Editor's note: The supply tension has escalated sharply, and copper prices have rebounded to more than 10,000 US dollars per ton; Goldman Sachs has raised its forecast for copper prices by the end of this year to 10,500 US dollars per ton; however, Citigroup warned that copper demand will shrink in the next three months, and copper prices will Another 10% drop
The global price rise seems to be intensifying
Copper, whose price continues to rise, has soared again in recent days.
On October 15, copper inventories at the London Metal Exchange (LME) fell to the lowest level since 1974. According to data from the LME warehouse, existing copper inventories in the LME warehouse plummeted 89% this month. Last Friday, the LME warehouse There are only 14,150 tons of copper left in China's free supply, while the industry's annual consumption is about 2,500 tons.
Previously, Nyrstar, the world's largest zinc smelting company, announced that European refineries would reduce production by up to 50%, which once again detonated global industrial metal prices. The prices of copper and aluminum have also started to skyrocket. Global supply tensions have escalated sharply, causing futures and spot price differences to soar, pushing copper prices back up to over $10,000 per ton.
Copper prices are so strong that related concept stocks have performed well this year. Among them, VEDL has soared 153% this year, and McMoRan Copper and Gold has soared 49%. In terms of ETFs, the Copper Mine ETF and the U.S. Copper Index Fund have both risen by more than 32%.
Demand surged, and copper inventories hit a new low in 1974
According to reading data tracked by Wind from LME warehouses, copper inventories fell by 89% this month, mainly due to a surge in European metal orders. The last time this level of inventory squeeze occurred was back in 2006. At that time, China's industrial development was booming and copper demand surged. However, the current LME inventory level is even lower than in 2006, and has set all records since the London Stock Exchange ( 1974), China's copper inventory levels also fell last Friday.
Michael Widmer, director of the Bank of America Metal Research Institute, said that a physical contract currently being traded by LEM is actually not supported by physical metal in the warehouse. If more physical copper is not seen to fill the inventory in the future, the market price will be even crazier. .
This historically low inventory situation is being reflected in the market with extreme futures/current price differences. The LME spot trading price is $1,000 higher than the futures price expiring after March, which is the largest price difference since 1994.
Of course, the recent crazy price differences have attracted the attention of the London Stock Exchange. In a recent statement, it stated that it will continue to pay close attention to the situation and provide more options when needed to ensure the normal operation of the market.
Goldman Sachs said that copper is the most undervalued commodity at the moment. The market has ignored the important factor of inventory reduction, and copper prices will most likely continue to rise.
Currently, the collective surge in upstream commodity prices in the global market is being transmitted to downstream consumer goods, exacerbating investors' concerns about inflation. The International Monetary Fund calls on central banks in advanced economies, including the Federal Reserve, to be ready to tighten monetary policy at any time.
Institutional view
Optimist
Goldman Sachs pointed out that the global power shortage has exacerbated the shortage of copper resources, and there is a strong positive correlation between coal supply and the sharp decline in copper inventories.
Energy consumption data shows that the smelting industry has been hit far more severely than downstream manufacturing (energy demand has fallen 1% year-on-year since the power problems began). Simply put, power issues reduce copper supply more than its downstream demand.
In addition, copper mining has entered a multi-quarter stagnation stage. Since this year, mining volume has continued to decline slightly. Goldman Sachs expects global mineral supply growth to slow in the second half of this year and not pick up until the second half of 2022.
With copper inventories rapidly shrinking, global copper inventories may reach an all-time low at the end of the year. Goldman Sachs raised its forecast for copper prices at the end of this year to US$10,500 per ton.
Kostas Bintas, head of copper trading at Trafigura Trading Group, believes that aside from the rise in commodities, global stock markets are falling faster, and it is obvious that the copper market is facing a serious shortage problem.
Bank of America said that if problems occur on both the supply and demand sides, copper prices may reach US$20,000/ton.
David Lilley of London Metals hedge fund firm Drakewood Capital Management said tightness in the spot market could help push copper prices to another record high, possibly before the end of the year, roughly in line with Goldman Sachs' forecast. Lilley said in an interview that the obvious fact is that all energy sources in the world are running out. Global copper inventories are declining and show no signs of rising.
HSBC Global Research issued a report stating that due to the steady growth in demand and continued supply concerns, copper prices are expected to remain high, but there are also downside risks. The reasons include that although China's copper consumption is stable, the recent power outage and real estate market The tightening has slowed industrial activity.
In addition, rising energy costs in markets outside China, especially in Europe, may slow copper consumption growth. HSBC Research raised its copper price forecast by 1% this year and 3% next year to reflect the higher average price so far this year.
Huatai Futures believes that the US infrastructure bill will stimulate copper demand to a certain extent. Huatai predicts that the investment in the infrastructure bill will bring about an increase in consumption of 611,600 tons. Taking the infrastructure bill as a five-year period, the average annual increase will be 122,300 tons. According to Woodmac data, U.S. refined copper consumption in 2020 was 1.767 million tons, and the increase brought by the infrastructure bill accounted for approximately 6.9% of U.S. copper consumption, which will have a certain stimulating effect on overall copper consumption.
Pessimism
Citi is bearish on the future trend of copper prices
Citi believes that soaring natural gas and electricity costs will make the copper market unbearable and may trigger a new round of stagflation, with demand from consumers and manufacturers falling sharply, but commodities and raw material costs remain high.
Citi’s commodity research team warned that copper demand will shrink in the next three months and copper prices will fall another 10%. Max Layton, head of commodity research at Citi, said the main reason for his bearishness is that the copper market will get worse as the European power, oil and gas crisis spreads. Juan Benavides, chairman of
Codelco, also said in an interview that the copper market has not seen any signs that manufacturers are reducing demand due to high energy prices. Nonetheless, the macroeconomic outlook is uncertain, and he believes copper prices may not hit new highs in the short term.
Regarding this, do you think the price of copper will rise or fall in the future?
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