China's copper consumption growth modest rise

Since March 23, 2013, both domestic and foreign copper prices have dropped sharply. The three-month copper of LME dropped sharply after the support line at the end of 2011. By March 22, LME copper prices were as low as 6,800 U.S. dollars, down 887 U.S. dollars or 11.5 percent from 7,687 U.S. dollars. The domestic copper market was similar to the external market. The Shanghai Copper Index also fell sharply after breaking the support line at the end of 2011, reaching a minimum of RMB 49,050, which was a decrease of RMB 6609 or 11.87% from the 55,659 yuan of March 22.

From the atmosphere of the market, the international copper price is less than 6000 US dollars, or less than 45,000 yuan domestically. The power of production enterprises to reduce production is not great. Considering that the global economy will find it difficult to find new growth points in the short term, copper prices have already been under pressure from fundamental excesses. Embark on the journey back to the cost line. Therefore, from an operational point of view, the proposal still insists that the short-term medium-term and long-term contracts continue to hold, and regards any rebound as a good short-selling opportunity.

The global economic recovery is full of difficulties Since late March, the data on the global economic weakness began to be introduced centrally. This included the Cyprus Cyprus taxation crisis, the sharp slowdown in the US economic data after the auto reduction, or the unsustained trend in China’s economic growth recovery. Therefore, the IMF also lowered its global economic growth forecast by 0.2% to 3.3%, which is only 0.15% higher than the 3.15% in 2012. The weakness of the global economic recovery made the market's expectation of an economic improvement in 2013 begin to burst, which became the background of the falling copper market.

Although the US economy is the best, after the automatic reduction of US$85 billion from March 1st, signs of a slowdown in US economic growth began to appear. According to current data, the US ISM manufacturing index for March was 51.3, which was significantly lower than market expectations of 54.2 and February's 54.2. The new order index was 51.4, the previous value was 57.8.

The Eurozone fell into recession again in 2012, and the unemployment rate rose to 11.8%. In 2013, the euro area economic zone was even more bleak. In March, the PMI fell further to 46.6. In addition, the unemployment rate in the euro zone reached a 95-year high of 12%, indicating that the slowdown in the pace of decline since the end of the year was again suppressed.

If we say that the market is still concerned about China's housing prices earlier this year, and real estate regulations were introduced around the end of March, then the market is more worried about the dilemma of China's economy. According to data released in mid-April, China’s GDP growth in the first quarter was only 7.7%, which was lower than the 7.9% in the fourth quarter of last year. Since the bottoming out in the third quarter of last year, the market has been optimistic that the Chinese economy has entered a recovery stage, but the latest data show that the Chinese economy has not been able to continue its upward trend since the fourth quarter of last year, while at the same time, China’s fixed asset investment growth. It still reached 20.9%, far higher than the Chinese government's regulatory target of 18% this year, and M2 was 15.7%, far higher than the central bank's announced regulatory target of 13%. In addition, both the growth of retail sales of consumer goods in China and the increase in industrial output have fallen to the lowest level since the financial crisis in 2008. It can be seen that even in the case of higher than regulatory targets, the Chinese economy is unlikely to perform well.

China's copper consumption growth modestly picks up The main consumption of copper in China is above electricity, in which cable accounts for 2/3, and power and transformer account for 1/3. Judging from the overall situation this year, in the first two months, the cable industry orders were extremely inadequate, and the operating rate was only 59.1%, far below the 66.45% of the same period of last year. In late March, the industry operating rate began to rise sharply to 78.94%. Orders, commercial real estate, rail transit, and other related orders have all increased to a certain extent, but most of them are concentrated in large-scale enterprises with more obvious competitive advantages. The recovery of orders for small and medium-sized enterprises is relatively limited.

China's second largest consumer industry is in the air-conditioning industry. In the first quarter of this year, the operating rate of the air conditioner industry rebounded sharply. The average operating rate was 75.73%, which was higher than the 68.41% recorded in the same period of last year. However, starting from April, air-conditioning consumption has entered the domestic sales season, and the main consumption depends on the domestic market. Considering the new real estate policy introduced at the end of March, new home sales will begin to decline. Therefore, whether the operating rate of the air-conditioning industry in April and May will continue until May .

Overall, it is expected that China’s copper consumption will increase by about 5% this year, which is better than 3.6% in 2012.

Copper prices return pressure to cost increase Since 2013, the biggest pressure in the copper market has come from the continuous rise of global copper stocks. As of April 19, the copper stocks of the world's three largest exchanges have reached 921,000 tons, the highest level since 2004. .

In the face of huge inventory, the release of global mining capacity in 2013 became the biggest pressure on the market. In the past 10 years, the main reason for maintaining the high copper price was the shortage of copper supply. Before 2005, the average increase in copper production was 3.8%, but from 2005 to 2011, the average increase was less than 1.8%. This is the price of copper. The main reason for maintaining strength. However, this situation has changed dramatically since the second half of 2012. By 2013, new capacity will be put in millions of tons, especially starting from the middle of the year, which will become the biggest pressure in the copper market. It is estimated that the growth of global copper production in 2013 will be above 5%. The copper concentrate processing fee rose by 10% in 2013 to reach US$70/tonne and 7 cents/lb. This led the smelter to enter the profit stage, and the smelter’s production enthusiasm increased significantly.

The average annual price of LME copper in 2012 was US$7,950, which is 80% higher than the cost line of 90% of copper companies. However, from the current point of view, the fundamentals of copper have undergone a fundamental change. Even if the price of copper falls to 6,800 US dollars, it still exceeds the marginal cost of 5,300 U.S. dollars or 1,500 U.S. dollars or more, so the return of copper prices to costs becomes inevitable.

In summary, the global economy in 2013 will be better than in 2012, but the negative effect of the rescue policy is being demonstrated. The recent weak global economic data proves this. So far, the pressure on countries to restrain their own monetary policy has become greater, especially in the United States. One of the reasons for the recent plunge in gold may be related to the strength of the US dollar. After all, the U.S. economy is the best, and if the U.S. Without restraint, its role as the world's major reserve currency will be challenged. These have become the pressure of the copper market. Taking into account the shift in the fundamentals of excess copper, copper upstream companies still have a 30% profit, so the future of copper prices may still return to the cost line. According to the report of the Chilean National Copper Association, as of the third quarter of 2012, the copper production cost in Chile reached 3,498 U.S. dollars per ton, while the international average cost was 3,278 U.S. dollars per ton. From the Barclays report, the marginal cost of copper is still at 5,300 U.S. dollars. . From the atmosphere of the market, the price of copper is less than 6000 US dollars, or less than 45,000 yuan domestically. The power of production enterprises to reduce production is not great, so it is expected that the copper price still has 10% to 20% downside. The operation should still insist on the mid-to-long term empty order to continue to hold, and regard any rebound as a good short-selling opportunity.