1. Futures market review
1. The worsening situation between Russia and Ukraine triggered supply concerns, and copper prices fluctuated upwards
Figure 1: Main trend chart of Shanghai copper
Copper prices fluctuated upwards in March. Affected by the tension between Russia and Ukraine, Lun copper hit a new record high. The monthly price rose by 5.15% or 507.5 US dollars. The main force of Shanghai Copper closed at 73320 points. The monthly price rose by 3.28% or 2330 yuan. At the beginning of the month, geopolitical risks were rife. Ukraine intended to join NATO . European and American sanctions were intensified, involving bulk commodities such as crude oil, stimulating oil prices to rise one after another. U.S. crude oil recorded a maximum of 130.5 US dollars on March 7, which was A new high since 2008. Supply concerns and expectations of rapidly rising inflation have boosted the collective surge in non-ferrous metals. Nickel prices have stopped rising for three consecutive times, and copper prices have hit a record high. On March 8, they experienced a roller coaster market, with daily fluctuations close to Six thousand yuan.
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's subsequent market gradually reviews the guidance of fundamentals. Due to the persistence of inflation, the overall trend is high and difficult to fall . On the macro front, the Federal Reserve raised interest rates by 525 basis points in the first round, and is expected to accelerate the pace of tightening in the future; the domestic epidemic spreads rapidly, downstream supply and demand are weak, the inventory of the previous period has declined, and the traditional consumption peak season is under pressure From a technical point of view, it is expected that the mid- to long-term highs will remain high and the price will rise, and there may be adjustments in the short term.
2. The inventory fell and the rising water rose
. The spot copper in March rose by 2,850 yuan, and the premium and discount rose along the way. The seasonal destocking of the exchange in the first issue this year was relatively early, and the explicit inventory began to decline at a low level. The overall supply was tight. At the same time, the epidemic in Shanghai was severe and transportation was difficult. The downstream demand side was also under pressure. The weakening supply and demand had no impact on the market. There is an obvious support effect, and the holiday pattern around Shanghai is forced to be advanced by the end of the month.
In terms of import profits and losses, the Federal Reserve hawkish interest rate hikes have been implemented, and the US dollar has strengthened. The import profit window continues to close this month, and the gap has slightly expanded to around 700 yuan/ton.
Figure 2: The trend of electrolytic copper and price premiums and discounts
Figure 3: Import profit and loss and Shanghai-London ratio
Scrap market dynamics
Compared with the end of last month, spot copper increased by about by about 3,000 yuan/ton, and scrap copper increased by 2,300. The price difference of refined scrap will be around 2,300 yuan by the end of the month, and scrap copper has an obvious advantage.
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The scrap copper market was in a hurry at the beginning of March rose and fell rapidly. The price fluctuated greatly. The stockholders were reluctant to sell the goods and maintained a price-raising attitude. The trading atmosphere in the market is gradually sluggish; we also tracked that due to the impact of the new fiscal and taxation policies, most cargo holders actively sold their goods at the end of February, resulting in low supply and inventory in the current market and an obvious rush for goods in the market.
html In mid-March, Shanghai copper bottomed out and rebounded, with prices rising , especially on March 18, which rose by as much as 700 yuan/ton. Subsequently, the market continued to rise, and cargo holders increased shipments. However, due to the impact of the epidemic, many places have had to temporarily suspend production. The market has highlighted that there is a price but no market, especially in Quanzhou Nan'an , Suzhou , Anhui Hefei, Shanghai and other places. Among the copper factories, Hunan has the highest quotation, which is mainly to complete orders. Therefore, the quotation on March 22 stopped after only five minutes, and subsequent prices returned to the market. As Jiangxi's subsidy policy tightens, the copper factory's voting costs have increased and its competitive advantage has declined.
On the morning of March 25, Baoding market sold 40 tons of whole vehicle at 66,700 yuan/ton. The epidemic continues to ferment, and many places have entered control, making it difficult for resources to flow out. Coupled with the recent continuous rise in market prices and tight supply, copper factories in Jiangxi and other places have passively raised prices and increased . In addition, because Linyi had empty orders in the early stage, traders received the goods at a very high price, and the price was once reported at 67,200 yuan/ton. Taizhou Although the market has been out of stock due to the epidemic recently, the new taxation has increased the cost of copper plants and increased transportation costs, so that the actual transaction price is lower than the market quotation, and there is a situation of price reduction.
html Starting from the beginning of March 2020, Finance and Taxation Document No. 40 was officially implemented, and the issue of standardized tax payment for recycled metals became a hot topic in the market. It is now just one month old. It is understood that Linyi Metal City in Shandong Province and Tongling in Anhui Province have issued bills for simple tax calculation at 3 points for scrap copper. Copper factories basically use recycling companies to pay the relevant taxes themselves. Externally, they still use the bill without a bill or 13 points. To purchase by counting votes, for copper factories in Hebei, Tianjin, Xinxiang, Henan and other areas that do not have tax rebate subsidies, there is no difference between before and after, only the profit margin of processing fees has been expanded.
