Repair of market sentiment Copper prices showed a weak rebound trend

From a fundamental point of view, copper may be the most expected supply and the most solid bottom support among the base metals at present
.
Recently, copper prices fell to a minimum of $5,500/ton, basically at the 90% percentile of the global marginal cost curve
.
According to historical experience, the long-term performance of copper prices will generally be higher than the 90% cash cost level, otherwise some mining enterprises may reduce production, and in the medium and long term, it will form an upward drive
for copper prices.
In 2020, the supply of mines is expected to be tight, on the one hand, there are not many projects to increase copper mine production this year, on the other hand, the investment momentum of mining enterprises under the current copper price may be insufficient, and the existing copper mines are still facing problems such as grade and cost increase, and the overall supply increment is limited
.

Production at the smelting end will also be subject to tight raw material supply
.
At present, smelter processing fees are still low, the price of by-product sulfuric acid has fallen to a historically low level, and smelter profits have been significantly squeezed
.
Recently, due to the obstruction of logistics, the problem of sulfuric acid expansion is prominent, suppressing the operating rate of smelters, and there may be a passive reduction in production in the future
.
Overall, supply-side expectations remain tight, and if copper prices fall further, it could form new disruptions on the supply side, supporting copper prices
.

Generally speaking, from 2-3 weeks before the Spring Festival to about mid-March, the downstream market is in the off-season of consumption, and the domestic market will enter the accumulation stage
.
During the Spring Festival, most copper smelters maintained normal operation, and the output was relatively stable, while downstream processing and production enterprises have not fully resumed work due to the impact of the epidemic, superimposed on factors such as blocked traffic and suppressed terminal demand, the downstream impact of the copper industry chain is significantly higher than the upstream, resulting in this year's accumulation speed and magnitude will exceed the same period of previous years, short-term or drag down copper prices
.
However, from the medium and long term analysis, with the domestic counter-cyclical regulation and control policies increasing, the prospect of demand recovery can be expected
.

If we look at the timing of the pandemic from a macro perspective, our definition of the environment is the beginning
of a cyclical recovery.
From data analysis, whether it is the OECD comprehensive leading indicators, or domestic PMI, M1 and other economic leading indicators, they have shown some signs
of bottoming out in 2019.
The impact of the epidemic will undoubtedly hurt the vitality of the real economy in the short term
.
According to industry estimates, the epidemic is expected to cause a decline of 0.
8%-1.
5% in China's GDP, but we believe that the country will continue to increase the intensity of counter-cyclical adjustment, which may mean the introduction
of monetary or fiscal policies that exceed expectations.
Since the opening of the market after the holiday, the central bank has invested a total of 3 trillion yuan through open market operations, following the reduction of the 7-day and 14-day reverse repurchase operation interest rates by 10 basis points on February 3, and the MLF interest rate was lowered by 10 basis points again on the 17th, and the LPR quotation to be announced on the 20th was also lowered with a high probability, and the current liquidity has been relatively loose
.
Recently, the Ministry of Finance issued 1.
8 trillion yuan of new local bonds in advance, and the steady growth of fiscal policy in the future can be expected, tax cuts and infrastructure may still be the key direction, which is expected to drive the growth
of copper consumption after the epidemic stabilizes.

In general, the epidemic has put pressure on the economy and curbed demand in the short term, but the trend of weak and stable economic recovery in China will not change, and it is expected to usher in counter-cyclical control policies
that exceed expectations.
As a base metal with the strongest financial attributes and the tightest supply expectations, copper is recommended for long allocation
in the medium and long term.