Under the storm of copper skyrocketing, air conditioners and refrigerators are imperative to follow the rise!

Since February, copper, known as the leader in bulk commodities, has started a round of price increases "storm", and it has become more and more intense, once breaking the 70,000 yuan/ton mark, setting a new high in the past ten years!

On March 11, the main Shanghai copper contract rose again by 2.54%, closing at 67,360 yuan/ton. At the same time, the surge in copper prices has also driven the stock prices of copper companies to keep rising. Among them, Jiangxi Copper's daily limit, Yunnan Copper rose 8.18%.

It is worth noting that, with the continuous rise of international copper prices, the recent price adjustments in the home appliance market have been heard. Since December last year, home appliances including head brands such as Oaks, Chigo, and Midea Group have issued notices of price increases. Among them, Midea Group notified that from March 1st, Midea refrigerator product prices will increase by 10% to 15%.

The purchasing general manager of a large home appliance company said, “The increase in copper prices has made cost pressure unprecedented. The price of home appliances has begun to adjust, but the rate is not as large as that of raw materials. If copper is still high in the future, prices will be adjusted.”

Regarding the future trend of copper prices, some institutions have pointed out that the first quarter or early second quarter will usher in an annual high, and then the high level will fluctuate for a period of time, and there may be more obvious room for a fall in the second half of the year. In the medium to long term, the center of gravity of copper prices will rise.　

China's copper price hits a new high in the past ten years, the price once exceeded the 70,000 yuan mark

Copper is one of the important raw materials for modern industry, and has always been known as the "Doctor of Copper". It is mainly used in industries such as electricity, home appliances, construction, and new energy vehicles. It is closely related to our lives. However, this raw material started a price increase storm starting in February.

On February 4, the copper price began to rise continuously from the position of 57,000 yuan/ton, and broke through the 60,000 yuan mark on February 10; after the Spring Festival, the rise in copper prices intensified, and the copper price broke through the 70,000 yuan mark on February 24. The main copper contract reached a maximum of 70,800 yuan, a record high in the past ten years, marking the climax of this round of price increases. Since then, the copper price has adjusted, but it is still above 65,000 yuan. On March 11, the main Shanghai copper contract rose again by 2.54%, closing at 67,360 yuan/ton.

The sharp rise in copper prices has also driven the stock prices of copper companies to continue to rise. On March 11, the A-share cyclical sector broke out again, and the non-ferrous metals sector soared 5.76%, of which Jiangxi Copper rose by the daily limit, Yunnan Copper rose 8.18%, and Tongling Nonferrous Metals rose 7.64%.

Wang Siran, director of the Ping An Futures Research Institute, said that the post-holiday copper price surge is more due to liquidity than fundamental reasons. The fundamentals are fair, copper concentrates are relatively tight, copper concentrate processing fees have fallen to a multi-year low, and the global dominant inventory level is also at a historically low level, but it does not support the continuous sharp rise of copper prices. In fact, the historical background of the same fundamentals, but the performance of copper prices under different macro backgrounds is relatively mild.

Wang Siran believes that there are two main reasons for the rise in copper prices. One is the expectation of improving demand in the medium and long term, and the other is the expectation of anti-inflation under ample liquidity. First of all, under the background of carbon neutrality, the market has given optimistic expectations for the growth of copper consumption in the medium and long term, but in fact, the current copper consumption in related fields is relatively low.

For example, the total copper consumption in photovoltaics, wind power, new energy vehicles, charging piles and other fields is only about 1 million tons, accounting for more than 3% of the world's copper (electrolytic copper plus copper scrap), which is a very small proportion. Therefore, even if the new energy sector will grow rapidly in the future, it will not be enough to lead to a rapid increase in overall copper consumption. In the next few years, in terms of copper consumption in new energy power generation and automobiles, we expect to drive global copper consumption by 1-2%.

At the same time, the demand for copper is extremely fragmented, and the demand for copper in traditional Chinese industries is gradually peaking. Superimposed on China's copper scrap recycling peak period, the annual average increase is nearly 1%. The overall demand for refined copper is uncertain.

Secondly, the copper price mainly reflects the balance of the long-term copper concentrate market. If the current copper price continues, global copper mine profits will be extremely high, and mine capital expenditure will inevitably increase significantly, and the long-term copper concentrate output will increase significantly, corresponding to the current demand prospects. There will be a significant excess.

"Under the goal of carbon neutrality and carbon peaking, the global use of non-chemical energy will undoubtedly occur in many scenarios. From the perspective of application fields, new energy vehicles are only a small field, and many other raw materials such as coal are used. The use of copper and other non-ferrous metals is expected to gain a long-term boost in the field of energy conservation and environmental protection. But this will be a very long-period gradual process, which has little connection with the current surge in copper prices." Wang Siran said.

