On February 22, the main contract of Shanghai copper traded in Shanghai rose to 67,370 yuan per ton, close to the highest point in nearly a decade. London Metal Exchange copper rose to $9,000 per ton, touching a new high since 2011.
CITIC Securities believes that, compared with the trend of copper prices at the last round of historical highs, the current rise in copper prices has come to a new stage where demand-production gap and inflation are the core drivers. With liquidity, supply and demand, inventory factors, the company expects this round of copper prices are expected to reach $12,000 / ton, and the next two years to maintain high levels.
CITIC Securities compares the factors affecting copper prices for 2009-2011 and 2020-2022:
Liquidity: This round of balance sheet expansion is faster and larger, and there is still a subsequent U.S. $1.9 trillion epidemic relief plan and possible infrastructure stimulus to help liquidity continue; the Fed’s tolerance for inflation is elevated, and this round of U.S. inflation is expected to reach 3%, exceeding the previous round’s high of 2.6%.
Inventory: Under the passive destocking cycle, inventories on the three major exchanges remain at a historical low of 200,000 tons, only 1/3 of the previous round of inventory levels, which translates into inventory days of only 1/4 of the previous round, any supply and demand gap will cause greater price elasticity, and speculative investors significantly have a significantly minor effects on price disturbance.
Demand: This round of demand is mainly driven by consumer goods, and there is a time mismatch between the recovery of Chinese and overseas demand. 3.6% demand growth in 2021 is expected to be slightly less than the previous round, but the growth rate in the first half of this year will exceed 5%.
Supply: Nearly 2 million tons of new copper mine supply planned for the next two years, overlaid with the production recovery under the weakening of the epidemic disturbance, copper mine / copper concentrate production growth rate of 5.1% / 3.1% in 2021, higher than the previous round of low growth of 1%.
Supply and demand balance: CITIC’s model shows that a global copper concentrate gap of 16/240,000 tons in 2021/2022, higher than the gap of 150,000/100,000 tons in 2010/2011, and the relative expansion of the supply and demand gap is expected to amplify price elasticity.
This round of copper prices still has clear upward momentum (shortage under low inventory and inflation under high liquidity). Copper price is expected to break through to new all-time highs, with optimistic demand assumptions expected to reach $12,000/ton.