Xinhua Finance Beijing, April 19 (Wu Zhengsi) The metal sector has continued to be active recently. Precious metals rally just "paused", tin, nickel and other industrial metals took turns to be active, and copper in a short correction, the 18th at noon to increase the position of pull, 19 as of press time, domestic copper prices continued to rise more than 2%.
The reasons for the rise in copper prices are clearer than the "unclear" reasons for the rise in precious metals – concerns about tighter mine supply and cloudy prospects for refined copper supply.
In mid-to-late March, the market's news about the production reduction of domestic smelters boosted copper prices to jump higher, opening the prelude to the current round of copper price increases. In particular, at the end of March, the meeting of China's joint negotiation group on copper raw materials proposed a joint production reduction of 5-10%, marking the beginning of the tight supply at the upstream end of the copper industry chain to the midstream smelting end. In this context, copper prices at home and abroad stopped pulling back and rose again.
Supply pressures that have lasted for months continue to ferment
In fact, the supply pressure of the copper industry chain has been going on for months.
In late November, the Panamanian Supreme Court ruled unconstitutional the Panamanian government's contract with First Quantum Mining Ltd. to operate a giant copper mine, resulting in the unexpected closure of First Quantum's Cobre Panama copper mine.
Less than half a month later, mining giant Anglo American Plc cut its production guidance.
After entering 2024, the tight supply of copper ore has not been alleviated at all, which is intuitively reflected in the decline of copper ore refining and processing fees. As of March 12, the processing fee (TC) for imported copper concentrate has fallen to $12/mt, the lowest since June 2010. At its meeting at the end of March, the China Copper Feedstock Joint Negotiating Group reportedly decided not to set a guide price for the TC/RC of copper concentrate processing fees in the second quarter.
On April 16, Vale and the Brazilian state of Pará said that a Brazilian district court once again suspended the operating license of the company's Sossego copper mine. According to the data, the mine produced 66,800 tons of copper last year, making it the second largest copper mine in Vale.
On April 18, according to Mysteel, Zambia, a major copper producer in the world, has been experiencing rolling power outages due to ongoing drought, and Zambia's national power company said it plans to require mining companies to cut electricity demand by up to one-fifth. According to the industry association, Zambia's national power company has issued force majeure notices to some mines, "which could put additional pressure on the tight copper market." ”
The news further spurred copper prices to rise sharply. At noon on the 18th, the main Shanghai copper contract increased its position and rose, refreshing a new high since mid-May 2006. On the morning of the 19th, Shanghai copper further refreshed this high point to 79,730 yuan/ton, and international copper also touched above 71,000 yuan/ton.
Tighter supply and demand Institutions are optimistic about the outlook for copper prices
While the supply theme continues to ferment, the demand outlook is also trending positive.
Recently, the US economic data was better than expected, and the market's expectations for a rapid rate cut by the Federal Reserve have repeatedly cooled, and at the same time, speculation about a "soft landing" or even a "non-landing" of the US economy has begun to appear. The Federal Reserve's latest Beige Book shows a slight expansion in the U.S. economy recently.
In China, GDP grew by 5.3% year-on-year in the first quarter of this year at constant prices and 1.6% quarter-on-quarter from the fourth quarter of 2023. The departments concerned even indicated that in the future, they should intensify macroeconomic policies and make every effort to consolidate and enhance the positive trend of the economy. Coupled with the recent national policies to promote a new round of "trade-in", it is believed to be conducive to boosting future demand for metals including copper.
Based on the judgment of the future tightening of supply and demand in the copper market, institutions are optimistic about the outlook for copper prices.
Goldman Sachs strategists said at a recent industry conference that they expect a very significant supply deficit in refined copper in 2024. And copper prices are set to soar to about US$12,000 a tonne in the first quarter of next year as an unprecedented shortage of ore has affected the refined copper market.
Last month, CICC's commodities team reiterated its views on copper fundamentals and prices in its year-end report. The team said that if there is no obvious recession in demand or large-scale financial risk exposure, considering the increase in copper demand growth driven by the increase in the contribution of new energy demand, the fulfillment of copper supply constraints on the supply side and the limited foreseeable increment in the future, it is expected that the global copper supply and demand will remain tightly balanced in 2024, maintaining the judgment of "LME copper price target price of US$9,200/ton and annual average price of US$8,700/ton" in the previous report.
Citigroup analysts said last week that copper has entered the second bull market of this century after 20 years. Citi forecasts that copper prices will continue to rise in the coming months, averaging $10,000 a tonne by the end of the year and $12,000 a tonne by 2026. And once copper enters a strong cyclical recovery, "copper prices could rise explosively over the next two to three years", possibly to US$15,000 a tonne.
Bank of America also raised its copper price target for this year to $9,321 a tonne last week, citing a shortage of supply.
Will copper prices rise without looking back?
The recent rise in gold prices has stunned many institutions, so will copper under the support of tighter supply and demand also "rise without looking back"? Institutions reminded that although the long-term supply and demand of copper are improving, there are still many negative constraints in the near future, and there is still a risk of chasing up.
Specifically, a realistic constraint comes from the fact that the spot supply of refined copper is still abundant. Although the market is widely expected that domestic refined copper production will decline in April as the maintenance and production reduction starts, the latest data from the National Bureau of Statistics shows that China's refined copper (electrolytic copper) output still reached 1.147 million tons in March, a year-on-year increase of 7.9%.
At the same time, domestic copper inventories have accumulated significantly this year. Mysteel data shows that as of April 15, the cumulative copper inventory in the domestic bonded area was 70,500 tons, an increase of 1,200 tons week-on-week. However, it should be known that at the beginning of this year, the copper inventory in the domestic bonded zone was only 7,400 tons. In terms of spot market inventory, as of April 18, the spot inventory of electrolytic copper in the domestic market was 405,200 tons, compared with only 66,100 tons on January 2.
In this context, Zhengxin Futures reminds that due to the impact of geopolitical and reflation transactions, higher precious metal prices have stimulated base metals to increase their positions, but the risk of high levels has intensified, the United States is expected to cut interest rates, the U.S. Treasury interest rate is higher, the U.S. dollar is strong, and the upside of copper prices driven by the financial cycle may be limited;
China Securities Construction Investment Futures also believes that the fear of copper mine tension has driven prices to a higher level. The market gradually digested the Fed's hawkish statement, and the dollar peaked and fell to boost the rebound of copper prices, but the current industrial demand is thin. On the whole, the macro sentiment is relatively weak, but with the support of the tightening supply of copper ore, copper prices may remain high and fluctuate, and pay attention to the recent intensive stance of Federal Reserve officials. In terms of operation, it is advisable to wait and see, and take profit more than the opportunity part.
Citigroup said that after the sharp rise in April, copper prices were in the ranks of "fast money". After rising to a 22-month high, copper prices are prone to wild volatility as market participants, such as hedge funds, could exit quickly after building up large positions, Citi said.
Macquarie Group Commodities Strategist Alice Fox also said that while she is not a bearish on copper prices, the current rise in copper prices is "a bit premature". She believes that the current (copper price movement) is driven by bullish investors, not shortages.
Editor: Guo Zhouyang
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