From upstream to downstream, the copper industrial chain is roughly divided into mining, smelting, processing and terminal demand. The raw ore is mined and selected into copper concentrate, which is smelted into metallic copper. Copper smelting can be divided into pyrometallurgy and hydrometallurgy. Pyrometallurgical copper smelting is the main copper smelting process, and the global pyrometallurgical copper production accounts for 85% of the total output in 20 19 years. Copper has good ductility, electrical conductivity and thermal conductivity, and can be processed into various rods, tubes, belts and foils, which are widely used in electric power, construction, automobiles, household appliances, machinery and other industries. Scrap copper is an important part of copper supply, which can be added in the blowing process of pyrometallurgical copper to reduce the temperature and increase the output, and can also be used to make rods in the processing process to reduce the cost. According to the International Copper Research Organization (ICSG), 33% of copper consumption comes from recycled copper.

Second, the world is rich in copper resources, and exploration and mining have become a bottleneck.

There are abundant copper resources in the world. According to the data of USGS, the global copper reserves (economically recoverable reserves) reached 870 million tons in 20 19, and the resource reserves reached 5.6 billion tons. Since 10, the global copper mining life has been maintained at about 40 years. In addition, the reserves of copper resources are relatively concentrated, especially in the Pacific Rim metallogenic domain (focusing on the Andean metallogenic belt in South America). The reserves of Chile and Peru in South America are 200 million tons and 87 million tons, respectively, accounting for 23% and 10% of the global reserves. In 20 19, the copper production of the two countries accounted for 27% and10, respectively.

The copper concentrate in China is highly dependent on foreign countries. China's copper reserves only account for 3% of the world's total, and the annual output of copper concentrate accounts for 8% of the world's total. China's copper roughing capacity accounts for 42%, refining capacity accounts for 38%, and copper consumption accounts for 47% of the world. The output of copper concentrate does not match the smelting capacity and consumption capacity, which determines that China needs to import a large number of copper concentrate to supplement the gap between production and consumption. Due to the rapid expansion of domestic smelting capacity in recent years, the smelting growth rate exceeds the domestic concentrate production growth rate, resulting in the domestic consumption gap of refined minerals expanding year by year.

According to statistics, about 50% of the world's tradable copper concentrate flows to China. The source countries of copper concentrate in China are mainly Chile, Peru, Mongolia and other countries in South America, among which Chile and Peru in South America account for 62% of China's total copper concentrate imports, so the epidemic situation in the two countries is often concerned.

Capital expenditure of mining enterprises declined. Although the world is rich in copper resources, the increase of copper production depends on the continuous capital expenditure and exploration expenditure of copper mining enterprises, while the capital expenditure of mining enterprises is influenced by copper prices and has a strong periodicity. In the past 20 years, there have been two obvious investment booms in copper mine development. The first round was around 2004, driven by the accelerated industrialization and urbanization in China, which led to the bull market of copper prices in 2004-2006, and stimulated mining enterprises to increase capital expenditure and exploration investment. The second round appeared around 20 10. Driven by the economic stimulus policies launched by various countries to get rid of the financial crisis, especially by China's "4 trillion" plan to increase copper demand, copper prices once again stepped out of the unilateral bull market in 2009-20 1 1, and investment in mine exploration and development reached a record high. After 20 1 1, the development of China gradually entered a new normal, and the growth rate of global copper demand also slowed down. Copper prices continued to fall until 20 16, during which the investment in copper exploration and development dropped sharply.

Generally speaking, there is a lag period of about 5 years from exploration and development to ore production in copper mines. Before 2008, the investment in copper exploration increased, and the growth rate of copper production reached its peak in 20 13. The investment in copper exploration peaked around 20 12, and the growth rate of copper production peaked around 20 16. From the absolute value of copper mine output, the peak of the last round of copper mine development boom was around 20 13, and the corresponding copper mine output reached a high point at 20 18. Since 20 12, the unilateral decline of copper prices has lasted for four years, and the investment in copper exploration and development has also fallen into a downturn, resulting in a continuous decline in the growth rate of copper production in the past 20 17-20 19. Although the capital expenditure of mining enterprises has increased with the rebound of copper prices since 20 17, the increase is not obvious, and the increase of copper output in the next few years will continue to be affected by low capital expenditure. Especially in the first half of 2020, the epidemic caused a serious impact on the copper market. The Global Exploration Trend Report 2020 released by Standard & Poor's predicts that copper exploration expenditure will be reduced by about 40% this year.

