The main line of 2021 macroeconomy is loose when, the main line of macroeconomy of 2022 is loose how to exit. Global Monetary Policy will strike a balance between high inflation and growth concerns, and once the direction of monetary policy is set, macroeconomic factors will gradually turn to dampening support for copper prices, regardless of the pace of US interest rate rises. Relatively less inflationary pressure and strong expectations for stable growth in China, as well as relatively loose monetary policy, will provide some support to copper prices.

1. China’s traditional demand 

01. The downward pressure on the domestic economy of the power industry intensifies, the expectation of stable growth of infrastructure becomes stronger again, and the probability of the return of investment in the power grid is relatively large. From the recent state-owned network bidding situation, the number of new orders has begun to gradually pick up. Since 2021, grid investment has been a much weaker driver of copper demand than the strong stimulus of 2020, with new orders from the grid itself falling and raw material prices rising sharply. Looking ahead to 2022, the main line of grid investment remains uncertain, the government’s strong expectations for steady growth, the implications of grid investment in the base economy are strong, and the relatively insufficient investment in the 2021 has created some space for the expansion of investment in 2022, but the constraints are clear. First, there is a distinction between old and new infrastructure, and policies that emphasize growth while avoiding excess capacity as a result of investment. In the case of the power grid, there is far less room for growth in traditional sectors than in new infrastructure such as UHV. Second, the price of raw materials is generally high, to a certain extent has an impact on the procurement rhythm, orders of raw materials in the cycle of substantial price decline or implementation of more. Third, in the medium and long term, the peak period of rural power network and distribution network construction has passed.

2021, the traditional power investment growth rate is more obvious, on the one hand, the base factor, on the other hand, new orders than the previous contraction. In 2022, the policy backing means a strong, traditional power investment may also usher in a “Small spring,”but constrained by the structural transformation of energy, carbon emissions and other pressures, marginal growth space will be smaller than renewable energy power generation. In 2022, whether it is investment in power grid or investment in power, the overall recovery growth will be supported by the policy, but structural problems and medium-and long-term bottlenecks will limit the traditional distribution network, rural grid, traditional power investment growth space. Conservatively, the author believes that this part of copper demand growth will be close to the historical average, if the 2%-3% growth rate of copper demand growth, the marginal growth is expected to be 120,000-180,000 tons of metal.

02. The post-epidemic cycle of the household appliance industry in China has gradually highlighted the structural contradictions in the household appliance industry. As for domestic sales, traditional household appliances have been dragged down by the real estate cycle and consumption, and as a whole have stepped into a downward cycle. The growth of emerging household appliances is relatively strong due to the emergence of new demand, mostly small appliances. On the export side, strong overseas demand in the post epidemic period and the lack of production capacity in Southeast Asia and other regions are key factors in the growth of domestic appliances in 2021. Sales of domestic air conditioners rose 8.5 percent year on year to 130 million units in 2021, while production rose 7.9 percent year on year to 130 million units, according to industry online data. The data show that both online and offline sales, 2021 domestic household air conditioners are declining, especially offline market. The data of Zhongyikang is closer to the terminal, and the data of industry is closer to the manufacturer. The data “Splintering”itself could mean a big build-up of channel inventory. Industry online data shows that the marginal increase in inventory may exceed 1M units, the author estimates that channel inventory growth may be several times more than manufacturers.

Looking ahead to 2022, for air-conditioning production and marketing, will face a more severe test. First, the downward pressure on the property cycle; second, the slowdown in overseas durable goods consumption, compounded by the impact of overseas capacity recovery; and finally, the dampening effect of the passive rise in air conditioning unit prices due to rising raw material prices. In 2022, both domestic and foreign sales of air conditioners are expected to face the pressure of slow growth or even negative growth. Traditional experience, sales down cycle, pre-accumulation of channel inventory risk will rise significantly, air conditioning manufacturers will increase the possibility of passive production reduction. I believe that in 2022 air-conditioning production will have more than 5% of the decline in space. In quantitative terms, the reduction is close to 8M units and the marginal demand for copper is around 50,000 tonnes. Raw materials and sales pressure will make air-conditioning manufacturers more competitive, aluminum instead of copper in the air-conditioning sector promotion space will rise.

