Price is too "crazy" rain, how to stabilize "copper" boat?

Since the beginning of this year, the prices of some commodities have continued to rise sharply, and the prices of some varieties have even reached new highs. Recently, the National Development and Reform Commission and other five departments jointly interviewed key enterprises with strong market influence in copper and other industries.

"It shouldn't go up like this! "The act of pulling up the market regardless of the industry will definitely be suppressed." Li LI, HEAD OF JIANGTONG JINRUI FUTURES RESEARCH INSTITUTE, SAID, "THE RISE IN COPPER PRICES HAS LITTLE TO DO WITH THE STRUCTURE OF COPPER SUPPLY AND DEMAND. It is the loose liquidity in the market that has pushed the price to the current position."

On May 7 this year, the price of copper breached its 2011 high of $10,184 a tonne; On May 10, it hit a record intraday high of $10,747.5 / ton, up 145.9% from last year's low. They are up as much as 37.5% this year. London copper closed at $9,983 a ton on May 24, still at a record high.

Copper is an important basic raw material industry, China is the world's largest copper consumer market, but we need to import a large number of copper ore and copper metal due to the shortage of resources. The high price of copper will make the cost of downstream copper enterprises rise rapidly, which will have an adverse impact on normal production and business activities.

"Thousands a day! In the past, there was a slow rise and fall of the process, this time the rise is too rapid, and the rise period is long, can not keep up with the pace, see the price of the first thought to consume inventory and then buy, but the use of inventory and so on to increase the price." Yingtan Ruixin copper Co., LTD. Operation planning manager Li Min said.

What has been the main driver of this rally? Industry analysts believe that the global economy in the post-pandemic era is accelerating recovery, the new energy sector is good for copper consumption, the shortage under low inventory and inflation under high liquidity, as well as the slow recovery of copper output and short-term dislocation of demand increase bring fundamental support.

High copper prices, the impact on the entire industrial chain?

Mining companies are highly profitable. Copper mine profits have soared as the price of the metal has soared. However, China's copper self-sufficiency rate is only about 20%. Jiangtong Group is the domestic copper enterprise with the highest self-sufficiency rate, but its imported raw materials still account for more than 60%.

"For mines, the cost of mining copper is relatively fixed, and higher copper prices will stimulate copper miners to release capacity." Cloud copper shares marketing and settlement department director Zhang Jianhui said.

Smelters and copper processors were under pressure. Xiao Tianyang, deputy general manager of the Marketing Department of China Copper Co., LTD., said that for smelting enterprises, the domestic social inventory has increased by more than 140,000 tons so far this year, while the inventory of the same period in 2019 only increased by 70,000 tons. The high copper price has shown resistance to the sales of smelters' products.

"Traditionally, April and MAY is the peak season FOR COPPER consumption, BUT this year there is swelling of electrolytic copper, which shows that high copper prices inhibit downstream companies' willingness to buy and hurt copper producers," XIAO said.

For copper processors, which rely on order volumes for processing fees, times are tough. In Yingtan City, Jiangxi Province, the country's largest copper smelting and processing base, copper enterprises generally feel the pressure of "quantity contraction and price rise". Chen XiaODONG, GENERAL MANAGER OF YINGTAN RUIXIN COPPER CO., LTD., A LEADING PRODUCER OF OXYGEN-FREE FINE COPPER WIRE, SAID THE RISING COPPER PRICE HAS BROUGHT FINANCIAL PRESSURE, AND THE COMPANY'S LOAN VOLUME HAS INCREASED BY MORE THAN 30% THIS YEAR COMPARED WITH THE SAME PERIOD LAST YEAR. At the same time, the company's scattered orders significantly reduced.

The orders of copper consumption terminal production companies have been suppressed by high prices, and the price increase is far from keeping up with the "mad rise" of copper prices, eroding profits. "If we go up 5 percent, the dealers are going to make a fuss." Zhang Wanquan, general manager of Emmett Electric Appliances (Jiujiang) Co., LTD., said that not only copper, stainless steel, aluminum alloy, plastic, packaging and so on have risen sharply. The cost of a 200 to 300 yuan fan has increased by 10 percent, but the sales price has only increased by 3 percent year-on-year. In the first half of this year, the company's copper procurement cost rose nearly 30% compared with the first half of last year.

Zhang Jianhui believes that the plight of downstream enterprises will inevitably form a reverse suppression of commodity consumption.

At present, the market is divided on the future direction of copper prices. In THE SHORT TERM, THERE IS A VIEW THAT GLOBAL MONETARY EASING REMAINS IN PLACE AND EXPECTATIONS OF a RECOVERY IN FOREIGN CONSUMPTION, SO THE LOGIC FOR COPPER PRICES TO REMAIN HIGH REMAINS.

But there are also views that copper prices have come out of the peak, the second half of the year may be ahead of the market downward turning point. Zhang Jianhui believes that the sharp rise in commodity prices will lead to the risk of inflation, the possibility of interest rate hike in the United States, and the imported inflation in emerging markets will also suppress economic growth. All these factors will disturb the continuous rise in commodity prices in the long term and lead to a fall in prices.

Market participants expect that several mines will be put into production in the second half of this year, and the gap between supply and demand is expected to shrink dynamically, and the upstream and downstream sectors of the industrial chain will reach a new balance.