The expected increment of concentrate in the next year is large, but the uncertainty is high. According to the major projects of future copper mines, the increase of copper output in the next two years will mainly be concentrated in Chile and Peru in South America, Congo Gold in Africa and Indonesia in Asia. After the outbreak of COVID-19 this year, all countries declared a state of emergency in March and extended it several times. Major copper-producing countries in South America have been seriously affected.

According to WoodMackenzie's statistics, in the first half of the year, copper production decreased by at least 490,000 tons, among which Chile and Peru, two major copper-producing countries, reduced production by 6 1%. In the first half of the year, the mine interference rate caused by the epidemic was 2.3%, and the interference rate caused by other reasons was 0.8%. If the historical average interference rate is 5%, there is only 1.9% interference rate space. Because the epidemic situation has not been effectively controlled, the second foreign epidemic has broken out since August, and Peru and Chile have successively declared a new round of national emergency, which may cause the ongoing projects and new investment projects to be continuously affected, and the mine interference rate may further increase, exceeding the historical average interference rate, and affect the mine production progress in the next two years.

The new output in 2020-2022 is mainly concentrated in Chile and Peru. In addition, Indonesia's PTFreeport project is in the stage of underground mining, and it is expected to be completely underground mining in 2022, with a large increase in the next two years; In addition, Camoa project of Zijin mining in Congo (DRC) in Africa and Timok project in Serbia are expected to be completed and put into operation in the first phase of 20021year.

Global copper concentrate supply and demand balance. According to the historical average interference rate of 5%, the agency predicts that the supply and demand of concentrate will be tight this year and will be balanced or slightly surplus in the next two years. If the epidemic causes the interference rate to exceed 5% this year, the concentrate gap will widen this year, which will also affect the progress of new construction or expansion projects, and the supply of concentrate may continue to be tight in the next two years.

The shortage of concentrate is most directly reflected in the continuous decline of concentrate processing fee (TC/RC). TC is the roughing cost, which represents the cost of smelting, blowing and refining copper concentrate into anode copper. RC is the refining fee, which represents the cost of producing cathode copper from anode copper by electrolytic refining. Since 20 19, labor disputes have occurred frequently in mines, and some large mines have lost part of their output due to underground mining, resulting in tight supply of concentrates. In addition, the peak of copper smelting capacity expansion in China is reflected in the continuous decline of TC since 20 19, and the forward TC of copper concentrate is only 62 USD/ton in 2020. In June, 2020, the price of TC/RC floor in the third quarter finalized by the China Copper Raw Materials Joint Negotiating Group was US$ 53/ton and US$ 5.3/pound respectively, which was the lowest price in recent years. Spot TC also fell below $50/ton, directly reflecting the current tight supply of copper concentrate.

Copper price has obvious cost support. The long-term downward trend of copper ore grade leads to the increase of mining and dressing costs. Observing the ore grade of 22 copper mine production enterprises in the world, the overall trend is declining in the past 20 years. On the one hand, the cost of ore mining and dressing has been rising in recent years, on the other hand, it has also affected the ore output.

By analyzing the operation range of copper price in recent 20 years, it is found that in most cases, copper price runs above the 90% cost dividing line, which has a strong supporting role for copper mines. Only when the global macro-economy suffers a big impact will the copper price fall below the 90% dividing line and get support at the 75% cost dividing line, such as 200 1, 2008, 20 15. According to institutional statistics, the cost dividing lines of 90%, 75% and 50% of global copper mines in the first quarter of this year were 5 157 USD/ton, 4,209 USD/ton and 3,327 USD/ton respectively. In the first half of this year, the lowest copper price appeared in March 19, and the lowest copper price fell to 43,765,438 USD +0 USD/ton, falling below 90%.

