● Our reporter Ma Shuang
Since November, among commodity assets, industrial metals have performed well, and the prices of futures such as copper and aluminum have risen by more than 10%.
Analysts believe that from a fundamental point of view, the overall inventory level of non-ferrous metals is currently at a low level in the same period in history. In the long run, the support of new energy on the consumer side will support metal prices, especially copper prices, but some uncertain factors may affect metal prices in the first half of 2023. Price action poses pressure.
Strong non-ferrous metals
Since November, non-ferrous metal assets have rebounded sharply, becoming the “leader” of bullish commodities among commodity assets. Wenhua Finance data shows that as of press time on December 12, since November, London copper futures prices have risen by more than 13%, London aluminum futures prices have risen by more than 10%, and the main contract prices of Shanghai copper and Shanghai aluminum futures have risen respectively over the same period 7.95%, 7.72%. At the same time, the A-share non-ferrous metal index rebounded significantly. According to Wind data, as of the close on December 12, the A-share non-ferrous metal index has rebounded by 8.71% since November.
Regarding the recent strong trend of non-ferrous metal assets, Cao Yang, chief analyst of non-ferrous metals at the Orient Securities Derivatives Research Institute, told a reporter from China Securities Journal that from the perspective of the policy cycle, the market expects the Fed to raise interest rates to slow down. Weakened, the macroscopic suppression of non-ferrous metals has weakened compared with the previous period. In addition, the market’s expectations for the recovery of China‘s economic growth have increased, which is bullish for non-ferrous metals.
From the perspective of the Federal Reserve’s monetary policy, on November 2, the Federal Reserve raised interest rates by 75 basis points again, which had limited impact on the market. The market expects that the pace of interest rate hikes at the Fed’s interest rate meeting in December will slow down, possibly to 50 basis points.
“The expected slowdown of the Fed’s interest rate hike is one of the core driving forces for the recent rebound in copper prices. In addition, the market’s expectations for the recovery of copper demand are also increasing.” Wang Yingying, a researcher at the Galaxy Futures Commodity Research Institute, told a reporter from China Securities Journal.
From a fundamental point of view, domestically, the new capacity of smelters is currently lower than expected, the supply of refined copper is tight, and copper is in a low inventory state. “Recently, more smelters are in the state of maintenance, coupled with the tight supply of anode copper, some smelters have reduced production.” Wang Yingying further analyzed that there are currently many uncertainties in the supply of overseas copper markets, and the global copper dominant inventory is only 260,000 tons also supported copper prices. At the same time, the demand for copper in new energy is very strong. The growth rate of global photovoltaic installations this year is 40% to 50%, and the growth rate is expected to be around 30% next year, which has played a strong role in supporting copper consumption.
Inventory is at an all-time low
At this stage, the overall inventory level of non-ferrous metals is at a low level in the same period of history. Among them, the global dominant inventory of copper is at a historically low level. For the future trend of non-ferrous metals, especially copper prices, some institutions have given optimistic expectations. Goldman Sachs boldly predicts that copper prices may rise to a record high of $11,000 per ton within a year.
A few days ago, Goldman Sachs raised its copper price forecast for next year and 2024 in its report, and at the same time raised the forecast value per ton in the next three months, six months and twelve months from the original US$6,700, US$7,600 and US$9,000 to 9,500. USD, USD 10,000 and USD 11,000. Goldman Sachs said global visible copper inventories fell to the lowest level in 14 years, helping to limit downside risks to copper prices. It had earlier expected a surplus of 169,000 tonnes next year, but the latest report shows that it expects the excess to end, or a deficit of up to 178,000 tonnes.
“For future copper prices, we hold a more cautious view, which can be described as ‘warm and cold, ready to rise’.” Cao Yang believes that it will take until 2024 for the fundamental cycle of copper to turn into a shortage. It will take longer to support copper prices with the policy cycle. In the next round of copper price upward cycle, it is more likely that copper price will stand above $10,000/ton again, but higher prices require more positive factors to resonate.
From the perspective of fundamentals, Cao Yang said that at this stage, the overall inventory level of non-ferrous metals is at a low level in the same period in history. In the future, in the case of differences in fundamentals, the elasticity of different metal accumulations will vary. It is expected that copper will appear in the first half of 2023. A round of trend accumulation, but the magnitude will not be too large, and the inventory may return to the historical median level.
“According to our calculations, the cumulative volume of refined copper next year will be around 120,000 tons. The bottleneck of crude smelting will be broken from 2024 to 2025. China, the Democratic Republic of the Congo, and Indonesia all have a large number of new production capacity put into production. It is expected that in the next two years It will be a period of accumulation of copper. However, after 2025, there will be a bottleneck in copper mines, coupled with the support of new energy consumption, copper may be transferred to storage again, and will be in short supply in the long run.” Wang Yingying said.
In Wang Yingying’s view, the rebound in copper prices will not be smooth sailing. “It is expected that copper prices will face pressure in the first half of next year, and copper prices are at risk of falling. On the one hand, the country may go through a transition period, and demand recovery will not be fast; on the other hand, even if the Fed slows down the pace of interest rate hikes, the current high The interest rate level will also gradually be transmitted to the real economy, and further tighten liquidity, and the logic of the copper market next year will shift from interest rate hikes to recession.” Wang Yingying said that at present, copper stocks are at an extremely low position, even if refined copper accumulates next year 120,000 tons, the overall inventory level is not high. Under the expectation of demand recovery, copper prices are expected to stabilize and rebound.