At the end of 2016, commodities, which had been tepid until now, seemed to be taking advantage of the victory and counterattack, especially base metals. Recently, Dr. Copper has suddenly regained its vitality, once soaring by more than 14% to over US$5,500/ton. Since Trump won the election and claimed to increase infrastructure spending and stimulate the economy, as well as rising demand from China, the market has bet on it as an infrastructure raw material. industrial metal prices rose.
(Jiangxi New Materials Co., Ltd.)
Even big short sellers like Goldman Sachs, who have been short-sellers in the past few years, have turned long. Most institutions in the market are optimistic about copper and predict that China’s demand will continue to heat up. By 2017, the supply gap in the copper market will reach 400,000 tons.
If copper prices rise above $5,500 per ton, it will be a big boon to miners such as Glencore, Anglo American, Freeport-McMoRan Copper and Gold Mines, etc. These companies have benefited from skyrocketing demand to pay down debt. and restarting its dividend reinvestment plan. Goldman Sachs said:
“The growth in Chinese demand has tightened supply in the copper market, far exceeding our previous expectations.”
On November 14, Goldman Sachs analysts warned investors that the demand brought about by Trump’s infrastructure construction is limited and that commodity bulls are too optimistic. Trump’s infrastructure construction plan has a far smaller impact on global demand than China, so the recent sharp rebound in metals and commodities is “too high and too fast.”
Robert Edwards, consulting manager at the British Commodity Research Institute, said at the American Copper Association’s fall meeting in Naples, Florida, that the surge in demand for copper and other metals from new infrastructure projects will not happen until 2018 or beyond. . He pointed out:
“Next year may see the first signs of demand recovery as confidence grows in decisions to invest in new projects.”
Until this month, copper was one of the worst-performing base metals on the London Metal Exchange (LME) with a 5% gain compared to zinc, which soared 55%, and aluminum, which surged 17%. Although Trump’s vague “large-scale infrastructure” plan has caused industrial metal prices to rebound, market sentiment has already begun before the election day. Therefore, surge in Chinese demand has become a key factor in this round of rising industrial metal prices. .
Since copper is a commodity that is not easy to produce, analysts usually set a “production disruption tolerance ratio” of 4% to 5% to adjust for the fact that the actual output of copper mines is relatively lower than the mining plan. However, there was apparently no supply disruption before September this year, making the situation of copper ore being blocked from flowing into the market even more complicated.
However, the situation has now taken a turn for the worse, with a sudden wave of supply tightening signals appearing in the copper market. Refined copper inventories held by the London Metal Exchange have fallen by 36% since the end of September, a situation that has also occurred at the Shanghai Futures Exchange.
There are concerns about the copper supply outlook. During the third financial reporting quarter of this year, several major producers, including Freeport, Rio Tinto and Anglo American, lowered their 2017 production forecasts. BHP Billiton’s Olympic Dam copper mine in Australia experienced a large-scale power outage, Freeport’s Grasberg copper mine in Indonesia went on strike, Minmetals Resources(Hong Kong stocks01208) The copper mine in Las BAmbas, Peru, blocked transportation channels due to protests.
At the same time, an unexpected drop in refinery processing costs for shipments in 2017 also suggests that the copper raw material supply situation may tighten earlier than expected. Processing and refining costs are one of the important indicators reflecting the tight supply situation in the market. When this indicator falls, it means that raw materials in the copper supply chain are tight.
In recent years, the U.S. Freeport and Jiangxi Copper(Quotes600362,Buy) annual negotiations have become one of the benchmarks in the market. Most analysts had previously believed that processing and refining costs would rise this year, but this backfired. US Freeport and Jiangxi Copper recently signed a copper concentrate supply agreement, which lowered the copper processing and refining charges (TC/RC) in 2017 to US$92.50/ton and 9.25 cents/lb respectively, lower than this year’s level.
Han Yang, currently the chief strategist of Zhisheng Gold and a special guest on the “Shui Pi Chat” program, has served as a senior analyst and trader in many foreign exchange investment companies. He has worked in the foreign exchange market. The long-term annualized return is above 30%. After the transformation of risk control management work, the management funds exceeded 100 million yuan. After years of research and analysis on market trends, I have a unique market sense and accurate judgment ability, a unique understanding and understanding of the macroeconomic situation, and am good at financial risks.Management and intraday market band operation. In the past 10 years of futures, foreign exchange, and precious metal trading practice, we have accumulated rich experience and have a relatively successful risk control system.
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