The copper market is performing strongly awaiting the inflection point of inventories

However, looking ahead, the investment demand brought about by the epidemic's supply-side disruption and liquidity spillover has kept copper prices firm in the short term, but it is about to enter a bubble-squeeze adjustment, because the second outbreak of the epidemic, the slope of economic recovery has declined, copper demand is weakening, and supply-side interference is only short-term
.
However, the copper market bubble still needs to wait for the emergence of liquidity and inventory inflection points
.

Supply-side disruptions continue to be affected
by the pandemic.
Due to the disruption of the epidemic on the supply side, there were two disturbances
on the supply side.
First, the production of copper concentrate has been affected, and the processing fee for imported copper concentrate is at a low level
.
Second, the arrival of imported refined copper was less than expected, making domestic copper stocks continue to decline
.

On the demand side, there may be a situation where investment demand stimulated by liquidity spillovers
rises.
Due to the global liquidity spillover, some funds or institutions speculate on the copper market, resulting in the possibility of copper inventory becoming invisible
.
Since the US copper consumption does not account for a high proportion of the world, the rise in COMEX copper stocks generally indicates that US investment institutions are buying copper
.
COMEX copper stocks rose to 79,148 short tons as of June 26, the highest since
February 12, 2019, data showed.
Domestic copper investment demand is reflected in financing arbitrage, due to the appreciation of the RMB against the US dollar, and the RMB financing interest rate is higher than the US dollar financing rate, so some investors by locking up the bonded zone copper to implement financing arbitrage activities in order to earn interest rate spreads and exchange rate differences, similar to the financing copper
in 2013.

In mid-to-late June, the second outbreak of the epidemic in the United States, at least 11 states have suspended or postponed reopening plans, and the US-European trade war has heated up, which means that the economic recovery faces great uncertainty
.
The slope of domestic economic repair is also declining, due to the uncertainty of external demand and the lack of leverage under the high leverage ratio
.
At the liquidity level, the growth rate of money supply is likely to remain at the current level or even fall slightly, and it is difficult to expand
further.
Yi Gang, governor of the People's Bank of China, said at the Lujiazui Forum in June that monetary policy will remain reasonable and sufficient in the second half of the year, which is expected to drive nearly 20 trillion yuan in new RMB loans and more than 30 trillion yuan
in social financing.
According to estimates, as of May 2020, the cumulative value of new RMB loans has reached 10.
3 trillion yuan, exceeding the target by 50%, and there are still seven months from June to December, and the credit growth rate will decline
.
The content of the regular meeting of the Monetary Committee of the Central Bank in the second quarter shows that monetary policy should adhere to the total policy appropriately, and require an effective balance between maintaining growth and preventing risks, which means that counter-cyclical policies will not be increased, but implemented in detail
.

In June, orders in the copper processing industry fell sharply month-on-month, due to the seasonal off-season and the delivery of backlog orders, the peak period of orders in the wire and cable industry has passed
.
A copper rod manufacturer in Anhui Province said that its daily orders fell by about 20% compared with the same period in May, and the inventory of copper rods also accumulated to 400 tons
.
A copper rod enterprise in Zhejiang said that orders fell slowly, and downstream customers were in a wait-and-see mood, with daily shipments of about 600 tons, down 150 tons
from last month's daily shipments.
The order volume of copper rods of a copper rod enterprise in Changzhou fell by 20% from the previous month, and the output of copper rods in June is expected to fall by 3,000 tons
month-on-month.
In May, the export of the air conditioning industry was severely damaged, resulting in the overall air conditioning production being limited, and the plumbing and sanitary ware industry also performed poorly due to the impact of exports, thus suppressing the consumption
of copper pipes.

Historically, the decline in the growth rate of global copper ore or refined copper production does not necessarily lead to an increase in copper prices, and strong consumer demand is needed
.
Statistics show that from the fourth quarter of 2005 to the first quarter of 2020, the year-on-year growth rate of global copper mine production and the closing price of Shanghai copper active contracts are only -0.
12
.
There have been many times in history when global copper mine production has slowed or gone negative, and copper prices have fallen
.
For example, from the first quarter of 2013 to the third quarter of 2014, the growth rate of global copper mine production fell sharply from 10.
4% to -0.
2%, and the closing price of the Shanghai copper active contract fell from 54860 yuan / ton to 48110 yuan / ton
.
If the global copper mine production slowdown meets the expansion of demand, copper prices will rise sharply, such as from the second quarter of 2009 to the first quarter of 2010, China's "4 trillion yuan" stimulus superimposed on real estate relaxation, copper demand rebounded
sharply from the negative growth at the end of 2008.
The current situation is that investment demand driven by liquidity spillovers is strong, and actual consumer demand is only a compensatory repair, and will not expand on a large scale
.

The supply-side disruption is temporary, and may bring disturbances or mismatches in the short term, but based on the demand for copper-producing national security economic growth, copper mine production will be repaired
in the second half of the year.
Taking a step back, even if copper mine output is negative throughout the year, if demand does not cooperate, it will be difficult for copper prices to continue to rise
sharply.
At present, domestic demand is already weakening month-on-month, coupled with the current situation of the second outbreak of the epidemic in the United States, copper prices may adjust synchronously with U.
S
.
stocks.
However, for copper prices to fall sharply, it is necessary to wait for the arrival of liquidity and inventory inflection points, and then enter the bubble squeeze stage
.