In 2019, copper price went out of the trend of fluctuating and falling back. Specifically, it is divided into two stages: from the beginning of the year to the middle of April, driven by favorable factors such as continuous problems at the supply side, copper price went out of a relatively smooth rebound market; after that, copper market was full of benefits, market worries about economic prospects and repeated Sino-US trade negotiations have always dominated copper price fluctuations, and copper market is unable to maintain counter trend Spring, start the oscillation falling pattern. In 2020, the supply of copper concentrate will be better than that in 2019, and it is expected that copper price will mainly fluctuate.
No significant changes in the global macroeconomic situation
In 2019, the OECD lowered its economic growth expectations for many times in its global economic outlook. In its report released on November 21, it is expected that the global economy will only achieve 2.9% growth in 2020 and not exceed 3% in 2021. The global economic growth will enter the slowest period since the international financial crisis in 2008. The IMF also lowered its economic growth forecast four times, and lowered its global economic growth forecast to 3.4% in 2020. The pressure on global economic growth is prominent.
US stimulus policy may be suspended, and the general election will not hinder the trade friction strategy
In 2019, with the change of Sino US trade negotiations, the monetary policy orientation of the Federal Reserve has also changed significantly. From the release of “the strongest signal of suspending interest rate hike” by the Federal Reserve at the beginning of the year to the meeting of FOMC on March 21, which made it clear beyond expectation that the reduction of the balance sheet would be stopped at the end of September, the minutes of the meeting of the Federal Reserve on May 21 conveyed that in view of the uncertainty of the global economic and financial situation, the Federal Reserve “remained patient” in judging the target range of the future federal fund interest rate, and lowered the excess deposit reserve rate by 5 basis points to 2.35%, the United States The Fed’s attitude towards interest rate cuts is becoming clear. At the June meeting, the Fed’s vote Committee’s view turned to pigeon obviously, and the market’s expectation of interest rate reduction was constantly pushed higher. From the third quarter of 2019, the market focuses on the monetary policies of central banks, and has almost the same expectation that the Federal Reserve will cut interest rates in the third quarter.
On January 4, the Federal Reserve released the minutes of its December 2019 meeting. The minutes show that in the absence of substantive changes, Fed policymakers agreed to “hold still” for a while, believing that current interest rates might be appropriate for some time. But there are also concerns that inflation continues to fall below 2%. At the same time, Fed members are concerned that keeping benchmark interest rates low could have the effect of encouraging excessive risk-taking in financial markets. If risk-taking makes financial markets unstable, such low interest rates “could make the next recession worse.”. In terms of the Fed’s balance sheet, the minutes revealed that in terms of the repo operation, since mid January, the Fed may gradually reduce the scale of the repo operation, and may need to continue some of the repo operations to at least the tax reporting quarter of April.
In the past 10 election years, the Federal Reserve has adopted policy adjustments, except that it raised interest rates after the November election in 2016. In 2012, the Federal Reserve announced the third round of large-scale asset purchase plan in September, even though it did not adjust the zero benchmark interest rate. The 59th presidential election of the United States will be held in 2020. According to a survey of 29 economists conducted by Bloomberg on December 2-4, 2019, respondents gave up their previous expectations of interest rate cut in 2020. The median forecast indicates that the target range of the federal funds rate is expected to remain at 1.5% – 1.75% by the end of 2021.
The Fed’s inaction in the election year is rare in American history. Some analysts believe that the uncertainties of the US general election, the independence of the Federal Reserve, the economic expectations of the United States, the intensification of the financial bubble, the contradiction between the global economic and trade situation, and the low inflation and high employment pattern of the United States make the Fed’s monetary policy more difficult to predict.
For trade frictions, the market has basically reached an agreement on the expectation that the U.S. launching trade frictions is not a tactic, but a strategy. Regardless of the outcome of the U.S. election, the situation of increasing global conflicts will continue in the future. Even if China deals with trade frictions properly and successfully resolves the negative economic impact of trade frictions, which makes it difficult for the U.S. strategy to achieve its expected goal, the U.S. may still push up other forms of conflicts.
Limited policy space, economic pressure in the euro area will continue
Compared with the high resilience of the U.S. economic growth, the economic situation of the euro area is relatively bleak. Since the subprime crisis in 2008, the European debt crisis in 2012 and the deterioration of the global trade environment since 2018 have almost exhausted the monetary policy space of the eurozone. Some analysts believe that the European Central Bank’s interest rate cut lags behind the economic downturn, resulting in the dislocation of economic growth rate and interest rate level in time. In order to maintain the sustained recovery of the economy, interest rate hikes are more cautious and cyclical, resulting in the face of economic pressure, the space of monetary policy in the euro area is decreasing day by day. At present, the euro area has entered the era of “negative interest rate”, but the economy has not seen a significant recovery. For the economic stimulus measures of the euro area in 2020, it can be expected that the policy strength will be more limited.
Britain’s “brexit” has not been effectively resolved, which has also hit the eurozone and the UK economy. At present, 27 EU member states have agreed to postpone the application of brexit until January 31, 2020. However, whether the final brexit is successful or not, this long-standing deadlock has already caused damage to the EU economy, and the economic situation of the UK has been greatly affected, and it is difficult to recover in the short term.
