Home: Copper Surplus On The Horizon, But Will It Come In Time?

SHANGHAI, Dec 1 (SMM) - Since the second quarter of 2021, the global copper cathode inventory has been falling. On November 29, the total SMM social inventory (including those in bonded zone) was only 278,600 mt, which was 63.17% lower than the peak in late May. On November 30, LME copper cathode stocks totalled 76,450 mt, a drop of 70% from the high during the year. In mid-October, the LME copper market was in "squeeze", and the LME cash to 3 month contango soared to above $1100/mt, setting the highest record since the 1970s. The tight inventory pattern is self-evident.

November was filled with bearish news for copper market. The continued strengthening of the US dollar index, the collapse of the international crude oil market, the fall in coal prices, and the COVID variant Omicron all weighed on copper prices. However, under the support of low inventories, copper prices showed strong resilience during the month. The SHFE copper declined only 0.93% throughout November. On November 30, the most-traded SHFE copper contract closed at 69,450 yuan/mt.

In terms of the spot market, the overall price trend was similar to that of futures. At the beginning of November, the prices of SMM #1 copper cathode moved rangebound. In the second half of the month, under the influence of supply and demand concerns, the prices of copper rose slightly. However, at the end of the month, fears of the pandemic led to falls in copper prices gain. On November 30, the average spot price of SMM #1 copper cathode was reported at 70,665 yuan/mt.

Fundamentals of copper market in November

Supply: According to the production plans, the two smelters in Guangxi are recovering from the maintenance, but the output increased slowly due to the accidents. The smelters in Jiangsu will maintain the operating rates at 60-70% due to the power rationing, and the smelters in Yunnan will have difficulties in resuming the production. The smelters in Anhui and other regions along the Yangtze River have curtailed the production slightly for fear of the inventory surplus, but the copper cathode production was not affected.

Consumption: Regional power rationing weakened in November, and the impacts gradually faded. Copper consumption has improved compared with October.

Copper rod: The power cuts in many regions weakened, and the impact on copper rod manufacturers has also been significantly reduced. In terms of consumption, as copper prices return to around 70,000 yuan/mt, downstream demand has also been released. However, due to the sluggish real estate sector, downstream wire and cable companies have been cautious in taking orders, and demand for copper rod has been suppressed.

Copper wire and cable: In early November, the COVID occurred again in Changzhou, Jiangsu. The logistics and transportation time was extended, and sales were hindered. However, as the power shortage in various provinces eased in November, the power supply improved, but no significant increase was seen in the downstream sector. Especially, orders from the real estate sector declined, and orders from automobiles and home appliances have also been unsatisfactory. Except for the stable performance of orders in the electronic communications industry (submarine cables, control cables) and the new energy industry (photovoltaic cables, cables for charging stations), other terminal industries lacked highlights.

Enamelled wire: In November, the majority of companies indicated that they have not been significantly affected by power rationing. Coupled with the absence of the National Day interference, the enamelled wire orders have rebounded, but they were still not as good as the same period in previous years. It is understood that the fourth quarter should have been the seasonal high for the enamelled wire and cable industry, but due to factors such as high copper prices and downstream power cuts this year, orders have been comparatively modest, and the orders in October were also quite unsatisfactory. On the whole, orders have recovered recently, but not to a level that should have been seen in seasonal high.

Market outlook in December

As the year-end approaches, all industries will rush to complete the projects; but due to the tight capital availability and the impact of the Spring Festival which arrives earlier than past years, the improvement in December is expected to be limited. The overseas COVID worsened again, and many countries have implemented measures to lock down the country, and export orders will be affected.

The end consumption of copper in December is expected to improve slightly when compared with November. 

Construction: Although China slightly loosened its control on the real estate industry in November, it did not equal to a full relax, especially in pilot cities that may introduce a real estate tax at the end of 21 or early 22, which may bring further impacts on the real estate market. So the real estate market is only expected to rebound. In addition, the companies will accelerate the collections of funds by the end of the year, and the arrival of the Spring Festival this year will be earlier than the past years. Besides, the market will also be restricted by environmental protection requirements. Hence it is expected that the construction industry will shrink slightly in December.

Electricity: By the end of the year, the number of orders placed by the power grid corporations has decreased; and due to factors such as the decline in the operating rates of the real estate industry, the electricity industry will perform poorly in December.

Electronics: In the downturn of the real estate industry, the demand for TVs, monitors, and home appliances has declined, coupled with the spreading COVID. However, the development of new energy vehicles and other sectors continues to be strong, and the demand for copper foil, strips, etc. for electronics remains good. The overall performance of the electronics industry is expected to increase slightly in December.

Transportation: The problem of chip shortage is gradually alleviating. At the end of the year, the automobile industry is actively promoting sales. New export orders continue to rise under the stimulus of new energy vehicles sector. The increase in production and orders, plus the low raw material prices, will prompt the car makers to purchase more in December. 

Home appliances: Although the home appliances industry has entered the peak season, under the influence of the sluggish real estate industry, the home appliances industry will perform only modestly.

On the whole, entering December, as the market approaches the year-end, the performance of copper consumption is relatively moderate. Although the global copper inventory is still at a low level, the smelters plan to catch up with their annual production targets before the end of the year. At the same time, with the release of Dongying Fangyuan Co.'s production capacity, the monthly domestic  copper cathode output is expected to reach more than 850,000 mt in December; and the pivot of domestic copper inventory may come. In addition, the high premiums have fallen back to a relatively normal level, and the support for copper prices weakened. Under the intertwining of bearish and bullish factors, it is expected that copper prices in December will remain volatile and weak.

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Source : https://news.metal.com/newscontent/101681462/SMM-Outlook:-Copper-Prices-Likely-to-Stay-Weak-in-December/

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