In the commodity sector has a very special metal species, it is widely used in electrical, light industry, machinery manufacturing, construction industry, defense industry and other fields. Its demand is often seen as a direct reflection of a wide range of economic activities. Once the real economy has ups and downs, its price movements are very susceptible. The species is copper.
Copper is sometimes referred to by investors as “Dr. Copper,” because it is seen as a more accurate prediction of economic trends than an academic with a doctorate. The price of copper may reflect the current economic trend more intuitively than many economic data.
Copper prices plunged dramatically from 2011 to 2015 as a result of global economic slowdown, global liquidity easing and excess supply of copper. Since 2016, with the global economic recovery, the price of copper has started from 4,000 U.S. dollars Gradually climbed to nearly 7000 US dollars.
We can see from the history of copper several major cycles of alternating, copper prices showed a bearish “long short bullish,” the characteristics of each trend have been driven by rising demand. In addition, the ups and downs of copper prices also showed strong financial attributes, closely related to the trend of the U.S. dollar, inflation expectations and liquidity.
2017 copper review
In 2016, the supply side of copper has far less impact on the supply side of commodities than that of other varieties. However, in early 2017, copper pushed up the prices due to the ongoing strike and the weakening of the U.S. dollar.
Weekly movements in CMEX futures contracts (Code: HG) from CME We can see that for most of 2016 the trend of copper is still flat until it starts to soar by the end of the year and then by 2017 In the second quarter, the impact of the strike was digested by the market and copper prices weakened.
However, the Fed’s rate hike in June was less than expected. As macroeconomic boosted copper prices and the domestic consumption is getting better, copper supply was once again trapped and copper prices rose all the way. In the fourth quarter, there was a big market divergence. Copper scrap imports tightened to support copper prices while consumption of the off-season was on the other hand. In particular, copper inventories suddenly returned to the market in December, increasing market volatility.
In the next few years, the growth of copper output will be in a downward cycle. In 2011, the global copper output will reach 16.059 million tons and the global output in 2016 will reach 20.1888 million tons. However, the output growth in recent years has dropped from the 2013 peak, and in 2016 Year-on-year growth of 4.84% over the same period of last year, which is a slight slowdown from 7.55% in 2013. In the long run, the grade of copper ore will gradually decline in the future, and the lower the grade, the higher the cost of ore smelting without considering technological progress.
The exploration and exploitation of copper mines have a long cycle of up to thirteen years and the capital needed to develop a new copper mine is enormous. Almost all the major copper mines in the world belong to the world’s leading mining producers , The global copper mine has a high degree of control. In the first half of 2017, the copper output of the world’s top ten largest copper producers totaled 4,452,000 tons. ICSG recorded a global production of 9,631,000 tons of copper in the same period. The top 10 global producers accounted for 46.22%. Often, the major producers will publish their second and next production plans in their annual and quarterly reports, keeping track of the reports they publish, as almost all of the world’s high-quality mines are in the hands of these giants Statistics basically can grasp the future of the global copper supply.
Copper production showed some cyclicality. Copper prices will stimulate producers to increase their capital expenditures to expand production. The changes in copper prices and capital expenditures are synchronized. However, the expansion of copper mines has a certain cycle. Therefore, the peak of capital expenditures often lags behind the peak output. The most recent peak in capital expenditures was in 2012-2013, after a prolonged cycle of copper mine production 2016 reached a release high before declining gradually. The current situation is that we have not seen any further upward revaluation of capital expenditures. Even if the next peak of capital expenditure is reached in 2018, the corresponding amount of heavy copper mine will also be in 2021-2022. It is estimated that the output of copper mine in next few years will increase Speed
Three big opportunities to capture copper
There are three possible opportunities in the current copper market, respectively:
Smelting plants can expand and copper production cannot keep up
While the supply growth of copper is declining, the absolute volume of copper production remains higher, with 500,000 tonnes of new copper supply expected in 2018. 2018, the new crude refining and refining capacity of 1.45 million tons, to actual production 70% calculation of new production capacity, this year, the newly put into production of several refineries in the next 4 months almost can reach 60% of the design capacity, calculation 145*70%*60% We estimate that only the domestic 2018 theoretical copper mine new demand is 609,000 tons.
Smelting capacity is growing faster than the supply of copper, but it does not mean that the supply of copper will not be enough next year to depress the production of refined copper. 2016 domestic copper import volume climbed, copper concentrate imports amounted to 17.05 million tons, compared to 2015 growth of 28%. Copper imports also remained high in 2017, with imports reaching 15.69 million tonnes in January-November, a small increase of 1.5% per cent year-on-year. Copper imports increased for two consecutive years, while the production of electrolytic copper in 2016 growth rate of only 3.18%, after the calculation of the current domestic copper concentrate more stocks, about 50.6 million tons. On the other hand, the smelter’s production capacity will be affected by copper prices, too low copper prices will affect the smelter’s production capacity, the demand for copper will also be reduced. Although copper smelting capacity release and the release of copper does not match, in the short term, copper production and accumulated inventory can meet smelting capacity, raw material supply will not be a shortage of situation, but with the gap may be expanded, then still have the opportunity to operate.
And then the copper import policy tightening influence on supply
For recycling of scrap metal, its savings and price close first. For example, the use of scrap steel is because the savings of scrap steel is very large, the cost of waste is much worse, the use of scrap steel is economic. In addition, when the price of products is higher, the waste materials will be dismantled and processed before there will be profit space, which is also the reason for the import quantity of copper and copper in China is proportional to the price. For copper, the domestic main import copper concentrate production refining copper, Europe and the United States in developed countries to the use of copper scrap is higher.
China is a large copper, after a round of infrastructure, real estate and electronic products production cycle, the accumulation of copper scrap gradually increased. In the long run, China’s future waste copper production is expected to achieve double, according to Cru forecast, 2025 China’s copper scrap will reach 3.8 million tons, to 2030 production is up to 6.75 million tons, the future of domestic copper supply theory increase.
In the short term, the market is generally worried about the 2018 import policy of copper scrap. Next year, the abolition of six types of imports need to qualify but do not need approval, qualified unlimited import quantity, the abolition of seven types of imports need both qualification and approval, with the approval is required to apply for approval amount.
Finally, the surge in copper demand from the new energy vehicle explosion
China’s November sales of new energy vehicles 119,000 year-on-year growth of 83%, the Chinese Automobile Industry Association in the November automobile production and sales data conference, announced the November New Energy vehicle sales data. November production and sales were 122,000 and 119,000 respectively, year-on-year growth of 70.1% and 83%, 2017 years ago November cumulative sales of 639,000 vehicles and 609,000, year-on-year growth of 49.7% and 51.4% respectively.
As environmental policy intensifies, new energy vehicles are the future of the trend, the Chinese market for new energy vehicles, explosive growth in the next few years will have a positive effect on copper prices.