Copper: strong overseas consumption potential, futures prices still have the potential to rise

Although the epidemic situation in Europe and the United States continues to escalate, the US economic situation is not as severe as imagined. The US consumption recovery trend continued, but the momentum slowed slightly. However, considering the severe situation of the U.S. epidemic, the number of new additions exceeded 200,000 in a single day, and the new round of stimulus plan has not yet landed, financial assistance has decreased, and the year-on-year growth rate of residents' disposable income has continued to slow down. It is not uncommon to achieve such results. Up. In particular, online consumption in the U.S. is exceptionally strong, with a relatively high year-on-year growth rate, which fully reflects that U.S. residents still have spending power.

Another important indicator is the sales of existing homes in the United States. The sales data of existing homes in the United States has reached a new high in the past ten years. These all reflect the relatively good demand in the United States, especially the overseas real estate market is a very important area for copper demand.

From the PMI data, it can also be seen that the demand is strong, the orders are relatively large, the inventory level has continued to decline, and has fallen to a historical low, especially the retailer inventory, which is at the lowest point since statistics are available. This data is currently The earliest was in January 1992.

Combining the above conditions, we can roughly conclude that the United States is currently in a passive destocking stage. This is mainly because the US fiscal stimulus is on residents, not companies, and the current recovery of companies is less than 70%. Generally speaking, according to the inventory cycle, passive destocking is followed by active inventory addition, which will bring about continuous growth in demand and economic expansion.

I also need to bring up the inventory of real estate and automobiles. Because the demand for copper in these two fields is relatively large, it can be seen that the inventory levels of both automobiles and houses are in a very low position. The automobile inventory estimated by the US BEA has already The number of vehicles dropped to 450,000, and Biden was elected to the United States to restart international cooperation. The increase in the proportion of new energy vehicles due to the goal of carbon neutrality will inevitably increase the demand for copper. The housing vacancy rate is basically the lowest level in the past 70 years, 0.9%. Real estate is the largest copper consumption area in Europe and the United States. The loose monetary policy overseas is also conducive to boosting the real estate market.

In addition, the US consumption potential is relatively sufficient. The savings rate of residents in the United States is close to 14%, which is much higher than the normal level of 6%-8%. The reason for this

This is because the United States provided substantial subsidies to residents during the epidemic and increased their income. Second, according to Keynes’s theory of money demand, residents’ preventive motivation during the epidemic was greatly increased, and with the use of vaccines, the epidemic was controlled and the preventive motivation weakened. , Residents’ demand for money will fall and the savings rate will return to a normal level. This process will inevitably be accompanied by an increase in consumption.

As the epidemic is brought under control and production activities are further resumed, the unemployment rate will inevitably fall, the income structure of residents will be improved, and the proportion of wage income and operating income will increase. This is already in sight. According to the basics of Friedman’s economics The principle is that wages and operating income are similar to permanent income, and an increase in the proportion of permanent income will help promote the growth of consumption.

The current epidemic in the United States is still very serious, which means that a new round of fiscal stimulus is still necessary. Previously, the Republican and Democratic parties had a large divergence in the scale of stimulus (the Democrats were $2.2 trillion and the Republicans were $500 billion), but recently the senators and the two parties announced a $908 billion stimulus package. If the stimulus package can be successfully introduced , The demand must be boosted.

In addition, in response to the epidemic, the Fed adopted loose monetary stimulus policies. The scale of its balance sheet has increased from USD 4.3 trillion in March 2020 to USD 7 trillion in August, and the growth rate of M2 has also reached the highest level since World War II. Considering that the time lag of monetary policy transmission is about 3-4 quarters, the monetary stimulus effect of the US loose policy in the first half of next year will begin to show further, which can facilitate the growth of the US economy, especially the stimulus effect on the real estate industry. .

On the evening of Thursday, December 10, Europe announced the resolution of the December interest rate meeting, adding more easing. Increased easing in Europe will inevitably stimulate the expansion of bank credit and increase physical demand. The biggest benefit lies in the progress of vaccine research and development, and the prelude to mass vaccination of global vaccines may officially begin soon.

Against this background, the rate of resumption of work overseas has further increased, and the current rate of resumption of work is less than 70%. The recovery of production and the improvement of the job market also promoted the growth of residents' disposable income. With the abolition of social distancing, residents' travel is expected to improve, promote the recovery of "experiential consumption" demand, increase consumption propensity, increase total demand, continue inventory replenishment, and economic growth.

In general, the current global copper inventory (including domestic bonded warehouses) is only 792,000 tons, which is at a low level in the past five years, laying a solid foundation for copper prices to rise . In the first half of next year, the epidemic situation in developed areas will be gradually brought under control, the effect of loose policies will continue, production activities will gradually resume, consumption potential is sufficient, and demand is expected to be relatively strong. In particular, auto and real estate inventories are low, and the return of the United States to international cooperation will also amplify the demand for copper in the auto and real estate industry when replenishing the inventory. In the long run, copper prices are expected to still have the potential to rise.