demand in photovoltaics and other new energy sectors fill the consumption gap in construction and aluminium semis exports
It is expected that the overall supply and demand of aluminum in China maintain a tight balance trend in 2023-2024.