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News of production cuts, the price of copper is difficult to break the 50,000 yuan / ton mark?

Time: 08:22:00, December 30, 2019
Along with the decision of the Chinese copper raw materials negotiating group on December 26 to announce the production reduction, the price of copper fell under the 50,000 yuan / ton mark. In the short term, the macroeconomic situation and the industry's further favorable stimulus did not increase the copper price drop probability. In the medium term, global PMI data has stabilized and commodity market risk appetite has picked up. Against the background of global copper inventories and domestic downstream companies' inventory of finished products, low copper prices can easily trigger downstream bargaining and make up stocks. The industry's profitability provides margins for copper prices. Sexual support. The author believes that there is limited room for the correction of copper prices, and there is momentum for further rebound in the later period.

Short-term demand is stable but weak. Data shows that as of December 27, LME copper inventory fell by 61,000 tons to 147,000 tons from the beginning of December, and domestic copper inventory rose by 11,000 tons to 123,000 tons from the beginning of December. Inventories in the bonded zone have dropped to around 220,000 tons, with a year-to-date decline of more than 50%, and domestic destocking is more obvious. The recent rise in the spot price of the Shanghai copper spot market has turned into a discount, reflecting the weak operation of the consumer end. According to the SMM survey, the operating rate of domestic copper rod companies in November was 68.12%, a drop of 3.58 percentage points month-on-month; the operating rate of copper tube enterprises in November was 74.52%, an increase of 0.89 percentage points month-on-month; the operating rate of copper sheet and foil enterprises in November was 70.77%, The operating rate of wire and cable companies increased by 0.42 percentage points month-on-month; in November, the operating rate of wire and cable companies was 92.84%, a decrease of 0.42 percentage points; the operating rate of copper rod companies in November was 69.43%, a decrease of 1.99 percentage points from the previous month. In addition, recently, with the continuous rebound of copper prices, the price difference between domestic copper prices and scrap copper in Foshan area has expanded to 5,000 yuan / ton, and the substitution advantage of refined copper over scrap copper has dropped significantly. On the whole, the negative factors have accumulated and the upward pressure on copper prices has gradually increased.

There is an expectation of stock replenishment in the downstream. From the perspective of the downstream inventory, the cumulative growth rate of the current inventory of finished products has fallen to 0.4% year-on-year. Industry feedback is that companies currently do not have excess inventory, mainly due to the large proportion of capital costs. In the context of maintaining stability, the low rebound of copper prices will stimulate downstream bargain hunting to lock in profits. Recently, Guodian issued the "Notice on Further Strictly Controlling Grid Investment". The market expects that grid investment will be limited and the demand for copper from the grid will weaken further. It will be gradually reflected in the second half of next year. The impact on copper prices in the first half of the year is extremely limited, and there is no need to be overly pessimistic in the short term. In addition, the market's expectations of the 2020 real estate market for copper consumption will start to ferment. In the context of the continued increase in the area of new real estate construction in China in 2018, the completion of the real estate market will usher in 2020. Wires, cables and appliances related to real estate will boost copper consumption, which will provide strong support for copper prices.

Willingness to increase funds <br /> From the perspective of domestic positions, with the sharp rebound in copper prices, the total copper positions increased by 130,000 to 650,000 hands, indicating that the market speculative funds are low and the signs of long positions are more obvious, and copper prices will further stimulate Downstream industry customers enter the market to buy hedging and lock in costs. At the same time, as of December 17, CFTC's non-commercial long positions were 95,804, an increase of 16,573 compared to the previous week, non-commercial short positions were 95,635, and short positions decreased by 744 compared to the previous week. It can be seen that the copper market risk appetite is continuously rising There is a strong willingness to fund long initiatives.

To sum up, in the short-term copper market, without further favorable stimulus, upward pressure on copper prices will gradually increase, and the overall trend will continue to oscillate. However, with the stabilization of global demand in the medium and long term, there is an expectation of stock replenishment in the downstream. Around RMB / ton will be strongly supported, and the probability of further rebound is relatively large. Downstream companies can consider buying a small amount of lock-in costs on dips. (Author: CITIC Construction Investment Futures)
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