China International Futures: Shanghai Copper is waiting for downstream conditions to pick up
Fundamentally, the current copper concentrate processing fees continue to oscillate downward, and the shortage of raw materials may hinder the release of smelting plant capacity to a certain extent. Domestic copper smelting plants do not have an obvious drive to increase production.
Recently, as the upward momentum has weakened, Shanghai Copper has shown signs of a correction. It is expected that in the later period, under the background of improving domestic macroeconomics and gradually warming downstream demand for copper, Shanghai Copper will mainly oscillate at a high level.
Copper concentrate supply growth is limited
As the world's major copper producer and exporter, Chile's production has an important impact on the global copper supply and demand pattern. Chilean copper production in 2023 will be 5 million tons, a year-on-year decrease of 6.19%, accounting for 22.52% of the total global copper production. Although Chile will still be the world's largest copper producer in 2023, Chile's copper production has hit a new low in the past 20 years. Production is limited mainly by multiple factors such as declining ore grade, water shortages, labor issues, and an uncertain fiscal system. interference.
As the second largest copper producer, Peru's copper output will reach 2.6 million tons in 2023, a record high, a year-on-year increase of 6.12%, accounting for 11.71% of the total global copper output. While anti-government protests and road blockades hampered output at the start of the year, copper production in Peru gradually returned to normal later in life. The increase in Peruvian copper mine production in 2023 is mainly due to the complete recovery of production at the Bambas copper mine in the Apurimac region, and the increase in the production of Anglo-American Group's Claveco copper mine in the Moquegua region.
For 2024, thanks to the continued expansion of China's electrolysis capacity, ICSG expects world refined copper production to increase by 4.6% year-on-year. At the same time, manufacturing activity is expected to improve, energy transformation continues, and new semi-finished product production capacity development in various countries is expected to support global refined copper consumption growth of 2.7% in 2024. This means that the growth rate of global refined copper supply may be significantly higher than the growth rate of demand. The global copper market surplus is expected to be 467,000 tons in 2024, which is a very large proportion compared to the global refined copper production scale of 26 million tons. Small.
At present, domestic copper smelting production capacity is relatively high, which is significantly greater than the growth rate of copper concentrate, and the shortage of copper concentrate has already emerged. Against this background, copper processing fees continue to fall, and recent mine bidding transactions have also fallen again. Data show that the imported copper concentrate index was reported at US$15.29/ton on March 8, 2024, a decrease of US$1.12/ton from US$16.41/ton the previous week. At present, some smelters are still maintaining the spot purchasing rhythm. If the market continues to deteriorate, the spot purchasing and processing fees at the smelting plant will drop to single digits. Pay attention to the impact of the centralized maintenance of smelting plants on TC in the second quarter.
Judging from the domestic production of electrolytic copper, electrolytic copper production fell more than expected in February this year. Institutional electrolytic copper production in February was 950,300 tons, a month-on-month decrease of 19,500 tons, a decrease of 2.01%. A year-on-year increase of 4.68%, and a decrease of 9,100 tons from the expected 959,400 tons. The cumulative output of electrolytic copper from January to February was 1.9201 million tons, an increase of 159,000 tons year-on-year, an increase of 9.03%. The output in March is expected to be 970,200 tons, a year-on-year increase of 1.98%, with a high probability of hitting a production high in the first half of the year. Although global copper concentrate supply is in tight supply and processing fees continue to fall and hit new lows, large copper smelting companies still choose the strategy of maintaining output, keeping electrolytic copper output at a high level. With the arrival of the intensive maintenance period in April, electrolytic copper output is expected to show a trend of marginal contraction.
Combined with inventory, global exchange inventories have continued to accumulate recently. Specifically, the performance of domestic and foreign inventories is in a state of differentiation. While LME copper inventories are gradually declining, SHFE inventories are gradually rising. As of March 8, the total inventory of LME, COMEX and SHFE was 380,000 tons, an increase of 79,581 tons compared with the same period last year.
As far as domestic social inventories of electrolytic copper are concerned, there was a brief destocking in early January, but the stockpiles were again accumulated after mid-January. After the Spring Festival, the performance of copper processing materials has not improved significantly, and the social inventory of electrolytic copper continues to rise. Data show that as of March 7, domestic electrolytic copper social stocks were 223,800 tons, an increase of 16,500 tons from a week ago and a decrease of 84,300 tons from the same period last year. Generally speaking, the growth rate of domestic electrolytic copper stockpiles has slowed down recently, and overseas stocks have continued to be destocked, which has provided certain support to copper prices.
Grid investment remains resilient
my country's power grid construction has been advancing rapidly for more than ten years, and the network has now been completed, which means that power grid investment has shifted from high-speed growth to a stage of high-quality development. In 2023, my country's power grid infrastructure investment will be completed at 527.5 billion yuan, a year-on-year increase of 5.4%, exceeding the full-year target. State Grid estimates that the total investment in power grid construction will exceed 500 billion yuan in 2024. UHV projects will remain a top priority in 2024. In addition to eight UHV projects expected to start construction within the year, State Grid will also promote the approval of several UHV projects. In 2023, UHV orders will grow rapidly, and the demand for medium and low voltage cables will be relatively stable.
Judging from the operating rate of my country's wire and cable companies, data show that the operating rate of wire and cable sample companies in February this year was 46.75%, a year-on-year decrease of 24.52 percentage points, and 1.82 percentage points lower than the operating rate in January last year (the Spring Festival holiday month); a month-on-month decrease 28.35 percentage points, 12.01 percentage points lower than expected. February is during the Spring Festival, and most companies have 12-15 days of holidays. The shutdown has a significant impact on the operating rate of copper wire and cable companies. Copper cable companies have resumed work one after another after the holiday, and most of the company's production is supported by previous orders in hand, mainly power grids and new energy power generation orders. At present, the overall demand of the copper cable industry is lower than that of the same period in previous years. High copper prices have inhibited downstream purchasing enthusiasm to a certain extent. The growth in demand for aluminum cables has put pressure on the growth of copper cable orders. In particular, the decline in construction engineering orders has been relatively obvious. The market still has expectations for the performance of power grid orders in the later period.
On the macro level, although the U.S. economy has grown slightly since January, inflationary pressures still exist, and the short-term market may have basically completed repricing expectations for the Federal Reserve to cut interest rates. According to CME's "Fed Watch", the probability of a rate cut in March is 5%, in May it is 26.5%, and in June it is 74.8%. The domestic central bank cut interest rates beyond expectations, the market is waiting for positive indicators, and macro expectations continue to be repaired.
Fundamentally, the current copper concentrate processing fees continue to oscillate downward, and the shortage of raw materials may hinder the release of smelting plant capacity to a certain extent. Domestic copper smelting plants do not have an obvious drive to increase production. Some smelters will start centralized maintenance at the end of March, and the peak period of maintenance will be from April to May. Although domestic electrolytic copper supply exceeds demand in the short term, there will be a trend towards a tight balance structure in the later period. On the demand side, driven by the approaching seasonal peak season and favorable macroeconomic conditions, industries such as infrastructure and power will continue to exert strength. Downstream orders will continue to grow in the later period, and the operating rate of copper processing companies is expected to continue to rise. It is expected that Shanghai Copper will mainly oscillate at high levels in the near future, with the pressure level above the main contract at 70,500 yuan/ton and the support level at 68,500 yuan/ton.
