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January 2020 copper price waiting for further guidance

Author:mark Release time:2020-02-10 Page View:39
Copper prices have fallen sharply since the opening of the Spring Festival, then rebounded to repair. At present, there is no turning point in the epi

 Copper prices have fallen sharply since the opening of the Spring Festival, then rebounded to repair. At present, there is no turning point in the epidemic, and work will be resumed this week. Copper supply side is temporarily less affected by the epidemic, and the inventory accumulation will exceed expectations. In the short term, the macro and fundamental aspects still suppress copper price. In the medium term, the upward momentum of copper price still depends on the improvement of the economy.



Macroscopical aspect should not be too pessimistic

A year ago, the market showed the anticipation of stabilizing the domestic economy and recovering demand. Copper prices also rose sharply, but the outbreak and spread of the new crown pneumonia interrupted the optimism of the market. We see a sharp decline in US 10-year yields and the copper gold ratio, reflecting the market's pessimism. However, we believe that the impact of the epidemic is staged and will not change the basic trend of China's economy.

This public health event can be compared with SARS in 2003. That epidemic led to the decline of GDP growth stage, but did not change the trend of economic growth and the relative strength of the industry. Although the third industry was significantly affected by the epidemic, and the growth of transportation, warehousing, accommodation, catering and financial industry declined, it rebounded rapidly after the epidemic, and the wholesale and retail industry was not affected by the epidemic. In terms of demand, consumption was greatly impacted, but with the lifting of the epidemic, it rebounded rapidly and continued to rise. Gold, silver, jewelry and clothing declined significantly, while building decoration, daily necessities and Chinese and Western medicines accelerated their growth. Compared with output, investment growth is limited and net exports are not impacted.

Different from the expansion of total demand driven by foreign demand during the SARS period, the domestic economy is facing the pressure of demand decline. Under the impact of the epidemic on consumer demand, the state has taken a series of hedging measures recently. For example, the monetary authority maintains sufficient liquidity, and it is expected that monetary and fiscal policies will be released in due time in the future. In addition, the Central Committee meeting held on February 6 proposed that areas outside Hubei Province should continue to do a good job in scientific prevention and control, and at the same time, orderly promote the resumption of normal production. Therefore, the macro level should not be too pessimistic.

Pay attention to the upstream and downstream resumption degree

According to the data of various institutions, the output of refined copper will decline from January to February 2020, and the decline depends on the duration of the epidemic. SMM expects that in February 2020, the domestic electrolytic copper output will fall to 701300 tons, a year-on-year drop of 2.54%; as of February, the cumulative electrolytic copper output is 1427200 tons, a year-on-year drop of 1.96%; Baichuan's statistics show that January is still increasing, and February is expected to have a large drop. The epidemic itself did not lead to the reduction of production, and the smelter is also relatively sufficient at the raw material end, but the expansion of sulfuric acid storage and transportation problems will force the enterprise to reduce production. If the epidemic continues to exceed expectations, the downstream plant will continue to resume work later, and the smelter will reduce production more than expected.

In the middle and lower reaches, it is expected that the production will be stopped for more than 10 days more than in previous years, and the operation rate of copper rod enterprises will be greatly affected by the problems of logistics transportation and raw materials. According to my data of nonferrous network, at present, most enterprises respond to the government's call to start construction, which has been postponed to February 10 and later. The workers of copper rod enterprises in East China are mainly local people, so the resumption time is earlier. Most of the employees of copper rod enterprises in Guangdong, Jiangxi and other places are from other provinces, affected by the epidemic, and the traffic is restricted to different degrees. Most of the enterprises in these areas start work after February 12. The return of terminal factory workers is also subject to regional control, and the start time is even later after February 10.

Generally speaking, the short-term supply and demand are weak, the demand side or impact is greater, and the inventory accumulation speed is accelerated. In the later stage, we will continue to pay attention to the inventory changes in the electrolytic copper market and the downstream resumption of work.

In conclusion, at present, the focus of macroeconomic attention is the prevention and control effect of the epidemic and the impact on macroeconomic expectations. The market consensus is that the impact of the epidemic on the economy is short-term, but in order to stabilize the economy, the country still needs to hedge the policy. Specifically, in the copper industry, the epidemic has led to weak supply and demand, greater impact on the demand side, and cumulative inventory price suppression. From the perspective of medium-term fundamentals, demand is dragged down by the power industry, and the supply side benefit factor is weakened. If the current price is supported by continuous cost, the impact of replenishment cycle is also relatively short. Based on this, after the release of the risk of market opening crash, copper price rebounded slightly to repair, but the continuous rebound momentum is insufficient, and further guidance is needed. Pay attention to the epidemic situation, the inventory change of electrolytic copper market and the downstream resumption of work.

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