1.Factors Affecting Copper Price Volatility

Copper is a versatile metal used in a wide range of applications including construction, electrical, transport and manufacturing. This paper will take an in-depth look at the factors that influence the price of copper, their impact on different industries and the potential impact on the global economy.

Supply and demand are one of the main factors that determine the price of copper.

Firstly, with the growth of the global economy, especially the increase in demand for electricity, the development of new energy sources and the rapid development of the electronics industry, the demand for copper continues to grow. Meanwhile, the supply of copper is mainly constrained by resource development, production costs and copper mine output. When supply exceeds demand, copper prices rise and vice versa. Copper prices also usually fluctuate with economic cycles. Another influencing factor is the international political and economic situation. Since copper is an important industrial raw material, its economic and political status is very important. The international situation also has a significant impact on copper prices. The global financial crisis, trade wars and COVID-19 all have an impact on the global situation, which in turn affects copper prices. Monetary policy in major global economies also affects copper prices. For example, when the Federal Reserve implements a tight monetary policy and the United States dollar strengthens, the price of copper in United States dollar terms will fall. Conversely, when loose monetary policy is implemented, the depreciation of the U.S. dollar will cause copper prices to rise. Also, the development and application of new technologies can have an impact on copper prices. For example, the development of new energy vehicles increases the demand for copper, while the decline of traditional manufacturing reduces the demand for copper. In addition, sudden political unrest, changes in trade policy and market expectations can disrupt supply chains and lead to uncertainty in copper prices.

Copper is an important industrial metal and its price volatility can have far-reaching impacts on different industries and the global economy.

Firstly, changes in copper prices will directly affect the copper mining and smelting industry, which in turn will affect industry profits and the scale of production and investment. Secondly, changes in copper prices will inevitably affect industries that use copper as a raw material, such as electricity, construction, home appliances, transport and so on. In the electric power industry, the production of wires, cables, transformers and other power equipment depends largely on copper, and changes in copper prices may affect the profits and scale of investment in the power industry. In the construction industry, the prices of copper products such as copper pipes and sheets are also affected by copper prices, which in turn affects construction costs. In the home appliance industry, the cost of copper components is also relatively high, so changes in copper prices have a significant impact on the cost and selling price of home appliance products. In the transport industry, copper is widely used in the manufacture of vehicles such as cars, trains and aircraft, so changes in copper prices will also affect the cost of manufacturing these vehicles.In addition, changes in copper prices have an impact on the global economy. Copper is one of the key commodities traded globally, and its price fluctuations affect the size and structure of global trade. At the same time, changes in copper prices also reflect, to some extent, the overall state of the global economy.

In summary, the price of copper is influenced by a multitude of factors including supply and demand, international political and economic situations, monetary policies, technological advancements, and market expectations. Additionally, sudden political upheavals, geopolitical conflicts, trade policies, and even changes in the direction of Sino-American relations and market expectations may disrupt the supply chain, leading to significant fluctuations in copper prices. These fluctuations not only impact the copper industry but also have far-reaching consequences for various sectors of the global economy.

 

2.Spring Festival Copper Market Review and Post-Holiday Outlook

Review of the Copper Market during the Spring Festival: The downstream operating rate slightly weakened before the holiday. However, according to SMM research, overall pre-holiday inventory levels remained considerable, and terminal consumption was somewhat suppressed due to the previously high copper prices. On February 8, the SHFE Cu 2403 contract fell below 68,000 yuan/ton, testing as low as 67,630 yuan/ton during trading. From February 9 to February 18, it was the traditional Spring Festival holiday in China, with copper trading suspended on the SHFE. In ex-China markets, influenced by the strong performance of the US dollar, LME copper was pressured to decline to near $8,200/ton, then rebounded to around $8,400/ton as the dollar retreated.