30-40% of copper mine cost is energy cost, mainly diesel oil. The sharp drop in oil prices in the first half of the year also led to a downward shift in the mine cost line. With the crude oil price bottoming out since the end of April, the mine cost has also rebounded.

Third, the supply of copper scrap is restricted by many factors.

The epidemic situation affects the recycling of scrap metal. Scrap metal recycling is an important part of all metal supply. Except zinc, other kinds of scrap metal account for more than 30% of its total supply. The waste copper added in copper refining accounts for 15% of the total copper smelting. Considering the scrap copper added in processing, the consumption of scrap copper in refining processing accounts for 32% of the total copper supply, and the supply of scrap copper directly affects the balance between supply and demand. Since the outbreak of domestic epidemic this year, strict isolation measures have been taken in various places, and the recycling and dismantling of waste copper has stopped for about two months, resulting in a tight supply of waste copper. According to SMM statistics, the monthly reduction of scrap copper in February and March is at least 30,000-40,000 tons, which leads to the narrowing or even upside down of the price difference between refined copper and scrap copper.

The epidemic also affected the recycling of foreign copper scrap, which was manifested in the reduction of imported copper scrap to 24 cents/pound in May-June this year. Although the domestic refining scrap price difference and the deduction of imported scrap copper have returned to normal levels, the second epidemic abroad has begun to spread, and the recycling of scrap copper has been suppressed again, which may once again affect the import of domestic scrap copper.

The import policy of scrap copper was tightened. Imported scrap copper is an important supplement to domestic copper raw materials. According to SMM calculation, from 2065438 to 2009, China recovered about 900,000 tons of old copper scrap, and imported copper scrap 1.33 million tons of metal in the same period. Since the "Six Kinds of Wastes" were transferred from the unrestricted catalogue to the restricted catalogue in the second half of 20 19, the import of copper scrap and scrap steel needs to be examined and approved, and the amount of examination and approval is strictly controlled, resulting in a sharp decline in the import of copper scrap. From June to July this year, China imported 465.438 billion tons of copper scrap, a decrease of about 49% compared with the same period last year. The standards of "Recycled Brass Raw Materials" and "Recycled Copper Raw Materials" implemented in July this year 1 aim to transform the solid waste properties of copper scrap into product properties, but the implementation rules have not been promulgated, and China will completely ban the import of solid waste from 20021. After the implementation of the new Law on the Prevention and Control of Environmental Pollution by Solid Waste in September this year, most foreign shipping companies refused to accept the solid waste business, fearing the possible risks brought by the new policy, which inhibited the import of scrap copper to some extent.

The reason for the loose supply of domestic scrap copper in the early stage is that the price of copper has risen in recent months, and the widening price difference of refined scrap copper has stimulated the supply of domestic scrap copper. However, after the import of refined copper scrap shrank, the domestic copper scrap did not have sustainable supply capacity, which was manifested in two aspects: First, the price difference of refined copper scrap narrowed sharply, and the copper price was obviously adjusted recently, but the price of refined copper scrap was firm, and the price difference of refined copper scrap narrowed from a high of more than 2,500 yuan/ton in July to 1000 at the end of September. Second, the number of votes for scrap copper rose. In late September, the number of scrap copper votes rose from 6% in June to 6.5%, reflecting that the demand for scrap copper votes was in short supply. The improvement of scrap copper bill number and the narrowing of the price difference between refined copper and scrap copper make the substitution of scrap copper economical and is expected to promote the consumption of refined copper.

To sum up, the expected increase of copper concentrate has increased compared with the previous two years, but the epidemic situation has led to a significant decrease in mine capital expenditure and an increase in mine interference rate this year. New or expanded production projects are concentrated in South America where the epidemic situation is serious, and the progress of the projects is uncertain. Another main raw material source, the copper scrap recovery system, is easily affected by the epidemic. Domestic copper scrap imports are in the adjustment period of policy transformation, and there are also uncertainties. Overall, the supply of copper raw materials is not loose and full of variables.

