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From Aug 8 to Aug 14, the secondary copper throughout of East China Nonferrous Metal City in Linyi stood at 12,900 mt, up 1.97% in the week. From Aug 8-12, the weekly average price of 1# copper cathode was 62,063 yuan/mt, up 1,757 yuan/mt or 2.91% from the previous week. The weekly average price of bare bright copper in East China Nonferrous Metal City in Linyi was 57,280 yuan/mt, up 1,040 yuan/mt or 1.85% from the previous week. The price spread between copper cathode and copper scrap stood at only 319 yuan/mt, 76 yuan/mt narrower than a week earlier.
From August 8 to August 12, SHFE copper increased, and the cargo holders shipped actively, hence the supply increased month-on-month. However, some cargo holders were still reluctant to sell. Therefore, the overall social inventory was still low. Since Q2, the supply of domestic secondary copper were tight, especially the supply of secondary copper standard products such as copper wire scrap and bright copper. In August, the terminal infrastructure engineering industry continued to pick up, stimulating the consumption of secondary copper rods. Therefore, the in-plant inventory of raw material was low, and the prices of finished products rose. According to SMM data, as of August 16, in Jiangxi market, the secondary copper rods prices were in premiums of 450 yuan/mt over SHFE 2208 copper contract, and the current SHFE 2208 and 2209 copper contract prices were still in backwardation of 300-400 yuan/mt. The secondary copper rods were more expensive, and is unlikely to replace refined copper rods. Copper prices bounded this week, hence cargo holders of secondary copper were more willing to ship. Due to the increase in secondary copper supply, the operating rates of secondary copper rods increased, but the increase was limited. It is expected that the throughput of secondary copper in East China Nonferrous Metal City continued to rebound slightly this week (August 15) -August 21).
LME and SHFE base metals closed mostly with losses with signs indicating an economic slowdown. A survey by the New York Fed showed that the New York State Manufacturing Index plunged 42.4 points in August to -31.3. A reading below zero indicates a contraction in New York State manufacturing. These figures further reflect the slowdown in the economy at a time when the Federal Reserve is raising interest rates.
LME copper fell 1.65%, aluminium lost 1.21%, lead added 0.09%, and zinc shed 0.35%.
SHFE copper inched up 0.05%, aluminium lost 1.86%, lead slid 0.3%, and zinc gained 0.1%.
Copper: LME copper opened at $7,880/mt yesterday, and once climbed to $8,022.5/mt. At last, the contract closed at $7,978/mt, down 1.65%. Trading volume was 17,000 lots, and open interest stood at 249,000 lots.
SHFE 2209 copper contract opened at 61,040 yuan/mt in overnight trading and rose to 62,080 yuan/mt. At last, the contract closed at 61,970 yuan/mt, up 0.05%. Trading volume was 59,000 lots, and open interest stood at 158,000 lots.
On the macro front, last night, the New York Fed Manufacturing Index and US builder confidence dropped to the lowest level since the pandemic outbreak, and the signs of economic slowdown became an obstacle to the rising of the US dollar.
On the supply side, the output of some smelters decreased due to the hot weather in east China, and the arrival of imported copper at ports at the weekend was limited, thus the domestic inventory dropped slightly. The demand performed better, and the domestic still saw a tight supply. The impact of the follow-up power rationing is of utmost concern. In the spot market, the output of smelters such as Daye, Fuye, Tongling, etc. reduced to varying degrees after the delivery of the SHFE 2208 copper contract. It is expected that the spot premiums will still remain rangebound at high levels. Copper prices may also fluctuate at a high level though the prices will still bear certain pressure during the session.
Aluminium: Overnight, the most-traded SHFE 2209 aluminium contract opened at 17,975 yuan/mt and fell to 17,725 yuan/mt as longs exited amid pessimistic macro sentiment, closing at 17,975 yuan/mt, down 340 yuan/mt or 1.86%.
LME aluminium opened at $2,439.5/mt on Monday and closed at $2,403.5/mt, down $29.5/mt or 1.21%.
