Analysts and investors have explored whether the recent rebound in commodity prices can be firm, and at this time some people are more concerned about the copper market that has already issued warning signals.
After two years of rebound, copper prices have risen nearly threefold. The main driving force lies in the belief that China, the world’s largest copper consumer, has an unmet demand for such metals.
However, Chinese buyers are now facing a double blow: the price of copper has risen, and the Chinese government has tightened credit. In addition, some recent indications indicate that China has a batch of previously unreported copper reserves, indicating that a large part of the previously purchased copper has not been put into use. According to estimates by relevant Chinese sources and several Western banks, China's reserve of copper is about 1 million tons, which is equivalent to about 15% of China's annual consumption.
Copper has been closely watched by people and has been dubbed "Dr. Copper" for its ability to reflect the global economic conditions. Since copper is widely used in many industries, the strong demand for copper often indicates that the overall economy is expanding.
Copper prices hit a record high of $4.6230 per pound on February 14th, after which the upward trend has stagnated. The copper price once fell by 11% from its high point, but then slowly rises and closed at $4.4950 per pound on the New York Mercantile Exchange's Comex market last Friday.
The Chinese government generally does not publish official information on commodity stocks. Industry observers have therefore resorted to other methods to try to determine the actual use of copper. They either personally look at the situation in the warehouse or seek information sources within the government.
This task has become particularly difficult recently, as companies and individuals think that all types of bulk commodities, from cotton, copper to cooking oil, will rise in price, and they are hoarding. Because it is difficult to understand inventory, analysts tend to overestimate China’s actual consumption.
At the end of March, the market was able to get a glimpse of the extent of China’s possible surplus of copper reserves. At that time, the China Non-Ferrous Metals Industry Association, an industry-backed government organization, suggested that the country’s copper reserves could reach 1 million tons at most.
According to Westgate, an analyst at Standard Chartered Bank in London, the risk is that there will eventually be so much excess reserves that will eventually return to the market. He said he saw a large amount of copper in the warehouse along the coast, which is estimated at 700,000 tons; this situation made him more and less optimistic about copper.
Most analysts still believe that due to the size and growth rate of China’s economy, its long-term demand for commodities remains strong, but many people also acknowledge that successive measures to raise interest rates and crack down on speculation will be available to copper and other markets in the short term. have negative impacts. Due to rising costs, some speculators will be forced to sell copper in their hands, while users may keep low inventory to save money.
Briggs, senior metal strategist at BNP Paribas, said that for a long time, risk has shown more of a tendency to fall in price.
The main force behind the rise in copper prices since the middle of last year is the general view that copper will be in short supply this year and that China will be forced to increase its bid to meet the growing demand for copper in the economy.
If Westgate and others are right, China’s current copper reserves will be enough to make up for any expected shortfall. According to estimates from the International Copper Research Group of the intergovernmental organization located in Portugal, the copper production and demand gap will reach 435,000 t this year.
Westgate said that this increases the possibility of realizing a balance between supply and demand in the market, and even a small amount of surplus.
Westgate specializes in so-called bonded warehouses, where trading companies store goods before paying customs duties and officially importing and exporting goods.
The fact that most of the newly discovered copper is stored in such warehouses and has not yet entered the global market is particularly worrisome. Westgate said in a March 28 report that the warehouses were full of copper, so that some copper was stored outside the warehouse.
Despite this, some analysts believe that this view is too pessimistic. Credit Suisse analyst Shpakovski said that due to China's demand, copper stored in bonded warehouses can be used up within 23 to 26 days. He estimated that China’s copper demand in 2010 was 9.5 million tons. He said China’s potential copper demand remains strong, as shown by the strong growth in industrial production, electricity use, and fixed asset investment.
Some people say that this demand is not currently reflected because users who need to consume copper keep their inventory low so that they can save money when the government tightens credit policies. Copper users are companies that produce copper door handles, iPod cables, and other products. Williamson, a commodity strategist at commodity trading company Trafigura Group, said that at a certain point, these companies will return to the market.
Some copper reserves may have returned to the market. In the first two months of this year, China exported 42600 tons of refined copper, a seven-fold increase year-on-year.
Deng Hong, a copper analyst at Maike** Brokers Co., Ltd., said that this is unusual. The company is a brokerage company under the Mayko Group, China's largest importer of metals.
Since the beginning of the year, the copper stocks in the warehouses of the London Metal Exchange have increased by 17%, indicating that some of the copper has started to move from Shanghai to London where the price of copper is higher.
