expectation of global recession continues to increase, and the inventory cycle may have peaked
The financial attributes of copper are higher than most commodities. From a historical perspective, the global economic cycle is about 10 years, but due to the impact of the epidemic, the Russian-Ukrainian conflict has intensified the European energy crisis after entering 2022, and the rapid hike of interest rates by the Federal Reserve under anti-inflation pressure, the global economic growth rate may face downward risks ahead of schedule. The US PMI data showed an accelerated decline, while Europe performed even weaker. High inflation restricted its tools to cope with the crisis. The market's concerns about the European debt crisis continued to rise. Copper prices are highly consistent with the global economic growth trend. Although the domestic economy is likely to enter a weak recovery stage, overseas demand for copper accounts for about 40%. In the overseas recession stage, the downstream of copper will still be significantly suppressed, and copper prices are expected to be dragged down.
From a shorter cycle, since the terminal demand for copper companies will actively or passively adjust their inventory due to the economic situation, the inventory cycle will also have a certain influence on copper prices. The inventory cycles of China and the United States have basically remained synchronized, but due to the influence of this round of epidemic and other factors, China's new inventory cycle has started significantly ahead of the overseas market. At present, the domestic inventory cycle has shown signs of peaking, and the leading indicator industrial products PPI has shown a turning point. Although the US inventory cycle is still on an upward trend, the leading indicator inventory sales ratio and import data are showing signs of a decline or peak. From the perspective of traditional economies with trade surplus in goods, Germany, South Korea and emerging market Vietnam have repeatedly experienced a trade deficit in , which also confirms that global demand has turned weak.
The picture shows the inventory cycle of China and the United States
The picture shows the frequent deficits of goods in various countries
Inflation expectations are marginally downward, and hedging demand continues to weaken
Since this year, the Federal Reserve has carried out multiple interest rate hikes. The lag at the opening of the interest rate hikes confirms that this round of interest rate hikes is more reflected in the necessity of suppressing inflation and the tightening of global liquidity rather than economic prosperity, so the impact on copper prices is negative. Judging from the historical trend, in addition to maintaining a high correlation with economic growth, copper prices also have high synchronization with inflation expectations. Under the expectation of aggressive interest rate hikes, inflation expectations are easy to fall but difficult to rise. In addition, from historical experience, the more radical interest rate hikes are, the faster the recession is coming.
The epidemic postponed the release of mine production, and the profits of smelting enterprises improved. In terms of copper mines, the impact of the epidemic has subsided, and the growth rate of mineral copper in the second half of the year has risen marginally.
The chart shows inflation expectations and copper price
Generally speaking, the output of copper mine companies is greatly affected by capital expenditure, while the capital expenditure of copper mine companies is synchronized with copper prices or lags behind for one year. However, due to the long copper mine production and construction cycle, it usually takes 4-5 years to increase output. The bottom of the copper price in the last round appeared in 2016, but the implementation time was significantly delayed due to the impact of the epidemic. At present, global epidemic control has been relaxed, and the release of copper mineral output is expected to gradually reflect.
Global copper mineral output is relatively concentrated. According to the quarterly reports of major mining companies, it shows that due to epidemics, strikes, maintenance, environmental protection, climate, and declining mining tastes, some of the output in the first quarter showed a decline, but most of them may have a relatively short-term impact. Although some mining companies also lowered their annual output estimates in their quarterly reports, their average output growth rate still remained at a relatively optimistic 6%. In 2021, when the output growth rate of major mining companies reaches 2.89%, the global copper ore output growth rate is 1.65%. Therefore, based on this, it is inferred that the growth rate of copper ore output in 2022 may reach about 3.6%-4%.
smelting end, processing fees and by-product prices are simultaneously upward, and high profits help production capacity. As the market's expectations for the release of copper mineral output continue to increase, processing fees have been rising since the second half of 2021. At present, TC/RC fees have reached historical highs. At the end of June, CSPT held an online meeting to finalize the spot TC guide price of copper concentrate in the third quarter of 2022, which was finalized by CSPT, was US$80/dry ton, while US$55/dry ton in the same period last year, which also verified the expectation of the copper mine supply to be loose.
is currently converted to smelting and processing costs of about 2,500 yuan/ton, while China's copper smelting cost is about 1,800-2,500 yuan/ton. The profitability of the copper smelting industry is improving significantly. In addition, the by-product sulfuric acid has also brought about increased profits to copper smelting companies in the near future. With the recent price of sulfuric acid maintained at 900 yuan/ton, the profits of smelting companies can reach nearly 3,000 yuan/ton, at a historical high. Although the first half of 2021 was affected by factors such as power restrictions, my country's refined copper production year-on-year growth rate from January to May was still 3.68%.
The weak domestic recovery is difficult to hedge against the overseas recession, and the lack of incremental demand for new energy
In terms of traditional demand, the power industry provides major growth, and weak real estate drags down the demand for home appliances.
