Why has the price of copper risen this year?

In 2023, industrial metals experienced a dismal bear market, with a manufacturing recession triggered by high interest rates spreading around the world and major metal prices falling, with the S&P GSCI Industrial Metals Index down 6% for the year. Since 2024, copper prices have begun a wave of spectacular market, and the current LME copper price once rose to $9,800 / ton, hitting a new high since June 2022; The corresponding Shanghai copper once exceeded the 80,000 yuan/ton mark. Many people believe that copper prices are the "current indicator" of economic prosperity, and that copper prices rise and fall in sync with the macro economy, but this year such a positive correlation seems to have broken down. Since 2024, the copper price trend mainly revolves around two points:

1, the expected change of the Fed's interest rate reduction policy and the performance of the European and American economies;

2, this year's copper supply disturbance is very much, domestic and foreign smelting capacity added a lot, which makes the copper mine is very tight. Overall, we believe that the copper price in 2024 is caused by optimistic expectations on the macro policy side and tightening on the supply side, and the continuous rise of copper prices has also made the market start to anticipate the long-term logic of tight supply and demand expectations in 2025-2026 in advance.

First of all, non-ferrous metals in our broad sense are affected by the following factors.

1, Economic growth and non-ferrous metal demand

Macroeconomic growth is an important driving force for the increase in demand for non-ferrous metals. With the continuous growth of the global economy, especially the rapid development of emerging markets, the demand for non-ferrous metals is rising. For example, copper is widely used in power, construction, transportation and other fields, and its demand is closely related to the speed of economic growth. Non-ferrous metals such as aluminum, zinc and nickel also play an important role in their respective application fields, and their demand is also affected by economic growth.

2, Monetary policy and non-ferrous metal prices

Monetary policy is another important factor affecting the price of non-ferrous metals. Loose monetary policy usually leads to increased liquidity, which in turn pushes up asset prices, including non-ferrous metals. Tighter monetary policy, by contrast, will restrain price rises. In addition, monetary policy will indirectly affect the price of non-ferrous metals by affecting the exchange rate. For example, a weaker dollar usually raises the price of non-ferrous metals denominated in dollars.

3, Trade policy and non-ferrous metals market

Trade policy also has an important impact on the non-ferrous metals market. Tariffs, quotas and other trade restrictions will directly affect the import and export of non-ferrous metals, and then affect the market price. In addition, political events such as the trade war will also indirectly affect the price of non-ferrous metals by affecting market expectations.

For copper, as an important industrial metal, its demand is influenced by a number of factors, including global economic growth, technological advances, and the development of specific industries.

1, Copper deep processing

With the improvement of copper purity, copper and copper alloys are made into various copper materials, such as copper pipes, copper rods, copper rods, copper wires, copper foils, etc., which are widely used in traditional civil and industrial uses, as well as high-tech fields, such as electronic information and high-end equipment manufacturing.

2, Terminal consumption field

The end-consumption areas of copper are very wide, including traditional industries such as electronics and electrical, household appliances, construction engineering, transportation, and emerging industries such as electronic information, new energy, and high-end equipment. The development of the global economy and technological progress have promoted the application of copper in new industries, especially the rapid growth of demand in new energy vehicles, renewable energy and other fields.

3, Global economic growth

Global economic growth is one of the key factors driving higher copper demand. Urbanization and industrialization in emerging markets and developing countries have accelerated the demand for copper. Copper's electrical conductivity makes it an indispensable material in electrification projects, including power transmission, electric vehicles and their charging facilities, and a variety of electronics.

4, Green energy and sustainable development

Surging demand for green energy and sustainable development solutions, especially the widespread use of copper in renewable energy sources such as wind and solar power, is driving the copper industry. Copper is used to transmit electricity in these systems and is the material of choice for building these energy systems because of its excellent electrical conductivity.

5, Conversion of old and new kinetic energy

The development of new energy fields, such as photovoltaic, wind power, new energy vehicles, etc., has greatly enhanced the demand for copper. These areas are expected to drive global copper demand growth in the medium and long term, with copper demand for photovoltaics, wind power and new energy vehicles expected to grow significantly.

