The latest forecast of 2021 copper price trend

Last year, China's net imports of refined copper surged by 38% to 4.4 million tons, breaking all historical records.

China's demand for metals from other countries in the world is 1 million tons higher than the previous peak in 2018 and 1.2 million tons higher than imports in 2019.

Driven by this extraordinary rush to buy, the price of copper on the London Metal Exchange (LME) rose from a covid-19 low of US$4,371 per ton in March last year to more than US$10,000 per ton.

According to the latest forecast of the International Copper Research Group (ICSG), this has also reshaped the statistical pattern of the copper market.

The group expects that this year and next year the global market will record a moderate supply surplus of 79,000 tons and 109,000 tons, respectively.

If this seems to be somewhat contradictory to the bullish market currently sweeping the copper market, it is because of what happened last year.

According to ICSG data, China has sucked so much metal from the global market that the statistical supply and demand gap of copper has reached 600,000 tons. This black hole shrouds the organization's prospects.

However, China's copper imports are currently slowing down, and the biggest question is what will happen when this huge copper driver stops pushing.

In its latest biennial market assessment, ICSG stated that the use of copper outside of China fell by 9% last year, and the large-scale blockade "has a significant negative impact on the world economy and subsequent major copper end-use industries in all regions. influences".

This implosion of demand should have led to a large excess of unsold metal and a substantial increase in inventories.

However, this did not happen, because China removed a record 4.7 million tons of metal from the international market, only a small amount of exports offset a little.

This import intensity fundamentally affects the calculation of global market balance.

Calculating the amount of use in the copper market is challenging because copper is constantly being melted into various forms for use in various end products. When calculating what happened to China's large-scale and geographically dispersed manufacturing industry, statistical issues have become more complicated.

This is why ICSG and other analysts use the "surface" demand calculation method, which is based on relatively hard data such as domestic production, visible inventory changes, and of course net trade.

Taking last year's huge net import factor into this statistical formula, China's "apparent" usage jumped 13% last year. This greatly offset the sharp decline in demand in other regions, and led ICSG to come to this assessment: the global market is in a state of supply-use shortage, totaling 604,000 tons.

In addition, the import distortion effect penetrates into the surplus forecast for this year and next year. As imports decrease, China's "apparent" usage is expected to drop significantly. This statistical anomaly will reduce the impact of real demand recovery in the rest of the world.

From this vague statistical picture, it can be seen that compared with the 25 million tons market, the expected surplus scale (a total of 188,000 tons in this year and next year) is insignificant, and it is not large compared to the deficit calculated last year.

China is the single most important reason why copper prices are challenging the US$10,000 per ton level.

Think about it, if China did not import an additional 1.2 million tons last year, the market outlook would be very different. Most of these metals will flow into the warehouses of LME or CME, thus exerting a significant inhibitory effect on prices.

On the contrary, the total inventory of LME and CME is less than 200,000 tons, and the contracts of the two exchanges are prone to time constraints.

The commodity super bulls believe that this cycle will be defined not only by China, but by metal-intensive recovery in other parts of the world.

Copper is gradually becoming an interesting test of this theory, because as the raw material market relaxes and commercial and national replenishment inventories fade, China's import demand will decrease in the coming months.

The response to the copper price will tell you whether the rest of the world is ready to take over the copper baton from China.