Fourth, the global copper smelting overcapacity, the increase is mainly from China.

The global copper smelting capacity is relatively surplus. Before 20 17, the operating rate of local refining was maintained at about 75%. In recent years, the growth rate of global copper consumption has declined, but the expansion rate of smelting capacity in the world, especially in China, has not slowed down, resulting in a decline in smelting operating rate, which is currently around 70%. This also leads to a relatively large demand for concentrates by smelting enterprises, fierce procurement competition and a disadvantage in the negotiation of processing fees. On the whole, copper smelting capacity is long-term, rough refining capacity and refining capacity are not bottlenecks, and TC/RC will remain at a low level.

Verb (abbreviation of verb) The growth rate of copper consumption in China is steady, with many bright spots.

As a big country in infrastructure and manufacturing, China consumes nearly 50% of the world's copper, followed by Japan, the United States, Germany and other developed countries. China's copper consumption field is relatively concentrated, and the large-scale power grid construction makes the copper consumption in the power field account for nearly half of the total domestic copper consumption; The distribution of copper consumption in the world is relatively balanced, mainly in the fields of electricity, construction and transportation. From the final use form of copper, it is mainly based on its good conductivity, which accounts for 60% of the total, which also determines that copper has broad application prospects in new energy vehicles, photovoltaics, big data centers and other emerging fields involving electricity.

Analyzing the growth rate of copper consumption in various countries, we can see the following points: First, the growth rate of copper consumption in China has declined in recent years, but it is still in the forefront among countries. Considering that China accounts for nearly half of the world's copper consumption, China has always been one of the main forces driving global copper consumption; Second, copper consumption in developed countries such as Europe and the United States is stagnant, and the growth rate of consumption basically fluctuates around zero; Third, the consumption growth rate of emerging economies such as India and Southeast Asia in Asia is relatively high, which will be the growth point of global copper consumption in the future. However, at this stage, the base is low, which has limited impact on global copper consumption. Therefore, in recent years, copper consumption outside China is basically stable and in a low growth state. Therefore, copper consumption in China is a more important variable.

The new energy field has become a new growth point of copper consumption in China. According to a report of the International Copper Association, the copper consumption of a bicycle for fuel vehicles, hybrid vehicles, plug-in hybrid vehicles and pure trams is 23kg, 39kg, 60kg and 83kg respectively. According to China's New Energy Vehicle Industry Development Plan (202 1-2035), the sales volume of new energy vehicles will reach 25% by 2025. Based on 20 19 years, assuming that the total output of automobiles will remain unchanged by 2025, pure electric vehicles will account for 82% and plug-in vehicles will account for 18%, and the copper consumption of new energy vehicles can be roughly calculated.

Assuming that the number of new charging piles is equal to the number of new energy vehicles, the copper consumption of DC charging piles, AC charging piles and private AC charging piles is 60kg, 20kg and 5kg respectively. Suppose that by 2025, the vehicle-pile ratio will increase to 1: 1. According to the above assumptions, the copper consumption of new energy vehicles and charging piles is simply calculated. It can be seen from the calculated data that although the current copper consumption in the field of new energy vehicles is less than that in the traditional industries, it is growing rapidly. With the increase of the base, it may become one of the main forces driving the growth of copper consumption in the next few years.

The traditional consumption field of copper remained stable. The large consumption of copper in the traditional consumption field is the main factor that determines copper consumption. Power grid investment will continue to play a countercyclical role this year. From June to July, the total power grid investment reached 205.3 billion yuan, up by 1.6% year-on-year. This year, the planned investment of State Grid reached 460 billion yuan, an increase of 2.8% compared with the actual amount of last year, so it is estimated that there is still room for slight growth in the third and fourth quarters.

