Key Takeaway from SMM Motor Annual Conference: Copper Prices More Likely to Rise than Fall, While Aluminum Price Volatility May Be Lower than Copper

On December 4, at the main forum of the IEMC 2024SMM (4th) Motor Annual Conference and Industry Chain Expo, hosted by the National Engineering Research Center for Precision Micro-Special Motors, SMM Information & Technology Co., Ltd., Ningbo Zhaobao Magnetics Co., Ltd., and Zhejiang Electric Drive Innovation Center, Ye Jianhua, GM of SMM Industry Research Department, shared the analysis of motor raw materials—copper and aluminum metal prices and market trends.

Macro Front

H2 2024 Global Major Economies' Manufacturing PMI Showed Weak Performance

He introduced the recent years' manufacturing PMI of major global economies, US CPI data, LME copper and US dollar index trends, and the copper/gold ratio.

Exports Became an Important Engine for Boosting China's Economy

He elaborated from the perspectives of China's real estate development investment, China's total export value (in US dollars), China's CPI, China's export growth rate YoY 3-month moving average, South Korea's export growth rate YoY 3-month moving average, and Vietnam's export growth rate YoY 3-month moving average.

Incremental Policy Effects Begin to Show, M1 and M2 Both Rose in October

In October, the growth rates of M1 and M2 both rose, with the effects of a series of incremental policies beginning to show, consumer confidence improving, and the economy expected to solidly improve.

Government Debt Financing Increased Less YoY on a High Base, Social Financing Growth Rate Declined in October. Resident loans benefited from the National Day holiday and the reduction of existing mortgage rates, reducing early repayments and achieving some recovery.

Net Long Positions in Copper Gradually Returned to Q1 2024 Levels

The uncertainty in the macro environment led investors to mainly retreat and observe in the copper market.

Supply

Spot Copper Concentrate TCs to Chinese Smelters Turned Negative, Severely Worsening Smelting Profits for Spot Copper Concentrate Procurement, and Raising the Risk of Declining Operating Rates in Chinese Smelters

He analyzed from the perspectives of spot copper concentrate TCs, blister copper RC, the break-even point for imported copper concentrates in copper smelting, and the estimated available copper concentrate inventory in Chinese copper smelters.

The Main Incremental Supply of Global Copper Concentrates Comes from Expansion Projects, and the Incremental Supply of Global Copper Mines Will Decrease Year by Year in the Coming Years

The future incremental supply of global copper concentrates mainly comes from existing copper mine expansion projects. The number of newly commissioned world-class copper mine projects is not only limited, but these new projects are also difficult to drive incremental supply of copper concentrates. Large-scale copper mine projects available for development are becoming increasingly rare worldwide.

The Concentrated Commissioning of Global Smelting Capacity Has Greatly Aggravated the Tight Copper Concentrate Supply Situation, and Some Smelters Will Face a "Raw Material Shortage" in 2025

He mentioned that the growth rate of global copper concentrate supply is gradually declining, Chinese smelting capacity is facing challenges, and next year will be a survival battle for copper plants. Secondary copper raw materials have a significant impact on the industry balance sheet, and the proportion flowing to smelting may further increase in the future.

The Tight Copper Concentrate Cycle Is Coming, and Global Smelters Are Entering a Harsh Winter Period

In 2023, the long-term TC was $88/mt, in 2024 it was $80/mt, and by mid-2024, the long-term TC had fallen to a low of $20.

Secondary Copper Raw Materials Are Increasingly Impacting Both Supply and Demand Sides of Copper Cathode, Especially in Indirect Utilization Fields

He introduced: Domestic copper scrap supply fell 7.4% YoY from January to October 2024, while copper scrap imports increased 15.9% YoY from January to October 2024.

By 2030, China's Total Copper Scrap Supply May Reach Nearly 5 Million Metal Content, with Domestic Supply Being the Main Contributor, Providing Some Raw Material Assurance for Copper Cathode Production

He analyzed from the perspectives of the accelerated rise in China's copper scrap supply, SMM China's copper cathode production, and the SAVANT copper global dispersion index.

Hot Topic: Alumina and Power Costs Both Increased, and the Real-Time Full Cost of Aluminum Exceeded 21,000 yuan/mt

►According to SMM's calculation based on the weekly average prices of raw materials such as alumina this week and the weekly average price of SMM A00, based on full cost calculation, 27.66 million mt of aluminum capacity is currently operating at a loss, accounting for 63.41% of the total domestic operating capacity; based on cash cost calculation, 9.16 million mt of aluminum capacity is currently operating at a loss, accounting for 21% of the total domestic operating capacity.

