Futures Daily: Public funds are optimistic about the copper sector
Last week, the 2023 quarterly report of public funds was disclosed, and the fund's position adjustment trends and position additions became the focus of market attention. Looking at industry segments, active equity public funds increased their holdings in the copper sector in the "procyclical" nonferrous metals industry in the fourth quarter.
In the fourth quarter of 2023, a series of domestic "stabilizing growth" policies were accelerated and implemented. The domestic economy showed signs of stabilizing at the bottom and initially recovering, and the market's expectations for domestic economic recovery increased. Galaxy Securities research report shows that active equity public funds have heavy holdings in the A-share non-ferrous metals industry, accounting for 2.23% of the market capitalization of stock investments. They have increased their holdings in the non-ferrous metals industry for two consecutive quarters, especially those with greater economic relevance. Copper plate.
Zhang Weixin, senior analyst of nonferrous metals at CITIC Futures, said that the long-term factor for active equity public funds to be optimistic about the copper sector is the optimistic prospects brought about by the green transformation of global energy, including green power generation, new energy vehicles, etc., which have brought huge demand growth expectations. , the supply and demand relationship of copper is expected to remain healthy in the long term.
"Looking at the entire market, this is a sector with relatively high certainty. Especially when China's equity market performance is weak and lacks bright spots in 2023, the copper sector has both offensive and defensive attributes." Zhang Weixin analyzed that in the short term, the market is optimistic Expectations of interest rate cuts in 2024, domestic support policies and tight supply of concentrates are expected to bring positive results to the outlook for copper prices, which is expected to boost the stock prices of related stocks. Since October 2023, the market has been trading the Fed's interest rate cut expectations and the U.S. economic soft landing expectation. Copper prices have been trending strongly, and the recent domestic unexpected reserve requirement ratio reduction policy is also boosting market sentiment. A series of changes since the end of August 2023 Supportive policies are expected to create an enrichment effect and improve the economic situation in early 2024. At the industrial level, affected by the shutdown of overseas copper mines, domestic smelting capacity has become excessive. The current TC index of raw material imports has fallen below the cost line of most refineries, triggering large-scale early maintenance or production reduction of refineries after the holiday, causing a contraction in the supply of refined copper. Form support for copper prices.
Xiao Jing, a non-ferrous metals researcher at SDIC Essence Futures, believes that public funds are optimistic about the non-ferrous copper sector mainly because of the relative scarcity and concentration of resource attributes and the long-term and more guaranteed potential growth rate of copper in the context of global carbon-neutral transformation. Not only is the mining end receiving attention, but the layout of copper smelting capacity, whose operating performance mainly revolves around "processing fees," has also received certain attention. New energy switching, on the one hand, is the new energy vehicle battery system, on the other hand, it is the continuous upgrading of green power supply and power grid. In this process, unlike the country-specific natural resource endowments that fossil energy relies on, the essence of new energy is the competition between industrial equipment technology and manufacturing. The game has shifted from pure resource advantages to the entire upstream and downstream scenarios of the product industry chain, and electrolytic copper has a new role in the new energy industry. The proportion of energy consumption is increasing year by year. According to estimates, the copper consumption in new energy has reached 13% in 2023 and will reach 15% in 2024. It will contribute a high and certain marginal growth rate to all demands, making the electrolytic copper smelting capacity itself, like the upstream copper refinery. Battery-grade copper foil for mines and terminals also has certain supply chain configuration attributes. The reshaping of the global supply chain after the epidemic has given varying degrees of attention to each production link. Last year, the International Energy Agency's carbon neutrality report analyzed the concentration of global copper smelting and refining capacity by country, just like the distribution of copper mines. China has a huge production capacity advantage in copper smelting.
"Among the copper listed targets, those with high self-sufficiency rates in copper mines and those with overseas mining rights in recent years are still the biggest investment hotspots. The cycle that the market is currently paying attention to is not the copper price operating cycle, but the copper concentrate supply cycle, copper mine rights and interests It has taken away most of the profits of the entire industry chain, and the impact of copper price fluctuations is relatively limited." Xiao Jing said.
The International Copper Research Group believes that the realization period for this wave of global copper concentrate production increases will begin in 2021. The expansion of production during the bull market 10 years ago has ensured a relatively high growth rate of copper concentrates in recent years. According to the current model, it is generally believed that 2025, After 2026, the global copper concentrate production expansion cycle will end, and the annual growth rate of copper concentrate supply may return to a low growth rate of around 1% per year, and the increase in new effective costs will become more obvious after the epidemic. Chilean copper mines in 2023 The average complete cost of the industry has reached 2.916 US dollars/pound, and some new production capacities are even more expensive, which means that copper prices must be high enough to promote the expansion of new production capacity in order to catch up with the global 2%-2.5% driven by the transformation of new energy in the medium and long term. potential consumption growth rate.
