After a round of rally and consolidation at the beginning of the year, copper ushered in another wave of price increases in mid-April. London copper closed at $10720 on May 10th, setting an all-time high for copper prices. Looking back in history, the fluctuation of copper price is affected not only by industrial attributes, but also by financial attributes to a large extent, and this round of rise is no exception.

In terms of financial attributes, real interest rates on US bonds began to rise in early 2021, but returned to the downside briefly in late March. Due to positive factors such as short-term trading bearish factors, the rapid decline in the balance of the US Treasury's TGA account, and Japanese investors starting to buy large amounts of overseas fixed income assets, real interest rates on US bonds have fluctuated downward since late March and fell to-0.91% on May 10, the same level as in mid-February.

In terms of industrial attributes, the negative impact of the extremely cold weather on industrial production in March 2021 gradually faded, the growth rate of China's fixed asset investment improved significantly compared with the same period last year, and the US industrial output index also changed from negative to positive compared with the same period last year. The recovery of the global economy has strongly supported demand for copper, but the rebound in the epidemic in South America has caused some disruption to the production and transportation of copper mines. Chile's copper production fell 1.3 per cent in March from a year earlier and further announced border closure in April. Taking into account the differences in global vaccination progress, it is expected that the supply and demand of copper will remain in a tight balance in the short term.

At present, the global economic recovery continues, but copper production has not yet fully returned to normal, and the supply and demand of copper is still in a tight balance. Us bond interest rates briefly returned to the downside, creating a friendly environment for rising prices. It may be difficult to see a trend inflection point in copper prices in the short term. However, the fundamental pressure on copper in the third quarter may begin to ease with the release of incremental supply and the slowdown of economic recovery, refining costs may begin to pick up, and an inflection point in copper prices may follow.

On the supply side, global copper production will grow by 3.5 per cent in 2021, thanks to a return to normal copper production and the release of new capacity, according to ICSG. Supply may gradually recover around the third quarter, and the specific time node needs to pay attention to two factors. The first is the progress of vaccination in major copper-producing countries. Chile launched large-scale vaccination of the COVID-19 vaccine in February, but the vaccination rate in Peru is relatively slow, and it is uncertain whether mass immunization can be achieved in the second half of the year. The second is the commissioning time of the new / expanded copper mine. The main supply increments in 2021 and 2022 include Kamoa Kakula, in the Democratic Republic of the Congo (DRC), Quellaveco in Peru, Spence-SGO (already in production) and Quebrada Blanca QB2 in Chile, and Udokan, in Russia, of which Kamoa Kakula may start production by the end of May or early June this year. The first phase is expected to produce 200000 tons per year, accounting for about 1 per cent of the world's total output.

On the demand side, there is no turning point in industrial production and construction in China and the United States for the time being, but manufacturing PMI in both countries fell in April, and it is difficult for copper demand to expand further in the second half of the year. On the Chinese side, the second high point of China's economic recovery will occur in the second quarter, entering the downward phase in the second half of the year, and the demand for copper is relatively limited. At the same time, high copper prices have significantly suppressed the purchasing willingness of downstream enterprises. In the United States, combined with PMI and manufacturing employment, the recovery rate of the US manufacturing industry has begun to slow, while the service industry, which is still recovering rapidly, is very difficult to boost copper demand. Considering the industrial situation in China and the United States, we believe that the inflection point of demand may also occur in the third quarter.

Big data for the world's major economies. Consumer data are expected to be strong, while Euro-Japanese GDP may be slightly pessimistic. On the whole, the situation of being strong in the United States and weak in Europe will continue. It is worth watching whether market inflation trading will be put under pressure by rising bond yields. Commodities may fall into high volatility in the short term. It is expected that the next phase of London copper or test 10000 US dollars support, the domestic market post-holiday copper price or maintain test 73000 yuan first-line support.

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