The Zhitong Finance App learned that CICC released a research report saying that the copper price center may rise, and the copper sector allocation value will be highlighted in 2024. First, on the macro side, the Federal Reserve's interest rate cut deals may have begun, and copper prices are expected to benefit from a marginal increase in dollar liquidity. The market's anticipated 2024 copper supply boom may have gradually been weakened or hedged. The green and low-carbon transition and the rise of the Southeast Asian economy are expected to open up new growth space for copper demand. Global copper supply and demand may shift to a tight balance in 2024, and gradually enter a shortage state after 2025. The copper price center is expected to rise. It is recommended to focus on copper industry targets with strong production growth and high performance flexibility.
Investment advice: Maintain profit forecasts, ratings and target prices for covered targets, such as Western Mining (601168.SH), Jin Chengxin (603979.SH), and Luoyang Molybdenum (603993.SH).
Incident: According to Anteco, on March 13, the China Nonferrous Metals Industry Association organized a symposium on copper smelting enterprises in Beijing. Key leaders from 19 domestic copper smelting companies attended the meeting. The meeting reached the following consensus. First, agreement was reached on continuing to advance the structural adjustment of copper raw materials, second, agreement was reached on adjusting the pace of smelting production, and third, consensus was reached on raising the entry threshold and strictly controlling the expansion of copper smelting production capacity.
CICC's views are as follows:
Since 2023, copper smelting capacity has been released at an accelerated pace, but the supply of copper concentrate has fallen short of expectations.
On the one hand, global electrolytic copper production capacity will be launched at an accelerated pace in 2023. High copper processing fees in the 2021-2023Q3 spur the acceleration of global electrolytic copper production capacity in 2023. According to ICSG, the year-on-year growth rate of global refined copper production reached 5.7% in 2023, and the year-on-year growth rate of refined copper production in China reached 11.26% for the full year of 2023. On the other hand, the release of global copper production capacity fell short of expectations. In 2023, global new and old copper production continued to be disrupted. The year-on-year growth rate of global copper production was only 1.38%. The relationship between copper ore supply and demand is beginning to show signs of tension.
The supply and demand relationship for copper concentrate has continued to deteriorate since 3Q23, and spot smelting and processing costs have reached their lowest level since 2013.
Copper concentrate's tight superposition and rapid deployment of smelting capacity caused spot smelting and processing costs for copper concentrate to fall below 12 US dollars/dry ton on March 11, the lowest level since 2013. In February, some smelters stopped production and maintenance. In February, China's electrolytic copper production was 950,000 tons, +4.68% year over year and -2.01% month over month.
This joint production reduction is actually a key reflection of the transmission of copper concentrate supply pressure to the smelting side, and the pressure on refining copper production capacity may be weakening.
At the conference, it was stated that “participating companies reached agreement on adjusting existing production line maintenance plans and reducing production loads, delaying the commissioning of new production capacity, and delaying the time to meet production standards.” We believe that 2024 may still be the peak of refined copper production, but considering frequent disturbances in the established copper-producing countries, mainly Chile and Peru, from 2023-2024, copper ore supply fell short of expectations, and the pressure on refining production capacity may weaken. First, for the smelting project in production, the project on the right side of the cost curve may have losses and pressure; second, for new projects that were originally scheduled to be put into operation in 2024, the cost performance ratio of copper concentrate as a raw material source is low, and the decision to start production of the new plant may be delayed. We estimate that in 2024 and 2025, global refined copper production was +2.7% and +2.0%, respectively.
The copper price center may rise, and the copper sector allocation value will be highlighted in 2024.
First, on the macro side, the Federal Reserve's interest rate cut deals may have begun, and copper prices are expected to benefit from a marginal increase in dollar liquidity. The market's anticipated 2024 copper supply boom may have gradually been weakened or hedged. The green and low-carbon transition and the rise of the Southeast Asian economy are expected to open up new growth space for copper demand. Global copper supply and demand may shift to a tight balance in 2024, and gradually enter a shortage state after 2025. The copper price center is expected to rise.
Risk warning: Copper ore and smelting capacity released higher than expected supply, and the Fed's interest rate hike exceeded expectations.