Deng Hong said that we expect copper will continue to flow from China into London.
After two years of rebound, copper prices have risen nearly threefold. The main driving force lies in the belief that China, the world’s largest copper consumer, has an unmet demand for such metals.
However, Chinese buyers are now facing a double blow: the price of copper has risen, and the Chinese government has tightened credit. In addition, some recent indications indicate that China has a batch of previously unreported copper reserves, indicating that a large part of the previously purchased copper has not been put into use. According to estimates by relevant Chinese sources and several Western banks, China's reserve of copper is about 1 million tons, which is equivalent to about 15% of China's annual consumption.
Copper has been closely watched by people and has been dubbed "Dr. Copper" for its ability to reflect the global economic conditions. Since copper is widely used in many industries, the strong demand for copper often indicates that the overall economy is expanding.
Copper prices hit a record high of $4.6230 per pound on February 14th, after which the upward trend has stagnated. The copper price once fell by 11% from its high point, but then slowly rises and closed at $4.4950 per pound on the New York Mercantile Exchange's Comex market last Friday.
The Chinese government generally does not publish official information on commodity stocks. Industry observers have therefore resorted to other methods to try to determine the actual use of copper. They either personally look at the situation in the warehouse or seek information sources within the government.
This task has become particularly difficult recently, as companies and individuals think that all types of bulk commodities, from cotton, copper to cooking oil, will rise in price, and they are hoarding. Because it is difficult to understand inventory, analysts tend to overestimate China’s actual consumption.
At the end of March, the market was able to get a glimpse of the extent of China’s possible surplus of copper reserves. At that time, the China Non-Ferrous Metals Industry Association, an industry-backed government organization, suggested that the country’s copper reserves could reach 1 million tons at most.
According to Westgate, an analyst at Standard Chartered Bank in London, the risk is that there will eventually be so much excess reserves that will eventually return to the market. He said he saw a large amount of copper in the warehouse along the coast, which is estimated at 700,000 tons; this situation made him more and less optimistic about copper.
Most analysts still believe that due to the size and growth rate of China’s economy, its long-term demand for commodities remains strong, but many people also acknowledge that successive measures to raise interest rates and crack down on speculation will be available to copper and other markets in the short term. have negative impacts. Due to rising costs, some speculators will be forced to sell copper in their hands, while users may keep low inventory to save money.
Briggs, senior metal strategist at BNP Paribas, said that for a long time, risk has shown more of a tendency to fall in price.
The main force behind the rise in copper prices since the middle of last year is the general view that copper will be in short supply this year and that China will be forced to increase its bid to meet the growing demand for copper in the economy.
If Westgate and others are right, China’s current copper reserves will be enough to make up for any expected shortfall. According to estimates from the International Copper Research Group of the intergovernmental organization located in Portugal, the copper production and demand gap will reach 435,000 t this year.
Westgate said that this increases the possibility of realizing a balance between supply and demand in the market, and even a small amount of surplus.
Westgate specializes in so-called bonded warehouses, where trading companies store goods before paying customs duties and officially importing and exporting goods.
The fact that most of the newly discovered copper is stored in such warehouses and has not yet entered the global market is particularly worrisome. Westgate said in a March 28 report that the warehouses were full of copper, so that some copper was stored outside the warehouse.
Despite this, some analysts believe that this view is too pessimistic. Credit Suisse analyst Shpakovski said that due to China's demand, copper stored in bonded warehouses can be used up within 23 to 26 days. He estimated that China’s copper demand in 2010 was 9.5 million tons. He said China’s potential copper demand remains strong, as shown by the strong growth in industrial production, electricity use, and fixed asset investment.
Some people say that this demand is not currently reflected because users who need to consume copper keep their inventory low so that they can save money when the government tightens credit policies. Copper users are companies that produce copper door handles, iPod cables, and other products. Williamson, a commodity strategist at commodity trading company Trafigura Group, said that at a certain point, these companies will return to the market.
Some copper reserves may have returned to the market. In the first two months of this year, China exported 42600 tons of refined copper, a seven-fold increase year-on-year.
Deng Hong, a copper analyst at Maike** Brokers Co., Ltd., said that this is unusual. The company is a brokerage company under the Mayko Group, China's largest importer of metals.
Since the beginning of the year, the copper stocks in the warehouses of the London Metal Exchange have increased by 17%, indicating that some of the copper has started to move from Shanghai to London where the price of copper is higher.
Deng Hong said that we expect copper will continue to flow from China into London.