There is good macro news, and Shanghai copper jumps short and opens higher, ushering in a rapid rebound
After the market closed on Wednesday, the governor of the central bank announced a 50BP cut in the reserve requirement ratio, providing 1 trillion yuan of liquidity to the market, and also lowered the re-lending and rediscount rates to support agriculture and small businesses by 25bp. The extent and timing of the cut in the reserve requirement ratio exceeded expectations. Previously pessimistic market expectations were met. Obviously boosted, LME copper rose sharply, and Shanghai copper jumped short and opened higher in night trading.
In mid-January, copper prices began to stabilize and bottomed out, catching up with the good news that the country was about to cut the required reserve ratio in early February. Therefore, the reaction of copper prices was relatively violent. ." said Fan Rui, a nonferrous metals analyst at Guoyuan Futures.
Regarding the reason why copper jumped short and opened higher on Thursday, Wang Yingying, a nonferrous metals researcher at Galaxy Futures, believes that on the one hand, it is because copper has very strong support at 67,000-68,000 yuan/ton, and Shanghai copper fell below 68,000 yuan/ton, and downstream replenishment and The mood for stockpiling is high, spot market consumption has improved, and the copper supply contradiction is relatively large. In January, only 14,000 tons of domestic stockpiles were built, which was lower than expected, and LME copper stocks continued to decline. Therefore, 67,000-68,000 yuan/ The support of tons is very strong. On the other hand, it is because of the good news about the domestic reserve requirement ratio cut. With the copper price correction in place, once good macro news appears, copper prices will rebound rapidly.
"Currently, the global explicit inventory of copper is only 250,000 tons, which can only maintain consumption for 3.58 days. It is expected that supply and demand will remain tightly balanced in 2024." Wang Yingying said that from the supply side, the growth rate of copper mine supply is low. Although Copper mines are in an expansion cycle from 2022 to 2025. Copper mine supply will only grow by 2.12% in 2023. Copper mine supply in 2024 is highly uncertain. Under the most pessimistic expectation (Panama copper mines cannot resume production), copper mine supply growth is only 1.95%. The copper concentrate market has fallen into panic, with the spot TC index falling to US$41/ton, and the market has seen transactions of US$35/ton. There have been a lot of disruptions to smelters recently. Several smelters plan to advance maintenance to March or April, and a wave of smelter maintenance will be ushered in in the second quarter. There are also problems with copper transportation. The Panama Canal and Suez Canal are blocked, resulting in a decline in refined copper imports from both the United States and China. Overall, the supply side is still expected to be very tight in the first half of the year.
Li Yaoyao, a copper researcher at Xinhu Futures, also told reporters that as the new year approaches, domestic copper consumption has entered the seasonal off-season, and downstream operating rates have declined; domestic inventories have also begun to accumulate slightly after New Year's Day, but this is a seasonal accumulation, and domestic inventories are still still there. are at historically low levels. Due to the suspension of production at the Panama mine and winter stocking of domestic refineries, the spot TC of copper concentrate has fallen sharply to around US$40/ton in recent months, basically halving. At present, spot TC is already lower than the cost line of smelters, and some smelters have reduced load production, which may have an impact on domestic refined copper supply in the first quarter. In 2023, domestic new energy vehicles will show high growth, photovoltaic and wind power installed capacity will show ultra-high growth, and the new energy field will bring considerable increases in copper consumption; boosted by new energy, domestic copper consumption is expected to remain positive in 2024.
It is reported that copper ore imports will increase year-on-year in 2023, and scrap copper imports will increase by 12.1% year-on-year. Imported copper will have an impact on the domestic copper spot market. Electrolytic copper production in December 2023 increased by 14.87% year-on-year, and electrolytic copper production in January 2024 is expected to continue to increase year-on-year. In the short term, domestic copper concentrate supply has decreased, and copper concentrate TC and imported concentrate TC have continued to fall.
"Recent data shows that power grid construction, automobile production, air conditioners, refrigerator production, etc. have all increased significantly year-on-year in 2023. However, real estate-related indicators have dragged down copper demand. In the short term, domestic terminal demand is in the off-season of consumption. The refined copper rods for the week of January 18 The operating rate dropped to 72.46%, and the operating rate of recycled copper rod companies rebounded month-on-month." Wang Weimang, investment manager of Zhonghui Futures Asset Management Department, said that in terms of inventory, LME copper inventory decreased by 1,850 tons on January 24, and the warehouse receipt inventory of the previous exchange increased. 100 tons to 11953 tons. Last week, all three major exchanges in the world had accumulated stocks. From a historical absolute perspective, copper inventories have rebounded from the previous month, but overall they are still near historical absolute lows.
