Copper demand increased by more than 5%

During the "May 1st" period, Shanghai's spot copper quoted at 49540 yuan / ton ~ 49880 yuan / ton, traded relatively light. On April 28, the spot copper transaction price in Shanghai was maintained at 50550 yuan/ton to 50,700 yuan/ton, and successfully surpassed the 47,000 yuan/ton resistance level. Analysts believe that Shanghai's spot copper price breakthrough was due to the fact that demand has picked up and the spot has been tight. However, as copper prices entered a relatively high position, the pressure on the top gradually increased.

China's copper supply surplus

In 2013, the global copper production was 18 million tons, an increase of more than 6%. Almost all large mines are expanding their production capacity. Before 2016, supply will increase by 1.1 million to 1.3 million tons per year, which is equivalent to the current global copper mine. 5% of total production. In 2013, China's copper production was about 6.65 million tons, and its production capacity was about 9 million tons. It is expected that the output of copper concentrates will reach a record high in 2014, and the huge excess supply pressure of global copper supply will remain difficult to ease.

The experience of developed countries shows that metal consumption is closely related to industrialization. In the pre-industrialization stage, the productivity level is low and the metal consumption is also low. In the industrialization stage, with the development of economy, the early manufacturing industry began to rise, which led to the development of industrialization, and the metal consumption gradually increased. In the post-industrial stage, with the further increase in GDP, metal consumption began to fall.

While China is in the process of industrialization, the per capita GDP is just over US$6,767 and the per capita annual copper consumption is about 6 kg. It is estimated that China’s per capita GDP will surpass the US$10,000 mark in 2015-2020. In the future, China’s industrialization will take a long time. The process will still enable China to maintain its strong demand for copper.

The annual average copper consumption in China accounts for 40% of the global total, and is widely used in the production of computers, refrigerators, automobiles, pipelines, and cable lines. China's economic growth slows down and investors are worried about the prospect of copper consumption. In 2014, from the aspect of supply and demand, China’s copper market is expected to have a surplus of 140,000 tons, which is mainly concentrated in the fourth quarter. In 2015, there will be a surplus of 275,000 tons, and there will be a surplus of 420,000 tons in 2016. The excess volume in 2017 will be substantially reduced, and the supply gap will be reappeared in 2018.

The British Commodities Research Group predicts that the average growth rate of copper demand in China will fall sharply from 11% in the past decade to 3.5% in the next decade.

Copper prices will continue to be under pressure

On April 25th, China's copper spot premiums reached as high as 1,300 yuan/ton, reaching the highest value since the financial crisis in 2008, indicating that the copper spot market is very tight. The London Metal Exchange copper intensified since March 7th, falling below the $7,000/ton mark in one fell swoop, setting the biggest decline in more than two years, and once again fell below $6,500/ton on March 11. And since March, the lowest price has hit $6376/ton, which is a new low in 44 months, and it is still below $6,500/ton.

Since March, copper prices have encountered multiple bearish pressures and slumped rapidly. Among them, the main reason for the decline in the copper price was the low operating rate of the major copper downstream companies such as copper rods and cables. Into March, it was supposed to be the peak season for consumption in the non-ferrous metals industry. However, according to the “My Nonferrous Network” survey, the downstream operating rate of copper downstream companies was less than expected and consumption was still weak. Not only that, the "two sessions" held in March in China repeatedly stressed the need to strengthen energy conservation and environmental protection and eliminate outdated production capacity. For copper processing enterprises, the suppression of policies will have a long-term negative impact on them. The domestic futures market followed a positive trend. The Shanghai copper main contract of 1406 reached a low of RMB43,690/ton in the month, or even a one-time drop, which fell by more than RMB 500/ton compared with the prices at the end of March. The analysis of “My Nonferrous Metals” believes that the recent copper copper price is under pressure due to concerns about debt defaults in financing copper, high inventory levels, weak downstream construction conditions, and policy pressures.

This year, the China National Materials Reserve Bureau plans to collect 500,000 tons of copper. The shortage of domestic copper stock is only temporary. Most of the copper is temporarily locked in the warehouse of the bonded area. As long as the copper price recovery and import losses shrink, this part of copper will be released quickly. Once the domestic copper spot continues to be at a high level, not only will China's Bonded Area copper declarations be imported, but also overseas imports of copper will also rise significantly. In the first quarter of 2014, China’s copper imports reached 1.334 million tons, an increase of 37.8% year-on-year.

Analysts said that more than 70% of China’s imported copper is not used in cables, housing or electrical appliances, but is used to finance and mortgage bank loans. However, the recent devaluation of the renminbi has led to higher international copper costs, and the loss of imports is 4,000 yuan/ton, which has dampened the import momentum of traders. At the same time, the copper smelters pulled copper into the bonded area and prepared to export. However, due to the rumors of storage and accumulation and superposition with the consumer season, the price of copper quickly emerged from the shadow of continuous drop in early March, and domestic and international copper prices rose.

The second quarter is the peak season for copper consumption. China’s copper demand has picked up, but the copper market is still dominated by the bearish side, and China's economic data released in April showed that although domestic economic growth is under pressure, it is better than market expectations. This gives Copper price support. However, in the long-term, as China's economy has not yet bottomed out, copper prices are still falling.

Copper consumption outlook is considerable

At present, China's economic structure is facing adjustments, although the growth rate is reduced to about 7.5, the use of copper growth is bound to be affected. However, the total economic output is still rising, and the consumption structure of copper will change accordingly. Refined copper consumption will continue to increase. According to analysis, in 2014 China's refined copper consumption will exceed 9 million tons, a year-on-year growth rate of 6.5%.

With the continuous deepening of reforms, China’s copper consumption structure will also change accordingly. There is great potential for the use of copper in various fields, and copper consumption may also experience secondary acceleration in the future. According to information from Shanghai Nonferrous Metals Network, the order of wire and cable companies in China has gradually improved, the operating rate of copper pipe enterprises has risen sharply, and the use of copper by automobile manufacturers has also increased. Although it is now entering the peak season for consumer demand for copper, electricity, home appliances, and automobiles in April and May, in the long term, the growth of copper demand in China may remain limited, and it is difficult to reproduce the boom of copper consumption.

At present, although the amount of copper used in construction in China is huge, due to the low design standards for electrical circuits in China, the wire market is still far behind developed countries and regions. The electrical circuit design capacity of residential buildings in Hong Kong and Japan in China is several times larger than in Beijing. For example, the electricity load is 3 to 5.5 times that of Beijing, which means that there will be several times more potential for copper use in the future.

At the same time, there are few copper tubes used in construction in China. Compared with the use of copper tubes in water supply, heating, and gas systems in developed countries, the potential of copper tubes for construction in China is still very large. It is reported that the power cable generally has a 15 to 20-year life cycle, and China will soon enter the replacement cycle, resulting in considerable copper consumption prospects. Looking to the market outlook, China's policy protection is expected to strengthen, the pressure on the domestic fundamentals is temporarily eased, and the copper demand growth is expected to remain above 5%.

In particular, copper consumption is relatively strong from April to May every year. It is expected that the downstream will actively purchase goods, and demand will gradually pick up, which will form a strong support for copper prices. However, the short-term rebound in copper prices has not yet reversed the mid-to-long-term bearish trend. The top resistance at 48,000 yuan/ton is still difficult to break through, and the copper prices in May to June are still not optimistic, and there is a greater probability that the gradual oscillation will weaken in the later period.