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Regarding the difficulties and doubts about the determination of income tax, various places still have not given a clear ratio, because there is no rush for income tax payment, so it is temporary. It is said that copper factories realize cash and lower prices to offset part of the rising costs. Regarding the issue of input recognition, most regional tax authorities do not recognize it, or they are still on the way, which leads to the existence of input depression, which can be the first choice for subsequent traders to establish recycling companies. At the same time, influenced by policies, subsidies in Jiangxi declined in mid-March. The calculation points for scrap copper from scrap copper factories in various places generally increased by about 6 to 7 points, including in Shangrao area where many manufacturers have been established since last year. Copper plants in northern Jiangsu have resumed production this month after suspending production in September last year.
3. Market Trend Forecast
International aspects: The European Central Bank has significantly raised its inflation expectations for 2022. The inflation expectation is expected to be 5.1% in 2022, which was previously expected to be 3.2%; GDP growth is expected to be 3.7%, compared with the previous forecast of 4.2%.
The CPI in the United States in February rose by 67.9% year-on-year, continuing to hit a new high in 40 years. It is worth noting that this report is the last major economic data before the Federal Reserve’s March decision, and it measures the economic situation before the Russia-Ukraine conflict escalated. U.S. inflation is probably far from peaking.
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A week after the Federal Reserve announced a 25 basis point interest rate hike, Chairman Powell publicly stated that the current inflation rate is too high (muchtoo high) and does not exclude the possibility of raising interest rates in the future. Or raise interest rates by more than 25 basis points at multiple meetings. Almost at the same time, the Governing Council of the European Central Bank and President of the Bank of France Villeroy and the President of the German Bundesbank re-released their expectations for an interest rate hike at the end of the year. Such a rapid and obvious change to a hawkish stance shows that the core consideration of European and American central banks' decision-making is still inflation. It is pragmatic to return to normal monetary policy as soon as conditions permit, which will help reserve policy space for subsequent interest rate cuts as early as possible.
Intercontinental Exchange news, starting from March 25, Brent crude oil futures margin increased 19%. London Metal Exchange (LME) news, starting from the close of March 28, the initial margin per ton of nickel trading will be raised from 4,808 US dollars to 6,144 US dollars, and the initial margin per ton of tin trading will be raised from 3,541 US dollars to $4326.
Russian President Putin signed a decree on natural gas trade settlement in rubles , which came into effect on April 1. Putin said that if buyers from "unfriendly countries (and regions)" do not fulfill new payment conditions, Russia will suspend existing natural gas supply contracts.
Head of the Russian negotiating delegation and presidential assistant Mezinsky said that Russia’s position on the Crimea and Donbas regions has not changed.
U.S. President Biden announced an unprecedented oil reserve release plan on March 31. About 1 million barrels of oil will be released every day in the six months starting in May, and a total of 180 million barrels may be released.
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Domestic aspects: html In March, the domestic non-manufacturing business activity index was 48.4%, a decrease of 3.2 percentage points from the previous month, and the non-manufacturing business boom dropped to 48.4%. contraction interval. Looking at different industries, the business activity index of the construction industry was 58.1%, an increase of 0.5 percentage points from the previous month. The business activity index of the service industry was 46.7%, a decrease of 3.8 percentage points from the previous month.
The Central Bank's Monetary Policy Committee the first quarter regular meeting of 2022 pointed out that it will increase the implementation of prudent monetary policy , enhance forward-looking, precise, and autonomous responses, boost confidence, provide stronger support for the real economy, and stabilize Macroeconomic broad market .
The Joint Prevention and Control Mechanism of the State Council held a press conference on the 25th. At the meeting, National Health Commission spokesperson Mi Feng said that we must continue to adhere to the general policy of " dynamically clearing " unswervingly. Improve epidemic monitoring, early warning and emergency response capabilities, scientifically organize nucleic acid and antigen testing, promote the collection of infected people and isolate close contacts, implement prevention and control measures in every link, completely block the community spread of the epidemic, and achieve this goal as soon as possible The social aspect is cleared.
Post-holiday market trend prediction:
Shanghai copper rose first and then declined this month. It once hit a recent high during the month, fell back and stabilized and then fluctuated slightly, with the monthly spot rising 2,930 yuan. Affected by the conflict between Russia and Ukraine this month, high energy and food prices and have driven the overall commodity market to be stronger. Sanctions against Russia by many European and American countries have triggered concerns about LME metal delivery, and supply issues have led to multiple rounds of speculation.
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On the other hand, continued high inflation has triggered the Federal Reserve to raise interest rates, but the US index has limited upside , and non-ferrous metals have been affected by the news of a 25bp interest rate hike. There was a slight rebound after settling down. Copper is currently in a traditional destocking cycle. Due to the epidemic in recent years, the overall focus of inventories has shifted downwards, which has driven the spread of strong market sentiment recently.
However, it is worth noting that the current European and domestic manufacturing PMIs in March are showing signs of decline. Industrial production profits are hindered by high CPI and PPI. The macroeconomics in the second half of the year may not be able to support stronger metal power. With the recent destocking After the end of the day, copper prices may show more signs of bearishness. It is expected that Shanghai Copper will maintain a high and strong trend next month. Affected by the uncertainty between Ukraine and Russia, there is a high probability of a longer correction after each upward trend. Pay attention to the trading rhythm. The main force of Shanghai Copper is 71,000-75,000. Lun copper is US$10,000-10,700, scrap copper is US$64,000-67,500.
