The year 2020 was a magical one, with U.S. stocks fusing repeatedly and oil prices falling through the floor as if ready for any black swan, as the theoretical "see you live" flies densely into a pond, the next one always puts you off your guard. 

(1)A review of the price of copper

From January 20 to March 23,2020, copper prices fell sharply in the wake of the outbreak, reaching as low as $4,371 a tonne, the lowest since October 2016. After fixing the overshoot, copper prices have been on a roll since April, hitting a 27-month high of $6,877.5 a tonne on September 21, about 57 per cent from their March 23 low. The reason is that the logic of the epidemic has been running through copper prices this year:

1.February-march, the domestic and foreign epidemic has broken out, the global economy has been hit, copper prices experienced two consecutive rounds of sharp decline market;

2.April-may, the epidemic from copper consumer to copper supplier countries, Asia, Europe and other copper consumer inflection point occurred one after another, after the basic stability of the domestic epidemic market warmer, copper prices into a steady rise phase;

3.After June, South America, Peru, Chile and other supplier of outbreaks, helping to push copper prices up to high range;

New Crown vaccine gradually fall to the ground, the existence of regional supply and demand mismatch of copper fundamentals further tighten, copper prices hit a two-year high.

Near the 11th, copper prices continued to pull back a small warning signal, bonded zone stocks gradually pick up and TC/RC upward also seems to indicate that this year Q4 may not be calm.

(2) the undercurrent is surging —— Warning of the risk of large volatility in single-sided markets

For commodities such as copper, the one-sided market environment means greater volatility risks. A review of historical data from the past 20 years on Luntong, where the effects of all trading activities have been proportionally amplified by the shrinking of market capacity, yields the following data:

In the upside market environment, Luntong the largest increase of 5.01% during the eleventh period (2004) ;

In the upside market environment, the largest increase in October was 14.79% (2003) ;

In the downward market environment, Luntong fell 16.14% during the eleventh period (2008) ;

In the downward market environment, the largest decline in October 46.56% (2008) ;

The highest amplitude of October was 9.93% , which was much higher than the monthly average of 4.68%

Prior to 2014, the direction of fluctuation during the eleventh calendar year was basically consistent with that of October as a whole;

After 2015, the direction of volatility during the eleventh period and the overall direction of volatility in October there is a certain differentiation.

Conclusion: Before 2014, the 11th period can be regarded as the starting stage of the October copper price. After 2015, we need to analyze the copper price according to the specific market situation, but we still need to guard against any unilateral market environment (see later)

During the 11th period, the expected environmental risk of the market is higher than that of the market on the upside.

Let's take a look at five recent unilateral market conditions:

Spring Festival 2019-may Day 2019-november 2019-spring festival 2020-may day 2020

Its before and after trend line just constitutes, up, down, up, down, up the overall trend, and these five unilateral market environment to follow-up trend played a start or boost the role. Facing the upcoming 11, mid-autumn double holiday, as long as 6 trading days of the unilateral market environment, the current relatively high price of copper, will be a test.

(3)A brief analysis of the market in the fourth quarter of Foshan

Looking back, consider the challenges facing the copper market in October and the rest of the fourth quarter:

Problems remain in the prevention and control of the epidemic in the United States, the number of confirmed cases per day and the cumulative number of confirmed cases continue to increase with the number of tests, the United States experts worry about a surge in new coronavirus infection;

The pace of US fiscal stimulus was relatively lower than the market expected, and with the US election approaching, the market risk aversion has always been high, macroscopically there is a relatively strong pressure on copper prices; 

Suppression, including copper, including the dollar-denominated commodities;

 repeated European outbreaks, the British new crown disease alert level raised from 3 to 4, British Prime Minister Johnson announced new restrictions on England's new crown pneumonia measures;

Global Copper major consumer countries in the northern hemisphere into the winter, the market is worried about the risk of a second outbreak of the epidemic; 

September market demand growth overall lower than market expectations, not fully reflect the benefits of the season;

 Rtecent continuous increase in bonded inventory, in the week ended September 26, Shanghai bonded zone copper stocks rose 29,000 tons to 370,000 tons from the previous week, while copper bonded stocks hit a New Year High;

The CSPT finalized the Q4 copper concentrate TC/RC floor at $58/ton, up $5/ton from the Q3 floor.

The fundamentals may be partly in play, but the biggest uncertainty in the fourth quarter will come from the US election, or from the growing relationship between the US and China. After the first round of trade talks between the US and China, Donald Trump announced that the second round would take place after the election. This year's differential between China and the United States will make it difficult to repair Sino American relations in the November election, whether Donald Trump is re elected or delayed, and China will be forced to start a second round of trade talks with the United States.

The first phase of the negotiations aimed at reaching a preliminary trade agreement as soon as possible, with only the expanded trade component of the agreement having been affected by the epidemic and its current implementation less than anticipated by both countries; and the second phase, the core negotiations are aimed at sensitive areas such as intellectual property rights and market access, which are far more difficult than at a stage when tensions between the two countries will once again fuel risk aversion in the market, commodities and exchange rates may return to their pre-reciprocal tariff phase.

Looking back at the trade war schedule, before and after the first round of 25% tariffs between the two countries in July 18, the price of copper dropped from a high above 7,000 to below 6,000, and after the United States raised tariffs again on 200 billion products to 25% in May 19, the price of copper dropped again to below 6,000. After the November election, markets may return to the logic of a trade war, as they become accustomed to the effects of the epidemic. The current vaccine is expected to subside, the impact of the normalization of the epidemic superposition of trade wars, copper prices may return to the finishing range of 6000 or below.

(4)Forestall the future -- a suggestion for later stage operation

Copper prices may weaken in the future, but the current market still has some support, and the future dollar continued to rise in doubt, the pressure on copper prices will not be too large. On the cost side, the development of the epidemic in South American supplier countries is not optimistic. The strike of workers and labor negotiations in recent years have added to the problems of the aging of copper mines and the decline of ore grade, and the cost of mines has also increased. The UK Commodity Research Institute calculates that the cost of cash from global copper mines in 2019 was in the 90th percentile of $5,258 a tonne. The cost of copper mine mainly consists of energy cost (including electricity, fuel, etc.) , operating cost, labor cost, raw material cost, fuel cost accounted for about 15% . Based on the 19-year average settlement price of US $63 and the long-term stabilization of US $40 after the sharp decline, the cash cost of copper mines is estimated to be between us $5,100 and US $5,200/ton for the whole of 2020.

Operationally, the focus is on the breakout situation supported by more than 6500,6150,5800 and 5200 pre-stage platforms. Spot enterprises in the current high-level range may consider maintaining their value; if the market continues to descend to the vicinity of 5200 or below, they may consider entering the market with a long head and looking back to the history, copper prices, which typically run above the 90th percentile of the cost curve, have rebounded about 49 per cent since falling to the 90th percentile in March, confirming once again that copper has strong cost support at the 90th percentile. 

Source: Daye