Copper on the LME rose above $9,000 for the first time since June last year amid upbeat demand expectations.
Copper futures for delivery in one month rose as much as 1.1% to $9,011 on Wednesday for the first time since June on optimism that China's reopening will boost domestic demand and a rally supported by expectations of further cuts in interest rate hikes from the Federal Reserve, according to Wall Street. This is the fifth consecutive day of gains for London copper.
Domestically, copper prices have also remained strong. In the past five trading days, Shanghai copper futures surged 7.2 percent to 68,960 yuan per ton as of 9:15 today.
For the copper market, in addition to optimistic expectations of Chinese demand, low inventories since 2022 have been an important reason for copper prices to stabilize and rise. LME data show that since the New Year's Day in 2023, the overall trend of London copper inventory continued to decline, as of January 10, London copper inventory maintained at the level of 85,000 tons hovering, low inventory has also become the basis for institutions to favor copper block.
Late last year, Trafigura, one of the world's largest traders, estimated that global copper supplies were dangerously low, with stocks, which used to be measured on a weekly basis, covering just 4.9 days of global consumption before falling further.
Analysts believe that the recovery of nonferrous metals fundamentally reflects the expectation of domestic economic recovery, and the current inventory of most commodities is relatively small, so once the demand after the holiday recovery beyond expectations, may lead to periodic short supply, resulting in price increases. The fundamentals of supply and demand also continue to improve as copper has a strong macro correlation and supply releases are likely to be lower than previously expected in 2023, followed by a gradual decline in new supply in 2024.
On the supply side, historical capital expenditure is insufficient, limiting future output growth.
According to the ICSG data, copper production/refined copper production/refined copper consumption in the first three quarters of 2022 were +3.5%/+2.3%/+2.6%, respectively, compared with the same period last year. Many leading mining companies saw a sharp decline in output, including Chile, the world's largest copper producer, down 6.7%, and Peru, the second largest copper producer, up only 1.4%. It is mainly affected by mine grade decline, operation problems, drought and other factors.
At the same time, the sharp decline in copper price in 2015 weakened the capital expenditure willingness of mining enterprises. After 2016, the CAPEX level of the world's leading mining enterprises declined significantly. However, the production cycle of copper mines is long, and it takes about 5 years from the end of the feasibility study to the production. The expected shortfall in capital expenditure by the world's top miners after 2016 will limit future supply side production.
From the demand side, economic recovery and new energy transformation drive demand, and there will be an obvious shortage of supply in 2025.
China, which consumes more than 50 per cent of the world's copper, is expected to see an economic recovery boost demand as COVID-19 control is eased and property policies tightened.
In addition, copper has good electrical and thermal conductivity. With the acceleration of new energy transformation, it is expected that the copper demand of photovoltaic, new energy vehicles and wind power industries will account for about 10% in 2022 and 21% in 2025. Among them, it is expected that by 2025, the copper demand of photovoltaic, new energy automobile and wind power three industries will be 2.34/2.49/1.1 million tons respectively, with a total of 5.93 million tons.
Under the background of limited supply in the future and strong demand growth driven by new energy, Zheshang Securities (601878) predicts that there will be an obvious shortage of supply and demand in 2025. According to the historical data of ICSG, the global refined copper supply gap between 2022 and 2025 is expected to be 19/11/27/820,000 tons respectively.
Looking ahead to 2023, Southwest Securities pointed out that the bottom of the domestic real estate policy has been found, the epidemic prevention policy continues to optimize, driven by the back-end industrial chain of the real estate chain under the background of insurance delivery, the domestic demand of copper, aluminum, zinc and other varieties is expected to improve. At the same time, the new energy light and storage fields maintain a high boom, the growth rate of new energy vehicles is still at a high range, the demand density of copper and aluminum will continue to increase, the base metal plate, the demand for copper and aluminum maintain optimistic expectations.
