The copper futures squeeze has been steadily lifting the central price of copper. Against this backdrop, listed companies represented by Zijin Mining and Luoyang Molybdenum have not only seen an explosive performance in their earnings but also have entered an upward channel in their stock prices since the beginning of the year. Public and private funds that have bet on copper-related companies have also reaped substantial benefits, with both GaoYi and Hillhouse heavily investing in Zijin Mining.
"Copper" has initiated a new round of market movement.
On May 20th, COMEX copper futures continued to rise, reaching a historical high of 5.1990 at one point, outperforming gold and silver.
As the squeeze in the US copper futures market and the continuous rise in copper prices unfold, the A-share market has also been swept up in this fervor. The copper sector index surged by 6.26% in a single day, setting a historical high, with Zijin Mining's daily increase reaching 3.67% and its market value reaching 512.6 billion yuan.
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The skyrocketing price of copper has not only brought substantial profits to leading companies like Zijin Mining but also considerable returns for investors in the capital market.
US Copper Futures are "squeezed"
Last week, the COMEX copper futures market staged an epic squeeze.
Data shows that compared to the market position scale, the scale of warehouse receipts at the New York Exchange is relatively small. According to the research data analysis by CICC, COMEX copper inventory has dropped from nearly 30,000 tons at the beginning of April to 20,000 tons as of May 17th, with inventory at a low level. At the same time, the number of COMEX copper delivery brands is relatively limited, and the risk of a squeeze is high.
Perhaps influenced by this, COMEX copper futures once reached a historical high, with the main July contract closing at a price of $11,200 per ton last Friday, a weekly increase of over 9%.
On May 20th, copper futures prices in the global market continued to soar. COMEX copper futures once touched 5.1990, setting a new historical high, and the main contract price of Shanghai copper futures once climbed to 88,940.00 yuan, closing with a gain of 5.26%.Apart from short-term speculative factors, fundamentally, the tightening of supply and demand is the fundamental reason supporting the continuous rise in copper prices.
From the supply side, according to data from the International Copper Study Group, global copper mine production in 2023 is about 21.99 million tons, a slight increase of 0.2% year-on-year, significantly lower than the annual expectations of 3% and 1.9%. In addition, the decline in copper ore quality, environmental policies, and tense labor and government relations in major foreign copper-producing countries all lead to market expectations of a supply squeeze.
From the demand side, copper is known as the "mother of cycles," and the relationship between copper prices and the global manufacturing cycle is significant. When global manufacturing begins to restock, demand for core products such as automobiles, electronics, home appliances, and real estate chains often drives up copper prices. Moreover, new demands from energy transition and the information industry have increased the demand for copper.
Morgan Stanley stated in a report that with the rapid development of AI technology, copper demand will grow significantly, with AI data centers becoming a new growth point for copper demand. From 2024 to 2027, global AI data center copper demand is expected to increase from 200,000 to 500,000 tons per year in 2023 to 500,000 to 1.2 million tons in 2027, with a compound annual growth rate of 26%.
At the same time, the inflation data for the United States in April also shows a positive signal. Both the year-on-year and month-on-month data for CPI and core CPI are lower than expected, indicating a reduction in inflationary pressure. Under the expectation of a US dollar rate cut, the market sentiment for copper and other non-ferrous metals has been further boosted.
Regarding the future trend of copper prices, Goldman Sachs raised its end-of-year forecast for copper from $10,000/ton to $12,000/ton in its report, and the average annual price forecast from $9,200/ton to $9,800/ton, maintaining the forecast of an average of $15,000/ton in 2025.
However, the continuous rise in copper futures has also attracted warnings from some analysts. It is understood that John Caruso, Senior Market Strategist at RJO Futures, stated that although he "remains firmly optimistic about the price trend," he also "fully" acknowledges that copper prices are currently in an overbought area.
A-share non-ferrous metal sector stages a "double play by Davis"
The upward shift in the center of copper prices has also promoted the gradual release of profits for related companies, allowing the copper content to be directly converted into "gold content."
According to a research report by Huatai Fund, the copper sector achieved a revenue of 1.52 trillion yuan in 2023, with a net profit attributable to the parent company of 39 billion yuan, a year-on-year increase of 4.37%. In the first quarter of 2024, it achieved a revenue of 414.2 billion yuan, a year-on-year increase of 1.02%, and a net profit attributable to the parent company of 13.3 billion yuan, a year-on-year increase of 28.57%.Based on the classification by copper resource volume, the first echelon in China includes Zijin Mining, Luoyang Molybdenum, and China Minmetals, with Zijin Mining leading the pack at 73.72 million tons. Following are Luoyang Molybdenum with 30.79 million tons and China Minmetals with 11.62 million tons. The second echelon comprises Jiangxi Copper, Western Mining, Yunnan Copper, and Tongling Nonferrous.
Taking Zijin Mining as an example, the company's copper production reached 1.01 million tons in 2023, a year-on-year increase of 11%, making it the only enterprise in China to exceed the million-ton mark in copper production; it achieved a gold production of 67.7 tons, a year-on-year increase of 20%, which is nearly a quarter of China's gold production in 2023.
In the same year, despite the challenging market, Zijin Mining's performance grew against the trend, with the company reporting revenue of 293.403 billion yuan during the period, a year-on-year increase of 8.54%; the net profit attributable to the parent company reached 21.119 billion yuan, a year-on-year increase of 5.38%, and the net profit attributable to the parent company after deducting non-recurring gains was 21.616 billion yuan, a year-on-year increase of 10.68%.