The demand for air conditioners and automobiles in the other two major consumer sectors is stable. According to the data of China Automobile Association, the production and sales of automobiles in China in August were 21190,000 and 2186,000 respectively, up by 6.3% and1.6% respectively. Automobile production and sales have achieved positive growth for five consecutive months, and the sales growth rate has remained above 10% for four consecutive months. According to the production and sales data of industrial online air conditioners, the total output of the industry increased by 3.32% year-on-year in August, and the total sales volume increased by 2.78% year-on-year. Sales growth was mainly driven by exports, with a year-on-year increase of 7.49%.

The copper used in the real estate industry is mainly concentrated at the completion end, and equipment cables are mainly used as power connection wires for laying wires. The housing completion data released by the Bureau of Statistics began to rebound moderately in the second half of 20 19, which was greatly affected by the epidemic in the first quarter of this year, but gradually recovered with the progress of returning to work. As of August this year, the completed housing area was-10.8% year-on-year, narrowing to -9.8% year-on-year. Due to the scissors difference between the construction area and the completed area in recent two years, we believe that the growth rate of the completed area is expected to continue to rebound, which can also be proved by the leading indicators of completion, such as elevator output and glass output.

Another growth point of real estate copper is the transformation of old residential areas. In April this year, the executive meeting of the State Council confirmed that 39,000 old residential areas in the city were planned to be renovated this year, involving nearly 7 million residents, twice as much as last year. The key point is to complete the renovation of residential areas before the end of 2000. In July, the State Council issued "Guiding Opinions of General Office of the State Council on Comprehensively Promoting the Transformation of Old Urban Residential Areas" to promote the transformation of old urban residential areas.

According to the information of the Ministry of Housing and Urban-Rural Development, from June 5438 to August this year, there were 27,800 old residential areas in newly renovated cities nationwide, accounting for 70.7% of the annual target tasks; It involves 5,399,700 residents, accounting for 76.4% of the annual target tasks. One of the key points in the transformation of old residential areas is the transformation of power supply lines, including the grounding of overhead cables, which is expected to boost copper consumption. At the same time, the renovation of old residential areas has also promoted the development of decoration, home appliances and other industries, and accelerated the upgrading of home appliances. With the start and promotion of the renovation project, the pulling effect on copper consumption will gradually appear.

The recovery of manufacturing in major economies around the world is good for copper prices. The wide application of copper in various fields determines that the copper price is closely related to the macroeconomic trend, and its industrial attributes determine that the copper price has a strong correlation with the manufacturing PMI trend of major economies. At present, all major economies are in the recovery period after the epidemic. In September, the PMI of Markit manufacturing in the United States and the euro zone were 53.5 and 53.7, respectively, which were higher than the threshold for three consecutive months, which was significantly higher than that in August. China's manufacturing PMI has been above the threshold for six consecutive months, and the new order classification index continues to improve, indicating that the manufacturing recovery of major economies in the world is strong and will continue to boost copper consumption in the short to medium term.

To sum up, the cumulative consumption growth rate of copper in traditional consumption areas such as power grid, air conditioner and automobile has approached or exceeded the same period of last year. In the fourth quarter, power grid investment is expected to be further released, automobile production and sales will maintain the growth momentum, and the post-real estate cycle will continue to drive home appliance consumption, so there will be no major decline in the traditional consumption field. Because of its good electrical conductivity, thermal conductivity and ductility, copper has broad application space in new energy, new infrastructure and other emerging fields, and is expected to become a new consumption growth point in the future.

According to the balance sheet given by the organization, the global surplus of refined copper will be around 300,000 tons in the next two years, accounting for 1%- 1.5% of the output, and there is no obvious contradiction between the surplus and the shortage. If the mine interference rate caused by the epidemic exceeds expectations, the balance sheet will turn to balance or be slightly shorter. In addition, the balance sheet's forecast of consumption growth next year is conservative. Due to the epidemic, this year's consumption base is low, coupled with the government's release of liquidity and fiscal stimulus policies, next year's consumption growth rate is higher than expected, resulting in tight supply and demand. In the case that the global leading copper inventory is at a historical low level, the copper price will have greater flexibility.