Aluminum Semis Export Tax Rebate Canceled, Overseas Regular Stockpiling in November Expected to Maintain Positive Export Growth, and Exports Expected to Decline from December to February Next Year

►According to the latest data from the General Administration of Customs: In October 2024, China's export volume of unwrought aluminum and aluminum semis was 577,000 mt, up 2.7% MoM and up 31.1% YoY; the cumulative export volume from January to October was 5.49 million mt, up 16.9% YoY.

►In Q4, overseas aluminum end-use regular stockpiling is expected to continue to slightly increase aluminum semis exports on both a MoM and YoY basis, with attention needed on changes in overseas aluminum semis tariffs.

Copper Inventory Buildup in China Exceeded Expectations, SHFE Copper Contracts Maintained Weak Backwardation Structure at the Near End

He analyzed the reasons for the unexpected copper inventory buildup in China, including price suppression, copper scrap return, and high import arrivals, from the perspectives of total domestic social inventory, SHFE copper contracts (near-month to second-month), total social inventory (including bonded), and SMM #1 copper cathode premiums and discounts.

Short-Term Domestic Aluminum Ingot Destocking Came to an Abrupt Halt, Attention Needed on the Impact of Rising Proportion of Liquid Aluminum and Export Tax Rebate Cancellation on the Consumption Side

►Entering November, although domestic aluminum ingot continued the strong destocking trend since the "September-October peak season" in the first week, the outflows from warehouses in major consumption areas showed a downward trend. Since late October, the cumulative outflows from warehouses have decreased by about 10,000 mt to 112,100 mt. Meanwhile, due to the improvement in railway transportation in Xinjiang in early November compared to late October, various stations began to dispatch cars successively, and the in-transit goods to Gongyi, Wuxi, and other places increased significantly MoM. It is expected that after the arrivals in mid-November, there will be some pressure on inventory.

►As of November 11, 2024, SMM statistics showed that the domestic social inventory of aluminum ingots was 576,000 mt, and the domestic circulating inventory of aluminum ingots was 450,000 mt, with an inventory buildup of 13,000 mt compared to last Thursday. The short-term inventory inflection point has already formed. On a YoY basis, although the current domestic aluminum ingot inventory is still at a low level for the same period in the past five years, the difference from the same period last year has slightly narrowed to 112,000 mt, and it is on par with the inventory in the same period in 2022. SMM believes that although the transportation situation in Xinjiang has been fluctuating, with the off-season combined with the suppressive effect of high aluminum prices on outflows from warehouses, the domestic aluminum ingot inventory may find it difficult to maintain its current advantageous position, and its support for the performance of futures and spot prices may weaken.

Demand

Power System - Power Grid Investment Increased 20.7% YoY from January to October 2024, and Power Supply Increased 8.3%

With high copper prices, the power system has become very sensitive to copper prices. He elaborated in detail from the perspectives of power grid infrastructure investment, power supply infrastructure investment, aluminum delivery volume, and copper delivery volume.

Consumption Driven: Power Supply, Transmission, and Energy Storage Sectors Simultaneously Boost Aluminum Consumption

Transmission + Energy Storage:

Transmission side, with the demand from State Grid construction, aluminum wire and cable production steadily increased. According to SMM's calculations, the production of aluminum wire and cable reached 3.6 million mt in 2023, consuming 2.88 million mt of aluminum; the production of aluminum wire and cable is expected to be 3.82 million mt in 2024, consuming 3.06 million mt of aluminum.

Energy Storage Sector.

Additionally, some supercharging piles on the market currently use up to 40 kg of aluminum per unit, but due to cost considerations, steel remains the dominant material for charging piles.

Real Estate Continues to Exert Medium and Long-Term Pressure on Copper and Aluminum Consumption

Real estate consumption is unlikely to improve in the short term, with the market mainly digesting existing inventory and limited momentum for new housing. Policy efforts are expected in Q4. In the short term, domestic construction is in a recovery season, but the long-term pressure on copper and aluminum consumption remains.

Home Appliances Continue to Bring Incremental Copper and Aluminum Consumption in 2024

In mid-to-late October, with the increase in production schedules of major manufacturers, orders exceeded expectations. The trade-in policy for home appliances significantly boosted the market, and air conditioning companies actively scheduled production. Additionally, with frequent favorable real estate policies throughout the year, some companies expressed expectations for a real estate market recovery, heating up the household copper pipe & tube sector.

