After the continuous rise of copper price in 2020, the copper price of 2021 has received much attention. At present, there are two main concerns about the core of copper smelting in the market: one is the post-epidemic cycle, under the environment of improving supply and demand of raw materials, and the other is the post-epidemic period, changes in the smelter's Capacity utilization; and the timing of the 2021's new capacity coming on stream. In addition, countries around the world are paying more attention to carbon emissions.

1. The profit window for domestic smelters opens

2021, according to the initial estimation of the new copper smelting capacity, the output is expected to increase by 130,000 ~ 150,000 tons. Considering the slow progress of some projects, the neutral forecast output growth may be about 100,000 tons. Chifeng's Golden Sword Project added 200,000 tonnes of production capacity in October 2020, with an increase of 150,000 tonnes expected from 2021 production. Overall, the 2021 and China's new and creeping production capacity is expected to increase by about 250,000 tons.

Affected by the periodic shortage of copper mine, the processing fee of domestic copper concentrate dropped to a historical low, the long-term co-price TC was 62 US dollars per ton, the profit of processing fee of domestic smelters contracted obviously, and the release of marginal production capacity was blocked. Recently, China Copper, Tongling nonferrous metals, Jiangxi Copper, Jinchuan Group and Freeport agreed to 2021 TC at $59.50 per ton, down from the 2020 level, we consider the progress of mine recovery in the first half of 2021 affected by the epidemic, and we also refer to the operating range of the spot TC in 2020. Based on the domestic copper concentrate supply and demand balance forecast of 2021, the spot price of copper TC will gradually rise in 2021, it is expected that the first half of the 2021 TC will increase to more than $55 per ton, 2021 $59.5 per ton. On the whole, smelters'profits from the increase in processing fees will improve, but there is still little room for improvement.

In the first half of 2020, affected by the epidemic situation, the contradiction between the supply of and demand for sulphuric acid in China worsened sharply, and some smelters even expanded their tanks and passively reduced their production load. However, after the epidemic situation weakened, the treatment of external sulphuric acid by smelters improved significantly, the sulphuric acid constraint on production is weakened. The situation of excess supply and demand of domestic sulphuric acid is difficult to resolve, because the demand is at the bottleneck and the supply continues to increase. But now, in the post-epidemic period, terminal demand will gradually recover, and overseas production will be affected by the epidemic, and part of the demand will be transferred to the domestic market. This has boosted terminal demand, especially in the chemical fiber, titanium dioxide and other industries, this has created the condition for the sulfuric acid price to stabilize the recovery. The recovery cycle of demand for sulfuric acid downstream, I believe, can last at least until 2021. Due to environmental protection and other factors, the supply of potential interference is not small, for smelting acid, sulfur price rise, for smelting acid instead of sulfuric acid has created an opportunity, therefore, 2021, sulfuric acid prices in some regions will continue to pick up trend. Sulphuric acid export prices are also expected to rebound on the back of a recovery in overseas demand, which will create better conditions for smelters to improve profitability.

To sum up, the profit improvement window for copper smelters has already begun, with a conservative forecast that domestic refined copper production will increase by 400,000 tons 2021, of which new and creeping production capacity is expected to increase by 250,000 tons, inventory Capacity utilization is expected to increase by 150,000 tonnes, including reduced maintenance intensity and some marginal capacity recovery. In the medium term, the current round of capacity expansion of domestic smelters (2018 ~ 2022) may be coming to an end, with resource bottlenecks, profit constraints, environmental restrictions and so on creating greater resistance to capacity expansion, some projects that have not yet been built may eventually be abandoned, and the 2023 and later domestic smelting capacity will gradually enter the platform period.

2. Limited growth in new overseas smelting capacity

n the big cycle, overseas smelters are emerging from the 2019 slump, and the outbreak has merely slowed the pace of output repair. From the point of view of enterprises and from the 13 major overseas refined copper production enterprises tracked, it is conservatively estimated that the refined copper production will increase by 50,000-100,000 tons in 2020 compared with the same period last year. Among them, the direct impact of the epidemic situation is estimated to be 280,000-320,000 tons, overseas smelters are likely to produce 330,000-420,000 tonnes of refined copper in 2020, roughly matching 2018 production levels. Inventory projects can produce as much as 2021.

In terms of sub-projects, the quake-induced flash furnace overhaul at Rio Tinto's smelters will be completed by the fourth quarter of 2020, with a modest increase in the 2021 and a gradual recovery of the smelters at Glencore and Aurubis from accidental disruption. In terms of countries, Chile, India, Japan and other 2021 have room to continue to repair production, depending on changes in profitability and on containment. In terms of profitability, there is a high probability that 2021's overseas smelters will see higher processing fees and better by product revenues, but there are variables in overseas containment. On the whole, the author thinks that the elasticity of overseas refined copper stock restoration is estimated to be 200,000 ~ 400,000 tons.

Zambia and parts of Africa have benefited from Chinese investment and are still in the capacity release cycle, with new and 2021 production expected to increase by 10,000 to 30,000 tonnes. In the medium term, freeport plans to expand its copper capacity in Indonesia, with production expected by 2024. So, conservatively, the increase in overseas production is expected to be about 20,000 tons. Combined with the incremental recovery, 2021's overseas refined copper production is expected to increase by 320,000 tons.

3.Conclusion and reflection

In the future, the supply of copper concentrate will tend to be loose, the smelting processing fee will gradually rise, and the price of sulfuric acid will rebound in stages, so there is still room to improve the profits of smelters. The author predicts that global refined copper production by 2021 will increase by 720,000 tons, of which domestic refined copper production will increase by 400,000 tons and overseas refined copper production will increase by 320,000 tons.

In the medium term, the current round of capacity expansion of China's smelters (2018-2022) may be coming to an end, with resource bottlenecks, profit constraints and environmental restrictions creating more resistance to capacity expansion. Few overseas smelters capacity expansion, Indonesia smelter capacity expansion project completion time is uncertain, the future of global copper smelting capacity will gradually appear bottleneck.

At the transaction level, overseas smelters and domestic marginal capacity are relatively sensitive to profit improvement, and the pace of this capacity release has a greater impact on overall supply. The core problem is still the timing, which is limited by raw materials on the one hand, and by objective constraints, such as disease control, on the other.

The pressure of excess supply and demand of sulphuric acid is still great. However, the impact of the epidemic on the domestic market has gradually weakened, and the demand for sulphuric acid has improved in the short-term due to the improvement of terminal demand stage.

 Source: Non-ferrous metal

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