From the current perspective, there is still high certainty in the continued efforts of infrastructure investment in the second half of the year, with the completion of infrastructure investment from January to June 2022 increasing by 9.25% year-on-year. From the perspective of funding sources, at the State Council meeting in June, the management proposed two incremental policy tools, which are expected to make up for the revenue and expenditure gap caused by the pre-investment of special bonds and normalized nucleic acids in the first half of the year, and infrastructure is still expected to maintain a high growth rate throughout the year. In addition, the completed investment of power grids, which are highly correlated with downstream copper demand, is 126.3 billion yuan. Although it maintained a year-on-year growth rate of 3.1%, due to the epidemic, it is still a long way from the 2022 annual target. Previously, according to the investment plans of State Grid and Southern Power Grid , the annual investment target for 2022 will reach 625 billion yuan, which means that the average monthly grid investment in the second half of the year will exceed 70 billion yuan, a significant increase over the same period last year. The incremental investment in power supply is expected to be mainly concentrated in new energy-related wind power, photovoltaics, etc. According to historical data analysis and combined with the new energy sector increment, the demand for the power sector is expected to increase by 1 million to 1.3 million tons in 2022.
In terms of automobiles, although stimulus policies are frequently released, judging from the effectiveness of past policies, the actual driving effect of automobile consumption stimulus policies on production and sales is weakening year by year. In addition, in June 2022, the year-on-year growth rate of automobile production rebounded to 26.8%, but the growth rate mainly comes from new energy vehicles. Currently, supporting the purchase and use of new energy vehicles is an effective way to stabilize and expand automobile consumption and ensure the smooth operation of the industry. Therefore, the focus of stimulus policies is still focusing on new energy vehicles, and the main increase in automotive copper in 2022 is expected to still come from new energy.
In terms of real estate, the real estate sales area, newly started area, construction area and completed area all showed significant declines in the first half of the year. Previously, under the goal of "guaranteed delivery", the market still had relatively optimistic expectations for the completion end, but "forced supply cutoff" projects have occurred frequently recently. Although the amount of funds is relatively limited, related events are still fermenting. Against the background of the transformation of the high turnover and high leverage business model, real estate companies are under great pressure, and further stricter fund supervision will aggravate the tight capital chain problem. From the perspective of residents' demand, my country's leverage ratio has reached the level of European and American countries, and with the tone of the "housing for living, not for speculation" policy, it may be difficult to see significant improvement in the sales end in the second half of the year.
The overall real estate boom is currently poor, and the house's own financing channels are limited. If the financial pressure further deteriorates in the second half of the year, the annual completion growth rate may not be able to achieve positive growth. In addition, the downward trend in the real estate industry is expected to drag down the home appliance sector, and the copper consumption of construction and home appliances in 2022 may decrease compared with last year.
The incremental price response of new energy demand has been relatively sufficient, and the total proportion is limited.
In the medium and long term, the demand for copper in the new energy sector will continue, but the marginal positive support for prices is weakening. The main reason is that the market has been rising in the development growth rate of the new energy industry before, and the copper price has already responded more fully to this, and the incremental driving force for prices is limited. Taking the wind power industry with the largest copper use as an example, the installed capacity of new wind power in 2022 is expected to reach 60GW. Currently, the newly added installed capacity from January to May has reached 10.82 million kilowatts, and the remaining unfinished capacity is 49.18 million kilowatts, while the newly added capacity from June to December last year was 39.78 million kilowatts, which means that the year-on-year growth rate in the second half of the year is only 23.63%, far lower than the year-on-year growth rate of 60.5% in February this year and slightly lower than the annual growth rate.Therefore, although the new energy sector will still maintain a high demand for copper, its marginal positive growth for prices has gradually weakened.
In addition, although the demand increase of the new energy sector is relatively significant, its proportion in downstream copper demand is still limited at present. According to estimates, the demand for copper in the new energy sector is expected to reach 1.41 million tons in 2022, including 350,000 tons of photovoltaics, 470,000 tons of automobiles, and 590,000 tons of wind power. The annual copper demand is about 14 million, and the proportion of new energy is currently only about 10%. As demand growth slows down, its influence on prices has gradually weakened.
From the perspective of absolute price, although this round of copper prices has fallen by about 26% from the high point, it is still above the average. Compared with history, the three rounds of copper prices have fallen sharply from 2007 to the present are 66%, 54% and 35% respectively. From the perspective of time comparison, the first three rounds of decline lasted for 1.5 years, 4.5 years and 2.5 years respectively. Therefore, at present, there is room for further decline in copper prices, whether from the perspective of time or space. And through reviewing this round of copper price increases, it has gone through three stages, the main drivers are: supply tightness caused by the epidemic, the global launch of loose policies to promote improvement in demand, and liquidity has led to high inflation to support commodity prices. From the current perspective, the above three factors have shown signs of weakening or turning. Coupled with the downward drive of the macroscopic side, it is not ruled out that copper prices may fall to the beginning of 2020, that is, 47,000-50,000 yuan/ton. (Author’s unit: Xingye Futures)
This article is from Futures Daily
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