Domestic and Export Sales Simultaneously Drove the Copper Pipe & Tube Industry's Operating Rate Up in November. With Trump's election victory, there was front-loading of orders overseas. Considering the Christmas holiday in December, domestic export orders in November are expected to further increase.

New Energy Is One of the Core Drivers of Global Copper and Aluminum Consumption Growth

He elaborated from the perspectives of China's installed PV capacity from 2018 to 2024, China's NEV production from 2018 to 2024, China's cumulative wind power generation from 2019 to 2024, and the global trend of copper consumption in new energy.

Consumption Driven: Lightweight Demand in NEVs Boosts Automotive Aluminum Consumption

►Taking automobiles as an example

In all-aluminum vehicles, the proportion of aluminum materials and parts by mass is typically 50% for flat-rolled products, 20% for extrusions, 27% for castings and die-castings, and 3% for forgings.

Additionally, NEVs drive the development of derivative demand—charging piles. Some supercharging piles on the market currently use up to 40 kg of aluminum per unit, but due to cost considerations, steel remains the dominant material for charging piles.

Consumption Driven: Aluminum Consumption in New Energy Continues to Increase

In the end-use consumption of aluminum, the construction, transportation, and electronics industries account for nearly 70% of the total. In 2022, domestic aluminum consumption in construction was significantly affected by the weak real estate market, showing a noticeable YoY decline. However, with the strong policies to ensure timely delivery of housing projects in 2023, domestic aluminum consumption in construction is expected to support overall domestic aluminum consumption, with annual construction aluminum consumption expected to grow 1.5% YoY. However, entering 2024, due to the significant decline in new real estate construction area in the previous period, the growth expectation for construction aluminum consumption in the coming years is limited.

2024 is expected to be a year where domestic aluminum consumption continues to tilt towards the new energy sector. The expected growth in global PV installations and the increasing penetration rate of NEVs will drive YoY growth in aluminum applications in transportation and power sectors.

The new energy sector is the main engine driving future copper consumption growth. Caution is needed regarding lower-than-expected unit consumption and growth rates.

It discusses from the perspectives of the proportion of China's end-use copper consumption and the estimated growth rates of copper consumption in various end-use sectors in China in 2024.

Global Copper Cathode Supply-Demand Balance: Medium and Long-Term Copper Undersupply Is Unavoidable

Considering global copper cathode production, global copper cathode consumption, adjusted supply-demand balance, and global visible inventory data, and taking into account the steady growth in demand from Southeast Asia and the expected growth in demand from South America and North America, SMM expects the demand side for copper to maintain a YoY growth trend. Given the bottlenecks on the supply side, next year will see no shortage of copper cathode but a shortage of copper ore. The ore deficit will eventually impact the copper cathode market, so in the long term, copper prices are expected to trend upward.

Constrained by Capacity Ceiling, Domestic Aluminum Supply Growth Slows While Overseas Aluminum Supply Growth Increases

►For the full year of 2025, domestic supply is gradually approaching the ceiling, with production growth narrowing to around 2%. Meanwhile, the development of new energy and other sectors will continue to boost primary aluminum consumption, although aluminum for traditional construction is expected to decline. SMM expects a 1.3% increase in aluminum consumption for the full year of 2025. Additionally, SMM anticipates a small deficit in domestic aluminum supply and demand next year due to net imports of primary aluminum, but the pressure from new capacity put into operation in Southeast Asia will persist, potentially leading to a slight surplus of foreign aluminum in China. Globally, the supply-demand balance in 2025 is expected to maintain a slight surplus, and attention should be paid to policy adjustments regarding carbon emissions in the aluminum industry.

In summary, for the future market of copper and aluminum, considering the capital market's tendency to trade on positive expectations in advance, the futures market will also reflect future macroeconomic expectations ahead of time. On the macro front, multiple countries in Europe and the US are cutting interest rates, creating a relatively loose global monetary environment. 2025 marks the final year of China's 14th Five-Year Plan, and there are high expectations for China's fiscal and monetary policy space next year. On the demand side, the new energy sector continues to drive positive growth in copper and aluminum demand. Besides Europe, copper consumption in China, Southeast Asia, the US, and South America is maintaining overall positive growth. If Europe's demand remains stable, growth in other regions can still positively boost global copper cathode consumption. With the supply of copper concentrates tightening and demand growing, copper prices are more likely to rise than fall. In the aluminum market, considering that the tight supply of bauxite may ease somewhat next year, the marginal support effect of bauxite on aluminum prices may decrease, and the volatility of aluminum prices is expected to be lower than that of copper.