Multiple factors superimposed to push copper prices up

A few months ago, due to market expectations that China's global copper consumption up to 40% of China's demand will continue to grow strongly in 2011, and major companies will launch solid copper-based ETFs, copper market supply will emerge Larger gaps, so the copper prices all the way forward. Under the unbridled pursuit of investors, London's copper price hit a record of $10,190 per tonne in February. In March, copper prices fell by 8% and maintained high volatility. During this period, the market continued to heat up in the gap between long and short. At the annual meeting of the CRU copper industry held in Santiago, Chile in early April, participants were cautious and confused about the outlook for copper. Just when the market generally believes that China’s tightening policy and high inventory will likely cause the copper price to undergo a major correction in the short-term, the price of copper once again unexpectedly rises and surpasses the 10,000 US dollar mark. So how will the price of copper be interpreted?

Global inflation is rapidly increasing interest rates and prices are rising. The rise in prices triggered by the geopolitical battles in the Middle East and the earthquake and tsunami in Japan have caused international crude oil prices to soar. As a result, the price of alternative energy has risen, which in turn has led to other commodities and exacerbated global inflation. The People's Bank of China raised interest rates again on April 6. At this point, the Chinese Central Bank should raise interest rates four times for this round of inflation and raise the reserve ratio nine times. This reflects the Central Bank’s concern about the second wave of inflation and the acceleration of non-food price increases again. Subsequently, the European Central Bank announced a rate hike on the 7th, which was the first time since the European Central Bank raised interest rates since July 2008. It was also the first upward adjustment of the leading interest rate, which was at a record low of 1% in May 2009 and maintained so far. The market is not surprised that the central bank raises interest rates, and the stock market and commodity markets are not falling. This is due to the fact that the “boots landed” and the market’s concerns weakened; on the other hand, the interest rate increase precisely reflects China’s and the euro’s confidence in its economic growth.

At the same time, the Bank of Japan decided to provide one trillion yen (about 11.7 billion U.S. dollars) in special loans to financial institutions in the earthquake-stricken areas. The Bank of Japan maintained its stability in the financial market and injected large amounts of funds into the market. At the same time, it increased the size of the ** scale used mainly for the purchase of risky assets, and increased the monetary easing policy. The Bank of England’s monetary policy of maintaining 200 billion pounds (about 326.6 billion U.S. dollars) of quantitative easing is unchanged. In the near term, many Fed officials have made tough statements and said that the third round of quantitative easing (QE3) is impossible to implement, and the agency’s speculation that the monetary policy may tighten at the end of the year will boost the dollar gradually out of its disadvantage. Directly speaking, the United States must implement the third round of quantitative easing. Obviously, if the liquidity is flooded again, it will trigger the second wave of market madness. In addition, due to the European Central Bank raising interest rates and uncertainties in the United States, the US dollar index fell Powei, a record low since the end of 2009, non-ferrous metal prices rose.

China's demand is gradually recognizing the limited price reversal of copper prices The unusual copper inventories in the China Free Trade Zone have attracted the attention of the global market and they are starting to worry that China’s rising copper stocks will not immediately flow into the market, but may significantly reduce the copper supply gap. According to data from the South African Standard Bank, there are about 600,000 tons of copper stocks in the Shanghai Free Trade Zone and 100,000 tons in the ports in the South China Sea. This totals about 4.4% of the world's approximately 15.8 million tons of copper mining. Coupled with the 300,000 tons of new inventory that China has collected and stored, it is questioned whether the refined copper market is expected to be as short as expected in 2011. This creates the possibility that the market will balance supply and demand even slightly oversupply. However, the spot market has sent another signal in recent weeks. Although we cannot count the actual number of hidden copper stocks in China, we can speculate through explicit stocks. In the past three weeks, the stocks of the Shanghai Stock Exchange began to show signs of a reduction, which has reduced the number by more than 23,000 tons to about 150,000 tons. The spot market has also shifted from premiums last month to premiums of 50-200 yuan/t. Market requests have been positive, but traders are reluctant to sell. When the price of copper fell below 70,000 yuan, the market was buying aggressively.

From this point of view, China's demand is not as we imagined, and the actual consumption of copper stocks is not excessive. This shows that China's copper inventory data failed to truly reflect the actual market supply and demand. As the Chinese government continues to tighten its policy and corporate funds are tight, many non-mining companies use “copper” as a tool. In order to further cope with inflationary pressures and prevent the inflow of hot money, the National Bureau of Management issued a notice on March 30 to further strengthen issues related to business management, and proposed the settlement and transfer of income under the re-export trade. More stringent requirements were lowered, and the base ratio of advance payment and deferred payment over 90 days was lowered. At present, this notice has a relatively limited impact on direct trade in copper import and export companies, but this will inevitably inhibit the continued inflow of “**copper”. According to industry sources, at present, the “**copper” copper inventory in the 600,000 to 700,000 tons of copper stocks in Shanghai Free Trade Zone accounts for 95% of the total, which does not pass through the domestic spot market. This is very similar to the situation of aluminum aluminum stocks. LME aluminum inventories have been maintained at more than 4 million tons last year, but due to more than 80% for ** arrivals, it is impossible to circulate, making western countries tight supply of spot aluminum. Therefore, China’s basic needs are still in place. A considerable part of the inventory that was previously accumulated is being consumed in a planned way.