SHANGHAI, Feb. 10 (SMM) — Looking back to 2021, the global economy has recovered in the post-pandemic era. Copper prices rose sharply and then moved in a range for an extended period. With the continued decline in new COVID cases and the lifting of pandemic prevention and containment measures, the market was optimistic about the economic recovery in the first half. At the same time, many countries still maintained low interest rates and soft credit.
The People’s Bank of China (PBoC) has prioritized stability with paramount importance. The United States implemented a new round of bailout bills and the $1.9 trillion fiscal stimulus bill increased market risk appetite and bolstered market confidence. The continued economic recovery against a backdrop of broad global inflation expectations provided an upward impetus to copper prices.
Copper prices rose in the first half of 2021, with LME copper prices reaching a record high of $10,747.5/mt. SHFE copper prices surged to 78,270 yuan/ton, the highest since May 2006. Domestic copper consumption was poor compared to record copper prices in the first half of 2021. And the industry chain’s “pessimism” was transmitted from upstream to downstream sectors. Business cash flow problems have intensified and terminal consumption has been eliminated. Downstream exploitation rates were well below those of the same period in previous years. Cash discounts remained for an extended period in a context of social values.
The US Federal Reserve as well as European central banks have been continuously managing market expectations since June 2021. Market expectations for less bond buying and early interest rate hikes rose after inflation and the unemployment rate met the Fed’s expectations. The US dollar entered a bullish trajectory amid a more hawkish tone from the Fed and the approach of a global liquidity pivot.
In order to control commodity price gains and mitigate the impact of high copper prices on downstream demand and end consumption, the National Food and Strategic Reserves Administration (NFSRA) began offering copper reserves since early July, and the total volume in the three offers of copper reserves amounted to 110,000 tons. In this scenario, copper prices moved to low levels. Copper prices resumed an upward trajectory in October.
The intensification of the global energy crisis has raised inflation concerns. And LME copper staged a short squeeze, with the proportion of canceled warrants reaching as high as 92.2% at one point, lowering available inventory to the lowest level since 1974. Inflation expectations and the Low inventory supported copper prices to a high of 76,330 yuan/ton. With the domestic intervention on coal prices at the end of October, prices for industrial products generally fell and copper prices also fell to the previous level.
The supply of imported cargoes on the market was tight at the end of the year and stocks remained low. In addition to this, the suspension of the issuance of value-added tax (VAT) invoices by customs has left input invoices scarce, pushing spot premiums to over 2,000 yuan/ton, the most high for a decade. Market transactions have entered a stalemate. However, the high premiums quickly dropped and the emergence of the Omicron COVID variant put the global market on edge. Risk aversion sentiment drove the US dollar index higher and copper prices fell back below 70,000 yuan/metric ton.
As the impact of COVID has waned, the market has once again focused on macroeconomic policies overseas. Expectations of early interest rate hikes amid inflation fears restrained copper prices, but current low inventories supported copper prices. Copper prices will remain range-bound as inventory has not pivoted.
China Copper Market Review 2021
The commodity bull market in 2021 has all but ended. LME copper prices peaked at $10,747.5/mt in 2021.
The Federal Reserve has been managing market expectations to scale back its bond purchases at FOMC meetings since mid-year. High inflation has shifted the Fed and European Central Bank (ECB) from dovish to hawkish, suppressing key asset prices to some extent.
In China, the NFSRA offered copper reserves in three batches to the market in mid-2021 to curb rapid gains in commodity prices, and the measures paid off, thanks to the NFSRA accumulating reserves. in large volumes in 2020.
Precise and sustainable fiscal policies, flexible and appropriate monetary policies as well as a benign regulation of real estate in the context where houses are intended for habitation and not for speculation were confirmed during the meeting of the Politburo of the CPC Central Committee by the end of 2021. This will ensure rational and sufficient domestic liquidity in 2022.
On fundamentals, inventory is expected to increase slightly in 2022 and 2023 given the release of large volumes of new and expanded smelting capacity in two to three years. The market will watch the contribution of the new energy sector to the overall marginal growth in copper consumption.
Domestic new smelting capacity will increase by 660,000 tpa in 2022, including 400,000 tpa new capacity from Daye Nonferrous (Yangxin Hongsheng) in the first quarter, 180,000 tpa new capacity from Northern Copper of Zhongtiaoshan Nonferrous Metals, which should be commissioned in the fourth quarter as well as the technologically improved capacity of 80,000 mt/y at Tongling Jinguan in the second quarter. The increase in copper cathode production in 2022 will mainly come from the 300,000 mt/y capacity at Dongying Fangyuan which resumed at the end of November 2021, which will reach full production in the first quarter of 2022.
The slight abundant supply of copper concentrate amid the concentrated release of new capacity in global mines is expected to strengthen TC/RC in 2022. This, combined with the profitable production of sulfuric acid, is expected to increase domestic cathode production by copper over 4.5. %.
On the consumption front, the overall demand for financing and the amount of financing will hardly see a significant increase in 2022 after some domestic real estate companies suffered debt problems. The market will focus on new housing completions that have been depressed in 2021, but floor areas of new housing starts are expected to remain sluggish due to demands that homes are for living in, not speculation.
Overall copper consumption by household appliances is expected to decrease slightly due to the potential decline in export orders and possible increasing substitution of copper by aluminum. The infrastructure and new energy sectors will be the main drivers of copper consumption in 2022.
It was proposed at the Central Economic Work Conference to moderately advance infrastructure investment, and the Conference set the tone for building stable infrastructure in 2022. New energy consumption will maintain a growth rate high driven by new energy vehicles (NEV), photovoltaics and wind power. Powerful.
In the long term, it will be difficult to find expansion of smelting capacity in China after 2023, while refining capacity will continue to grow. And the structure of domestic raw materials will change. The copper scrap and copper anode market will gradually become the focus of the markets. In terms of imports, Europe and Malaysia have related policies in place.
But according to market reactions, there was only a short-term impact of the policies. The resumption of work and production of recycling and dismantling systems in Europe and the United States after the abatement of the impact of COVID will result in a steady growth in the overall copper scrap supply.
The national inventory of scrap copper has declined rapidly due to rising copper prices. Without a mature recycling and dismantling system in China, the domestic supply of scrap copper can hardly see a substantial increase in the short term. And the substitution of copper cathode with scrap copper will depend on the volatility of copper prices.
In general, domestic copper consumption will grow slowly from 2022 to 2023, and there will be a slight surplus in the domestic copper cathode market. The new energy sector will drive the growth of copper consumption in 2024-2025, and the domestic raw materials side will face structural transformation.
To access the full annual report of SMM China Copper Industry Chain 2021-2025, please contact Michael Jiang at [email protected] or T:+86-21-51666812 |M:+86-1522- 1415-920.