20141107-美银美林-Copper_and_global_growth_momentum_21页_1mb

Summary of "Copper and global growth momentum"

Core Content

The document discusses the dynamics of the global copper market in early 2015, focusing on the interplay between macroeconomic conditions, supply and demand fundamentals, and market sentiment.

Main Points

• Copper Market Performance:
  After a strong rally in 1H14, copper prices faced headwinds due to a slowdown in global growth momentum. However, signs of stabilization in global growth, especially from emerging markets like China, suggest a more positive outlook for 2015.

• Global Growth Dynamics:
  Emerging markets, including China, are leading the stabilization of global economic activity. The developed world, particularly Europe, showed signs of steadying growth, while the US and UK maintained firm conditions. The BAML GLOBALcycle indicator improved in late 2014, suggesting global GDP growth of around 3.5% in early 4Q.

• China's Impact on Copper:
  China, a major driver of copper demand, has been a drag on prices year-to-date due to destocking and aggressive economic reforms. Despite this, there are signs that the destocking phase is ending, and the government may introduce more fiscal and monetary stimulus to support growth.

• Supply and Demand Balance:
  Copper demand is more evenly distributed between China and the rest of the world. While mine supply is increasing, it is not expected to cause a significant glut. The document forecasts a small deficit in 2014 and a balanced market in 2015.

• Inventory Levels and Premia:
  Copper inventories are low globally, and this is reflected in stable or slightly increasing premia. The low inventory levels suggest that the market is not oversupplied, and there is potential for prices to rise as demand stabilizes.

• Tactical Trading Opportunity:
  Given the stabilization of global growth and the end of China's destocking, the document advocates for a tactical long position in copper, expecting prices to rise above $7,000/t ($3.18/lb) into the first quarter of 2015.

Key Information

Demand Forecast

• 2015 Demand Growth: Expected to expand by 4.1% YoY.
• Demand Balance: More evenly spread between China and the rest of the world.
• China's Refined Imports: Expected to fall by 10% in FY 2015 due to increased domestic production and reduced imports.

Supply Forecast

• Mine Production: Expected to grow at 3.3% YoY in 2015.
• Global Production: Projected to increase from 21,081,000 tonnes in 2013 to 23,610,000 tonnes in 2015.
• Supply Glut Risk: Low, with the market expected to remain balanced or slightly in deficit.

Inventory Levels

• Global Copper Inventories: Projected to increase slightly from 982,000 tonnes in 2014 to 997,000 tonnes in 2015.
• Weeks of Consumption: Expected to rise from 5.4 weeks in 2014 to 7.4 weeks in 2015.

Price Forecasts

• Copper Prices: Expected to rise from $6,869/t in 2014 to $6,939/t in 2015, with a potential rally into 1Q15.
• LME Cash Prices: Projected to increase from $6,660/t in 2014 to $6,939/t in 2015.

Market Analysis

• Codelco's Role: Codelco is looking to rollover annual premia, indicating a potential for increased copper purchases.
• Macroeconomic Factors: The document suggests that macroeconomic headwinds are subsiding, which should support copper prices.
• Government Policy: The Chinese government may increase strategic stockpiles, but the private sector's restocking is uncertain due to lack of growth visibility.

Risks and Drivers

• Downside Risks (D):

  • Continued destocking in China.
  • Recovery of global demand subsiding.
  • Increased re-export of copper from China.
  • Structural slowdown in China's economy.
  • Lower demand from the auto industry.

• Upside Risks (U):

  • Improved confidence leading to restocking.
  • Continued production disruptions.
  • Stronger than expected demand growth.
  • More aggressive monetary policy support.

Conclusion

The copper market is expected to remain range-bound in 2015, with a small deficit anticipated. The document suggests that copper is a tactical trade opportunity, with potential for a rally into 1Q15 due to improving macroeconomic conditions and a stabilization of China's economic activity.