China's copper consumption accounts for half of the world's total. In June this year, China's factory activity has grown rapidly since December 2019. China's shift to renewable energy systems is likely to be a major driver of copper demand growth. Novel coronavirus pneumonia hit a strong rebound in China after hitting a 11 year low in March. Copper has recovered 50% of its losses after a brief break below 2 US dollars / pound.

    [demand up and supply down]

    China's manufacturing and construction industries consume about half of the world's copper. China novel coronavirus pneumonia stopped production in the early 2020, but the two industries have been recovering strongly. China's factory activity in June has been growing rapidly since December last year.

    China's imports of unwrought copper rose by 50% month on month in June, reaching a record 656483 tons, more than double the import volume in the same period of 2019. Although China novel coronavirus pneumonia is interfered with, the total copper imports in China in the first 6 months of 2020 still amounted to 2 million 840 thousand tons, up 25% over the same period last year.

    Copper prices are also supported by supply factors. The novel coronavirus pneumonia continues to rampant in Chile and Peru, the two largest copper producers in the world. Peru's copper production fell 42% in May, while Chile's state-owned Copper Company Codelco temporarily closed its major smelters and refineries and suspended construction of its flagship mine.

    [manufacturing and infrastructure are the main consumption areas]

    China's strong demand for copper is expected to continue, driven by government stimulus measures. To help China novel coronavirus pneumonia in manufacturing industry, the Chinese government has implemented a tax-free preferential policy for manufacturers and reduced the loan interest rate.

    The 2020 work report of the Chinese government pointed out: further improve the efficiency of allocation and utilization of financial resources, accurately guarantee and support tax reduction and fee reduction, rent reduction and interest rate reduction, expansion of consumption, advanced manufacturing, people's livelihood construction, infrastructure investment and other key areas, so as to provide funds for the implementation of the "six guarantees" task. In 2020, China will issue special bonds worth 3.75 trillion yuan to finance infrastructure projects, an increase of 1.6 trillion yuan compared with that in 2019. Manufacturing and infrastructure are the main consumption areas of copper.

    Copper has long played an important role in China's economy. At present, China is the largest copper importer in the world, accounting for 43% of the world's copper imports, more than three times that of Japan, which ranks second.

    The use of copper in China is driven by the fact that it is the main raw material for manufacturing and construction industries, and some measures being taken by the          Chinese government are expected to further increase copper demand.

    [renewable energy demand or surge]

    China's shift to renewable energy systems is likely to be a major driver of copper demand in the future. Due to its low resistance, copper is a non precious metal conductor. This feature makes it an important part of energy-saving generator and renewable energy system. The copper consumption of solar and wind power devices is larger than that of traditional thermal power generation units.

    According to a study by the International Copper Association (ICA), global copper demand for solar and wind systems is expected to increase by 56% by 2027 compared with 2018. Although ICA does not provide individual country data, it forecasts that China will continue to dominate annual wind turbine installation.

    China's National Energy Administration (NEA) announced that the new subsidies for offshore and onshore wind farms will end sometime in 2020 and 2021 respectively, and the advance of the projects will lead to a surge in copper demand in the short term.

    [more areas will increase consumption]

    Electric vehicle production is also expected to boost copper consumption in China. Copper is an important part of electric vehicle, which is used for battery, winding, copper rotor, wire laying and charging infrastructure. The average copper consumption of ordinary electric vehicles is 83 kg, almost four times that of traditional vehicles.

    In recent months, China's electric vehicle sales have been sluggish due to the new crown epidemic and reduced government subsidies. But as part of the "made in China 2025" plan, China has the confidence to become a leading electric vehicle manufacturing center by 2025. This will further support copper demand.

    In fact, the Chinese government has proposed the "made in China 2025" plan, which aims to improve China's manufacturing process and produce higher value products. This has a profound impact on copper. More efficient devices tend to use more copper. According to ICA data, it is estimated that by 2025, "made in China 2025" plan will increase China's copper consumption by 232 thousand tons.

    Copper consumption is expected to increase in many areas, including high efficiency industrial motors and distribution transformers, electrification of new railways and new energy vehicles for industry.

    [Comex copper futures position changes]

    Affected by the copper price rebound, Comex copper futures position from large-scale net short position to large net long position. In the medium and long term, the importance of copper in China's economy will support copper prices.

    As the world gets rid of the new epidemic, China's demand for copper is increasing, and market participants' demand for hedging copper exposure will be more intense. Moreover, we can judge whether the global economic growth is accelerating or slowing down from the wide use of copper and the unique demand pattern.

    Source: futures daily

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