Summary:
On the macro level, the Fed has a high probability of Taper in November, but it is expected to have a limited impact on the market, with the main focus on whether to send a signal to raise interest rates. Pay attention to the Federal Reserve interest rate meeting on November 4th. Domestically, China released an official manufacturing PMI index of 49.2 in October, down 0.4 percent from September and in a contraction range for the second month in a row. The index of non-manufacturing activity was 52.4, down 0.8 percentage points from September. The downside of the economic data confirms the previous concern that the energy shortage is still strengthening, and the economic slowdown in the fourth quarter is expected to further strengthen and be more bearish.
Fundamentals, October 29th copper concentrate TC quoted price of US $62.84 / ton, down US $2.46 / ton from US $65.30 / ton on September 30th. The slowdown in the recovery of TC since September is mainly due to the recent disturbance at the copper end of South America. Domestic refined copper limited electricity disturbance production is not as expected, demand is weak, inventory remains low. Copper prices rise and fall, and the price gap of fine waste first expands and then narrows, because the supply of scrap copper is not abundant, and the overall substitution effect is limited. SHFE inventories rebounded in the last week of late October, up 9488 tonnes from the previous week to 49327 tonnes. Although the congestion of LME has been alleviated, the spot rising water is still relatively high, the import window continues to close, and the inventory dropped to 140175 tons within the month, accounting for 78.9% of the cancellation receipts, and the available inventory is about 30, 000 tons. The persistence of inventory changes inside and outside the whole still needs to be paid attention to.
Views and strategies: it is expected that the negative sentiment caused by the coal market will gradually ease after November. If the Fed's interest rate meeting does not exceed expectations, copper prices may gradually stabilize. Under the weak pattern of both supply and demand, low inventories are still effective for price support. However, the upward price drive still needs further bullish news guidance. It is expected that the main fluctuation reference range of CU2112 is 69000-74000 yuan / ton, which is still dominated by interval band trading in operation.
Risk hint: the overseas energy crisis continues to ferment (upside risk); the Fed interest rate meeting exceeds market expectations (downside risk).
I. Review of the market
After the National Day in October, due to the fermentation of the European energy crisis and the greater risk of overcrowding in Lun copper inventory, copper prices rose above 76000 yuan / tonne, and then LME revised the delivery rules to ease the risk of overcrowding positions. LME rising water narrowed from a high of 1103.5 US dollars / ton to below 200 US dollars / ton. Towards the end of October, the domestic coal market implemented a strong supply policy, market panic spread to non-ferrous metals, copper prices followed. During the month, LME copper reached a maximum of 10452.5 US dollars per ton and a minimum of 8876.5 US dollars per tonne. It is currently operating around 9500 US dollars per ton, with a monthly increase of about 7 per cent. The CU2112 contract price was as high as 76550 yuan / ton and the lowest was 68660 yuan / ton, closing at 70540 yuan / ton, a monthly increase of 4.01%.
Chart 1: price trend of Shanghai Copper 2112 contract
Data sources: Wenhua Finance and Economics, Guangzhou Futures Research Center
II. Fundamental analysis
(I) the situation on the supply side
1. The copper mine maintains the recovery trend.
October 29th copper concentrate TC quoted price of 62.84 US dollars / ton, has been a big recovery from 30 US dollars / ton in March this year, almost close to the pre-epidemic level. However, the recovery of TC has slowed since September, mainly due to the recent disturbance at the copper end of South America.
Figure 2: copper concentrate spot TC upstream slows down
Data sources: SMM, Guangzhou Futures Research Center
Figure 3: copper imports continue to pick up month-on-month
Data sources: SMM, Guangzhou Futures Research Center
Copper ores and concentrates imported 2.1109 million tons of copper ore and its concentrates in September 2021, + 11.9% month-on-month, with a total import of 17.3694 million tons from January to September, a total of + 6.2% compared with the same period last year.
According to the International Copper Research Organization (ICSG), there is a shortage of 31000 tons of refined copper in the world in July and 98000 tons in June. The production of refined copper from January to July in 2021 was 14.361 million tons, compared with 13.994 million tons in the same period last year. The output of refined copper in July 2021 was 2.073 million tons, compared with 2.027 million tons in the same period last year.
