Since March, copper prices have shown an interval fluctuation trend. The main supporting factors are tight supply expectations, and the main suppressing factors are inventory accumulation and insufficient demand highlights. Macroscopically, China’s economy is still under downward pressure, but with the implementation of the tax and fee reduction policy, it should not be overly pessimistic in the long run. In the short run, we still need to pay attention to the impact of the March Fed interest rate meeting and the UK’s delisting on financial markets. On the supply and demand side, TC continues to decline, suggesting that copper concentrate supply is tight, demand side performance is relatively stable, and the impact on copper price is neutral. Generally speaking, the impact of supply and demand on copper price is slightly more neutral, but we need to pay attention to the impact of macro factors.
Accumulation of macro-uncertainties
According to the data released by the National Bureau of Statistics, the annual growth rate of industrial added value in the first two months or more dropped by 0.4 percentage points compared with December 2018, but the annual growth rate of national fixed assets investment and national real estate development investment both rebounded. Thus, downward pressure still exists in the economy. In this context, Premier Li Keqiang of the State Council proposed to reduce VAT on April 1 and social security premium rate on May 1 to reduce the burden on enterprises. In the short run, the price of long-term contracts will be under pressure, but in the long run, it will help to improve the profits of enterprises and promote consumption. China and the United States may reach a trade agreement in mid-early April, which is expected to be more optimistic, but we still need to be vigilant about the variables.
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In the international situation, the Federal Reserve held a meeting on March 20 to keep the target of the federal funds rate unchanged. Therefore, the impact on copper price is relatively small. In addition, with the approaching date of March 29, the situation of Britain’s exit from Europe is facing greater uncertainty, and we need to be alert to the risk that the pound will weaken and the dollar will strengthen passively.
Increased expectations of tight supply
The TC of copper concentrate continued to decline after the Spring Festival due to frequent interference at the mine end and the introduction of domestic smelting capacity. In February, the crude refining cost of copper smelters fell to $79.5 per ton, which has fallen below the $80.8 per ton long copper concentrate list in 2019. The average TC price of copper concentrate imported last week was US$72.5 per ton, continuing the trend of decline, reflecting the tight supply situation at the end of the mine, which has strong support for copper prices. According to the supply of refined copper, the output of refined copper in China was 1.34 million tons in the first two months of 2019, and the cumulative growth rate fell to 6.3% year on year. At the same time, the second quarter will usher in the peak of domestic smelters’overhaul, mainly Xiangguang Copper and Jinlong Copper. It is expected that the output of refined copper will be seriously affected and the futures price will be boosted to a certain extent.
At present, the market is concerned about inventory accumulation. Due to the centralized delivery of LME copper, LME copper stocks increased by about 747,000 tons on Thursday and Friday, while domestic stocks continued to climb. As of March 19, the number of warehouses in the previous period had exceeded the same period in 2018, reaching about 175,500 tons, and social stocks were also increasing. Thus, although the medium and long-term supply is expected to be tight, the short-term inventory is relatively abundant to provide security for supply. Later, if the inflection point of inventory appears, the pressure on copper prices will also be weakened.
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Relatively stable demand
Last week, copper rod market orders were general and end cable customers purchased on demand; copper pipe enterprises had stable production and stable increase in market orders, but small-scale production and processing enterprises were still not optimistic; copper strip market orders were stable and better, but under the downward pressure of the economy, confidence in the future was insufficient; copper rod market start-up rate was stable, and the order situation was general.
According to SMM survey, the average start-up rate of copper enterprises in February was 48.75%, which was 19.2 percentage points lower than the previous year, down 1.69 percentage points. It is estimated that the average start-up rate of copper materials in March is 77.38%. In the first two months of 2019, China’s copper output was 2.11 million tons, with a cumulative growth rate of 14.6% year on year; in the first two months, China’s air-conditioning output was 27.885 million units, still at a relatively high level, with a cumulative increase of 6.2% year on year; due to the peak production season, air-conditioning output is expected to rebound significantly in March. Overall, demand is relatively flat, and the impact on copper price is neutral.
In summary, there is a conflict between tight supply expectation and rapid inventory growth and insufficient demand highlights in the current market. Later, the tight supply situation at the end of the mine will gradually transfer to the middle and lower reaches, and the peak of smelter overhaul will be approaching. The production of refined copper will be affected or the supply side will be strongly supported. On the demand side, the market’s pessimistic expectations are basically reflected on the market. With the support of domestic fiscal policy, we should not be too pessimistic. Therefore, it is suggested to be cautious and optimistic about copper prices. The main force of Shanghai copper is temporarily concerned about the pressure at the 50,000 yuan/ton integer level above, so it is not advisable to catch up with the increase.
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