Supply and demand relationship
According to the principles of microeconomics, when the supply of a commodity exceeds demand, its price will fall, and vice versa. At the same time, price will in turn affect supply and demand. That is, when price rises, supply will increase and demand will decrease. On the contrary, demand will increase and supply will decrease. Therefore, price and supply and demand influence each other.
An important indicator that reflects the relationship between supply and demand is inventory. Copper inventories are divided into reporting inventory and non-reporting inventory. Reported inventory, also known as "explicit inventory", refers to exchange inventory. Currently, the more influential copper futures trading companies in the world include the London Metal Exchange (LME), the COMEX branch of the New York Mercantile Exchange (NYMEX) and Shanghai Futures. Exchange (SHFE). All three exchanges regularly publish designated warehouse inventories.
Non-reported inventory, also known as "hidden inventory", refers to the inventory held by manufacturers, traders and consumers around the world. Since these inventories are not announced regularly, it is difficult to count them, so they are generally measured by exchange inventories.
International and Domestic Economic Situation
Copper is an important industrial raw material, and its demand is closely related to the economic situation. When the economy is growing, the demand for copper increases, which drives the price of copper up; when the economy is depressed, the demand for copper shrinks, causing the price of copper to fall.
When analyzing macroeconomics, two indicators are very important. One is the economic growth rate, or GDP growth rate, and the other is the industrial production growth rate.
Import and export policy
Import and export policy, especially tariff policy, is an important means to balance domestic supply and demand by adjusting the import and export costs of goods and thereby controlling the import and export volume of a certain commodity. . At present, the import tariff of copper raw materials in my country is 2% and the export tariff is 5%.
Changes in the development trend of the copper-using industry
Consumption is the direct factor affecting copper prices, and the development of the copper-using industry is an important factor affecting consumption. For example, after the 1990s, the use of copper for pipes in the construction industry in developed countries increased significantly, and the construction industry became the largest copper consumer. This promoted the rise of international copper prices in the mid-1990s, and the housing construction rate in the United States also became an influence on copper prices. one of the factors. Since 2003, the development of China's real estate and electric power has greatly promoted the growth of copper consumption, thus becoming one of the factors supporting copper prices. In the automotive industry, manufacturers are advocating replacing copper with aluminum to reduce vehicle weight and thus reduce the amount of copper used in the industry. In addition, with the rapid development of science and technology, the application scope of copper is constantly expanding, and copper has begun to play a role in the fields of medicine, biology, superconductivity and environmental protection. IBM has replaced aluminum in silicon chips with copper, marking the latest breakthrough in its use in semiconductor technology. These changes will affect copper consumption to varying degrees.
Copper production cost
Production cost is the basis for measuring commodity price levels. The production cost of copper includes smelting cost and refining cost. Different mines estimate copper production costs differently. The most common economic analysis is to use "cash flow breakeven cost", which decreases as the value of by-products increases. Production costs have shown a downward trend since the 1990s.
The current international average comprehensive cash cost of pyrometallurgical copper smelting is about 62 cents/pound, and the average cost of hydrometallurgical copper smelting is about 40 cents/pound. Hydrometallurgical copper production currently accounts for approximately 20% of total production. Domestic production cost calculations differ from those internationally.
The trading direction of funds
Although the fund industry has a long history, it did not develop vigorously until the 1990s. At the same time, the extent to which funds participated in commodity futures trading also increased. Significantly improved. Judging from the evolution of the copper market in the past ten years, funds have played a role in fueling many major market trends.
Funds may be large or small, and their operating methods vary greatly. Generally speaking, funds can be divided into two categories. One is macro funds, such as arbitrage funds. They are large in scale, ranging from billions of dollars to tens of billions of dollars. They mainly carry out strategic investments. Long term investment. The other type is short-term funds, which are funds managed by CTA (Commodity Trading Advisors). They are small in size, usually around tens of millions of dollars, and rely on technical analysis for short-term operations, so they are also called technical funds.
Although the rise and fall of copper prices may be excessive due to the participation of funds, the overall price trend will not violate fundamentals. From the perspective of COMEX copper prices and non-commercial positions (generally considered to be speculative positions of funds) ) changes, there is a very good correlation between the rise and fall of copper prices and the fund's positions. And because funds have a deeper understanding of macro fundamentals and have "prescience", understanding the trends of funds is also the key to grasping the market.
The price fluctuations of related commodities such as oil will also have an impact on copper prices
Crude oil and copper are both important international industrial raw materials, and their strong demand can best reflect the economic situation. Good or bad, so in the long run, the level of oil prices and copper prices has a good correlation with the speed of economic development. Precisely because both crude oil and copper are closely related to the macroeconomy, there is a positive correlation between copper prices and oil prices to a certain extent. But this is only consistent in trend. In the short term, the positive correlation between crude oil prices and copper prices is not very prominent.
If the rise in oil prices from less than 10 US dollars to around 20 US dollars is a reasonable return of prices and a manifestation of economic recovery, then the rebound in oil prices should be consistent with the rise in copper prices, because both It is driven by the bottoming out of the economy. But if oil prices rise to a certain level, everyone is not concerned about economic recovery, but about the negative impact of the surge in oil prices on future economic development, and even leading to economic recession, which will lead to an overall decline in demand (which will inevitably affect the demand for copper). demand) is priced in US dollars, and several major international currencies currently implement floating exchange rates. With the official launch of the euro on January 1, 1999, the international foreign exchange market formed a tripartite trend of the US dollar, the euro and the Japanese yen. Since the price ratio between these three major currencies often changes significantly, the international copper price priced in US dollars will also be affected by the exchange rate. This can be seen from the sharp decline of the US dollar against the Japanese yen in 1994-1995 and the euro's 1999-2000 collapse. This was reflected in continued weakness and the depreciation of the US dollar in 2002-2004.
Based on past experience, changes in the exchange rates of the yen and the euro will affect some short-term fluctuations in copper prices, but will not change the general trend of the copper market. The exchange rate has some influence on copper prices, but the fundamental factor that determines the trend of copper prices is the supply and demand relationship of copper. Exchange rate factors cannot change the basic pattern of the copper market, but may only have an impact on the range of increases and decreases.