From a macro perspective, in ex-China markets, the unadjusted CPI for January in the United States recorded 3.1%, down from 3.4% previously; the PPI for January increased by 0.9% year-on-year, down from 1% previously, both slowing more than market expectations. As a result, inflation expectations for February in the US have been raised to 3%, reinforcing the possibility that the Federal Reserve will not rush to cut interest rates, causing the dollar to briefly rise below the 105-point level. On Friday, the Fed's Daley said that three interest rate cuts by the Fed this year are a "reasonable baseline" expectation, but two risks need to be considered: the slowing progress of inflation and the sudden sharp deterioration of the labor market. The EU has lowered its GDP growth forecast for the eurozone in 2024 from 1.2% to 0.8% and for 2025 from 1.6% to 1.5%, citing weaker-than-expected economic fundamentals entering 2024; however, with further inflation easing, the growth rate of residents' wages and consumption levels may gradually recover, and external trade may also marginally improve. Domestically, the CPI rose by 0.3% month-on-month in January, but it is necessary to note that major items contributing to core CPI showed declines, considering the disturbances caused by increased consumer spending and price hikes during the Spring Festival holiday, the overall domestic consumption performance was relatively weak.

Looking at the fundamentals, LME spot prices experienced historical discounts during the pre-holiday week, once expanding to $112.26/ton. Weak ex-China demand has a short-term boosting effect on the domestic market. From the perspective of inventory, the extent of stocking up before the Chinese New Year is significantly weaker than the same period last year, and social inventories are also at a low level compared to previous years. As a result, the domestic market has experienced a lower decline, and the SHFE-LME ratio has continued to climb. Overseas holders are relatively optimistic about post-holiday consumption recovery. Spot prices in various domestic regions are all in a state of discount. According to SMM research, pre-holiday downstream consumption did not show a significant decline, and raw material and cost inventory reserves were relatively active. Taking refined copper rod enterprises as an example, research shows that pre-holiday inventory levels increased by nearly 20% compared to the previous period. Attention should be paid to the digestion of hidden inventory after the holiday.

Looking ahead to the post-holiday market, February 19 is the first trading day after the holiday and the last trading day of the SHFE Cu 2402 contract. Influenced by factors such as pre-holiday holders registering a large number of spot warehouse receipts, temporary delays in customs clearance of imported goods, varying degrees of high contango month differential structures, and downstream inventory digestion, consumption may gradually recover in rhythm. Short-term incremental increases are expected to be limited, and spot prices are expected to be slightly discounted

3. Copper Cathode January Production Analysis & February Forecast

 Copper Cathode January Production Analysis & February Forecast

In January,  China's copper Cathode production reached 969800 tons, a decrease of 29600 tons month on month, a decrease of 2.96%, a year-on-year increase of 13.65%, and an increase of 116500 tons; And it increased by 16200 tons compared to the expected 953600 tons.

There are several reasons for the month on month decrease in production in January:

1. Due to statistical cycle issues, the number of days counted in January is relatively small (some companies have a statistical cycle of 1.1-1.25, which is about 5 days less than normal months), resulting in a decrease in statistical production;

2. A smelter in the southwest has started to relocate, resulting in a significant decrease in its output; 3. Two smelters have maintenance actions;

4. Some smelters experienced a slight decrease in production due to the tight supply of crude copper.

The reason for exceeding the expected output is that:

1. Two newly ignited smelters have started releasing production, and the new production is not low;

2. Some smelters have requirements for a successful start, with production exceeding the original plan in January;

3. Some smelters experienced a decrease in operating rates during the Spring Festival, and their operating rates were increased in January to make up for the decrease in February. In summary, we believe that the overall operating rate of the electrolytic copper industry in January was 85.18%, a decrease of 3.95 percentage points compared to the previous month.

Entering February, two smelters have maintenance plans, one of which is a minor maintenance, and many smelters have lowered their operating rates due to the Spring Festival. These factors are all the reasons for the decrease in production in February. In addition, we have conducted the latest research on whether the historically low processing fees for copper concentrate, which is the most concerning issue in the market, will affect the production of smelters. As of February 2, the  imported copper concentrate index (weekly) was reported at $22.08 per ton, a decrease of $5.86 per ton from the previous period's $27.94 per ton. The smelters purchased spot copper concentrate for production, and currently suffer a loss of 894 yuan per ton. In order to cope with ultra-low processing costs, according to our understanding, some smelters have advanced their maintenance time, and two smelters plan to reduce the grade and quantity of copper concentrate added to the furnace. While ensuring normal production without stopping the furnace, the grade of copper concentrate added to the furnace is kept to the lowest level. However, due to the time difference (it takes some time from feeding to output), the production of these smelters with reduced furnace input was not affected in February, and it is expected that the reduction will only occur in March.

