The Zhitong Finance App learned that Guoxin Securities released a research report saying that since mid-July, copper prices have fallen below 75,000 yuan/ton from over 80,000 yuan/ton, taking back most of the increase since mid-March. Since March of this year, copper prices have fluctuated greatly, the problem of tight supply at the mine side has not been resolved, and the supply of recycled copper was also disrupted in the second half of the year. After copper prices fell back, demand improved marginally. Downstream rushing to make early orders and the industrial chain made up inventory. Domestic copper inventories have declined significantly, and the LME copper depot will stabilize after this round of handover. The fundamentals of the industry have not changed for the worse. The possibility that the Fed will cut interest rates in September will also make the copper market's pessimistic trading time window very narrow. Therefore, we are not overly bearish on copper prices at this point; we believe that copper prices are trending towards a steady rebound.

Target aspects: We continue to recommend Zijin Mining (601899.SH), Luoyang Molybdenum (603993.SH), China Nonferrous Mining (01258), Western Mining (601168.SH), Gold Chengxin (), Tongling Nonferrous Metals (000630.SZ), and Yunnan Copper (000878.SZ), which have high-quality copper mines and have continuous growth potential. 603979.SH

The main views of Guoxin Securities are as follows:

Prices soared and plummeted. The problem of insufficient supply was not solved, and supply was even more tight in the second half of the year

Prices of industrial metals have fluctuated greatly since this year, and the trading style is extreme. Often, when there are no major changes in the fundamentals of supply and demand in the industry, prices have skyrocketed and plummeted. Looking at market exchanges, this round of industrial metals prices has fallen sharply since mid-July, and there is no new logic at the level of supply and demand in the industry. Whether it is LME inventory accumulation, domestic monthly economic data, or transaction decline derived from US CPI segment data, it is an amplification and sentiment of already favorable factors. At present, industrial metal prices have all fallen to the level at the beginning of the market in late March. Looking ahead to the future market, there have already been some positive changes.

First, the growth rate of global copper production declined in the second half of the year

According to data from the International Copper Research Group, global copper concentrate production in January-May this year was 9.25 million tons, with a year-on-year growth rate of 4.1%, which seems to contradict the fact that there is a shortage of copper concentrate. The reason is that several large-scale copper projects were put into operation in the first half of 2023. The Liituo OT mine, the Camoa expansion project, the QBII project, the TFM hybrid mine, and the KFM project were put into operation one after another. The total production capacity was around 0.75 million tons. As can be seen from Figure 1, the global copper mine will increase greatly during 2023. Almost all of these projects were fully produced in the first half of 2024, so global copper production grew at a high rate in the first few months of this year. The growth rate will drop significantly in the second half of this year. First, there was a high base in the second half of last year, and second, only one large-scale project, Camoa Phase III, was put into operation in the first half of this year.

Second, the supply of recycled copper is likely to decrease

On May 11 this year, the 32nd Executive Meeting of the State Council passed the “Fair Competition Review Regulations” (National Order No. 783) (hereinafter collectively referred to as “Document No. 783”), which will take effect from August 1, 2024. Among them, Article 10 clearly stipulates local tax incentives and financial incentives, which means that local governments may cancel tax incentives, financial incentives, or subsidies granted to recycled metals, while recycled metal enterprises generally rely on local government tax subsidies.

According to information from agencies such as Shanghai Nonferrous Metals Network and the Shanghai Steel Federation, there has been an increase in the number of recycled copper rod companies in Jiangxi affected by this policy. Many companies said they will stop production and wait and see after completing current orders. This will reduce the supply of scrap copper, waste anode plates, etc. When the supply of copper concentrate was tight in the first half of this year, copper scrap played an obvious complementary role. If the supply of copper scrap does not keep up in the second half of the year, the supply of raw materials for smelting companies will be even more tight.

The demand side ushered in a marginal improvement

According to feedback from copper processing companies, since copper prices skyrocketed in late March, downstream customer shipments declined markedly, and shipments from copper processing companies declined sequentially during the traditional peak season in April/May. This is an important reason why domestic copper warehouses accumulate during the peak season. As the price of copper falls below 75,000 yuan/ton, it is gradually approaching the price range acceptable to the industrial chain. Some orders delayed due to rising copper prices need to be executed, and the industrial chain also needs to properly replenish inventory. Recently, domestic copper reserves have continued to decline.

What has received more attention is the continuous increase in LME copper inventory. As of July 23, it has increased to 0.237 million tons, an increase of 0.127 million tons over two months ago. The main reason is that during the sharp rise in copper prices in April-May, foreign copper prices were higher than domestic, and fine copper exports from domestic smelters increased, reaching 0.158 million tons in June. Currently, it is generally expected that LME copper trading will end in August, and the pressure on copper prices will also decrease at that time.

From a broader perspective, the market currently expects that the probability that the Fed will cut interest rates in September is close to 100%. After the Fed's interest rate cut is implemented, China's monetary policy will be further opened up. Furthermore, domestic economic data for June released last week shows that economic growth has slowed significantly. In order to achieve the economic growth targets set for this year, the policy environment is likely to become more friendly. Therefore, the time window for this round of falling industrial metals prices is limited.

Risk warning: The domestic economic recovery fell short of expectations; the marginal slowdown in foreign monetary policy fell short of expectations; the increase in global resource-side supply exceeded expectations.