2. Domestic refining production is expected to pick up.
In September, the Bureau of Statistics announced that China's electrolytic copper production was 885000 tons, + 1.3% month-on-month and + 2.4% year-on-year. In the second and third quarters, domestic copper smelting enterprises were limited by electricity production restrictions, and most of them arranged maintenance in advance, and the output of refined copper was obviously restrained. According to SMM research, smelters gradually completed maintenance in September, and TC rebounded and sulfuric acid prices remained high around 1000, thickening refinery profits. Without stricter production restrictions, refined copper production is expected to pick up month-on-month in the fourth quarter.
As of October 20, the national market price of sulfuric acid (98%) was 926.3 yuan / ton, down 104.7 yuan / ton from the September high of 1031 yuan / ton. According to SMM, due to the continuing impact of power cuts in eastern China, local chemical companies have been forced to cut production, resulting in a sharp drop in sulfuric acid demand. Tongling Nonferrous Corp. Jinguan and Jinlong Copper decided to start reducing the amount of copper smelting due to the potential risk of sulfuric acid expansion, which is temporarily expected to affect 20%. At present, the price of sulfuric acid is gradually falling in the traditional off-season and the demand side is disturbed by large power cuts.
The copper long order premium for Codelco to Europe in 2022 is US $128 / tonne, an increase of US $30 / tonne over US $98 / tonne in 2021, an increase of as much as 30%. It is estimated that the premium for copper to China is US $118 / tonne. Since 2008, Codelco has sent copper to China at a premium of up to US $138per tonne, which occurred in 2014. Reflect the tight expectations of the market for refined copper supply next year.
Figure 4: refined copper production is expected to pick up
Data sources: Wind, Guangzhou Futures Research Center
Figure 5: the high price of sulfuric acid falls slightly
Data sources: Wind, Guangzhou Futures Research Center
3. There is no obvious improvement in the tight supply of scrap copper.
The import of refined copper in September was about 260000 tons, down 50% from the same period last year. From January to August, the cumulative import volume was 2.582 million tons, a decrease of 27.5% over the same period last year.
Scrap copper imported 134000 tons in September, up 68.3 percent from the same period last year and 3.6 percent from the previous month. The cumulative import volume from January to September in 2021 was 1.234 million tons, an increase of 85.1% over the same period last year.
From the perspective of scrap copper imports, although China's scrap copper imports have increased by more than 80% this year compared with the same period last year, the domestic production capacity of recycled copper rods has expanded rapidly, and there is still a large gap in the supply of scrap copper raw materials. Whether imported or domestic recycled copper raw material supply, it is difficult to significantly increase in the short term to meet demand. The renewed blockade of scrap copper in Malaysia in June aggravated the tension of scrap copper, and the price gap for fine scrap was once upside down. now Malaysia has improved, but the import policy needs to be tightened again. According to the newly revised import guidelines, all inspected and approved scrap metal imports are required to achieve a minimum metal content of 94.75%.
According to the detailed rules of the new standard for China's recycled copper raw materials implemented since November 1, 2020, the minimum copper content of recycled copper raw materials is not less than 97%, and the lowest brass content of recycled brass raw materials is not less than 95%. The new import standard of Malaysia is similar to that of China in some respects.
Most of the scrap copper dismantled in Malaysia comes from overseas. In a short time, if Malaysia starts to implement the new policy of importing scrap copper from November 1, it may lead to a decline in the import of scrap copper from Malaysia, and then the amount of scrap copper exported to China will be reduced, which will have an impact on the supply side of scrap copper in China. In September, we conducted an on-the-spot investigation of several scrap copper rod enterprises in Yingtan, Jiangxi Province. The enterprises reported that most of the dismantling plants in Malaysia would probably be transferred to India in the future, but it may take a long time to be affected by the epidemic. The supply of scrap copper imports will remain tight for a long time.
Figure 6: refined copper imports are still low
Data sources: Wind, Guangzhou Futures Research Center
Figure 7: refined copper imports maintain losses
Data sources: Wind, Guangzhou Futures Research Center
Figure 8: the import supply of scrap copper is tight.
