So far this year, and especially after the Lunar New Year, copper prices have come out of a steep climb, opening at $9,450 a ton and closing at $9,355 a ton as of February 25 at $9,617 a ton and as low as $9,315 at $9,355 a ton, it was up more than $1,000 a tonne from the pre-spring festival closing price of $8,275.50, the highest since 2012 and just short of the 2011 all-time high of $10,190.

For a while there was a lively discussion about the price of copper. What are the main drivers of this rally in copper prices? Behind the price, what kind of impact will it have on China's economic construction and copper industry development? Under the influence, how should strengthen our country take the copper as the representative commodity pricing power and the price influence? With these questions in mind, our reporter conducted an exclusive interview with Duan Shaofu, secretary general of the Non-ferrous metal.

Non-ferrous metal: What are the factors driving the rapid rise in copper prices?

Copper Chapters: Analysts have given almost unanimous standard answers to the logic behind the current copper price rise, namely the accelerated global economic recovery in the post-epidemic era, "carbon neutrality" and the positive impact of new energy on copper consumption, the fundamentals are supported by shortages under low inventories and inflation under high liquidity, as well as by a slow recovery in copper production and a short-term dislocation in demand growth.

From the macro point of view, domestic, China's economic outperformance, economic indicators continue to be good. In 2020, China's GDP will total 1015986 billion yuan, up 2.3 percent from the previous year, according to the National Bureau of Statistics of the People's Republic of China. This means that China's economic strength, scientific and technological strength, the Comprehensive National Power has jumped to a new big step. On the international front, the number of new cases of NCP in the world is gradually decreasing, the development and promotion of vaccines in various countries are accelerating, and the market's expectation of economic recovery is increasing. From a liquidity perspective, the trend of global monetary policy easing remains unchanged, the US $1,900 BN ($1,900 BN, # 1,000 BN) bail-out plan is likely to continue to contribute to the continuation of liquidity, and the impact of the US dollar's volatile movements on copper prices has been further strengthened. From the point of view of production and consumption, the tight situation of supply is still continuing. Preliminary annual copper production data released by the World Bureau of Metals Statistics (WBMS) on February 17 showed that global copper production in mines was 20.79 million tons from January to December 2020, unchanged from 2019, while global refined copper production was 23.94 million tons, up 2 percent from the same period in 2019, global demand was 25.33 million tons, up 6.1 percent year on year. The global copper market is expected to fall short of 1.391 million tonnes in 2020, nearly a million tonnes more than the 2019 shortfall. Inventories on the world's main metal exchanges (LME, Comex, SHFE) were 20.76 tonnes at the end of 2021, down 43.58 tonnes (- 17 per cent) from the same period last year.

Non-ferrous metal: The rapid rise in copper prices has triggered a lot of heated discussions. What's your view on several hot issues that the market is currently focusing on?

Copper Branch: Although the current round of copper prices have fundamental support, but in the global super-money, liquidity exceptionally abundant, the financial nature of copper has been strengthened, the price of rising speed and the extent of overdraft. The price fluctuation is expected to increase in the future, and the risk of business decision-making will increase further.

In the short term, supply and demand fundamentals are still moving in a positive direction. At present, overseas is in the early stage of resuming production, overseas copper demand will pick up further. China's economy has entered a new stage of development and is accelerating the construction of a new development pattern with the domestic big cycle as the main body and the domestic and international double cycle promoting each other. In particular, last year, the Central Economic Work Conference proposed that "we should seize the supply-side structural reform, pay attention to the demand-side reform, and form a higher level of demand-led supply and supply-created Dynamic equilibrium" , it is a new viewpoint and thought based on the change of market demand in recent years, which will have a far-reaching influence on the future economic pattern.

In the medium and long term, the current market estimates for new areas of copper demand are too optimistic. The demand estimates for new energy vehicles, "carbon neutral" and "new infrastructure" are based on a series of assumptions, there may be a large deviation. In addition, some estimates do not take into account the decline in copper consumption in traditional sectors.

With the sharp rise in copper prices, copper mine profits soar, or will further stimulate the release of mine capacity. According to BHP's recent first-half results for the year ended December 31,2020, operating profit rose 17 per cent to $9.8 BN as iron ore and copper prices rose. Current earnings before interest, tax, depreciation and amortization were $14.7 billion, with a 59% margin. Output at BHP's Waio iron ore mine and at its ESCONDIDA copper concentrator are both record highs. Therefore, under the circumstances that the global epidemic situation is gradually controlled, the high copper price will further stimulate the enthusiasm of mine investment and development.

