Copper prices will come again next year

Near the end of the year, when the copper processing fee is negotiated again. The reporter was informed that Jiangxi Copper (600362, stocks) has negotiated the 2014 copper processing fee - an increase of 31% over the previous year. According to industry sources, Jiangxi Copper's processing fee is often an industry benchmark. China is the world's largest copper processing country. The increase in copper processing fees will help increase the income of smelting enterprises. However, the sharp increase in refining costs for copper processing implied an increase in the supply of copper in the future. In 2014, the pressure of copper prices was such as the overcrowded lake shrouded in the copper industry.

Huang Dongfeng, Secretary of the Board of Directors of Jiangxi Copper Company, confirmed on the 18th that the company had already reached the Freeport Company's 2014 copper concentrate processing fee and refining cost (TCRC) of US$92 per tonne and 9.2 cents per pound, respectively. In 2013, the price of TCRC at 70 US dollars per ton and 7 cents per pound rose by more than 30% year-on-year in 2014.

The copper concentrate processing fee refers to the process of refining blister copper into anode copper; and the refining charge is the process of converting the back-end anode copper into electrolytic copper.

Copper industry analyst Ray Lianhua told reporters that the negotiation of copper processing fees between Jiangxi Copper and Freeport Company is often the benchmark of domestic processing fees; for example, in 2012, the price negotiated by both parties became the follow-up price of domestic companies.

Data show that in 2014 copper processing fees rose 31% over the previous year, while in 2012 copper processing fees rose only about 10%.

The increase in copper processing fees means that the increase in mine production capacity exceeds the increase in smelting capacity, which is accompanied by a significant increase in copper production. According to Jim Lennon, senior adviser to Macquarie Bank, global copper supply has increased rapidly since 2012 and will reach a peak of 477,000 tons in 2014. He is more pessimistic about the mid-term trend of copper prices and believes that the copper price decline starting from 2011 will continue until 2014 to bottom out, and the bottom price is expected to be around US$6,500/tonne.

According to data from the National Bureau of Statistics, China’s refined copper production in October was 637,900 tons, higher than the record of 620,000 tons set in September; October copper production increased by 22.9% compared to October 2012.

On the 18th, the closing price of LME Lumen Copper 03 was 7,000 US dollars.

Lei Lianhua believes that copper prices will enter the bear market in the future, and the oversupply will at least put pressure on prices for the next three years.

In fact, the atmosphere of the market’s bearish copper prices this year is very strong. However, after the copper dipped in the first half of the year, the second half of the year was firm and fluctuating around 7,000 yuan. Some analysts believe that the expansion of copper production in 2013 may not be as fast as expected.

The sharp increase in copper processing fees in 2014 reflected the rapid expansion of copper production. Once copper prices have fallen, the main source of profit for companies with upstream copper mines will suffer. The self-sufficiency rate of copper mines such as Tongling Nonferrous Metals (000630, stocks), Yunnan Copper (000878, stocks), and Jiangxi Copper is relatively high, about 40%. As the price of copper falls, their performance will bear the brunt of the impact.

In the first three quarters of this year, Tongling’s non-ferrous net profit fell by 42% year-on-year.

China lacks copper resources, and the proportion of copper concentrate imports is close to 70%. At the same time, China is also a major copper smelting country, and it is more in the middle and lower reaches of the international division of labor. The decrease in copper prices and the increase in copper smelting costs have a positive impact on the overall copper industry in China. That is, the copper smelting and processing enterprises in the middle and lower reaches will benefit. Jingcheng Copper (002171, shares it), Hailiang shares (002203, shares it), Xinke materials (600255, shares it), fine arts (002,295, stocks) and other downstream business performance may have improved.

Taking Jingcheng Copper as an example, the company's net profit increased 101.53% year-on-year in the first three quarters of this year.