Copper prices have experienced a deep V rally since 2020, with extremely pessimistic economic expectations driven down LME copper prices by 27 per cent from $6,300.50 a tonne on January 16 to $4,617.50 a tonne on March 23; Copper prices rebounded strongly to $6,800 a tonne in april-september after the outbreak disrupted supply in South America's biggest copper producer, which gradually resumed supply in october-november and continued to rise in anticipation of an economic recovery, it rose to $7,261.0 on Nov. 20. Copper prices into a demand-led phase, 2021 how to determine the trend? This paper will analyze from two aspects of demand and supply.

1. The core view is that 2021 is likely to enter an inventory cycle as well as an upward phase of the Juglar cycle, and historically, 2021 copper demand is likely to enter an expansion phase, we forecast a 2.05% year on year increase in global refined copper production at 2021, which is in the 40% percentile since 1989, and lower in absolute terms in the first half. Therefore, on both sides of the supply and demand equation, we believe that 2021 global copper prices may benefit from a stronger balance between supply and demand, especially 2021. At the same time, the history of 2021 copper prices is expected to usher in such a strong rise in 2011 prices. If both the crisis and the changing economic environment are taken into account, the changes in supply and demand in 2020-2022 are similar to those in 2009-2011. In 2009, when the financial crisis hit the global economy hard, global GDP growth bottomed out, while global refined copper production grew only-1.67 per cent. That was followed by a strong recovery from the 2010-2011 global quantitative easing and economic stimulus, which drove copper prices to record highs in 2011. In contrast, global GDP growth in 2020 was hit or hit a record low by the new pneumonia epidemic, while global refined copper production growth hovered around 0 per cent. But with vaccine development and a global stimulus plan in place, the Bank predicts a strong recovery in the global economy in 2021. As a rule of thumb, 2021 is on track for a strong 2011 rally. 

2. Investment advice and targets we believe that 2021 global copper prices may benefit from a stronger balance between supply and demand, especially 2021. Third, the risks suggest that the global economic recovery is slower than expected. If the global economic recovery after the outbreak is slower than expected, or affect copper demand. Copper mine output grows faster than expected. If overseas copper mines are less affected by the epidemic than expected, there is a risk of over-expected growth in copper production. 4. So where does 2020 lead, 2021? Supply, demand side alternating effect, copper prices in 2020 out of the magnificent rise in the market. Since 2020, copper prices have gone through three stages:

 (1) the first stage: As a global macroeconomic barometer, the extremely pessimistic economic expectations under the new crown epidemic in 2020 have driven copper prices down to the global 90th percentile cost line in the short term, lME copper prices fell 27 per cent from $6,301 a tonne on January 16 to $4,618 on March 23.

 (2) Phase II: from March to September 2020, supply will continue to be tight due to severe production disruptions caused by the outbreak in the major copper producing countries of South America, Chile and Peru, according to Wind data, in July 2020, Chile's and Peru's monthly copper production fell 4.2 per cent and 2.2 per cent respectively from the same period last year, with copper prices rebounding strongly to the $6,800 a tonne level.

 (3) third stage: Since October, Chile, Peru, copper mine epidemic gradually weakened, copper prices began to enter the trading demand expected stage.

At this point in time, it is necessary to make a detailed analysis of both the supply and demand sides of the 2021, with a view to making a basic judgment on the 2021 price trend. Next, we'll start with qualitative and Quantitative analysis measures from both the demand and supply sides. 1 Demand: Inventory Cycle, Juglar cycle or upturn cycle, 2021 copper demand may remain strong

Mid Cycle: Copper downstream end consumption is closely related to fixed asset investment in the macro economy, especially in the industrial sector, I. E. The Juglar cycle has a greater impact on it. According to The World Copperfactbook 2019, published by The International Copper Research Group (ICSG) , global copper downstream end consumption is mainly concentrated on equipment, construction and infrastructure, transportation and other industrial uses, accounting for 31% , 28% , 16% , 13% and 12% respectively, it is closely related to the fixed asset investment cycle in the macro economy, especially in the industrial sector. The economic cycle driven by investment in fixed assets such as equipment replacement is a typical Juglar cycle economic law. So copper demand is more affected by the Juglar cycle of the mid-cycle.

SHORT-CYCLE: Copper Downstream end-use departments according to its short-term economic fluctuations forecast and make active or passive inventory adjustments, will also affect short-cycle copper demand. Under the framework of mid-cycle Juglar Cycle, short-term downstream end applications will adjust the inventory level of finished products actively or passively in response to the fluctuation of their downstream demand, thus affecting the demand for copper. Therefore, finished product inventory in the industrial sector is a short-cycle factor affecting copper demand.

