Copper prices are not yet ready for turning

The Spring Festival season is not over yet, but the weak demand side has cast a veil on this year's Spring Festival. Recalling the trend of copper prices, the interval oscillation lasted for three months. From a time perspective, the Spring Festival will be a more important time node. Due to the fundamentals of supply and demand, the medium- and long-term bear market for copper prices may not be over yet. Does the market expect the Spring Festival market to provide phased support for copper prices?

The global copper market has continued its oversupply and the mid-term bear market is hard to change. As we all know, the relationship between supply and demand is one of the most important factors that affect the price of commodities. At the stage of oversupply, commodity prices are relatively weak; conversely, when supply is less than demand, commodity prices are stronger. The latest data released by the International Copper Research Organization (ICSG) shows that in October 2015, the global refined copper market had an oversupply of 2,000 tons, and in September it was a shortage of 15,000 tons. According to ICSG, the global refined copper market had an oversupply of 60,000 tons from January to October 2015, and a shortage of 485,000 tons during the same period of last year. The author believes that the impact of supply and demand will determine the long-term trend of copper prices. Judging from the current global economic recovery, due to the slowdown in China's demand growth, the copper supply surplus will continue to maintain, and the mid- to long-term bear market will continue. The short-term trend of copper prices cannot be defined as a turning point, and should be treated as a periodic rebound. Whether or not copper prices can turn their backs, we must pay attention to the demand factors in the latter period.

The Spring Festival market will form short-term support for copper prices. The author has found that over the past few years, the Spring Festival market has found that, in general, the start of the Spring Festival rally needs several key points:

First, there are no major risk events on the macro level. Since the end of 2015, the United States has entered a rate hike cycle. The macroeconomic side is relatively clear. The U.S. economic recovery, Europe is relatively flat, and China's growth rate is declining. However, this state has continued for some time, and macroeconomic fundamentals have not changed in the short term. The likelihood of recovery and rapid deterioration is small. The author believes that there is no obvious support and pressure on the macroscopic side.

Second, pre-holiday stocking is a prerequisite for the start of the market. Why is there a Spring Festival market? On the one hand, during the Spring Festival in China, the market is still closed, while the international market is still trading. On the other hand, most Chinese companies plan to do a new year before and after the Spring Festival. They will do spot purchases during this period, and the concentrated spot purchases will make the market short-term needs. With a rapid increase, there will naturally be stronger support for copper prices. If coupled with the rise in copper prices, then it can be said that the start of the Spring Festival market.

The author understands from the current spot market that although the current market has a large gap between the long- and short-term trend of copper prices, the copper price at this stage is still relatively recognized, and producers have a wait-and-see attitude toward the current copper price. Regardless of whether the market can start, due to weak demand, spot companies have insufficient confidence in the rise of copper prices, but they also believe that there is a limited price drop. Therefore, when the market declines, there will be funds to enter the market and the rebound atmosphere will be insufficient. The author believes that the willingness to stockpile before the holiday is not obvious, but the phenomenon of on-demand purchase is more common. Perhaps due to the Spring Festival holiday, short-term demand will increase slightly.

Third, capital is the main driving force for the market to start. As we all know, the first quarter is generally a relatively loose quarter of domestic capital, and the relative ease of capital on the one hand makes the company more liquidity, on the other hand, it also gives companies some confidence in the purchase of cash, so the capital side The good or bad is also the main factor that can start the Spring Festival market.

Judging from the current market conditions, China is in the middle of a rate-cutting channel, and the fund surface is slightly loose. Although the decline in market demand has led to a decline in the proportion of funds flowing into the real economy, but from the perspective of historical comparisons, the first quarter is still the most loose time period for funds, and copper prices will receive certain support.

Looking back at the end of the calendar year and the trend of the Spring Festival market, we can see that the spot price and the near-to-the-last spread are generally changing in several stages. In the stage before the Spring Festival, the price was lower, and the spot price was higher. The Shanghai copper fell by the spot support. Subsequently, the long-term prospects gradually favored, began to cover the spread, the near-term and long-term prices gradually the same, the Shanghai copper oscillation strong. The start of the Spring Festival market will generally be accompanied by a rise in linkages. The long-term trend is stronger than the recent trend. Before the high point appears, the trend is far higher and lower, and the spot price is in a premium. Judging from the current spot market, the near-to-the-term spread continues to cover, and it is currently in a state of near-low-high growth, with a small premium on the spot. The author believes that the next step in copper prices will continue to be strong and weak, and the trend of spot discounts will increase.

The author's statistics on copper prices before and after the Spring Festival since 2000 show that the probability of a rise in the week before the holiday is 62.5%, the probability of a high opening after the holiday is 81.25%, and the probability of a rise in the week after the holiday is only 43.75%. In other words, before the Spring Festival, it rose more or less in the festival, and the probability of falling back a week after the festival was greater.

To sum up, from the mid-to-long term trend, the current copper price does not yet have the conditions to turn around. Judging from this year's situation, the Spring Festival market is still possible, but all aspects of the factors can not bring strong support for copper prices. Therefore, I believe that the price of copper or short-term support due to the Spring Festival market can only be defined as a periodic rebound, the goal should not be too high.