Global copper mine production capacity is in an expansion cycle
There will be many new expansion projects of copper mines around the world in 2023. Currently, new mining projects put into production are progressing smoothly, and there are expectations for loose copper mine supply.
The main contract of Shanghai Copper has performed weakly in recent days after failing to clear the 68,000 yuan/ton mark. Against the background of relatively abundant copper supplies, it is expected that Shanghai Copper will still have room to explore lower in the later period, with the support level at 66,200 yuan/ton.
At present, the interference rate of global copper mines is low, and mines maintain a loose supply trend. Judging from the production situation of the main producing countries, Chile's copper production increased by 2.2% to 444,000 tons in September. The output of Chile's large copper mines was mixed in September, with the Escondida mine's output jumping 25.5% year-on-year and the Collahuasi mine's output slightly increasing by 1.3%. State-owned copper company Codelco's copper output fell 5.3% year-on-year to 116,700 tons in September and is currently struggling with operating problems and high debt.
As far as Peru is concerned, Peruvian copper production in September this year was approximately 235,178 tons, a year-on-year increase of 2.5%, mainly driven by the commissioning of the Quellaveco mine controlled by Anglo American last year, and the increase in the output of the Las Bambas mine controlled by Minmetals Resources (MMG). From January to September, Peruvian copper production increased by 16% year-on-year to 2 million tons. The Peruvian government expects total copper production to reach 2.8 million tons in 2023.
Congolese copper supplies are at risk of disruption as a truckers' strike that began in late October has left production at companies including Glencore and China Molybdenum stranded in Colvez.
According to the new construction and expansion plans of various mining companies, without considering the impact of emergencies, it is expected that new investment and expansion of global copper mines will reach 841,500 tons in 2023, and global copper mine output is expected to reach 22.66 million tons, an annual increase of Speed 3%. At the same time, the International Copper Research Organization (ICSC) stated that the global copper market will transition from a balance between supply and demand in 2023 to oversupply next year. Production is expected to exceed usage by 467,000 tons in 2024.
From the perspective of TC, TC showed a downward trend in late October. As of November 10, the imported copper concentrate index reached US$84.75/ton, down US$5.8/ton from the same period last year. Before this year's Benchmark negotiations, Chinese smelters will start "winter storage" measures for reasons such as replenishing raw material inventories and improving raw material structure, so as to gain an advantage in long-term order negotiations. It is expected that spot processing fees for copper concentrate will continue to decline in the medium term.
Electrolytic copper output fell more than expected in October due to unsuitable cold material processing charges after the copper price fell.
Combined with inventory, as of November 10, the total copper inventory of LME, COMEX, and SHFE was 233,400 tons, an increase of 46,700 tons compared with the same period in 2022. Among them, the copper inventory of the Shanghai Futures Exchange is at a low level in the past 10 months. In terms of domestic social inventories of electrolytic copper, after entering the second half of October, social inventories of electrolytic copper gradually fell. As of November 10, the domestic social inventory of electrolytic copper was 56,300 tons, down 7,400 tons from a week ago and 48,400 tons from the same period last year. The social inventory of copper once again hit a new low during the new year. The arrival volume of domestic copper this week is expected to be little changed, while the arrival volume of imported copper is expected to increase from last week, and the total supply will increase from last week. As the current month changes and the month-to-month difference is large, downstream purchasing volume will fall back. Therefore, increased supply and reduced demand will push copper inventories to rise slightly this week.
Power grid construction is expected to accelerate, with State Grid stating that investment will exceed 520 billion yuan in 2023, setting another record high. From January to September this year, my country's power grid infrastructure investment was 328.7 billion yuan, a year-on-year increase of 4.2%. It completed 63.21% of the total target for the year, and the overall growth rate remained stable.
Judging from the performance of the wire and cable industry, the sample operating rate of wire and cable companies in October was 90.72%, a month-on-month increase of 2.67 percentage points and a year-on-year increase of 10.22 percentage points. We are currently in the traditional peak season for power grid and new energy orders. Many cable and cable companies have scheduled their power grid orders until next year, and their production is stable. As the northern market enters winter, outdoor construction projects will be difficult to carry out, which will have a certain impact on the order volume of cable companies in the future. The focus of some enterprises will gradually shift to inventory reduction and payment collection.
On the macro level, recent hawkish remarks by Federal Reserve officials have suggested that further interest rate increases may be needed to combat inflation. According to CME Fed Observation, the probability of the Fed keeping interest rates unchanged in December is 90.9%, and the probability of raising interest rates by 25 basis points is 9.1%. China's manufacturing and Caixin PMIs in October were both lower than expected. Excluding seasonal factors, China's economic recovery momentum needs to be strengthened, but domestic policy expectations are improving at the margin.
In terms of fundamentals, on the supply side, global copper mine production capacity is still in an expansion cycle. There will be many new expansion projects of global copper mines in 2023. Currently, newly put into production mine projects are progressing smoothly, and there are expectations for loose copper mine supply. Domestic smelting capacity also has room for growth driven by profits. Only one large-scale refinery was overhauled in November, and most of them are at full production. Electrolytic copper output is expected to remain high at the end of the year. On the demand side, the "Silver Ten" expectations were basically fulfilled. While power grid investment is growing steadily, demand in emerging fields represented by photovoltaics and new energy vehicles remains strong. Affected by the growth of the supply side in November, the further reduction of domestic copper inventories will be weakened, which will restrict the performance of copper prices. Overall, it is expected that Shanghai Copper will mainly undergo weak adjustment in the near future, with the support level below the main contract at 66,200 yuan/ton.