Below, we will from the short-cycle (inventory cycle) and the medium-cycle (Juglar cycle) two dimensions to observe the current stage as well as a future stage of copper demand position and trends. 

1.1 Short Cycle: Global Inventories of finished goods or entering an active replenishment cycle, also known as the Kitching cycle, are different from medium and long cycles such as the Juglar cycle (investment cycle) and the Simon Kuznets Cycle (construction cycle) , the inventory cycle is a typical short-cycle economic fluctuation law. The basic driving force of the inventory cycle is the fluctuation of the finished goods inventory or inventory of industrial enterprises with the change of economic expectation. When economic expectations are positive and inventories of finished goods are low, industrial enterprises will usually take the initiative to replenish inventories to meet the more robust demand in the future, thus driving the short-term demand for their upstream raw materials or intermediate semi-finished goods, driving up the price of raw materials.

Historically, the U. S. and China inventory cycle is a synchronized indicator of international copper prices. As the most important "engine" of the global economy, the US and China are also the most important "exporter" and "importer" of the finished goods of the global manufacturing industry. Since 1997, the United States and China have clearly experienced six complete inventory cycles in 1997-2001,2001-2005,2005-2009,2009-2013,2013-2016,2016-2019, each cycle spans about 3-4 years. The confirmation of a new inventory cycle in the United States has been delayed until July 2020 due to the new pneumonia outbreak. In 2020Q1, the inventory of finished goods of Chinese industrial enterprises rose ahead of time because of the epidemic situation of new crown and the Spring Festival, but the confirmation time of the rising cycle of the new round of inventory cycle is also around July 2020. According to the fluctuation law of American and Chinese inventory cycle and LME copper, the two indexes are basically synchronous, which reflect the fluctuation of demand for copper raw materials in the process of destocking and replenishment in the US and China.

U. S. commodity imports and Chinese exports are the leading indicators of inventory cycle and international copper prices, leading about 6 MONTHS-1 year. The United States and China are the most important "importers" and "exporters" of manufactured goods in the world, so their merchandise imports and exports are the driving factors of the inventory cycle of the United States and China. From 1993 to the present, the year-on-year value of U. S. merchandise imports and the year-on-year value of Chinese exports are about 6 MONTHS-1 years ahead of the year-on-year value of inventories. Therefore, a good pre-indicator of international copper price is the value of U. S. imports or Chinese exports. On a regular basis, US merchandise imports should have entered a rising cycle since October 2019, but were interrupted by the epidemic before bottoming out in May 2020, thus driving the US inventory cycle into an active replenishment cycle. The relationship between China's exports and the inventory cycle is similar.

As a result, the global manufacturing inventory cycle, represented by the US and China inventory cycles, has begun its upturn, and the rule of thumb may be to keep copper demand at a high level in 2021. 1.2 Medium Cycle: Juglar cycle or entering an upswing phase, which drives fixed asset investment demand driven by capital, especially equipment replacement, Juglar cycle is a typical medium cycle economic law, with an average cycle length of about 8-10 years, global GDP growth is a good indicator of Juglar cycle fluctuations. Since 1975, the global economy has gone through about five Juglar cycle: 1975-1982,1983-1992,1993-2000,2001-2008,2009-2019. As an important raw material for investment in fixed assets such as equipment, construction and infrastructure, the price of copper is subject to the fluctuation of GDP growth rate in the long term.

With the global economy likely to recover from the severe impact of the 2021 outbreak, we expect a new Juglar cycle period to kick in, driving demand for copper terminals. According to the World Bank's growth forecasts released in June and September 2020, the global economy will be hit hard in 2020 by the outbreak and spread of the epidemic. GDP growth is expected to be-5.2 percent, the slowest since 1961. By country or region, China's GDP may achieve positive growth of 2.0 percent in 2020, the United States'-6.1 percent in 2020, the euro zone's-9.1 percent, and Japan's-6.1 percent. 2021, the world economy may be on the cusp of a recovery with the release of a new coronavirus vaccine and the withdrawal of massive stimulus packages from major economies. Global GDP growth is forecast at 4.2% , according to the 2021. Of these, 2021's GDP growth is likely to be 7.9% , America's 4.0% , the euro zone's 4.5% and Japan's 2.5% . The global economic recovery is expected to drive a rebound in fixed asset investment in the industrial sector, and we expect a new round of Juglar cycle to begin.