The domestic real estate data and employment rate data released on Monday showed poor performance, sending SHFE aluminium lower. The production reduction by aluminium smelters in Sichuan Province has expanded to 390,000 mt due to power shortage. The domestic aluminium output may fall slightly month-on-month in August. Domestic downstream consumption is still in the off-season. Downstream factories in Sichuan, Chongqing, Jiangsu and Zhejiang are also facing risks of production cuts due to power shortages. The domestic aluminium ingot social inventory remains in a state of accumulation, and spot discounts sustained. Aluminium prices will fluctuate widely in the short term amid weak supply and demand and pessimistic macro front.
Lead: LME lead opened at $2,180.5/mt overnight and rose by 0.09% to $2,175/mt, after hitting the highest point at $2,185.5/mt and the lowest point at $2,137.5/mt. The open interest increased by 567 lots to 90,915 lots from the previous trading day.
The most traded SHFE lead contract opened at 15,060 yuan/mt overnight and fell by 0.3% to 15,055 yuan/mt, after hitting the highest point at 15,065 yuan/mt and the lowest point at 14,975 yuan/mt. The open interest increased by 109 lots to 55,089 lots from the previous trading day.
Zinc: LME zinc closed at $3,597/mt on Monday, down $12.5/mt or 0.35%. The open interest fell 2,922 lots to 201,000 lots. Overnight LME inventory fell 300 mt to 74,200 mt. Currently, LME zinc was still strong with active participation of longs with intensifying energy shortage.
The most traded SHFE 2209 zinc contract closed at 24,740 yuan/mt overnight, up 25 yuan/mt or 0.1%. The open interest added 411 lots to 124,000 lots. On the supply side, smelters in Sichuan province were forced to reduce the production amid power shortage, and the August refined zinc output guidance was lowered again. On the consumption side, the downstream sectors were sluggish, and the operating rates of galvanising producers dropped again following a brief growth. In the spot market, market transactions were still muted as zinc prices were still not yet the best offer for downstream buyers despite recent falls. SMM zinc ingot social inventory fell 6,900 mt from last Friday to 132,300 mt as of Monday August 16. Zinc prices are unlikely to experience steep rises or falls in the near term.
Overnight, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell 6 points to 49 in August, the eighth consecutive monthly decline and the lowest level since 2014 (excluding the pandemic period). A survey by the New York Fed showed that the New York State Manufacturing Index plunged 42.4 points in August to -31.3. A reading below zero indicates a contraction in New York State manufacturing. These figures further reflect the slowdown in the economy at a time when the Federal Reserve is raising interest rates. China reduced its holdings of US debt for the seventh consecutive month, with its open interest hitting another 12-year low.
Tin: Overnight, SHFE tin moved in a narrow range. Investors began to roll their positions onto distant month contracts. Domestic tin inventory under SHFE warrants did not increase. Deliveries of the 2208 tin contract declined due to improved spot market. LME tin inventory rose slightly. The import profit window opened slightly. Imported tin was still quoted at a discount in the spot market. It is expected that the short-term tin prices will still hover sideways amid largely stable supply and demand pattern and suppressed enthusiasm of investors.
Nickel: On the supply side, the premiums of pure nickel maintained a downward trend amid the poor demand. Because of the narrow SHFE/LME nickel price ratio, the weekly arrival will not reach expectations. In terms of NPI, the supply and demand both declined, but the market still saw an oversupply. On the demand side, the operating rates of steel mills in some regions of east China dropped because of the power rationing, and the delivery time was delayed. As for alloy, most downstream manufacturers held a wait-and-see attitude amid the unstable futures. In general, the current demand for nickel is poor, and the inventory rises continuously, weakening the support for nickel prices.
After the copper price hit a multi-year low in mid-to-late July 2022, it stopped falling and rebounded. Copper scrap traders refrained from selling amid losses earlier, and were still reluctant to sell even after copper prices rallied as they awaited further price hike, resulting in short supply as a whole.