In the first quarter, Zijin Mining's copper production reached 263,000 tons, and the net profit attributable to the parent company increased by 15% year-on-year to 6.26 billion yuan, setting a new high for the single-quarter net profit attributable to the parent company since the third quarter of 2022.
In addition to Zijin Mining, driven by copper prices, Luoyang Molybdenum's performance also grew rapidly. In the first quarter of this year, although Luoyang Molybdenum's operating income only increased by 4.15% year-on-year, its net profit increased nearly 5.5 times year-on-year, reaching 2.072 billion yuan, and the net profit after deducting non-recurring gains increased nearly 31 times year-on-year, with the net cash flow from operating activities reaching as high as 5.478 billion yuan.
Affected by the surge in profits, since 2024, the copper sector has also performed well in the capital market. As of the close on May 20, the copper sector index rose by 28.74%, far exceeding the performance of the broader market during the same period. Among them, Zijin Mining's increase reached 57.65%, with its market value repeatedly hitting new highs, reaching 512.6 billion yuan.
Compared with Zijin Mining, Luoyang Molybdenum's increase is even higher. As of May 20, the company's increase has reached 73.26%, ranking second in the copper sector, and its market value has also reached 193.7 billion yuan.
It is worth mentioning that in this stock price competition, Northern Copper, a company under the Shanxi State-owned Assets Supervision and Administration Commission, topped the list with a simultaneous increase of 123.8%. From the company's fundamentals, Northern Copper achieved significant growth in both operating income and net profit in the first quarter of 2024, with operating income increasing by 112.78% year-on-year and net profit increasing by 23.01% year-on-year.
Public and private funds "advanced" ambush
In fact, the continuous rise in copper prices has not only made listed companies "full of money" but also allowed a group of funds that have laid out in the capital market in advance to "eat enough".According to the data displayed on the Tiantian Fund website, heavily investing in non-ferrous metals primarily focused on copper has become the main reason for the outstanding performance of high-performing funds this year.
Specifically, among actively managed equity funds, in the top ten ranked funds, every fund except Hui Sheng Leading Selection Mixed A has copper-based non-ferrous stocks in its top ten heavy holdings. For instance, Jing Shun Great Wall Pillar Industry Mixed A, ranked third, has seen an increase of 31.25% so far this year. In its top ten heavy holdings, Zijin Mining ranks first, accounting for approximately 8.26% of the total scale; Tongling Nonferrous Metals ranks second, accounting for about 6.88% of the total scale; and Luoyang Molybdenum Industry accounts for about 6.13% of the total scale.
Overall, Zijin Mining has the highest total holdings of public funds, reaching 1.704 billion shares, with 507 funds holding shares. Among the holding funds, the largest is Huaxia SSE 50 ETF, with a single fund holding 276 million shares. Huatai BaiRui CSI 300 ETF and Yifangda CSI 300 ETF hold 178 million shares and 125 million shares respectively, ranking second and third.
In terms of increases, Zijin Mining has been the most increased by public funds, with an increase of 73.7062 million shares compared to the end of last year. At the end of the first quarter, Zijin Mining also promoted from the eleventh largest public holding at the end of last year to the fourth largest holding at the end of the first quarter this year.
Data shows that the Dongfang Hong Qiheng Three-Year Fund managed by Zhang Feng and Wang Zhuo increased by 24.6598 million shares, becoming the fund that increased Zijin Mining the most in the first quarter. The Dongfang Hong Qiheng Three-Year Fund also became the actively managed equity fund with the most holdings of Zijin Mining, surpassing Hua Shang New Trend Selection.
In addition, Zijin Mining also appeared in the quarterly report's heavy holding stock list of funds such as China Merchants Advantage Enterprise, Fuguo Research Selection, Zhong Ou New Trend, and Zhong Ou New Blue Chip.
Of course, in addition to public funds, private equity bigwigs are also deploying copper metals. The most eye-catching one is undoubtedly Gao Yi's Deng Xiaofeng. Deng Xiaofeng's Gao Yi Xiaofeng No. 2 Zhixin Fund and Ruijin Forty-Three Gao Yi Xiaofeng Investment Trust appeared in the top ten circulating shares of Zijin Mining for the first time in 2019, and participated in the private placement in the fourth quarter, obtaining 117 million shares at a price of 3.41 yuan per share.
At the end of the first quarter this year, its first heavy holding stock is still Zijin Mining, with a single stock holding market value exceeding 10 billion yuan. In addition, Deng Xiaofeng also heavily holds China Aluminum Industry over 1.7 billion yuan and Yunnan Aluminum Industry about 770 million yuan.
It is worth mentioning that when Zijin Mining's stock price soared in the first quarter of this year, Deng Xiaofeng reduced more than 88 million shares. In the first quarter, he also reduced about 73 million shares of China Aluminum Industry and 26 million shares of Yunnan Aluminum Industry.In contrast, funds under Hillhouse Capital significantly increased their holdings in the second quarter of last year and entered the list of the top ten shareholders of Zijin Mining. In addition, foreign capital also holds a bullish attitude, with Goldman Sachs International and UBS AG both newly entering the list of the top ten shareholders of Zijin Mining in 2023. The Middle Eastern "tycoon" Abu Dhabi Investment Authority also continued to increase its holdings in the second quarter last year.