Downstream cost pressure is unprecedented, and the price adjustment of home appliance market is full

It is worth noting that, with the continuous rise of international copper prices, the recent price adjustments in the home appliance market have been heard.

Since December last year, home appliances including head brands such as Oaks, Chigo, and Midea Group have issued notices of price increases. Among them, Midea Group notified that from March 1st, Midea refrigerator product prices will increase by 10% to 15%. Related data monitoring shows that the average prices of offline refrigerators, washing machines, and air conditioners have increased by more than 10% year-on-year.

Dong Mingzhu, chairman of Gree Electric Appliances, another major appliance giant, said in an interview recently that Gree insists on not raising prices during this time period and will push it according to the original price. However, if the copper price continues to rise again, it will depend on the situation. But don't transfer the price increase to consumers immediately.

The purchasing general manager of a large home appliance company said, “The increase in copper prices has made cost pressure unprecedented. The price of home appliances has begun to adjust, but the rate is not as large as that of raw materials. If copper is still high in the future, prices will be adjusted.”

In Wang Siran's view, the rapid rise in copper prices has had a greater impact on industries where copper raw materials such as wires and cables, home appliances, and motors account for a larger cost. On the one hand, price risk management is more difficult and cash flow is tight, and companies will pick orders and reduce orders; on the other hand, more importantly, the pressure of price increases for some products cannot be further transmitted, and corporate profits are severely eroded.

"Recent and continuous price adjustments of home appliances and other products have occurred. If copper prices continue to remain high, more companies are expected to adjust prices. But from a macro perspective, the total value of China’s annual copper consumption is around 1 trillion Compared with the total income of more than 100 trillion social industrial enterprises, the total income is still very low. The increase in copper prices will have a greater impact on some downstream industries with high copper consumption, but it will have a small impact on overall inflation." Wang Siran said.

CICC Fixed Income Research also stated in the research report that rising prices of upstream industrial products suppressed the profits of mid- and downstream companies. With the continuous rise of copper prices, upstream and downstream prices seem to have formed a resonance, but the price increase of home appliances still cannot keep up with the cost of raw materials. Take air conditioners as an example, the week since February 15 has increased by 35% year-on-year; while copper prices have increased year-on-year. 57%. Therefore, the upstream price rises even more violently, which backs up the profit margin of the enterprise. If the air conditioner is eventually unsold and sales decline, the profit of the air conditioner industry will peak.

In this regard, the above-mentioned purchasing general manager said, “Product profits will indeed fall a little, and some improvements can be made by adjusting the product structure and applying some new materials.”

Wang Siran pointed out that in the short term, China and the US monetary policy and liquidity, capital behavior and market sentiment, and consumption performance after entering the peak season will be the key to determining copper prices. We tend to think that the first quarter or early second quarter will usher in the high point of the whole year, and then the high level will fluctuate for a period of time, and there will be more room for a drop in the second half of the year. In the medium and long term, the full replacement of non-chemical energy sources may cause copper prices to fluctuate with changes in the business cycle, while the focus is on the rise.

Copper prices have experienced three major rises from 2020 to now.

• The first wave: From the end of March last year to July last year, loose global liquidity, coupled with the resumption of domestic work and production, drove the price of copper to rise from the bottom of more than 35,000 yuan per ton to about 52,000 yuan.
• The second wave: starting in November last year, the price of copper rose from 52,000 yuan to 59,000 yuan in two months, mainly because of the emergence of the new crown pneumonia vaccine and the good domestic real estate data.
• The third wave: Copper prices rose to a maximum of 70,000 yuan in February this year. Recently, they have slightly corrected but still remain high. According to analysts, the price of copper follows two models, one is the supply and demand of copper, and the other is the financial properties of copper.

It is estimated that after the US has passed 1.9 trillion US dollars of stimulus, the pattern of resonance of supply and demand plus financial attributes has been realized. So you can see that the price of copper has risen sharply since February 5, and it has risen by about 10,000 yuan per ton. The supply and demand pattern of copper is very good. With the rapid landing of overseas vaccines, the demand is more certain; the supply is still relatively tight, mainly because it will take time for some South American mines to resume production.

Smelter orders are sufficient and global copper stocks drop to a 10-year low

Rising copper prices are good for mines, and smelters have sufficient orders, but processing fees are in a downward channel. Why?
Copper water is made by smelting copper concentrate, with a copper content of 99.3%. When the copper water enters the mold, it will be cast into a copper anode plate. After the water is cooled, it will become a very beautiful copper plate. About 3800 copper anode plates can be produced here every day.