To sum up, 2021 is likely to enter the inventory cycle as well as the upside phase of the Juglar cycle, and historically, 2021 is likely to enter an expansion phase. 2 Supply: Global Copper mine output is slowly increasing, and the supply pressure of 2021 is heavy in the second half of the year. 2.1 primary copper and regenerated copper: the proportion of regenerated copper output using mineral copper as raw material reaches 83% . In recent years, the proportion of primary refined copper output has remained stable at 83% , therefore, the primary refined copper with mineral copper as the main raw material plays a leading role in copper supply. The refined copper can be divided into primary refined copper and secondary refined copper according to the source of raw materials, and primary refined copper occupies the main position. According to ICSG data, the share of primary refined copper production in global refined copper production has remained between 82% and 83% over the past 10 years, and has remained stable at 83% over the past six years. Therefore, based on the forecast production data of primary refined copper, combined with its 83% of the total refined copper production, we can make a forecast of the total refined copper production of the world in the next three years. In the last three years, the proportion of primary refined copper in mineral resources is about 97% . In recent 3 years, the proportion of primary refined copper in the output of mineral copper is relatively stable, which is between 97.1% and 97.5% . So let's assume that the share for the next three years is 97.5 per cent as it was in 2019. In the following, we will estimate the total global production of mineral copper in 2020-2022 by counting the projected output of the major producers and new major mines in the world in the period 2020-2022, then, the global primary refined copper production is predicted according to the proportion of 97.5% .

2.2 copper: LOW CAPITAL EXPENDITURE, 21 year output growth of 2.05% , and most concentrated in the second half of the release of 2.2.1 capital expenditure: capital expenditure remains low, in the future, the increment of global copper ore supply or limited copper resources will be mainly concentrated in Chile and Peru, and the mining and smelting capacity will be relatively concentrated. In 2019, Chile and Peru held 200 million tons and 87 million tons of copper reserves, respectively, and produced 5.6 million tons and 2.4 million tons of copper, ranking first and second in the world, accounting for 33 percent of the world's reserves and 39 percent of production, according to USGS data. In 2019, China's mining copper reserves stood at 26 million tons, accounting for 3 percent of the total, with 1.6 million tons of production, accounting for 8 percent.

In recent years, the capital expenditure of main copper mine is still low, and the supply increment of copper mine is limited. We calculated the capital expenditure of the world's top 10 copper producers in 2012-2019. Thus, capital expenditure on mainstream copper mines peaked at $67.69 BN in 2013, up 25.2 per cent year-on-year. Capital spending has since declined steadily over the years, hitting a low of $23.79 billion in 2017. Capital expenditure on mainstream copper mines rebounded steadily in 2018-2019, reaching $31.86 billion in 2019, up 10.4 per cent from a year earlier, but remaining low.

2.2.220-22 year-on-year growth rate of global mineral copper production: 0.45% , 2.05% , 4.06% (1) the total output of the 28 major global mineral copper producers is forecast to be 15.001 million tons, 15.262 million tons and 15.812 million tons respectively by 2020-2022, the increase mainly comes from Glencore, Vale, Zijin Mining and Western mining. According to the official data of each company and the company announcement, we have obtained the 2020-2022 production planning data of 28 copper resource companies in the world and in China. Given that a small number of companies have not announced their planned production, and there is no clear indication that the corresponding companies'production will increase significantly over the next three years, we assume that these companies'planned production will remain unchanged. To sum up, we forecast that the total output of the 28 major global copper producers in 2020-2022 will be 15 million, 15.26 million and 15.81 million tons respectively. The future increment mainly comes from Glencore, Vale, Zijin Mining and Western mining. Among them, copper production is expected to increase from 370,000 tons in 2019 to around 800,000 tons in 2022 with the successive commissioning of the kakura-kamoa copper mine, the Timok copper mine and the qulong copper mine.

(2) other mines are expected to add 161,000 tons and 466,000 tons of copper from other mines in 2021-2022, after deducting the production rights and interests of the above 28 mainstream mines. According to the company's website and SMM information, the 2021 new mines are mainly Mina Justa mine in Peru and Cacula-kamoa Copper Mine in Congo (excluding Zijin Mining Interests) ; The new mines in 2022 are mainly Udokan copper mine in Russia, quelong copper mine in China (minus Zijin Mining Rights) and Cacula-kamoa copper mine in Congo gold (minus Zijin mining rights) . After deducting the output of the 28 mainstream mines, the world's new copper output from other mines in 2021-2022 is expected to be 161,000 tons and 466,000 tons respectively.

