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Rumors of joint production cuts come back, can copper prices go even higher

Time: 07:58:13 December 25, 2019
The smelting industry's regeneration variables entered the end of 2019, and copper suddenly broke out after half a year of silence. Copper prices at home and abroad rose by more than 5% simultaneously. Regarding the rise in copper prices this time, the market interpreted it as a result of the warming of macro data and the expected improvement in consumption. Admittedly, the demand-side benefits exist objectively, but the potential operating risks of the supply-side smelting industry and the tip of the iceberg that are currently emerging may also be the booster for this rising market. Disturbances from the smelting industry are expected to continue to affect copper prices in 2020. .

What are the variables at the smelting end? According to market news on December 10, Shandong ’s largest copper smelter filed for bankruptcy, and the company subsequently stated that, despite the company ’s current level of liquidity tensions, production and operations are normal, and the company is in contact with relevant credit agencies to actively negotiate settlement of debts. problem. On December 26, it was reported that at the meeting held by the China Copper Raw Materials Negotiation Group (CSPT) in Fuzhou, it was possible to discuss the 2020 copper smelting enterprises' production reduction plans, production reduction and production reduction time, in the hope that the pressure of domestic sulfuric acid stocks and the operating pressure of smelting enterprises could be eased And smelting companies involved in bankruptcy rumors are among them.

The joint production reduction has credibility. In our copper 2020 annual report "Copper: Low increase in supply and demand, increased volatility", it has been proposed that under the background of low profits, the potential production and operation risks of the smelting industry increase. Production capacity is planned, but the actual incremental growth is expected to be limited under the constraints of raw materials and profits. Looking at it now, whether it is the joint production reduction plan of CSPT or the rumors of bankruptcy of large factories, we have verified our expectations of supply disturbances in advance.

The 2020 long-term TC determined in the fourth quarter of this year was 62 US dollars, which has basically fallen to the lowest level since 2013. At the same time, domestic sulfuric acid prices have continued to fall for nearly a year, and smelter inventory is backlogged, and profits are marginal. With reference to the joint reduction of production that CSPT had carried out in 2007, the TC at that time was basically located near 60 US dollars, which is similar to the current situation. Therefore, under the current profit environment, the smelter has a credible reduction in joint production.

According to survey data from relevant agencies, the CSPT group currently includes 13 smelting companies with a total refining capacity of 7.5 million tons, accounting for 68% of the country's total refining capacity. The smelters involved in bankruptcy rumors are also included in the CSPT group, with a refining capacity of 600,000 tons, accounting for about 5% of the country's total refining capacity. We believe that if the production reduction can be implemented this time, the proportion may be similar to that in 2007, which is between 10% and 15%, and the smelting enterprises that have debt problems may have greater concessions in reducing production.

In addition, if production cuts and actual stoppages occur, the copper smelter stocks of the relevant smelters may re-flow into the market. The current situation of high ore prices will ease, and TC will be slightly repaired upwards, which is expected to increase the capacity utilization rate of existing enterprises. Rumors of joint production reductions have reappeared, can copper prices rise to the next level? Open the APP Read the latest report Whether copper prices can rise to the next level. With the expectation that consumption will improve, Shanghai Copper has broken through the 49,000 line. Under the disturbance of supply reductions, copper prices are expected to rise to the next level. Floors.

2020 is the year in which China's "comprehensive well-off", "13th Five-Year Plan" and "three major offensive battles" policies end. In the key nodes of the goal, the stable growth function of counter-cyclical policies is expected to appear, especially on the Half a year may become a window for policy-intensive release, and copper prices have always been sensitive to policy stimuli. In addition, the long-term demand for copper is expected to be good and the certainty of consumption growth is high: the construction of real estate continues the trend of transition from new construction to completion, and the start of the replenishment cycle is expected to drive demand for copper in decoration, home appliances and other related industries; large-scale investment in power grids The era has come to an end. The total investment may decline, but the structural transfer to the distribution network and the pan-electricity industry will increase the density of copper. Traditional cars are expected to stabilize and come out of the trough. New energy vehicles will not have a significant increase next year. The automotive industry The demand for copper as a whole will not be worse than this year.

Under the positive market sentiment, long-term demand improvement and potential supply disturbances, the strength of copper prices has been further confirmed. The rising market may start in advance. After the price has stabilized at the 49,000 line, it is expected to continue to break through and move towards the 2019 high of 51,000 line.
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