In a copper smelter in Tongling, Anhui, the copper anode plate finally needs to undergo electrolysis to form electrolytic copper, also known as cathode copper, which is the raw material for many copper products.

The relevant person in charge told the reporter that the company's electrolytic copper output has been increasing in recent years. In 2019, it will be 500,000 tons. In 2020, there will be 600,000 tons. This year is expected to be 625,000 tons. The plan is full for the whole year, and production and sales are booming.

The upper reaches of the copper industry chain are mines, which are the direct beneficiaries of the rise in copper prices. The top 13 mining companies in the world account for 50% of the market share, which is not as high as iron ore concentration. Midstream smelting companies and downstream copper processing links mainly earn processing fees and do not bear copper price fluctuations. However, in recent years, smelting and processing fees have been in a downward channel.

China's global copper consumption accounts for more than 50%, which is mainly used in industries such as electricity, home appliances, construction, and new energy vehicles. Analysts said that stock demand such as home appliances will gradually decline, but the incremental demand for emerging industries including wind power, photovoltaics, and new energy vehicles will gradually increase. The tight supply of copper and the irreplaceability of electrical conductivity will keep the copper price center moving upward.

Xu Hongyuan, a nonferrous industry analyst at Yangtze River Securities: Counting down, the global explicit inventory is a low point in the past ten years. The global annual copper demand is about 23 million tons and 24 million tons. According to our calculations, the penetration rate of new energy vehicles continues to increase. From 2021 to 2025, there will be an annual marginal demand increase of about 200,000 tons. the amount.

The price of recycled copper is rising, and 70% of the supply comes from imports

After the Spring Festival, the price of recycled copper, also known as scrap copper, is also rising. What is the current domestic supply? What impact does it have on copper products companies?

Jiang Limin, General Manager of Purchasing Management Center of Zhejiang Hailiang Co., Ltd.: Here are our recycled copper, here are the copper pipes replaced from the copper water pipes in foreign buildings, and here are the wires and cables stripped from the foreign construction industry. Copper wire. The copper content of these coppers is above 99.5%.

In the raw material warehouse of a copper rod manufacturer in Zhuji, Zhejiang, there are various types of recycled copper with a total weight of 5,000 tons and a value of about 300 million yuan. Jiang Limin, who is in charge of raw material procurement, and He Huayang, a recycled copper supplier from Jiangxi, have maintained a cooperation for many years. However, they found that copper prices rose sharply in February, and the price of recycled copper followed the trend. Despite the recent correction, it was still at a high price. For example, the price of 1# bright copper wire was about 59,000 yuan per ton, an increase of more than 10% during the year. .

Jiang Limin, General Manager of Purchasing Management Center of Zhejiang Hailiang Co., Ltd.: It will affect our capital occupation by 17% to 18%. To put it simply, we need 10,000 tons of copper rod sales a month. I used to need 500 million in working capital, but now I may need 600 million in working capital.

About 70% of the recycled copper supply in the current market comes from imports, and 30% comes from the domestic market. He Huayang, a secondary copper supplier, said that although the price of secondary copper is at a high level and foreign secondary copper traders are willing to ship, due to the impact of the epidemic, the efficiency of routes has decreased and the freight rate has risen. The supply of imported secondary copper has been hindered, while domestic recycling The bullish reluctance of copper traders to sell has aggravated the shortage of the overall recycled copper market.

He Huayang, deputy general manager of Jiangxi Guixi Jinxin Metal Co., Ltd.: The purchase volume used to be 25,000 to 30,000 tons per month, but now there is almost 5,000 to 6,000 tons less. Suppliers are reluctant to sell. They have expectations for the volatility of copper prices. Maybe he thinks that the price has not risen to the price he wants in his heart.

China has banned the import of solid waste from 2021, but allows high-grade metal scrap that meets the new standards to be reclassified as recycled resources, so scrap copper is now more referred to as recycled copper in the industry. The policy change makes the import of recycled copper no longer need approval, and high-quality recycled copper can be imported in large quantities.
Jiang Limin, General Manager of Purchasing Management Center of Zhejiang Hailiang Co., Ltd.: From January to February, the purchase of recycled copper exceeded 20,000 tons. Doubled from previous years.

In 2021, the global economy rebounds from the epidemic. China's economic growth leads the world. The demand for copper entities increases sharply. However, the growth of copper entity supply is limited. The supply of various social inventories and copper scrap is limited. The flood of US dollars will cause global investment and speculative funds to be heavily stocked in commodities. Under the general trend of the Sino-US financial war, Dr. Copper will become the most shining price growth star among commodities and a key commodity in the financial war. Copper is expected to exceed RMB 100,000 per ton in 2021. There is a sharp correction, and it will mainly fluctuate in the range of 60,000-80,000 or with a high probability!