In January, copper prices rose strongly, with the main contract for Shanghai copper rising 10.4 percent to 56,240 yuan per ton from 50,940 yuan per ton at the end of October, while LME copper rose above $7,500 per ton and rose above 50,000 yuan per ton after international listings. At current prices, it is technically past its 2017 peak.

1. Continued improvement in macro outlook

The severe situation of the disease has not changed, and the number of new overseas diagnoses remains high, but the research and development of vaccines are continuing to be good, and the market risk preference continues to rise. The signing of RCEP and the deepening of regional economic integration have the potential to boost economic recovery. The US election settled down, the overall economic data is good, the Fed's loose stance has not changed, or adjust its bond buying strategy, and continued to call for greater fiscal policy support. The European economy has been hit again by the epidemic, the service sector has declined significantly, the European Central Bank is expected to increase easing, but the progress of the recovery fund was blocked.

In 2019, China's total retail sales of consumer goods exceeded 40 trillion yuan for the first time, an increase of more than 42 percent compared with 2015, and will surpass the United States to become the world's largest retail market for consumer goods. Consumer price inflation has fallen below 2 per cent in September, and initial estimates suggest it will be in a reasonable range for the full year. Data from the China Banking Regulatory Commission showed that the total assets of China's banking sector increased by 10.6% in the end of October compared with the same period last year; Total liabilities increased by 10.8% compared with the same period last year.

China's industrial enterprises of scale and above posted profit of 642.91 billion yuan in October, up 28.2 percent year-on-year and up 18.1 percent from September. From January to October, industrial enterprises above the scale realized a total profit of 5,012.42 billion yuan, up 0.7 percent year-on-year. It fell 2.4 per cent in January-september.

Data from the Ministry of Finance showed that from January to October, the total operating income of state-owned enterprises ended the year-on-year downward trend and achieved positive growth. Total profits recovered to 90% of the same period last year In October, state-owned enterprise revenue rose 7.0 percent from a year earlier, total profit rose 52.5 percent, and after-tax net profit rose 62.7 percent from a year earlier.

In the first half of November, 11 key enterprises completed 1.612 million vehicles, up 9.6 percent year-on-year, with 1.379 million passenger vehicles, up 7.2 percent year-on-year, and 233,000 commercial vehicles, according to the China Automobile Association, yEAR OVER YEAR INCREASE OF 27.1% .

Overall, the economic situation is still poor, but investors risk appetite continued to rise, the market style switch obvious. At present, the loose monetary environment still exists, and the follow-up of fiscal policy is also likely to increase, the new cap vaccine promotion is getting closer, the international macro environment is improving. But our country economy movement is generally smooth, may continue to maintain the cautious optimistic situation.

2.the lack of fundamentals

In October, the domestic proficient output was 914,000 tons, up 5.4 percent year-on-year. The cumulative increase from January to September was 6.1 percent, up 0.3 percent from January to August. In terms of output, the recovery of domestic copper production has been accelerated, but the smelting cost is still low, which indicates the contradiction between smelting capacity and copper ore supply. With the gradual control of the epidemic situation, the production of copper mine will return to normal in the future, but the supply of copper mine is still insufficient.

China imported 1.69 million tons of copper concentrate in October, down 20.95 percent month-on-month and down 11.7 percent year-on-year. The cumulative increase was 0.74 percent year-on-year, down 1.5 percent from September. Imports of 421,700 tons of refined copper increased by 35.57 percent year-on-year, decreased by 16.63 percent month-on-month, and increased by 40.05 percent from January to September. Imports of unwrought copper also continued to grow at a high rate. With the weakening of domestic demand, imports of copper window closed, the number of imports continued to fall month-on-month. Due to the shortage of copper ore supply, refined copper imports still maintained high growth year-on-year.

From the inventory point of view, in addition to the bonded port inventory in the upward state, the LME and the previous designated warehouse inventory are in the process of debasement. This phenomenon is contrary to the feedback of weakening demand, and it can be inferred that the decrease of explicit inventory is accompanied by the increase of implicit inventory. It can be inferred that industrial capital is also bullish on the future of the copper market. From the demand data, at present, the demand of wire cable and air-conditioning for copper pipe is not strong, at present, the investment in the power grid is basically in a flat state, while the air-conditioning is still in a downward state, which leads to the two major downstream consumption of copper lack of bright spots. However, demand for copper in cars and real estate remains strong. Looking ahead, copper demand is expected to recover and grow as the auto industry recovers further, the peak of real estate completion comes and new infrastructure advances. 

Source: CITIC Capital Futures, editor-in-chief: Zhang Weixin