At present, the domestic Spring Festival holiday is approaching, the off-season for high-quality traditional consumption and severe cold weather have caused mixed increases and decreases in the explicit inventory of global exchanges, but the overall inventory situation is showing. The copper inventory of the previous exchange increased by 16,848 tons from the end of December to 47,800 tons. The off-season characteristics of demand before the Spring Festival are obvious. "Import profits in the spot market have been relatively good recently, and the supply in the domestic spot market is relatively abundant. The downstream has recently been carrying out replenishment and stocking operations before the Spring Festival. However, today's sharp rise in market prices has brought about a certain fear of high prices, and the transactions in the spot market have been Shrink." Fan Rui said.
In addition, the direction of Fed officials and U.S. economic data during the month was unclear. The market continued to revise the overly optimistic trading expectations in the early stage, and the overall sentiment in overseas markets was not stable. Yes, copper prices have been affected to a certain extent. However, I currently believe that the expected market correction has been basically internalized into the copper price, and the current copper price can more objectively reflect the fundamentals of copper. Now driven by the good news that the country is about to lower the reserve requirement ratio in early February, the overall atmosphere in the domestic market is very positive. Copper, as a product with very strong financial attributes, will continue to digest the price benefits of the domestic macro market in the short term.
"Currently, domestic copper smelters have a demand for replenishment, and copper processing fees have fallen sharply, but imported copper is gradually entering the warehouse. In terms of demand, downstream reserve demand will gradually start, but considering the current high prices, the downstream operating rate may fall. In addition, a few days ago Recycled copper rod companies are worried about the rebound in copper prices after the holiday, and have already prepared finished products for storage. Demand may decline after the holiday. In addition, wire and cable consumption has also entered the off-season. According to industry fundamentals, supply is slightly greater than demand." Wang Weimang said.
Regarding the market outlook for copper, Wang Yingying believes that the copper market will be weak in supply and demand in 2024 and will show an oscillating trend. In the short term, the contradiction on the supply side of copper is relatively prominent. The support level of 67,000-68,000 yuan/ton is relatively strong, and the copper price will run at 67,000-71,000 yuan/ton. However, starting from March, after entering the peak consumption season, the market's focus may shift to consumption, and copper prices are at risk of falling back. In the medium term, copper prices will run at 65,000-71,000 yuan/ton.
"From a macro perspective, overseas economies are declining, but the U.S. economy is relatively resilient. The market's focus will turn to interest rate cuts in 2024; there may be adjustments to the timing and extent of interest rate cuts in 2024, which may cause disturbances to copper prices. The domestic market's focus remains Stimulus policies, the 2024 GDP target and the intensity of fiscal stimulus will all have a greater impact on copper consumption and market expectations. The first quarter of 2024 is a vacuum period for economic data. Against the backdrop of strong domestic willingness to stabilize growth, the current RRR reduction policy has The market expectations for the stimulus policies introduced during the two sessions are also high. Copper prices are expected to oscillate strongly in the first quarter. Against the background of low inventory and consumption support in the new energy field throughout the year, global copper may enter a situation of strong supply and demand in 2025. Maintain the idea of buying more on dips." Li Yaoyao said.
Wang Weimang told reporters that the fundamental contradiction between supply and demand for copper in Shanghai is not very prominent, and the short-term rise is due to the improvement in macro sentiment. In addition, economic data in Europe and the United States show resilience, and expectations for copper demand are positive. The Markit manufacturing and service industries in the United States in January both exceeded expectations, hitting a new high in several months. The manufacturing PMI even rose above the boom-bust line. In January, the manufacturing PMI in the Eurozone The initial value of the industry PMI was 46.6, exceeding expectations and the previous value, setting a nine-month high. Although positive data from Europe and the United States also indicates that interest rate cut expectations are weakening. On the whole, industrial supply exceeds demand, but the short-term macroeconomic atmosphere has improved, which has an obvious positive driving effect on Shanghai Copper. The short-term fundamental changes in supply and demand may not be obvious, and the focus is on the driving force of macroeconomic sentiment.
