Copper prices experienced a two-month oscillation bottoming in June and July 2010. Since the beginning of August, they have broken through the upward trend and performed a strong bullish trend. In the meantime, strong and weak, it has continued to the present. Given that since the subprime mortgage crisis bottomed out, copper fundamental changes have been relatively small relative to prices, and financial attributes have played a very important role in the past two years. Therefore, we believe that the main line driving prices in the later period is still the active and loose monetary policy of developed countries, and the promotion of prices is the gradual improvement of the fundamentals of the industry.
I. US and Japan Quantitative Easing Policy Stimulate Market Rise
The Bank of Japan adopted a further easing policy and established a plan to purchase assets worth 5 trillion yen. It will consider purchasing 1 trillion yen worth of commercial paper, commercial paper with asset guarantees, and corporate bonds within one year after the plan is launched. Trillion yen long-term Japanese public debt and U.S. public debt. The Bank of Japan once again resorted to quantitative easing policies, which made the market expectation of the Fed to launch the second edition of quantitative easing.
There is a view that the U.S. economy will enter a pattern of stagnation in recovery, leading to a general decline in the U.S. dollar for all currencies. However, the real situation is likely to be that the economy in the rest of the world is not very poor. The US economy, despite its delay, is not weak. At the end of October, the United States increased its real GDP growth rate in the second quarter by 0.1 percentage points to 1.7%. In particular, its consumer spending was further increased, which means that the US economy is not very poor in quantity. The so-called weak economy in the United States is mainly due to its unemployment rate as high as 9.6%. However, the greatest feature of this round of economic recovery is jobless recovery. The economics community believes that U.S. unemployment is likely to be more structural unemployment than cyclical unemployment, and economic growth Pulling employment recovery is extremely slow. Based on this, taking into account that the performance of economic data other than unemployment data in the United States is acceptable, it is unlikely that its economic recovery will be hindered, but high unemployment rate will exist for a long time. Taking these factors into account, it can be assumed that the continued depreciation of the US dollar is closely related to the quantitative easing expectations of the Federal Reserve.
The market expects the Fed to reintroduce trillions of quantitative easing policies. Although some speculations are exaggerated, as long as the Fed recirculates funds originally scheduled to withdraw, it means that quantitative easing monetary policy will exist for a long time, and it can play a very strong role. Shocking effect - Dollar liquidity will not be lacking. With an extremely loose monetary environment, rising copper prices with precious metal attributes and scarcity will be high probability events.
Second, China's macroeconomic policies tend to be stable, and the pressure on inflation of asset prices is high.
In 2010, China's GDP in the second quarter increased by 10.3%, a significant drop from 11.9% in the first quarter. After entering the third quarter, the situation has changed. Since October 2009, the year-on-year growth rate of domestic fixed asset investment has dropped rapidly. Since February 2010, it has begun to decline slowly. In August, the year-on-year growth rate was 24.80%, which was the lowest since 2009, but the growth rate has slowed down significantly. It is expected to reach a soft landing in the fourth quarter. The trend of slower economic growth has been established. In the second half of the year or even in 2011, the economic growth rate may remain at a relatively low level, but such a sharp fall in the second quarter is difficult to reproduce. The characteristics demonstrated by the inflation sector in the third quarter have eased inflationary pressures. In August, consumer prices rose by 3.5% year-on-year, an increase of 0.2% from July. Both the PPI and the power raw material price index have fallen back to relatively normal levels. It is noteworthy that the ratio of PPIIM's YoY growth rate to PPI has fallen back from the 5.55% high point in March to 3.20% in August. This difference shows the upstream Downstream CPI pressure has been greatly eased. Judging from the performance of the three types of price indices, the macroeconomic overheating period has passed safely and the possibility of China’s economy entering stagflation is very low.
However, due to the lagging influence of China's 9.595 trillion yuan in credits in 2009 and the still-very low interest rates so far provided an excellent environment for the expansion of asset prices. The main reason why the CPI data did not soar in the first two months of the third quarter of 2010 was that the early-stage input-type inflationary pressure was relatively small. Both the overcapacity suppressed the soaring of terminal prices, and the real economy’s ability to hedge against inflation was small. In this context, the easing The funds can only enter the asset market in order to preserve value and chase profits.
In view of this, the Chinese economy is more likely to be stable, although the recent central bank control the liquidity of several major commercial banks and raised the reserve requirement ratio by 0.5%, but its purpose is only to manage excessive liquidity initiatives. Does not mean that the government will implement a continuous tightening control policy. It is this possible macro and policy environment that makes us believe that the current macroeconomic situation in China is conducive to the stability of copper demand in the medium to long term.
Third, the supply and demand of the entity is good: China will make up the reservoir and increase the demand in the West.
By observing the customs import data, it can be seen that although the increase in absolute amount is not significant, the year-on-year improvement trend is extremely obvious. Judging from historical experience, the prospect of China's refined copper imports entering the market in the new round will be a high probability event.
China's downstream consumption of refined copper has new highlights. It is expected that by the end of the third quarter of 2010, China’s copper consumption is expected to maintain a steady growth rate, especially for rural power grids. This year, the country will allocate 12 billion yuan of fiscal funds for the transformation of rural power grids. The annual investment in rural power grids will not be lower than the previous year in the next three years. It is expected that this year's rural network transformation and upgrading will drive at least RMB 60 billion investment, and the three-year investment scale will exceed RMB 200 billion, which will drive about 1.75 million tons of refined copper consumption. At the same time, copper consumption in the household appliance sector is still expected to continue to grow. It can be expected that refined copper consumption in China will not be sluggish in the fourth quarter of 2010.
From the micro-characteristics of the industry, the annual copper concentrate processing fee (TC/RCS) agreed between the copper miner and the smelter was US$39/ton and US$3.9/lb/lb. Although copper concentrate processing and refining costs are at a record low, smelters still need more copper concentrate supply. The record-low copper concentrate processing and refining fees show that the supply of copper concentrate is very tight, and at the same time it also limits the downside of the copper price from the cost.
From a global perspective, the International Copper Research Group (ICSG) stated on October 1 that it is expected that the global refined copper market will have an oversupply of over 200,000 metric tons in 2010. It is expected that the supply will be insufficient in 2011. It is expected that market demand will gradually increase as economic activities increase. . After adjustments, the agency expects world refined copper production in 2010 will increase by about 4% to 19.081 million tons. It is expected that refined copper production in 2011 will only increase by 1.1% to 19.293 million tons. The available data also show that the supply and demand situation of copper in the first six months of 2010 is much better than the same period of last year. The copper price drop in the second quarter was more from factors outside the industry fundamentals. Similarly, the third quarter copper price rebound is also an excessive price in the second quarter. The correction of the fall has not overdrawn the industry fundamentals.
Normal commercial and commercial restocking activities are about to begin, China’s economy and policies are returning steadily, and U.S. monetary policy is still likely to continue to relax. These are all bullish factors that support price upwards. Potential major bearish factors have not yet emerged. We believe that the loose monetary policy in the fourth quarter will fully promote the increase in market prices and effectively activate the real economic activities in the market, thus bringing new driving forces to the operation of copper prices. With appropriate fundamentals, extremely loose liquidity is very likely to push prices out. Although there are still repeated stages in the long-term economic operation, it will not change the upward trend of copper prices. In the fourth quarter, copper prices are likely to explode, with RMB 9,000-10,000/ton copper and 75,000-78,000 yuan/ton Shanghai copper.