The recent release of strong U.S. economic data, inflation continues to fall, and market expectations for a soft landing for the U.S. economy are even stronger. As far as the basic situation is concerned, the tight situation of overseas mines has led to the continuation of spot TC, and the situation of copper is not optimistic. As the Spring Festival approaches, downstream productivity generally declines, and the seasonal inventory increase accelerates, from the perspective of end users, the growth rate of copper consumption in 2024 will slow down due to the slowdown in the domestic new energy industry, but not as tight. In the short term, the expected delay of interest rate cuts in the United States and the seasonal off-season may lead to a slight decline in copper prices, but with the Federal Reserve about to start cutting interest rates, the possibility of global economic recovery increases, coupled with tight supply and demand, copper is expected to start a new ** stage in the medium and long term (there are questions about the future).
Driven by the impact of the US GDP growth rate in the fourth quarter of last year and the PMI value in January exceeding expectations, the market's confidence in the US economy to remain strong has increased, coupled with the absence of inflation indicators**, the core PCE price index growth rate in December last year hit a new low since March 2021, and the market's expectations for a soft landing of the economy are rapidly being realized. Optimistic expectations for a rate cut have also begun to adjust, with the CME observing that the probability of the Fed not cutting rates in March has risen from 38% to 55% following the release of GDP and PMI data, with the market preferring to cut rates for the first time in May. Considering that the annualized inflation growth rate in the past six months is close to the target set by the Fed, we believe that short-term interest rate cut expectations have been adjusted in place, and the rate cut may officially start in May.
Domestically, a series of measures were introduced in January, including a 0.0. RRR cut by the central bank5 percentage points, will inject about 1 trillion yuan of liquidity into the market, releasing a signal that monetary policy will increase efforts to stabilize growth.
* At the end of 2023, the Cobre copper mine production was shut down, resulting in a downward revision of the 2024 copper production forecast. At the same time, Chile will implement a new mineral tax system, and the comprehensive tax rate for large copper mines will be doubled. Rising costs will make Chilean copper mines less attractive to foreign investment, and production capacity will decline, which will push up copper prices. Domestic spot TC** declined, and some smelters broke even. Although the impact of low TC** on copper production is limited in the short term, if it continues, smelters may choose to shut down, affecting copper production.
On the demand side, the Spring Festival is approaching, the operating rate of the downstream processing industry has declined, and the inventory has increased. Green demand has significantly boosted copper demand and has become a new growth point. However, in 2024, the target of new installed capacity of wind power and photovoltaic power will decrease, and the penetration rate of new energy vehicles will decrease, and the growth rate of copper consumption is expected to slow down.
On the whole, the supply and demand side of copper will weaken marginally in 2024, but the degree of supply decline will exceed demand, resulting in an expanding copper gap and a tight spot in the market.