Copper prices will benefit from strong macroeconomic support and low inventories
The copper market remains focused on domestic credit liberalization, expectations of interest hikes on the recovery of foreign economies, and low overall inventories entering 2022. Domestic inventories will start to rise as the CNY approaches, but Domestic copper prices should enjoy strong support, and overseas prices will also rise.
In the face of downward pressure on the economy, the People’s Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission have frequently suggested that the tight monetary policy be eased. At the ordinary meeting of the Monetary Policy Committee of the People’s Bank of China in the fourth quarter of 2021, it was even more clearly emphasized that the economy should grow steadily and intercyclical adjustment should be strengthened, combined with countercyclical adjustment . The effect of the monetary policy easing implemented in Q4 2021 should be reflected in Q1 2022, which will support the spot and futures market.
The Fed has unexpectedly taken a hawkish stance amid strong macro data, and interest rate hikes could be brought forward this year. This will prevent inflation expectations from rising too quickly. But once the market fully digests the hawkish attitude, trading prices will return to the long-term upward trend, and overseas prices are expected to continue rising.
According to the SMM survey, copper cathode production in December 2021 was 870,300 tons, which was well above market expectations and hit a new high in the second half of 2021, with most copper smelters having completed their maintenance and some foundries have resumed production. accidents quickly. The shortage of copper anodes has gradually eased, with imports returning to normal in November after port congestion in South Africa eased slightly. Only a few foundries in the coastal provinces still lacked copper anode and could not produce at full capacity.
At the same time, copper smelters had high inventories of raw materials as the supply of copper concentrate stabilized. The temporary closure of ports in northern China did not affect consumption of copper concentrate by smelters in northwest China. Based on the current market, the impact of the upcoming Beijing Winter Olympics is insignificant on North China smelters, and the export window will remain open as the SHFE/LME copper price ratio continues to decline. to lower. Foundries will essentially maintain production at full capacity in January 2022.
However, the social inventory remained low as of January 11. Although some shipments of copper cathodes have arrived in domestic ports recently, they have been stored in bonded areas amid a closed import window. Bail inventory is likely to increase more significantly during the traditional off-season during CNY. The exceptionally low domestic copper cathode social inventory will provide strong support for domestic spot and futures prices, so copper prices are unlikely to fall below 68,500 yuan/metric ton.
SMM sees SHFE copper between 68,800 and 71,000 yuan/ton in January and LME copper between $9,500 and $9,800/ton.