Copper prices fell first and then rose in January

1、 Trend analysis



According to monitoring data from Business Society, copper prices fell first and then rose in January. At the beginning of the month, the copper price was 69250 yuan/ton. At the end of the month, the copper price dropped to 69145 yuan/ton, with an overall decline of 0.15%, a year-on-year decrease of 0.56%.


According to the current chart of the Business Society, copper spot prices were generally higher than futures prices in the first and middle of January. The main contract is the expected price in two months, and the overall copper price in the future is bearish. However, in late January, the main contract price was higher than the spot price, indicating a bullish outlook on copper prices in the future.


According to LME inventory, LME copper inventory slightly decreased in January. As of the end of the month, LME copper inventory was 146475 tons, a decrease of 11.6% compared to the beginning of the month. LME copper has been destocked due to disruptions in the Red Sea shipping industry, but the extent of destocking has been largely offset by the accumulated inventory of domestic exchanges and bonded ports.


Macroscopically, in the early stages, copper prices rapidly lowered due to the optimistic expectations of the Federal Reserve cutting interest rates too quickly, the rapid rebound of the US dollar index, and the pressure of China’s January MLF rate cut failing; With the full reflection of early pressure, the US dollar index falling into volatility, and the strengthening of mining support, copper prices have begun to stop falling and rebound, especially with the news of the sudden 0.5 percentage point reduction in reserve requirements by the People’s Bank of China, copper prices have seen a significant rise.


On the supply side


In the past two months, the processing cost of copper concentrate has significantly fallen, considering the closure of some large overseas mines in the early stage, the market’s expectation of supply shortage has increased. However, based on the domestic refined copper production data in December last year, despite a decrease in operating rates, the production remained relatively high and did not show a significant decrease


The refined copper (electrolytic copper) production in December was 1.169 million tons, a year-on-year increase of 16.6%; The cumulative production from January to December was 12.988 million tons, a year-on-year increase of 13.5%.


Downstream aspect



Under normal circumstances, domestic social inventory began to increase around three weeks before the Spring Festival, but before this year’s Spring Festival, there was no significant accumulation of domestic social inventory, indicating that downstream enterprises are still buying on dips. Among them, air conditioning companies saw a higher than expected increase in production in January, and demand for copper pipes will continue to remain strong. Copper pipe companies increased their raw material inventory on dips. As the year-end approaches, downstream stocking efforts and pace have slowed down. However, strong overseas economic data has driven the market from interest rate cuts to expectations of a “soft landing”. In the case of stable actual supply, a tight balance sheet indicates that demand is still at a good level.


Comparison chart of annual copper prices


According to the annual price comparison chart of copper, in the past five years, except for the decline in copper prices in February 2020 due to the epidemic, copper prices in February of other years have been relatively strong.

Overall, from the supply side, the supply of copper concentrate is tight, and TC is rapidly falling, which will affect the production of refined copper in the later stage. This indicates that there is a cumulative increase in inventory before and after the holiday, but the inventory increase may be lower than expected, and the speed of enterprise destocking after the holiday may be faster, which will form upward support for prices. This year’s Spring Festival processing enterprises did not have any extended holidays, which is basically similar to last year’s situation, indicating that the expectation of replenishing inventory for enterprises is strong after the holiday. From a macro perspective, the IMF has raised its global economic growth forecast for 2024, believing that the possibility of a “hard landing” in the economy has decreased, and the expectation of long-term interest rate cuts by the Federal Reserve still exists. It is expected that market liquidity will continue to increase. At the same time, the release of favorable policies in China will continuously enhance investor confidence. Therefore, copper prices are expected to perform stronger in the first quarter after the Spring Festival holiday.

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