The frequent blowing of macro warm winds, the market, especially the expected tightening of copper supply by overseas funds, and the transfer of some of the funds from precious metals to copper and other commodities before the transaction, made copper prices at home and abroad usher in considerable increases in April. Shanghai copper rose 13.62% in April, and London copper rose 12.51% in April.
Entering May, after the downstream consumer demand was suppressed by high copper prices, the free port is expected to export as many as 900,000 tons of copper concentrate from the Grasberg copper mine in the second half of the year, and the rebound of the US dollar has made copper prices adjust, and with the cancellation of purchase restrictions in Hangzhou, Xi'an and other places, only the four major first-tier cities and Hainan and other foreign trade data in the first four months of China have brought considerable prospects for copper demand, and the recent poor economic data in the United States has prompted the market to raise bets on the Federal Reserve to cut interest rates later this year. As of 18:12 on May 10, Shanghai copper was reported at 80,970 yuan/ton, up 1.52%, and the monthly line in May temporarily fell 0.98%; London copper was reported at 10,060.5 US dollars / ton, up 1.58%, and the monthly increase in May was temporarily 0.84%. What factors have become important factors influencing copper prices in May?
Supply side
After the holiday, the trading activity of the spot market increased slightly, and the imported copper concentrate index (weekly) fell to negative territory
On the copper ore supply side, the spot processing fee of copper concentrate fell to negative territory. Copper supply disruptions have once again become the focus of market attention. According to the SMM quotation, on May 10, the SMM imported copper concentrate index (weekly) was reported at -1.43 US dollars / ton, a decrease of 3.5 US dollars / ton from 2.07 US dollars / ton in the previous period, a decrease of 169.08%. According to SMM, the spot market trading activity after the holiday increased slightly. Some market participants expect that the tight supply of copper mines may lead to an increase in the number of companies forced to reduce production in the second half of the year.
China's electrolytic copper output decreased by 1.44% month-on-month and increased by 1.56% year-on-year in April.
In terms of electrolytic copper production and supply: SMM China's electrolytic copper output in April was 985,100 tons, a decrease of 14,400 tons month-on-month, a decrease of 1.44%, a year-on-year increase of 1.56%, and an increase of 20,100 tons from the expected 965,000 tons. The cumulative output from January to April was 3.9047 million tons, an increase of 222,200 tons or 6.03% year-on-year. The reason for the month-on-month decline in output in April is that there are 7 smelters for maintenance, and the decline in output is not as large as expected, mainly due to the following reasons: 1. The sharp rise in copper prices in April has widened the price spread of refined scrap, and the supply of blister copper and anode copper has increased. This can also be reflected from the continuous rise in blister copper and anode plate processing fees (as of May 10: SMM Southern Domestic Blister Copper Processing Fee (weekly) reported 1500 yuan/ton, up 450 yuan/ton from the previous month; The domestic anode plate processing fee (weekly) was reported at 1200 yuan/ton, an increase of 400 yuan/ton from the previous month), and the smelter can purchase enough raw materials to significantly reduce the impact of maintenance. 2. In April, the price of sulfuric acid rose; Gold and silver prices are at historically high levels, with by-products compensating for production losses and smelters less incentive to voluntarily reduce production. 3. The completion of technical transformation of a smelter in East China and the gradual return to normal output is also one of the reasons why the total output exceeded expectations. 4. Due to the large deduction of recycled copper rods, individual smelters even purchase recycled copper rods as raw materials to ensure output.
Entering May, more smelters will be overhauled, according to SMM's current statistics, there are 8 smelters to overhaul involving 1.64 million tons of crude refining capacity, which is the main reason for the decline in production in May. However, due to the current abundant supply of blister copper and anode plates, many smelters have sufficient raw materials, which will lead to a smaller than expected decline in production. In addition, a smelter in southwest China began to produce output after relocation, which was also one of the reasons for the small decline in output in May.
On the demand side
Suppressed by high copper prices, the operating rate of many copper products has been affected. From the perspective of the operating rate of refined copper rods: according to SMM survey data, the operating rate of refined copper rod enterprises in April was 68.96%, down 2.18 percentage points month-on-month and 2.77 percentage points year-on-year. Under the suppression of high copper prices, the downstream consumption situation in April is not as good as the expectations of enterprises, and the pressure of accumulation is heavier, many refined copper rod enterprises choose to reduce production or arrange maintenance and shutdown in April. According to SMM research: after entering May, due to the impact of copper prices in the early stage, refined copper rod enterprises are expected to increase their holiday time year-on-year, during the May Day period, due to the high copper prices downstream is also under pressure, downstream delivery is less than expected, and finally the actual number and time of refined copper rod enterprises are more than expected level, resulting in the first half of May refined copper rod operating rate year-on-year more than expected decline, up to now, refined copper rod production reduction enterprises are still recovering one after another, is expected to form a drag on the operating rate of refined copper rod in May.
