The supply of refined copper remains tight and balanced. Copper prices may first decline and then rise in the second half of the year
There is still a downward risk in the current domestic economy. The process of China US trade negotiations determines the magnitude of domestic policy adjustments. If external pressure weakens, the domestic momentum will decrease, while if external pressure increases, the domestic stimulus will be strengthened. It is expected that copper prices will first decline and then rise in the second half of the year.
There is significant uncertainty in terms of consumption
At the end of the first quarter, the market had high expectations for peak season consumption, but it ultimately fell significantly below expectations. From the perspective of various sectors of copper consumption, there is significant uncertainty: there are no signs of stabilization in the automotive and air conditioning markets; The second half of the power industry is indeed worth looking forward to, but it is not about accelerating the transformation of rural power grids or completing the 13th Five Year Plan for electricity ahead of schedule. It is just that there is too much debt on electricity investment in the first half of the year, and an acceleration is needed in the second half of the year. The stability of real estate consumption is at the forefront, with investment and construction growth rates declining and completion growth rates rebounding. In terms of rural power grid renovation, the main goal is to achieve stable and reliable power supply services in rural areas across the country by 2020, with a significant improvement in power supply capacity and service level. The reliability rate of rural power grid power supply will reach 99.8%, the comprehensive voltage qualification rate will reach 97.9%, and the average household distribution transformer capacity will not be less than 2 kVA. As far as we know, Southern Power Grid has basically completed the rural power grid renovation and upgrading ahead of schedule, and a small number of companies under State Grid have also completed the renovation ahead of schedule. If analyzed from the total amount of funds, the total investment scale of rural power grid from 2016 to 2018 was 476.9 billion yuan. Previously, experts predicted that the entire investment scale of rural power grid renovation would reach 700 billion yuan. Based on this estimate, the investment scale of rural power grid this year is 223.1 billion yuan, and the increase in copper demand is indeed significant. But the final outcome still needs further observation.
Maintain tight balance in the supply of refined copper
The raw materials continue to tighten, and the supply of refined copper remains tight and balanced. After centralized maintenance, the supply pressure of refined copper increased. However, from the perspective of smelting profits, TC still faces downward pressure, which will suppress the overall operation of the smelting plant. Despite a 0.75% increase in consumption in the second half of the year (compared to 1.8% in the same period last year), the supply of refined copper remained tight and balanced. The issuance of the first batch of import permits for scrap copper in Zhejiang and Anhui regions has further clarified the expectation of scrap copper supply. According to the distribution situation, the approved quantity of waste 6 categories is 240000 tons of physical quantity, which is equivalent to the import volume of waste 6 categories in the region in the third quarter of last year. The reduction is based on the import volume of 7 types of waste during the same period, which is approximately 53500 yuan per quarter. Moreover, based on our research and understanding, the company has stated that it can still continue to apply after use, which can to some extent compensate for the reduction in waste of Class 7. Due to the unified approval distribution standards implemented by the solid waste center, it can be inferred that there will not be a significant shortage of Class 6 waste in other regions of the country, while Class 7 waste in other regions accounts for only 20%, with a reduction of about 9000 per quarter. Based on this calculation, the maximum reduction in scrap copper imports in the second half of the year was 137500 tons, accounting for 8.7% of last year's scrap copper imports, far below the market's 30% reduction level.
After the large-scale maintenance of the refined copper end, the market's expectation of reducing scrap copper has been discounted. However, there are still uncertain factors in the import of scrap copper. Under the guidance of the zero import policy for solid waste in 2020, the standard for importing scrap copper as a copper raw material is still unclear, which will become a focus of attention in the fourth quarter. The proportion of high-grade waste copper such as bright copper, No.1 waste purple copper, and No.2 waste purple copper in the 6 categories of waste is close to 65%, waste brass accounts for 30%, and others account for 5%. The determination of new standards will be crucial. The continued tightening of concentrate and slight reduction in the supply of neutral refined copper from imported scrap copper will continue to provide certain support for copper prices.
In colored varieties, the relationship between copper and macro is closer than other varieties. It is not difficult to determine the direction of copper prices when the macro and fundamental directions are consistent. But reality is often not so simple, and there are many macroeconomic and supply-demand mismatches in the market. Based on historical mismatched market trends, the year of macro and supply-demand forking ultimately saw macro control over copper pricing. The supply-demand relationship is only the relative strength of pricing copper among various varieties. If the supply-demand relationship is tight, it is stronger than other varieties, and if the supply-demand relationship is weak, it is weaker than other varieties.
Source: Futures Daily
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