Data sources: Wind, Guangzhou Futures Research Center
Figure 9: scrap price gap widens significantly
Data sources: Wind, Guangzhou Futures Research Center
(2) the situation of the consumer side
According to Mysteel data, the operating rate of copper rod enterprises was 64.43% in September, down 3.42% from the previous month; the operating rate of copper strip enterprises was 78.1%, an increase of 1.84% from the previous month. The operating rate of copper pipe enterprises was 75.87%, down 6% from the previous month.
In terms of basis, as domestic inventories continue to decline, the supply of negotiable goods in the market decreases, the spot price is tight and the rising water (spot price-futures main contract) is high, and the price spread widens to a high of 400 yuan every other month.
Figure 10: operating rate of copper bar enterprises
Data sources: Mysteel, Guangzhou Futures Research Center
Figure 11: operating rate of copper pipe enterprises
Data sources: Mysteel, Guangzhou Futures Research Center
Figure 12: operating rate of copper strip enterprises
Data sources: Mysteel, Guangzhou Futures Research Center
Figure 13: the basis maintains a high rising water structure
Data sources: Mysteel, Guangzhou Futures Research Center
(3) inventory situation
First of all, let's take a look at domestic inventories. Both stock exchanges and social treasuries have maintained a downward trend since May. At present, they have dropped to an absolutely low level. As of October 29th, the sum of the two is about 131000 tons. Based on China's annual consumption of about 12.5 million tons, the daily consumption is about 35000 tons, and the current domestic inventory can consume 3.74 days.
From the perspective of overseas inventory, inventory in Shanghai bonded area has declined rapidly from around 440000 tons in early July to around 200000 tons at present, a drop of more than 50%. This is due to the restriction of domestic production since July. the tight scrap copper leads to the replacement of refined copper consumption and the opening of import profit window, which makes a large number of stocks in the bonded area flow into the country. LME inventories have also begun to decline since September and are now 140000 tonnes, down 44 per cent from their September high of 250000 tonnes. We take into account the three major exchanges + Shanghai Free Trade Zone + domestic social treasury, the total inventory is about 519000 tons, according to the global annual consumption of 25.03 million tons, the consumption days is about 7.5 days.
It is worth noting that after entering October, the proportion of written-off warehouse receipts of LME copper rose rapidly, resulting in a continuous decline in available inventories, with the ratio of LME written-off warehouse receipts exceeding 90% in the middle of the week, resulting in less than 20, 000 tons of available inventory of LME copper, and the risk of overrun pushed the spot water to an absolute all-time high above $1000. Subsequently, LME investigated copper trading and implemented spot premium restrictions and deferred delivery mechanisms. The Back structure of LME copper has shrunk somewhat, and LME0-3 was recently quoted at US $189USD / tonne on Oct. 28th.
Chart 14: inventory continues to decline in the previous period compared with the previous period.
Data sources: Wind, Guangzhou Futures Research Center
Figure 15: spot inventory in mainstream areas of China continues to decline month-on-month.
Data sources: Wind, Guangzhou Futures Research Center
Chart 16:LME copper inventory continues to decline significantly
Data sources: Wind, Guangzhou Futures Research Center
Chart 17:LME Copper available inventory
Data sources: Wind, Guangzhou Futures Research Center
Chart 18 Total inventory in Shanghai Free Trade Zone
Data sources: Wind, Guangzhou Futures Research Center
Figure 19: the global overall inventory-to-consumption ratio is absolutely low.
Data sources: Wind, Guangzhou Futures Research Center
III. Investment suggestions
It is expected that the negative sentiment caused by the coal market will gradually ease after November. If the Fed's interest rate meeting does not exceed expectations, copper prices may gradually stabilize. Under the weak pattern of both supply and demand, low inventories will still be effective for price support. However, the upward price drive still needs further bullish news guidance. It is expected that the main fluctuation reference range of CU2112 is 69000-74000 yuan / ton, which is still dominated by interval band trading in operation.
Risk hint: the overseas energy crisis continues to ferment (upside risk); the Fed interest rate meeting exceeds market expectations (downside risk).
Guangzhou Futures Xu Keyuan