Inventory
As of Thursday, May 9, SMM's copper inventories in mainstream areas across the country decreased by 02,500 tons from Monday to 402,200 tons, but increased by 14,300 tons from last Thursday. The total inventory was 250,200 tons higher than 152,000 tons in the same period last year, of which 187,400 tons in Shanghai was higher than the same period last year, 49,600 tons higher in Jiangsu, and 8,500 tons higher in Guangdong. Specifically, inventories in Shanghai increased by 00,300 tons from Monday to 274,200 tons, and the main reason for the increase in inventories in Shanghai this week was the inflow of imported copper. The inventory in Jiangsu decreased by 2,500 tons to 58,500 tons, and the export actions of smelters around Jiangsu and the increase in downstream replenishment after the holiday were the main reasons for the decline in inventory in the region. The inventory in Guangdong increased by 00,700 tons to 56,300 tons, and the poor consumption in Guangdong was the main reason, which can also be reflected in the continuous decline in the average daily shipment of Guangdong. The main reason for the decline in inventory in Chengdu and Chongqing is the decrease in arrivals: the main reason for the increase in inventory in Tianjin is the increase in arrivals and weak consumption. Looking ahead, smelters approaching delivery still prefer warehouse shipments under the background of large spot discounts, and warehouse arrivals are expected to increase next week; However, after closing, smelters are expected to increase exports, resulting in a decrease in total domestic supply. In terms of downstream consumption, high copper prices have always suppressed consumption, and in the context of a large monthly difference in the approach to delivery, downstream purchases will also decrease. Therefore, SMM believes that next week will show a situation of increased supply and weakening consumption, and weekly inventories may regain strength. In addition, it is necessary to be vigilant about the delivery of domestic refinery exports to LME warehouses in May, which may make copper prices fluctuate, and will also provide assistance for the subsequent destocking of domestic copper inventories.
LME copper inventories fell by 925 tonnes to 103,450 tonnes on May 10. Recently, London copper has continued to destock above 100,000 tons as a whole, which also gives London copper certain fundamental support.
Future
Due to the abundant supply of blister copper and anode plates, many smelters have already stocked up on raw materials, which makes the output decline caused by smelter maintenance smaller than expected. At present, the spot supply of electrolytic copper in China is relatively sufficient, but when the spot processing fee of copper concentrate falls to a negative number, a hint of wind and grass on the supply side of copper ore will affect the sensitive nerves of the copper futures market. It is still necessary to pay attention to the attitude of the new president of Panama towards First Quantum's Cobre Copper Mine after taking office, as well as the impact of changes in Zambia's power supply situation on copper production and other news affecting the change in copper supply relationship.
Consumer demand is currently suppressed by high copper prices and weak, but the improvement of domestic import and export data and the lifting of real estate purchase restrictions and other favorable policies on the real estate market, as well as the property market policies in first-tier cities that have not canceled purchase restrictions, provide the market with room for imagination, will bring good expectations for future copper demand. Inflation data in China and the United States in late May, speeches by relevant Federal Reserve officials, as well as China's social finance data, monetary policy, property market policy, and the impact of special bonds on infrastructure construction are all worth paying attention to.
Institutional sounds
Maike Futures Research Report believes that the U.S. data is slightly weaker, and the expectation of interest rate cuts has rebounded. China's economy has rebounded, and stable growth expectations still support market confidence. Supply and demand declines, supply gap expectations remain strong for copper prices: On Friday, it was reported that Panama's new president refused to negotiate a new contract with First Quantum unless he waived the claim lawsuit. The market responded positively, and the disk increased its position sharply. In fact, the Chilean Copper Association in April has basically made a judgment that the Kobrai mine will not be able to resume production this year. This year's copper supply is expected to experience two sharp cuts: 350,000 tonnes in December last year (Anglo American reduced production by 200,000 tonnes, and the Kobre mine contract was judged unconstitutional, and the temporary suspension of production was reduced by 150,000 tonnes for half a year); In April, Chilean copper will be lowered by another 300,000 tons (Zambia's drought and lack of electricity will reduce production by 150,000 tons, and Kobre will temporarily reduce production by another 150,000 tons). So far, the reduction in concentrate production has not affected copper concentrate production, but the expectation of a widening supply gap in the medium term is increasing. The macro bullish logic is maintained, and the sharp discount on the spot hints at the pressure before delivery, but the news that Kobre cannot resume production boosts the confidence of supply speculation and supports the strong adjustment of the high level. Near-term support below 79000, maintaining a bearish bullish mentality. It is expected that the main fluctuation range next week is 82000-79000.
SDIC Anxin Futures said: Shanghai copper increased its position on Friday afternoon, and the weekly K-line still closed positive. The recent weak U.S. industrial and employment data once again reversed the pace of the Fed's interest rate cuts, precious metals turned higher, driving copper prices higher, and the eurozone economy grew quarter-on-quarter in the first quarter, and China's trade data in April continued to be strong. On the supply side, the import of copper raw materials was stable, with copper concentrate importing 2.34 million tons in a single month, a year-on-year increase of 6.9% in the first four months. SMM data show that last month's domestic refined copper output fell slightly by 14,400 tons month-on-month to 985,100 tons, and the blister copper overhaul in May was greater, but it is believed that the output is mainly a small decline, and the domestic supply is stable as a whole. In the second quarter, it was difficult for domestic refineries to show the joint production cuts that the previous meeting had tended. Shanghai copper fluctuated at a high level, and sold call options at 2406 and 2407 levels.
Huaxin Futures pointed out that the dollar fell and domestic macro sentiment rebounded, Shanghai copper returned to strength and continued to maintain a long strategy. For the overall macro, we judge that in the context of the Federal Reserve ending its interest rate hike and gradually entering the interest rate cut cycle, the world is facing inflation, and CPI and PPI are likely to enter a resonant upward situation.
"WE EXPECT COPPER PRICES TO REMAIN HIGHLY VOLATILE AS MARKETS REACT TO A CHALLENGING ECONOMIC BACKDROP," ANZ RESEARCH SAID. The agency believes that copper prices will remain well supported due to the severe shortage of copper supply needed for the emerging energy transition.