1. Structural shortage of blister copper amid narrowing copper cathode and scrap spread
After the copper price hit a multi-year low in mid-to-late July 2022, it stopped falling and rebounded. Copper scrap traders refrained from selling amid losses earlier, and were still reluctant to sell even after copper prices rallied as they awaited further price hike, resulting in short supply as a whole. The spread between copper cathode and scrap failed to narrow despite rebounding copper prices, as copper scrap supply was quite tight. In contrary, the spread once narrowed to around 500 yuan/mt entering August.
As such, the supply of secondary copper tightened as well, which restricted the supply of blister copper produced with copper scrap. According to SMM database, domestic copper scrap production totalled 585,000 mt from January to July, down 24% YoY. In addition, the smelter LCS located in DR Congo has planned to cut the production and Zambia CCS, due to a boiler leakage accident, suspended the production for 10 days, resulting in a reduction in the supply of imported blister copper in the second and third quarters. In addition to the restricted supply, the commissioning of expansion projects led by Fuye Headquarters and Jiangxi Hefeng in August generated greater demand for blister copper. As such, domestic supply of blister copper suffered a structural shortage.
And it has been reflected in domestic RCs for blister copper. SMM RCs for domestic blister copper in July stood at 1,000-1,200 yuan/mt, down 150 yuan/mt MoM; and that for imported blister copper were $130-140/mt on a CIF basis, down $15/mt MoM. Mainstream RCs in south and north China stood between 1,000-1,200 yuan/mt and 1,150-1,350 yuan/mt respectively, down 100 yuan/mt and 50 yuan/mt MoM.
2. Copper cathode capacity is released in the second half of the year
The domestic copper cathode output from January to July 2022 was less than expected, which stood at around 5.85 million mt, a year-on-year decrease of 0.37%. The main reason is that since the second quarter of this year, the output reduction due to maintenance was more than expected affected by factors such as the tight supply of blister copper, repeated pandemic and regional power supply shortage. According to SMM database, from January to July 2022, domestic copper smelters reduced the production by a combined 177,500 mt due to maintenance, far exceeding the previously expected 115,000 mt.
Looking forward to the second half of the year, the scale of maintenance will be reduced in the second half of the year following more-than-expected overhaul in the first half. In addition, in the first half of the year, Xinjiang Wuxin has been successfully put into production, and is expected to contribute about 70,000 mt of output this year. Daye has postponed its mid-year expansion plan to the end of August and the beginning of September, with an expected output of 20,000-30,000 mt in the second half of 2022. In addition, with new expansion projects of Tongling and Fuye progressing smoothly, domestic copper cathode output will rise steadily. Therefore, it is expected that the output of copper cathode will be released intensively in the second half of the year, and the overall increment will be considerable.
3. Downstream demand is divided
The overall demand side has contracted to some extent throughout 2022, with divided development. The pan-new energy sector has contributed certain additional demand, while the weakness haunting the traditional sectors including power grids and real estate has kept the overall copper demand muted.
In detail, the entire pan-new energy field has brought increments. The output and sales of NEVs stood at 617,000 and 593,000 units respectively in July, an increase of 1.2 times both year-on-year. The output and sales of NEVs totalled 3.28 million units and 3.19 million units respectively in the first seven months of 2022, up 1.2 times both year-on-year, with a market penetration rate of 22.1%. The sales level has been already close to last year's full-year sales. The installed capacity of wind and solar power generation is still eye-catching. According to the Report on Electricity Supply and Demand in the First Half of 2022 issued by the China Electricity Council, the newly installed capacity of wind and solar power in the first half of 2022 reached 146 million kilowatts, a record high. The installed capacity of non-fossil energy power generation accounted for 48.2% of the total installed capacity.
Traditional fields still account for a large proportion but with poor performance.
The real estate sector may see marginal improvement in the second half of the year. The real estate policies adopted by local governments have been significantly relaxed. Recently, various transactions have also picked up to a certain extent. Coupled with the further easing of credit, there is a high probability of improvement in real estate compared with the first half of the year, but the growth is still limited.