Non-ferrous metal: What impact does the sharp rise in copper prices have on China's economic construction and Copper Industry Development?

Copper Branch: First of all, copper and other commodities prices rose sharply, leading to China's economic growth at an increasing cost. As is known to all, copper is an important basic raw material industry, a basic guarantee for the normal operation of all walks of life, and an important industry for the high-quality development of the national economy. China is the largest copper market in the world. In 2020, the consumption of refined copper in China is close to 60% of the global total, which is 8 percentage points higher than that in 2019. However, due to the inherent shortage of resources, resulting in the need to import a large number of copper mines and copper metals every year. According to the statistics of the General Administration of Customs, in 2020, the total value of China's import and export of copper products reached 88.94 billion US dollars, up 9.1 percent year-on-year, of which the import value was 82.68 billion US dollars, up 10.7 percent year-on-year, and the export value was 6.26 billion US dollars, down 7.7 percent year-on-year, the trade deficit was $76.42 billion. In 2020, China imported 21.765 million tons of copper concentrates in kind, equivalent to about 5.5 million tons of metal, 1.030 million tons of crude copper (anode copper) , 4.67 million tons of refined copper and 944,000 tons of scrap copper in kind, equivalent to about 700,000 tons of metal. To sum up, the total amount of imported copper is as high as 11.9 million tons, and the dependence of copper raw materials on the outside is 74% . Even at a rough estimate of the average LME price of $7,970 per tonne in January, China would need to pay more than $20bn in foreign exchange for copper raw materials for the year. At the same time, the high price will make the cost of the downstream copper enterprises rise rapidly, which will affect the normal production and operation plan. Because of the wide range of industrial sectors involved in copper, it may even have a knock-on effect on the macroeconomy. Therefore, the high fluctuation of copper price will not only cause our country to suffer huge economic losses, but also may have a serious impact on macroeconomic stability.

Secondly, China's copper industry chain is still under the control of the distribution of interests. In 2006, despite the fact that copper prices were running at a high level, the international copper mining giant not only proposed to reduce the processing fee, but also cancelled the PP (price-sharing) clause that had been in effect for many years. Since then, whether copper prices rise and smelters are no longer relevant, copper mines alone high copper prices bring rich profits. But our country copper smelting enterprise, can only rely on the processing fee to obtain the profit. At the end of 2020, China's copper smelting enterprises and international copper mine suppliers signed a long-term processing fee of $59.5 per ton and 5.95 cents per pound for 2021 copper concentrate, down 4 percent from the previous year and the lowest in nearly 10 years. Spot processing fees, on the other hand, fell to about $40 per ton, well below manufacturing costs. Therefore, China's copper smelting enterprises not only did not get any benefits in the process of rising copper prices, due to the decline in processing costs, but also led to the smelting part of the profit shrinking significantly. According to the National Bureau of Statistics of the People's Republic of China's preliminary statistics, China's copper mines achieved a profit of 7.3 billion yuan in 2020, up 29.58 percent year on year, with a sales margin of 15.32 percent; copper smelting achieved a profit of 14.68 billion yuan, up 0.7 percent year on year, with a sales margin of 1.68 percent; Copper processing achieved a profit of 18.855 billion yuan, up 6.38 percent year-on-year, with a sales profit margin of 1.75 percent. From the perspective of industrial chain profitability, mine profitability is the best, copper processing profitability is the second, smelting profitability is the lowest.

Non-ferrous metal: In this context, how to enhance the pricing power and price impact of China's copper industry?

COPPER SUB-COUNCIL: behind the influence of commodity prices represented by copper is not only a struggle for profits, but also a struggle for pricing power. "pricing power, " argues Susan Strange, co-founder of the international political economy, "is in fact the product of structural power derived from the sources of security, production, finance and knowledge. " It is precisely because Western powers and the multinational corporations behind them wield this structural power on a global scale, so that China's enterprises in the commodity pricing mechanism in the loss of the right to speak. We therefore believe that efforts to enhance pricing power and price impact should be focused on the following areas:

