Limited interest rate increase, copper price is expected to rise

In the context of the U.S. over-expected recovery and improvement of market expectations, LME copper prices successfully exceeded the 10,000 US dollar mark during the Spring Festival. On February 8, 2011, the People's Bank of China announced a rate hike of 0.25 percentage points. Combined with the continuous rise of the US dollar index, the LME copper price closed below $10,000 for three consecutive days. The era of the yuan price of copper is just a flash in the pan, or just embarked on the journey? We believe that the increase in interest rates in China has limited impact on the supply of copper. Although the U.S. dollar index has risen, the U.S. economic recovery is one of the main reasons. The negative impact on the copper price is not significant. Through recent research on copper processing companies, orders from Chinese terminal consumer companies have grown rapidly, indicating that China’s copper consumption is still strong. We believe that the copper price has just embarked on the journey of the yuan era and is expected to surge in the short term. The impact of China's interest rate hike is limited. The People's Bank of China announced on February 8, 2011 that since February 9, 2011, the benchmark interest rates of financial institutions have been raised by 0.25 percentage points each. This is the first interest rate hike by the Central Bank in 2011 and the third interest rate hike by the central bank in four months since the central bank started the interest rate hike in October 2010. The impact of China's interest rate hike on copper can be divided into two aspects: The direct impact is to shrink liquidity and reduce the flow of investment funds into copper and other commodities; the indirect effect is to cool down the Chinese economy and thus reduce China's copper consumption.

Copper is a variety of global pricing, and its price trend generally revolves around the expectations of global economic recovery and the direction of global monetary policy. The U.S. dollar, currently the world’s major settlement currency, is still in an expansion phase. The prospect of economic recovery in the United States is gradually clear. However, the high unemployment rate and low inflation rate will allow the United States to continue its quantitative easing monetary policy, and global liquidity is still abundant. The shrinking currencies of emerging developing countries represented by China have limited impact on the global liquidity situation. Therefore, we believe that the impact of the reduction in investment funds caused by China's interest rate hikes is limited. The interest rate increase is expected. The main purpose of raising interest rates is still to ease negative interest rates and curb inflation. The CPI has been higher than 4.5% since the end of last year, and interest rate hikes are in line with inflation management considerations. The possibility of raising interest rates again before the introduction of macroeconomic data in February after the rate hike is unlikely, as evidenced by the PMI data in recent months. In the four months since the interest rate cycle, PMI data reached 55.2 in November 2010, and was then adjusted back to 53.9 in December 2010 and 52.9 in January 2011. For the sake of economic growth, we believe that the government's subsequent interest rate hike has slowed down, unless the CPI data for February 2011 is still a record high. End-user consumption is still strong We recently communicated with copper companies. Copper and enameled wire companies report that air-conditioning companies are preparing for the 2011 enthusiasm for last year’s hot sales, and large-scale domestic air-conditioning manufacturers have significantly increased their production capacity. Competing to launch a new production line, in 2010 a large air-conditioning production company will use about 120,000 tons of copper, and in 2011 it is estimated that it will increase to 150,000 tons. With the amount of enameled wire used, it is expected that the amount of copper used in 2011 will reach 200,000 tons. the above. In addition, due to the increase in the national grid investment, large-scale household appliances companies and wire and cable companies have rapid expansion of production capacity, and their demand for copper rod wire is still strong. The demand for copper rods in Guangdong alone is approximately 700-800,000 t/year, and the growth rate is faster. Copper companies from their downstream orders in terms of copper demand for terminal companies to learn more reference for us more meaningful, with end-consumer production data, I believe that China's terminal consumption is still strong.

According to our exchanges with spot dealers, the Chinese copper market's eagerly accommodating the library before the Spring Festival did not appear. This is inconsistent with the PMI breakdown. Observing the PMI sub-item data in recent months, we can see that raw material inventory started to accelerate in November 2010, and finished product inventory has a tendency to turn down. The latest data is 47.9, which is less than 50. Finished goods inventory is sharply increased in the most recent two months. The reduction is related to the traditional peak season before the Spring Festival. Copper as one of the main raw materials did not appear to significantly compensate banks, and the high price of copper prices was the main reason. The relevant companies in the copper industry chain were mainly based on demand procurement. However, once the market accepts high prices, especially after the LME copper price has stabilized at the psychological level of 10,000 US dollars per tonne, the market supplementation will further push up the price of copper metal. Copper companies will increase their willingness to scrap copper The current deductions for China's No. 1 Bright Line and Changjiang River's cash are as high as RMB 10,600/t, and the deduction rate is as high as 14.29%. Except for copper foil processing fees of 2 to 30,000 yuan/t, most other copper materials companies have processing fees below 10,000 yuan/t. Deductions of over RMB 10,000 are undoubtedly a temptation for copper processing companies with low processing fees. Most copper processing companies are keen to replace refined copper with scrap copper for production.

The stagflation of scrap copper does not mean that it does not follow up. Currently, a considerable portion of consumers of refined copper are turning to scrap metal. Therefore, we believe that the reduction in scrap copper will be reduced. There are two ways to reduce the number of scrap copper deductions. One is that the price of refined copper has fallen, the price of scrap copper has stagnated, which has narrowed down the reduction of scrap copper; another way is that scrap copper has received a lot of consumer interest due to its price advantage. After holding the price up, so as to narrow the scrap copper deductions. At present, the copper market is still in a state of supply shortage and it is vulnerable to ups and downs. We believe that there is a high possibility that scrap copper will increase. Consumers who turn to use scrap metal will return to the refined copper market and thus support copper prices again. high. In addition, we reiterate the arbitrage tactics mentioned in the previous paragraph “Buy Copper Scrap Copper”. Summary: China's interest rate hike has little effect. It is difficult for the US dollar index to move upwards to suppress copper prices. China's copper consumption is still strong. The shrinkage of scrap copper deductions may push up copper prices. Based on the above reasons, we believe that LME copper price has just begun in the era of million yuan, the short-term target price is 10,300 US dollars / t, after breaking 10,300 US dollars / t after the target price of 10,500 US dollars / t, the support price at 9900 US dollars / t.