Xiao Jing said that in the fourth quarter of last year, First Quantum's Cobre Panamá copper mine and Anglo American Resources lowered their 2024 production guidance, which may bring about a 300,000-level reduction, which has attracted strong market attention. Coupled with the expansion of domestic refining capacity in 2023, output Based on the growth rate of more than 12% last year, it is still expected to grow by 6% to 8% in 2024. In addition, Indonesia and India are both building and expanding their own copper refining capacity, and the supply of concentrates in Asia continues to be tight.
Copper fundamentals will still show strong resilience
Judging from current fundamentals, the global copper market may face supply shortages. According to the latest data released by the World Bureau of Metal Statistics (WBMS), global refined copper production in November 2023 was 2.3086 million tons, consumption was 2.4013 million tons, and there was a supply shortage of 92,600 tons. From January to November 2023, global refined copper production was 25.0461 million tons, consumption was 25.1491 million tons, and there was a supply shortage of 103,000 tons.
Zhang Weixin analyzed that overall, the fundamentals of copper will still show strong resilience in 2024, and it will be difficult to experience a large oversupply. The main reason is that the continued growth of new energy consumption and supply-side disturbances have led to a slowdown in supply growth. It is expected that Shanghai copper will have an "N-shaped" trend in 2024. Copper prices can remain strong in the short term, decline in the medium term, and are expected to rebound in the end, with the overall price center moving downward throughout the year. In the short term, expectations of U.S. interest rate cuts and soft landings, domestic policy expectations, and tight expectations brought about by supply disturbances support copper prices to continue to oscillate at high levels and strong. However, the current seasonal accumulation pressure has begun to be transmitted. Later, as the Federal Reserve postpones interest rate cuts, the U.S. economic adjustment pressure appears, and the effect of domestic policy implementation is less than expected, Shanghai Copper will face greater downward pressure. As the Federal Reserve cuts interest rates and the domestic economy continues to recover, copper prices are expected to rebound. However, the unilateral decline of the US dollar during the interest rate cut cycle means that the RMB appreciates, and Shanghai Copper faces pressure to make up for the decline, limiting the room for rebound.
Xiao Jing believes that the core of copper price analysis in 2024 is consumption. Domestic traditional home appliances sector and new energy photovoltaic power supply sector are both at risk of accelerating decline. The relatively promising power grid sector is actually dominated by continuous investment. The State Grid's expected investment scale of more than 500 billion yuan reflects this. In 2024, the actual growth rate of domestic copper consumption may be close to half of this year's GDP growth rate, returning to the potential growth rate of about 2%-3%. Domestic copper consumption has weakened, and the pressure on processing fees has overlapped, indicating that domestic self-produced copper production will also return to normal growth. "We may see some reductions in refinery capacity, but the impact on copper prices needs to be combined with the demand rhythm and macro sentiment. The market's expectations for China's refined copper production in 2024 will be reduced accordingly."
Looking at the copper concentrate supply cycle alone, Xiao Jing said that a large increase in concentrate can still be achieved in 2024. In the past two years, mainstream institutions' expectations for global copper concentrate have generally been from 600,000 to 800,000 tons. Starting to decrease. In October last year, ICSG believed that global copper concentrate supply would increase by 800,000 tons in 2024. Adding in the current loss, a supply of 400,000 tons may be achieved this year. In recent years, copper foil has benefited from the new energy sector. In fact, it has also experienced a decline in processing fees in 2023. This year, operating pressure is also great. The main pressure faced by the downstream sector comes from consumption.
"2024 is a transition year, and we do not believe that copper prices can go up again by exceeding 70,000 yuan/ton. After experiencing relatively low volatility in 2023, we are more inclined to expect that the copper price fluctuations this year may be similar to 2022, which means we will pay more attention to Downward risks include fluctuations below US$7,000/ton." Xiao Jing believes that the cooling of China's copper consumption, the soft landing of European and American economies, the Federal Reserve's interest rate cuts, and the high technical adjustment of the U.S. stock market may all trigger reverse changes in copper prices.
Everbright Securities pointed out that the industry faces long-term sluggish capital expenditure growth and declining copper ore grades, and future supply increments are limited. At the same time, affected by the interference rate, the release of copper mine supply is likely to be less than expected, and the copper price center is expected to move upward in 2024.
Sinolink Securities also stated that the growth of global copper mine supply will be limited in 2024, and supply disruptions from leading mining companies will intensify. Electrolytic copper is expected to maintain a tight balance between supply and demand throughout the year. At the macro level, the current long-term inflation expectations in the United States are close to the Federal Reserve's inflation target, and the downward pressure on copper prices is expected to be limited. If the Federal Reserve starts cutting interest rates when the inflation level does not reach 2%, under the scenario of a soft landing of the US economy, the Chinese and US economies will achieve resonance and upward, and copper prices are expected to start a new round of rise, with the copper price center expected to move up to US$9,000-10,000 per ton.