In 2024, the global supply and demand of copper raw materials also maintained a tight state, in the past decade, the world's new copper ore discovery is very few, most of the copper ore has been acquired by the world's major copper mining enterprises. And the environmental, political and timescales of new copper deposits make profitability uncertain. So for the big copper mining companies, when the current copper price is at a high level, the acquisition of high-quality copper can quickly bring profits. Such a business model also leads to a very slow copper production and weak supply in the future 2025-2026. According to statistics, Peru's copper production in 2024 is expected to be 3 million tons (+ 280,000 tons). Chile's copper mine production in 2024 was 5.64 million tonnes, an increase of 5.7% (+ 270,000 tonnes). Copper mine production in the DRC in January 2024 was 230,000 tonnes, up 10.2% (+ 21,000 tonnes) from a year earlier. From January to December 2023, China's copper concentrate production was 1,697 thousand tons, down 13.4% (or 262,000 tons); China's copper concentrate production in January-February 2024 was 260,000 tons, down 8% year-on-year. From January to December 2023, China imported 27,588 thousand physical tons of copper concentrate, an increase of 8.9% (or an increase of 567,000 metal tons). From January to March 2024, China's copper concentrate imports were 6,988 thousand physical tons, an increase of 5%. The supply of copper raw materials will continue to decline in the next few years.

From the perspective of macroeconomic mapping to the market, the global manufacturing PMI returns to the near line of growth and contraction indicating the continuous recovery of the global economy. Especially since the fourth quarter of last year, investors' expectations of a recession in Europe and the United States have slowly turned into expectations of a soft landing. After the first quarter of this year, with the release of economic data in the eurozone, the probability of recession in the eurozone has also fallen sharply, and China has also launched policies to promote economic recovery, including lifting real estate and equipment innovation, after the first quarter of this year. Global investors' expectations for major economies have shifted significantly, further boosting expectations for copper prices. From the demand side, according to statistics, "from January to March 2024, the country's major power generation enterprises completed investment in power projects of 136.5 billion yuan, an increase of 7.7%." From January to March 2024, 76.6 billion yuan was invested in power grid projects, up 14.7% year on year. From January to March 2024, the cumulative installed capacity of wind power was 15.5 million kilowatts, an increase of 5.1 million kilowatts or 49.04%. From January to March 2024, the cumulative installed capacity of photovoltaic was 45.74 million kilowatts, an increase of 12.08 million kilowatts by 35.89%. "Wind power and photovoltaic new installed capacity maintained rapid growth, photovoltaic new installed capacity slowed down significantly, but the overall first quarter grid investment exceeded expectations, which played a supporting role for copper prices." From a global point of view, developed countries are also facing the problem of aging power grids and the need to replace distribution networks. The European Commission plans to invest a total of 584 billion euros in 2020-2030 to modernize the grid infrastructure. The further return of manufacturing in the United States will also drive the construction of power infrastructure, so from the perspective of global demand, at least in recent years, the demand for copper prices is still at a high level, with the global power grid investment up and green energy continues to replace, copper prices are expected to remain at a high level.

1. The price increase is not caused by supply or demand. The market consumption after the Spring Festival is not ideal. Many industries, especially those involving price increases, such as the home appliance industry, are entering the traditional off-season. At this time node, the product adopts the strategy of price increase, and the price increase is larger. Consumers are not easy to accept. And will continue to wait and see for further information on prices.

2. Increased purchasing costs for retailers. The prices of many commodities were very volatile last year. From the source of the supply chain to the distributors, as well as retailers, almost all are minimized inventory. That means no inventory. After the Spring Festival this year, whether it is sold or not, it is necessary to have the inventory of the most basic goods, so that in the case of price increases, it will increase the procurement cost.

The rise in raw materials, as long as it is not caused by the rise in supply and demand, almost most industries will be affected. The most direct impact is on manufacturing. Especially the industrial manufacturing industry involved in this case. But continue to increase the next stage, the entire industrial chain of processing enterprises, will be affected, the final reflection of the retailer level, prices rise, consumers will not immediately accept the price increase. Instead, wait and see. As long as the market does not start, the entire industrial chain will be affected.

The market environment is multi-level and constantly changing, and if enterprises want to remain invincible in the market, they must strive to improve their resilience and anti-risk ability. In order to better cope with the difficulties and challenges brought by the soaring copper price, the following three points need to be done: (1) constantly improve the process and reduce production costs; (2) Develop new markets and tap potential customers; (3) Increase product research and development efforts, with strong technology to drive production, sales and other aspects of the comprehensive upgrade, with hard power to win the market.

#Honscn #cncpart #brass #copper