Copper market will shift from short to long

Since May, Shanghai Copper’s May contract has soared. The far-month contract has been relatively moderate. The contract price spread has increased significantly, and has eased with the spot sales of rallies and import inflows of copper imports. The author believes that this As the round of Shanghai copper rebounded and became fearlessly strong, due to the end of the consumption season, the copper market in mid-to-late May will once again usher in a change in the pattern of supply and demand. In the second quarter, Shanghai copper will transition from short to long.

Nearly strong and weak, the spot premium rebounded in the near future. Under the short-term domestic short supply situation, the copper price rebounded gradually and recovered the lost land since March. At the same time, the contract structure has obvious reverse market characteristics. The monthly contract price in recent months is higher than that in the far month. contract. As of the close of May 13, the spread between Shanghai Copper 1405 and Shanghai Copper 1408 expanded to around RMB 2,300/t, which is rare in recent years.

Shanghai Copper’s near strong and weak is closely related to the close of the month’s contract. The previous inventory report shows that, as of May 9th, the copper inventory of the exchange fell to about 90,000 tons. Shanghai's tax-deductible stocks were only 24,000 tons, and the corresponding Shanghai copper 1405 contract positions quickly fell from 30,000 hands on the morning of the 12th to 13710 hands on the 13th day when the Japanese market closed. Some of the short-term holders were approaching delivery. Difficult to come from low-cost sources, short-term settlement in recent months is an important factor to promote the Shanghai copper rose.

However, the author believes that the current round of tight spot market outlook will lack continuity, following the cyclical structure of “increased import losses – hard-to-inflow of imported copper – continued high spot premiums – reduced import losses – a drop in spot prices” In the future, the domestic spot tension is expected to cool down, and the spot high-rise water will be difficult to last.

Supply pressure is high, demand growth rate is still weak From the perspective of copper supply and demand balance, despite the State Reserve’s taking copper and smelting exports, real domestic copper demand in the near-term is relatively stable, and there is no obvious increase in downstream stocks, and after the May delivery, Arbitrage behavior will prompt the market to return to rationality. Under the background of global copper supply pressure and weak demand growth, the overall oversupply will push copper prices back to a bear market.

According to the statistics of nearly 260 copper mines in the world by the commodity consulting agency WoodMackenzie, the current global copper mine cash cost C1 (including byproduct deduction) 90% quintile is approximately US$5800/ton, and the global copper supply increased in 2014 The volume is estimated at 871,000 tons.

Therefore, even though the growth rate of mine capacity in the first quarter was slightly lower than market expectations, the spot copper TCs imported in May were stable, running at 100-110 U.S. dollars/ton, and faced with relatively abundant global supply of concentrates and higher processing fees. Stimulating domestic smelters to fully produce, the overall supply pressure of copper is still relatively large.

At the end of the peak season of domestic copper consumption, according to past experience, copper consumption growth will face downside risk due to the limited ability of copper processing companies to continue to increase orders, and with the restoration of internal and external disk prices, import losses will decrease and traders will sell at rallies. To promote the transformation of the domestic supply and demand pattern, the support for Shanghai copper prices will loosen.

Macroeconomic environment is neutral, supply and demand will still dominate the market. Although the “micro-stimulus” policy of the government has been effective since March, the overall economic data of April has been stabilized, but demand data are mostly lower than expected.

Data show that China’s annual PPI fell by 2.0% in April from the previous year. Although it has improved from the previous month in March, the year-on-year decrease was less than expected, and the newly announced China’s urban fixed asset investment increased by 17.3% annually from January to April. 4 Monthly industrial added value grew by 8.7% year-on-year. The total retail sales of consumer goods increased by 11.9% in April. The above three data were all lower than expected and previous values, indicating that the weak domestic demand is still a dilemma for the Chinese economy.

At the meeting of the Central Political Bureau at the end of April, the decision makers considered that China's economic growth was in the “annual target range,” but acknowledged that the economic growth is still facing downward pressure, and demanded that the fiscal policy and monetary policy adhere to the existing policy tone, so it will not Introduce large-scale economic stimulus measures. Under the policy of maintaining domestic demand and maintaining stability, the domestic macro economy will not deteriorate significantly in the second quarter, and the dynamic supply and demand of commodities will continue to dominate the market outlook.

In summary, the author proposes that the copper market gradually shift from short-term to long-term operation in the second quarter, and the long-term copper market will still be in a bearish market pattern, focusing on Shanghai copper 1408's rush to short positions.