 

Based on the production schedule of each company,  predicts that the domestic copper Cathode production in February will be 959400 tons, a decrease of 10400 tons compared to the previous month, a decrease of 1.07%, and a year-on-year increase of 51600 tons, a growth of 5.68%. The cumulative production from January to February is expected to be 1.9292 million tons, a year-on-year increase of 9.55% and an increase of 168100 tons.

4.Morning Comment For SHFE Base Metals On February 20

LME copper prices opened at $8,426/mt on Monday, and hiked to a high of $8,466/mt in early week, but retraced down to a low of $8,424/mt towards the closing session, and finally closed at $8,427.5/mt. Trading volumes were 17,000 lots, and open interest drooped by 0.53% to 296,000 lots. The most-traded SHFE 2403 copper contract opened at 68,500 yuan/mt, and moved up to a high of 68,600 yuan/mt, but then declined to a low of 68,390 yuan/mt, and finally closed at 68,440 yuan/mt. Trading volume was 11,000 lots and open interest hiked by 0.01% to 115,000 lots.

On the macro front, with intensifying of the Red Sea incidents, crude oil prices stood high. There was little macro information and US stocks closed yesterday, and players awaited more clues. In terms of fundamentals, as of February 19, copper inventories in mainstream regions in China increased by 117,400 mt to 285,700 mt, the largest increase in six years. From the supply side, holders actively shipped stocks. In addition, more copper imports will arrive at the end of the month. Overall supply was ample. In terms of demand, in spite of restart of downstream sectors, demand will still need time to pick up. In terms of copper price, heavy inventory build-up in China weighed down copper prices. Copper prices may have difficulty hiking in a short run.

 

5.China's copper cathode output in January

Copper cathode

data showed that in January, China's copper cathode output was 969,800 mt, a month-on-month decrease of 29,600 mt or 2.96%, but a year-on-year increase of 13.65% or 116,500 mt; the output is 16,200 mt higher than the expected 953,600 mt.

There are several reasons for the month-on-month decrease in output in January: 1. The statistical cycle factor resulted in a decrease in output. There were fewer days in January (the statistical period of some enterprises is January 1-25, which is about 5 days less than in normal months); 2. A smelter in south-west China began to relocate, causing its output to drop significantly; 3. Two smelters have undertaken maintenance operations; 4. Some smelters experienced a slight drop in output due to tight supply of blister copper. The reasons for the higher-than-expected output include: 1. Two newly-commissioned smelters have begun to release output, and the new output is not low; 2. Some smelters have requirements for a good start for the new year, and their output in January exceeded the original plans; 3. The operating rates of some smelters will drop during the Chinese New Year holidays, and the operating rate was increased in January to make up for the output reduction in February. We believe that the average operating rate of copper cathode industry fell 3.95 percentage points month on month to 85.18% in January.

In February, two smelters have maintenance plans, and many smelters have lowered their operating rates due to the Chinese New Year holidays. These factors will lead to a decline in production in February. As of February 2, the SMM imported copper concentrate index (weekly) reported $22.08/mt, a decrease of $5.86/mt from $27.94/mt in the previous week. Smelters purchased spot copper concentrate for production and currently run at a loss of 894 yuan/mt. SMM understood that some smelters advanced maintenance time in the face of ultra-low spot TCs for copper concentrates. There are also some smelters that are planning to reduce the grade and amount of copper concentrate feed while ensuring normal production. However, due to the time lag (it takes some time from input to output), the output of these smelters that reduced the amount of raw material feed will not be affected in February, and the output reduction is expected to occur in March.

Based on the production schedules of various companies, SMM estimates that domestic copper cathode production in February will be 959,400 mt, a month-on-month decrease of 10,400 mt or 1.07%, and a year-on-year increase of 51,600 mt or 5.68%. The accumulated output from January to February is expected to stand at 1.93 million mt, a year-on-year increase of 9.55% or 168,100 mt.