Author: Jin Rui
At the beginning of this year, the macro side promoted the first wave of copper prices. Due to the easing of overseas monetary and fiscal policies, inflation was stronger than expected. The global vaccination is progressing smoothly, and the time when the overseas economy enters the accelerated recovery phase is earlier than expected. At the same time, the strong fundamentals also provide some support to copper prices.
The carbon peak and carbon neutral targets are superimposed on the expected increase in consumption under the economic recovery, resulting in low copper inventory levels. However, the rapid rise of copper prices restrained the consumption of industrial enterprises, the spot discount increased, and trading was deserted. The rise of copper prices failed to be achieved overnight, and February showed a phased consolidation. In April, the second wave of copper price increase was due to the strong macro driving factors, the active entry of funds, and the price rise again. In early May, Lun Copper broke through the key point of US$10,000/ton, and Shanghai Copper exceeded 78,000 yuan. /Ton. Since May, there have been more obvious changes at the policy level, and copper prices have dropped in stages.
With the economic recovery and rising inflation, the market has intensified concerns about the tightening of overseas liquidity, resulting in the so-called “tightening panic.” The Fed also releases “hawkish” signals from time to time to impact market sentiment. In addition, at almost the same time, the domestic management has effectively controlled the increase in commodity prices by strengthening supervision of illegal speculation and dumping of reserves.
“Tide” will eventually recede
The long-term growth of copper market consumption is not significant, and the supply is expected to rise in the long term. The “liquidity tide” that supports price increases will eventually recede, and the long-term increase in copper prices is unsustainable. It is worth noting that during the global financial crisis in 2008, the Fed’s QE1 and QE2 rounds of easing failed to achieve the effect of supporting economic recovery. Therefore, after the end of the round of QE, it eased again and started a new round of QE. At present, because of the obvious rise in inflation, and the earlier “money-spending” relief, which has been criticized by the US opposition party, the Fed and the Treasury Department have greater political pressure to tighten liquidity, and may tighten it before the policy goal is reached, but if employment Unable to recover as scheduled, it is likely to structurally release liquidity again. Therefore, the current round of policy tightening may also be repeated.
Intensified long-short game
In the second half of the year, with the weakening of the “coherence easing” in the United States, there is still room for supply and demand to be repaired. On the one hand, the US employment target has not yet been reached, and on the other hand, inflationary pressures are coming ahead of schedule. Therefore, it is expected that the Fed will continue to strengthen anticipation management, and risk appetite may change. The supply and demand level has entered the end of repairing the imbalance, and the long-short game in the copper market has obviously intensified.
The slope of copper consumption has slowed down, but the resilience lies in the out-of-synchronization of repairs in overseas economies. Synergy may still be formed in the second half of the year, and there are signs that the recovery momentum will switch to the service sector. However, the domestic real estate and export sectors have a certain degree of support for consumption. The copper industry’s inventory level is low, and companies may replenish the inventory. It is expected that consumption resilience will remain.
On the supply side, the mine end and the scrap copper are going back and forth. The mine supply continues to be repaired, but considering the epidemic situation, the resignation of labor contracts in major mines, and the impact of Peru’s new tax regulations, the mine supply still remains uncertain. However, due to the destocking of scrap copper, the margin of supply increase has narrowed. In the second half of the year, we need to pay attention to changes in the epidemic, seasonal disturbances caused by summer power rationing, and the impact of dumping reserves on Shanghai copper.
Copper prices enter the fish tail market
The author believes that copper prices will enter the fish tail market, the upward trend is not over but the volatility intensifies. From a macro point of view, the policy has not yet reached the point of actual tightening, and it is expected that the easing policy will officially withdraw in the fourth quarter. Prior to this, the Fed will strengthen communication with the market and strengthen expectations management. The copper market may see a see-saw market in the second half of the year. The core fluctuation range of Shanghai copper is between 65,000 and 75,000 yuan/ton, and the core fluctuation range of LME copper is between US$8,800 and US$10,000/ton. If, in extreme cases, the epidemic and other factors drag down the economic recovery, and the easing policy is delayed or even temporarily relaxed, the copper price is still expected to hit the previous high again.
At the trading level, the price of copper is likely to oscillate at a central high level. The possibility of short-term price spikes or bottoming due to supply disturbance and macro fluctuations cannot be ruled out. After the short-term copper price is restored, long positions can be appropriately deployed according to the pace of industrial replenishment. The peak season of “Golden Nine and Silver Ten” will give the bulls a chance to renew their strength, and the bears still need to wait for the policy to shift.