It is difficult to make up for the demand gap Copper prices will trend upward in the medium and long term

Since March, copper prices have begun to correct, and are currently showing a stagnant state
.
However, as macro policies continue to strengthen counter-cyclical adjustment and Sino-US trade relations ease, macro sentiment will improve across the board, and the demand gap is difficult to make up, and copper prices will trend upward
in the medium and long term.

Macro: Since 2019, macro policies have strengthened counter-cyclical adjustment, the central bank has continuously lowered the RRR, the Ministry of Finance has accelerated the large-scale issuance of local government special bonds, the growth rate of social finance and M2 in January 2019 first bottomed out, and the new social finance in February showed a seasonal decline, but from January to February, the growth rate of social finance still rebounded significantly, and monetary and fiscal policies continue to exert force, including the Ministry of Finance introducing new tax and fee reduction measures, and the economy is expected to accelerate to the bottom
。 In terms of trade relations, the two sides launched the seventh round of trade consultations in February 2019, making positive progress on specific issues such as trade balance, agricultural technology transfer, intellectual property protection, and financial services, and the United States postponed the measures
to impose tariffs on Chinese products scheduled for March 1.

Supply side: Recently, the supply side of overseas mines has frequently interfered, processing fees have rapidly slipped from a high of 90 to below 80, the transaction center has refreshed a new low in three quarters, and the market transaction is basically around about 75 US dollars / ton, and there is even an offer of
70 US dollars / ton at a low level 。 In 2018, the global copper mine interference rate was only 2%, which was at a historical low, but this year's copper mine supply uncertainty increased, and the disturbance rate rose is a high probability event, especially in Africa, Congo and Zambia's copper mine supply is facing the problem of rising mineral taxes, Congo stipulates that copper royalties will increase from 2% to 3.
5%, Zambia's royalty ratio to mining enterprises will increase by 1.
5 percentage points to 5.
5% to 7.
5%, and copper prices exceed $7,500 and $9,000.
Royalty rates will rise to 8.
5% and 10%,
respectively.
In addition, a new import tax of 5% on copper concentrate imposed by Zambia has hampered the flow
of raw materials from Congo to Zambia.
First Quantum layoffs in response to Zambia's taxes, Vedanta announced it would cut production at its Nchanga smelter, ERG suspended its Boss mine, and Glencore said it would reduce production from Mutanda
.

Fine
copper.
In 2019, there will be more new smelting capacity in China, but the commissioning is mainly concentrated in the second half of the year, and the time from feeding to final output is long, so the impact on the supply in 2019 is limited
.
And from March 2019, large copper smelters, including Jinchuan, Guangxi, will usher in intensive maintenance
.
In addition, the overseas Vedanta resumption plan was aborted, which had an impact
on the overseas supply of refined copper.

Copper
scrap.
In January 2019, China imported 176,900 physical tons of scrap copper, a year-on-year decrease of 11.
51%.

Specific to metal tons, it was 139,100 tons, a sharp increase of 18.
03%
year-on-year.
In 2019, although the import of "scrap seven" was completely banned, the amount of scrap copper metal rebounded sharply in January, mainly because the copper grade increased significantly (from 58.
97% in the same period last year to 78.
66%)
after the proportion of "scrap six" was further increased.
However, from July 1, 2019, the "Waste VI" will be converted to the restricted category, so the import volume of the "Scrap VI" is expected to fall
sharply in the second half of the year.
Moreover, domestic recycling is still constrained by many factors such as environmental protection and capital, so the overall supply of domestic scrap copper will still be tight
.

The planned investment of State Grid in 2019 is 512.
6 billion yuan, an increase of 4.
84% over the 488.
94 billion yuan completed in 2018, and the fiscal policy has been relaxed this year, so the investment in power and infrastructure is worth looking forward to, and it is expected to have a pulling effect
on the copper consumption of cables.
In March, the production plan of key air conditioning enterprises increased by 6.
4% compared with last year, and the demand for copper pipes for air conditioners in peak season was more optimistic
.
In February, China's automobile production and sales fell by 17.
4% and 13.
8% y/y, respectively, while the growth rate of new energy vehicles increased by 50.
9% and 53.
6%
y/y, respectively.
The copper consumption of new energy vehicles is 3-4 times that of traditional vehicles, so the rapid growth of new energy vehicles has offset the drag on copper demand from the decline of traditional vehicles to a certain extent
.
And considering the NDRC's support for future automobile consumption, automobile copper consumption should not be overly pessimistic
.

At present, the inventory in the previous period has maintained growth, which is mainly because of the domestic seasonal accumulation effect, but compared with previous years, this year's off-season accumulation pressure is less, so the growth of inventory can hardly be said to be a decline
in consumption.
And after the peak season, inventories will return to a downward trend, and low inventories will be positive for copper prices in the future
.

As macro policies continue to strengthen counter-cyclical adjustment, and Sino-US trade relations ease, macro sentiment will improve comprehensively, and there is uncertainty on the supply side this year, the probability of copper mine interference rate increases, coupled with smelter maintenance and shutdown this year is also more frequent than before, and scrap copper supply problems, the gap between supply and demand is difficult to make up, and the medium and long-term trend of copper prices is upward
.