One is to accelerate the cultivation of a number of international influence, competitiveness, innovation-led leading leading leading enterprises. At present, the market structure of the Non-ferrous metal is constantly adjusting, and the strategic adjustment characterized by the combination, merger and reorganization has been continuing. Especially the United States, Australia, Japan and other Western developed countries in the global resource layout early. For example, the United States, through American freeport, as well as its participation in international mining giants such as Glencore and BHP Billiton, has acquired a large quantity of high quality mineral resources and a share of mineral production in countries and regions such as South America and Australia, for the United States to protect resources and access to global voice has made an important contribution. Like the United States, the European Union, through mining giants such as Anglo American and Rio Tinto, has acquired large quantities of high quality mineral resources and a share of mineral production in countries such as Chile, Peru and Mongolia. For example, Escondida mine in Chile, the world's largest copper mine, has copper reserves of more than 100m tonnes, with BHP Billiton holding 57.5 per cent, Rio Tinto 30 per cent and Mitsubishi of Japan 10 per cent. Mongolia's OyuTolgoi copper mine, for example, has 25.09 m tonnes of copper reserves and is 51 per cent owned by Rio Tinto Group (Turquoise Hill owns 66 per cent of Oyutolgoi) . Through the cross-shareholdings of international mining giants and mining companies, the EU's ability to secure copper resources and voice has an important position in the world. Therefore, in view of the International Mining Development Law and the characteristic, our country copper industry must speed up the industrial structure adjustment step, strictly controls the smelting production capacity excessively fast growth, promotes the raw material Concentration ratio. At the same time, we should encourage key domestic enterprises to carry out mergers and reorganizations across regions and across ownership systems, and gradually form a group of chinese-style "mining aircraft carrier" enterprises with international influence, competitiveness and innovation, improving the power of discourse in the pricing of China's bulk mineral products trade.

Second, multi-channels to enhance the ability of resource protection, tamping the basis for industrial development. Multi-channel promotion of resource security is not only the internal cause of national resource security, but also an important bargaining chip to enhance the pricing right of mineral products in international trade. We should focus on the following work: First, to continue to increase the exploration of copper and other strategic mineral resources. The investment of the society in risk exploration shall be encouraged, prospecting in the deep and border areas of existing mines shall be actively carried out, the service life of mines shall be extended and the amount of resources shall be increased. Promulgating relevant encouraging policies to reduce the cost of domestic copper and other strategic mineral development. Second, focus on the development of overseas resources around the establishment of stable overseas supply channels. Speed up the distribution of resources development along the "Belt and Road" . We will carry out substantive geological survey cooperation with the countries along the belt and road, scientifically draw up a blueprint for bilateral cooperation in the field of mining, establish a long-term cooperation mechanism, and build a mutually beneficial and win-win community of interests in the global industrial chain and supply chain. Third, speed up the construction of the recycling system of waste materials, formulate and improve the relevant norms and systems in the field of recycling and recycling, establish and implement the system and standards of standard conditions in the recycling and recycling industry, and cultivate key enterprises in the recycling and recycling industry.

Third, we will accelerate the use of international copper futures on the Shanghai Futures Exchange and increase the price influence of important commodities. Although the domestic copper market has already formed a pricing model based on the Shanghai copper futures price on the Shanghai Futures Exchange, from the current global copper product pricing benchmark, the London Metal Exchange (LME) is still the pricing benchmark in international copper products trade, and the LME price is still the main price for the more than 10 million tons of copper metal (copper ore, scrap and refined copper) imported into China every year. To this day, Europe and the US remain the global centres of commodity trading. In order to give full play to the buyer's advantage, further enhance the price influence of Shanghai copper futures price in the domestic and international double-cycle mutual promotion of the new pattern, and facilitate the Internationalization of the renminbi process, we propose that Chile, Peru, Kazakhstan and other copper resource exporting countries be encouraged to use the international copper futures price as the benchmark price for their trade with China, and that the People's Bank of China and the above-mentioned countries sign bilateral RMB local currency swap agreements, the international copper futures price is put in the framework of the currency swap, and the leading domestic and foreign enterprises are encouraged to use the international copper futures price as the benchmark price in the international trade of copper.

Fourth, continue to strengthen market supervision and risk prevention. The two most fundamental and core functions of the futures market are risk management and price discovery, to further create a fair and just trading environment, to ensure the smooth and orderly operation of the futures market; To encourage enterprises to carry out futures hedging transactions, to avoid the risk of market price fluctuations, and to increase the crackdown on excessive speculation and other violations of the law.

Source: Non-ferrous Metal, staff editor and author: Qiu Xiran

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