The home appliances sector is difficult to revive due to the gloomy real estate. In addition, the weakening of the overseas demand and the downturn of the US real estate cycle also affect the export of home appliances.
Infrastructure consumption serves as the pillar in stimulating investment. In the first half of 2022, a total of 5,250.158 billion yuan of local bonds was issued nationwide. Among them, after excluding the special bonds of small and medium-sized banks, a total of 4,007.496 billion yuan of new bonds were issued, including 3,392,716,570,000 yuan of new special bonds and 614,779 million yuan of new general bonds. It means that this year, 3.65 trillion yuan of new special debt quotas have been used.
It is expected that in the second half of the year, as commodity prices will drop across the board, these investments will gradually translate into physical projects to revive the market demand and actual consumption.
4.Some Copper Processing Enterprises in Chongqing Forced to Halt Production due to Expanded Power Rationing amid Persisting High Temperatures
As the persisting high temperatures in Chongqing led to a power shortage during the electricity consumption peak, authorities in Chongqing issued the Emergency Notice on Expanding the Scope of Industrial Power Restriction to Secure Power Supply for Residents. In order to ensure the basic power consumption for residents, a Class A orderly electricity use plan is adopted from August 17 to 24, 2022 (adjustments will be made timely according to subsequent temperature changes as well as the supply and demand balance). According to SMM survey, two copper pipe producers in Chongqing have been shut down and might not resume the production until August 24. Fortunately, the copper pipe industry is in the traditional off-season, so the power rationing has limited impacts on its overall operation. At the same time, a copper rod enterprise in Chongqing said that its production is basically unaffected in that it mainly uses natural gas and its power consumption is modest. Currently, no large-scale copper cathode smelters are located in Chongqing and Sichuan.
On August 14, Sichuan province also issued a notice to implement a total production suspension (except for protective load) for all industrial power users that are included in the orderly power consumption plan of Sichuan Power Grid. The span is from August to 15 to 20, 2022. The overall electricity consumption in south-west China is relatively normal. On the whole, the power cuts in Sichuan and Chongqing directly affected the copper processing enterprises that are power-consuming, and the production reduction was relatively large. According to the feedback of copper cathode traders, the recent transactions of copper cathode were scarce in Sichuan and Chongqing, and the delivery to downstream enterprises dropped significantly due to the suspension of production. Only some copper rod enterprises took deliveries based on long-term orders, and the demand for copper cathode in Sichuan and Chongqing fell substantially. SMM will continue to track the impact of power rationing in Sichuan and Chongqing on copper processing enterprises. Please stay tuned.
On August 17, spot premiums of copper cathode in the Shanghai market were 440-520 yuan/mt over the SHFE 2209 copper contract, and the average premium was 480 yuan/mt, up 130 yuan/mt from the previous trading day. The traded prices of standard-quality copper were 62,360-62,620 yuan/mt, and the high-quality copper was traded at 62,390-62,640 yuan/mt. SHFE copper prices fluctuated downward today and once fell to 61,800 yuan/mt.
However, the spot premiums rose, and the buyers were active in purchasing amid the tight supply. In the early trading, standard-quality copper was quoted at premiums of 430-440 yuan/mt, boosting the buying. Before and after the second session, the premiums reached 460-470 yuan/mt. The sellers pushed up the premiums to about 500 yuan/mt at last owing to the tight supply. Quotes of high-quality also remained firm today, slightly expanding the spread with standard-quality copper to 30-40 yuan/mt. Because of the tight supply and the limited inflow of imported goods, quotes for hydro-copper rose to 400-440 yuan/mt, and the downstream was cautious about trading.
On the second trading day after the delivery of the SHFE 2208 copper contract, domestic smelters such as Daye, Tongling, Fuye, etc. reduced their production for the power rationing, which enabled the traders to push up the premiums amid the low absolute inventory. Domestic premiums may rise further as the available sources decreased after the continuous decline in bonded zone inventory and the demand for custom declaration was limited.