Limited impact of processing fee
Six categories of copper scrap import standard revision of copper scrap tension pattern is expected to ease
From the perspective of the context of China’s copper scrap import policy, in 2019, seven categories of copper scrap import will be completely banned. Since July 1, 2019, six categories of copper scrap will be converted into restricted categories. In 2019, the import policy of copper scrap will still be tightened. Under the tightening effect of the copper scrap policy, the domestic copper scrap import volume has decreased significantly since 2018, among which the copper scrap import volume in 2018 is more than 30% lower than the average level of the previous five years. In 2019, the import of scrap copper continued to decline, with a decline rate of nearly 30%. Especially after the fourth quarter of 2019, the import approval of scrap copper began to decrease significantly. The number of the first batch of import approval in the fourth quarter was only 24% of the number of the first batch of approval in the third quarter. Since then, the number of scrap copper imports approved by the approval has been shrinking rapidly, and the supply of scrap copper has become increasingly tense The import trade of scrap copper is very light.
The processing cost is acceptable in the fourth quarter, and the fluctuation of refined copper production is not big
On November 21, 2019, Jiangxi copper, Tongling, China copper and Freeport determined that the price of TC long order in 2020 is 62 US dollars / ton, a new low since 2012, which is far lower than the processing fee level of 80.8 US dollars / ton in 2019, but basically in line with market expectations. It is believed that the main reason is that China’s new smelting capacity will be put into operation, but the mine output may remain stable, which puts pressure on TC / RCS.
Looking back to 2019, the processing fee has declined from 86 dollars / ton at the beginning of the year to a minimum of 54.5 dollars / ton at the end of August. The sales of by-product sulfuric acid has always plagued domestic smelters. In addition to the planned maintenance in the second quarter, the production of domestic smelters has not been affected too much due to the reduction of processing fee. After the centralized maintenance of smelters, the refined copper production has recovered rapidly. Statistics show that from the perspective of the newly increased production capacity of domestic smelters, the smelters that have basically contributed to the stable production scale, such as Guangxi Nanguo copper, Chifeng Yuntong, humon smelting, Yunnan tin industry, etc., have newly increased production capacity of about 450000 tons, and drive the domestic refined copper production to increase significantly in the second half of 2019 when the processing cost is low.
According to relevant statistical data, smelters such as Chifeng Jinjian and Guorun copper will have new capacity in 2020. However, it is worth noting that the old smelter will be shut down after the 200000 ton capacity of Chifeng Jinjian is put into production. Therefore, the actual new smelter capacity brought by the new production in 2020 is expected to be limited, and the main refined copper production increment will come from the smelter which will be put into production in the later period of 2020 Gradual release of refinery capacity. According to the data, the smelting capacity put into operation later in 2019 mainly includes Zijin Mining (Fujian), Zijin Mining (Qiqihar), Yuguang Gold and lead, etc., with a total increase of about 40 tons in 2020. Therefore, by calculation, the domestic smelter’s production increase in 2020 will be slightly higher than that in 2019.
Although the processing fee in 2020 is significantly lower than that in 2019, considering the factors such as low production cost, resource advantage or regional advantage of major large-scale smelters, it is difficult to see the reduction of smelters’ production due to the low processing fee.
There will be a slight improvement in demand, and the real estate industry deserves attention
On the demand side, Jean Sebastien, Rio Tinto’s chief executive, said that the rise of electric vehicles, the high demand for battery storage, the development of new transmission technology and the demand for other environmental protection energy will promote a substantial increase in copper demand, such as the copper consumption of electric vehicles is twice that of internal combustion engines.
From the perspective of the domestic market, the overall cable consumption in 2019 is poor: the operating rate of the upstream copper pole continued to be weak throughout the year, significantly shrinking compared with the overall operating situation in 2018. In 2019, the completion of infrastructure investment did not have too many highlights: the progress of power supply construction was reversed in 2019, and it began to get rid of negative growth since April; in addition, the completion of power grid investment remained negative growth, and the completion of railway and real estate investment was relatively weak. From the perspective of the real estate industry, although the new housing construction area and construction area maintain a positive growth, the growth rate is lower than that in 2018. The completed housing area began to reverse the negative growth for seven consecutive months in August, and gradually accelerated, and the housing sales situation also showed a positive growth in the same period. Therefore, although the completed housing area increased in the second half of the year, it did not cause a greater inventory pressure The inventory pattern continues.
The overall pattern of air conditioning market in 2019 is similar to that in 2018: under the background of high domestic air conditioning inventory, air conditioning production is not strong. In the second half of 2019, the export of air-conditioners turned from negative to positive year on year, and the inventory of air-conditioners was digested to some extent. Global warming causes frequent “heat waves” in summer in European and American countries, and the export of air conditioning in China has increased seasonally.
Outlook for the future
The macro-economic environment in 2020 is not expected to change much from that in 2019: the US economy is expected to maintain moderate growth with the aid of easy monetary policy in 2019; Global trade conflicts or other new conflicts will continue to deepen; the monetary policy stimulus in the euro area is expected to be limited; the impact of brexit will continue; China’s economy continues to show strong growth resilience, and the stimulus policy is still strong There is room.
Basically, the supply of copper concentrate will be better than that in 2019. The world copper research group expects that the output of copper concentrate will increase by 2% in 2020, the output of refined copper will increase by 4%, and the apparent consumption will increase by 1.7%, resulting in 280000 tons of excess refined copper for the first time after 2010. From the perspective of the domestic market, the import policy of scrap copper is the risk factor of the supply side. In terms of demand, there is a certain possibility of accelerating the copper consumption in real estate, and the demand of air conditioning industry will still increase steadily, but the high inventory will restrain the production strength. After the inventory pressure in the automobile industry eases, the production plan will recover. In conclusion, it is expected that copper prices will mainly fluctuate in 2020.