(3) the world's total mineral copper production in 2020-2022 is forecast to be 20.621 million tons, 21.043 million tons and 21.898 million tons, respectively, with year-on-year growth rates of 0.45 percent, 2.05 percent and 4.06 percent. According to ICSG data, in 2019 the uncounted total output of mines is 5.62 million tons, assuming that the next three years of production of these mines basically unchanged. On this basis, combined with the planned output data of 28 mainstream mines and other mines in the period 2020-2022, we forecast that the global total mineral copper output in 2020-2022 will be 2062.1,2104.3 and 21898 million tons respectively, year-on-year growth rates were 0.45% , 2.05% and 4.06% respectively. The global refined copper output in 2020-2022 is forecast to be 24.22,24.71.9 and 25.723 million tons respectively, with year-on-year growth rates of 0.45% , 2.05% and 4.06% .

 (1) based on the foregoing analysis, we assume that global primary refined copper production will still account for 97.5 per cent of global mineral copper production in 2020-2022, based on our projections for total global mineral copper production over the next three years, the global output of primary refined copper in 2020-2022 is estimated to be 2010.6,2051.7 and 21.350 million tons respectively. 

(2) assuming that primary refined copper accounts for 83% of the global refined copper output, we estimate that the global refined copper output in 2020-2022 will be 2422.3,2471.9 and 25723 million tons, respectively.

According to the above analysis, the epidemic of NCP in 2020 affected the global production of copper and refined copper to a great extent, and the annual growth rate was only 0.45% . Global production of copper and refined copper is expected to increase faster in 2021-2022 than in the same period last year, with the outbreak of NCP under control in major mining countries and production of some world-class mines. However, if we observe the historical change of global refined copper output growth rate from year to year, the projected growth rates of 0.45% and 2.05% for 2020 and 2021 are only in the 23% and 40% percentiles respectively since 1989, and the projected growth rate of 4.06% in 2022 is in the 66% percentile.

2.2.32021: About 70% of the new production is concentrated in the second half of the year or mainly in the second half of the year, with the new production in the first half: Second half = 3:7. The 2021 added about 599,000 tons of copper production to its new mines and to the old mine's technological transformation and expansion project, but Chile's 2021 and BHP Billiton have lowered their forecasts for copper production because of ageing mines and declining ore grades, increasing global production by 422,000 tonnes compared with 2020. According to the calculation of the production progress of the newly built mines, the increase of copper production in the first half of the 2021 was about 201,000 tons, and the increase of copper production in the second half of the year was about 398,000 tons, most of the new output growth was in the second half of 2021.

In summary, we forecast that the global refined copper output in 2020-2022 will be 2422.4,2471.9 and 25723 million tons respectively, with year-on-year growth rates of 0.45% , 2.05% and 4.06% . About 70 percent of 2021's new supply was concentrated in the second half of the year, with less new supply in 2021. 3 Investment Advice: dual cycle driven, copper price or performance in the 2021 concluded earlier, 2021 or will enter the inventory cycle and the Juglar cycle up phase, judging by historical experience, 2021 copper demand or will enter the period of expansion; At the same time, we forecast a 2.05% year on year increase in global refined copper production in 2021, which is in the 40% percentile since 1989, and lower in absolute terms in the first half. Therefore, on both sides of the supply and demand equation, we believe that 2021 global copper prices may benefit from a stronger balance between supply and demand, especially 2021. At the same time, the history of 2021 copper prices is expected to usher in such a strong rise in 2011 prices. If both the crisis and the changing economic environment are taken into account, the changes in supply and demand in 2020-2022 are similar to those in 2009-2011. In 2009, when the financial crisis hit the global economy hard, global GDP growth bottomed out, while global refined copper production grew only-1.67 per cent. That was followed by a strong recovery from the 2010-2011 global quantitative easing and economic stimulus, which drove copper prices to record highs in 2011. By contrast, global GDP growth in 2020 was hit or hit a record low by the new pneumonia epidemic, while global refined copper production growth hovered around 0 per cent. But with vaccine development and a global stimulus plan in place, the Bank predicts a strong recovery in the global economy in 2021. As a rule of thumb, 2021 is on track for a strong 2011 rally.

In conclusion, we believe that 2021 global copper prices may benefit from a tight balance between supply and demand, especially 2021 will be more robust.

4 risks suggest global recovery is slower than expected. If the global economic recovery after the outbreak is slower than expected, or affect copper demand. Copper mine output grows faster than expected. If overseas copper mines are less affected by the epidemic than expected, there is a risk that the output of copper mines will increase more than expected. 

Source: Tongxinbao, Heqiao think tank

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