03. Construction and transportation industry after the domestic property cycle down, the related copper demand was more affected, according to research, 2021 cable purchase orders significantly contracted, decoration market to wire and so on. According to the Statistics Bureau, real estate investment in 2021 rose about 6% year on year and new construction fell to-9.1% year on year. The market in 2022 real estate sales, investment, construction are more pessimistic, “Housing is not speculation”background, the peak of the real estate cycle signal is more clear. In 2022, there will be plenty of room for growth in the construction of affordable housing and the renovation of old residential areas. I believe that next year, real estate investment, the rate of decline in new construction will slow down. In 2022, the year-on-year decline is expected to narrow to-5 per cent, with the growth rate of back-end completion slowing significantly, or even negative growth. Assuming a 5 per cent or so drop in demand for direct copper, the marginal reduction would be about 60,000-70,000 tonnes, which would be narrower than this year.

In 2022, the policy to stimulate or increase automobile consumption, at the same time, under the assumption of gradual control of the epidemic, the impact of chip shortage will be weakened, but the restraint is due to the economic downturn and the decline in household consumption, especially in the real estate and equity assets expected to decline in the context of the wealth effect brought about by the weakening of consumer restraint. The China Association of Automobile Manufacturers estimates that production and sales of new energy vehicles may reach 5 million units, with a marginal increase of 1.6 million units. But I believe that the traditional car production and sales or continued contraction, the marginal decline of more than 500,000, converted into copper demand reduction of about 13,000 tons of metal. 04. Electronics Industry domestic electronics industry development will continue to benefit from import substitution and domestic market demand release, 2021, the slowdown in growth resistance mainly from chip shortage and end consumer goods marginal weakening. Looking ahead to 2022, assuming the epidemic is under control, the chip shortage will reduce the hindrance to production growth, but the marginal weakening of end consumption, such as consumer electronics, is expected to suppress demand for upstream PCB. On the positive side, conventional electronics grew by 10,000-20,000 tonnes. In 2022, domestic traditional terminal demand for copper is expected to grow by 70,000-80,000 tons, with the power industry playing the role of an engine of demand growth, offsetting the marginal contraction of demand related to consumption, real estate and export.

2. Overseas traditional demand the US cycle of demand for metals is not over, either in real estate and construction or in durable goods consumption. With the weakening of subsidies and the gradual tightening of monetary policy, the business cycle may gradually turn. The strongest metal-driven phase of US real estate and durable goods consumption is over and the full cycle is expected to peak in the first half of 2022. Biden’s infrastructure stimulus plan is still a battle between the two parties in the United States, the first half of 2022 is more likely to launch, the mood is expected to boost market demand. But in fact, from the arrangement of capital construction funds, the investment in Electric Power and power grid is relatively limited. Considering the constraints of capital and land, the marginal growth of copper demand brought by short-term capital construction plan will not be very big. The key to U.S. copper demand in 2022 will still be the growth in demand for things like real estate and durable goods. In countries such as Europe and Japan, the recovery has been weaker than in the US. Overall end demand should still be in the recovery phase of the post-epidemic cycle, a trend that may continue into the first half of 2022. In terms of demand for copper, Europe is dominated by electrical equipment, as is Japan. The 2021’s energy crisis may have helped boost demand for copper in 2022 by boosting investment in its power and grid. The traditional overseas demand cycle has not yet peaked, and there is a tail effect on the copper demand growth, and the peak rhythm is related to the control of epidemic situation. Traditional demand growth will continue, with growth likely to be above 100,000 tonnes in 2022.

02. Wind and photovoltaic investment growth in both 2021 has slowed from an investment perspective. From January to October, wind power grew by about 4.4 percent and photovoltaic power by about 34 percent, slowing from the first half of 2021, according to the 2021. Looking ahead to 2022, policy stimulus will be extended or even increased, especially under the pressure of slowing economic growth. Wind and photovoltaic investment will continue to be constrained in the short term by relatively high raw material prices. In addition, it is worth noting that the existence of wind power installation after the recovery period, and photovoltaic growth is relatively more certain. Overall, new PV and wind installations will continue to grow in 2022, but the impact of objective constraints, including the impact of the epidemic on overseas projects, will need to be watched. In 2022, the rapid growth of new energy-related industries around the world could add up to a marginal increase of 420,000 tonnes of metal to copper demand, the result of a combination of optimistic assumptions across all sectors. The author believes that the new energy automobile industry is more likely to achieve optimistic assumptions, and photovoltaic, wind power growth is relatively difficult to be optimistic assumptions. If the neutral assumption is used, the copper margin increases by 340,000 Mt. 

Source: TOPIX DERIVATIVES Research Institute, Author: Cao Yang