Summary of Key Points
Recently, global copper prices have skyrocketed: International copper prices in London have broken through the record of $14,700 per ton, and domestic copper prices in Shanghai have once again reached the 110,000 yuan per ton mark after a seven-month hiatus. The cumulative increase since early July has exceeded 8%. This price surge is not due to the so-called "new energy boom leading to a copper shortage," as many believe. The main catalyst is the market's speculation that the United States will impose tariffs on imported refined copper. Almost all the copper that can freely circulate globally has been diverted to American warehouses, leaving a severe shortage in non-U.S. regions and driving prices to record levels. The copper industry chain is currently in a stark contrast: upstream copper mining companies are reaping huge profits, midstream smelters are suffering losses and have begun to shut down or reduce production, while downstream companies in the cable and household appliance sectors are hesitant to buy at high prices and only purchase what they need for essential purposes. Experts generally agree that the current price increase is largely based on anticipations. Once the U.S. tariffs are officially announced at the end of September, prices are likely to plummet, and it is absolutely not advisable to chase the gains at these high levels.
Detailed Analysis
1. The Record-Climbing Copper Prices Are Not Due to a Global Copper Shortage but a "Copper Relocation" Farce
Many people might think that copper is running out again, but this is not the case. There is no severe global shortage of copper. The main reason for the price increase is a speculative "transportation and arbitrage" scheme:
The market believes that the U.S. will soon impose high tariffs on imported copper, and once the tariffs take effect, copper shipped to the U.S. can be sold at a higher price. Traders have been frantically moving copper from around the world to American warehouses, which now account for nearly 70% of all publicly traded copper inventories globally. As a result, the amount of copper available for trading in non-U.S. markets has significantly decreased, forcing prices to soar. It's like a situation where, if there's a rumor of a lockdown the next day and everyone rushes to buy groceries, prices rise because the stores run out of stock, even though the total supply in the city remains unchanged.
2. Divergent Performance of Copper-Related Stocks
The A-share copper sector has seen a collective rise, but the gains vary greatly among companies, reflecting different profit models:
- Mining Companies: These companies own their own copper mines. A 1 yuan increase in copper prices means a 1 yuan increase in their profit margin, so their stock prices have risen sharply. The market even views them as holding strategic mineral resources, valuing them higher.
- Smelting Companies: Their income comes from processing copper ore into refined copper. However, processing costs have dropped to negative levels, meaning they are losing money for every ton of copper produced. Even if prices rise, it doesn't help them much, and their stock prices have risen less.
- Downstream Companies: These companies use copper as raw material to produce products. They face higher costs and are reluctant to buy in large quantities due to uncertain demand from customers. Their stock prices have risen the least and are likely to fall soon.
3. The Real State of the Copper Industry Chain
- Mining: Mines are buying up copper ore, with inventory levels down 7% month-on-month. Global copper production continues to decline, but miners are still making profits.
- Smelting: Smelters are incurring heavy losses and have been shutting down for maintenance since May. Domestic smelters' operating rates have dropped from 93% to 85%, and refined copper production could see a rare decline in the third quarter. Many smelters prefer to produce less to avoid further losses.
- Downstream: Companies in the cable and appliance sectors are cautious about buying copper due to high prices. Without significant demand, they are waiting for prices to fall to restock. A sudden drop in prices could trigger a surge in purchases.
4. The Current Copper Price Situation Is Unstable
The current high prices are based on expectations, not real demand. Two key events will determine the future of copper prices:
- The U.S. government's announcement on tariffs on refined copper on September 28: All the current price increases are based on the expectation of tariffs. Once the tariffs are announced, copper will be diverted to other countries, easing supply in non-U.S. regions and potentially causing prices to plummet.
- The Federal Reserve's interest rate decision in September: If interest rates rise, the dollar will strengthen, putting pressure on copper prices denominated in dollars.
- Some investors are already buying put options, indicating they expect prices to fall, suggesting that the current surge is unsustainable.
5. Advice for Investors and Businesses
- Avoid Leverage: Copper prices can fluctuate dramatically, and using leverage can lead to significant losses.
- Hedge Your Positions: If you hold copper-related assets, consider buying put options to protect your investments.
- Focus on Business Stability: For companies in the copper industry, it's better to use hedging to lock in costs and profits rather than relying on price speculation.