Loose supply, weak demand, weak copper price in June

Trend analysis


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According to the monitoring data of the business community, the copper price fell sharply in June. At the beginning of the month, the copper price was 72236.67 yuan / ton, and at the end of the month, the copper price fell to 64211.67 yuan / ton, an overall decline of 11.11% and a year-on-year decrease of 5.98%.


According to the current chart of the business community, in June, the spot price of copper was mostly higher than the futures price, and the main contract was the expected price in two months. The main basis became larger, which was bad for buying hedging.


According to the LME inventory, the LME copper inventory in June was lower than that in May, at a relatively high level for 1-4 months, and there was a base at the end of the month.


Macro aspect: in June, the Federal Reserve of the United States (fed/ fed) took historic measures to combat inflation, raising interest rates by 75 basis points. The initial value of manufacturing PMI in Europe and the United States fell in June than expected, indicating that the demand for industrial products shrank significantly in June, intensifying the market’s concern about the economic downturn. The “copper oil ratio” has continued to decline and has fallen to a low in recent five years, indicating that the risk of economic recession has intensified. On the whole, under the conditions of tight liquidity and continuous fermentation of economic recession concerns, the nonferrous metals sector has fallen sharply and the copper price has also dropped sharply.


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Supply: globally, the global refined copper output recovered rapidly after the outbreak. According to the data released by ICSG, in the first quarter of 2022, the global refined copper output increased by 2.7% year-on-year, reaching 6.286 million tons, a record. ICSG also predicted that the year-on-year growth rate of global refined copper production in 2022 and 2023 would reach 4.3% and 3.6% respectively. China has a large copper smelting capacity. It is estimated that the crude refining capacity will reach 9.7 million tons and the refining capacity will reach 14.55 million tons in 2022. In terms of refined copper output, from January to may 2022, due to refinery maintenance, cathode copper output was almost the same as that of the same period last year.


Demand: from the perspective of the pace of resumption of work and production, the downstream demand has not given better feedback. The downstream operation of some copper is still lower than that of the same period last year, indicating that the market confidence is still insufficient. In addition to the increase in copper consumption brought about by new energy vehicles and photovoltaic power generation, copper consumption in traditional power grids, home appliances such as air conditioners, traditional automobiles, construction (including real estate and infrastructure), light industry, electronic communications and other industries decreased.


Based on the above, in June, copper prices fell sharply under the conditions of loose copper supply and weak consumption. In the second half of the year, as the new overseas copper mines are put into operation or reach production capacity, the supply of copper mines will continue to rise in the second half of the year. In addition to the Fed’s interest rate hike, the eurozone, the UK and a number of emerging economies are raising interest rates, which means that global liquidity is shrinking, the economy is slowing down and copper consumption demand is weakening, which is a high probability event. It is expected that the copper price in the second half of the year will continue to fluctuate weakly.


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