Copper Mail No. 158 – March 26, 2018

The Aurubis Copper Mail informs you monthly about current trends on the copper market.

In focus

In March, many market participants watched Madrid closely, where a multitude of industrial representatives exchanged opinions regarding the latest trends and developments in the copper market at the 31st International Copper Conference. The development of supply and demand for refined copper in 2017 was at the similarly balanced level of the previous year, according to the International Copper Study Group. Despite a slightly lower copper price level in March, there were once again various announcements regarding investment in and expansion of mine capacities.


Economic situation

The OECD adjusted its growth forecast for the global economy in March. This now lies at 3.9 % for 2018 and 2019, similar to International Monetary Fund estimates.

The current month was marked by a possible trade dispute between the USA with Europe and China, which the copper industry also followed closely.

According to statements by Macquarie in March, China showed surprisingly good economic growth rates. In a year-on-year comparison, industrial production for January and February is said to have been at 7.2 %. For comparison: In December, growth still amounted to 6.2 %. Investments in equipment also grew by 0.7 percentage points to 7.9 %. The data for the months of January and February are traditionally published together, in order to cushion the seasonal influences of the Lunar New Year holiday in China. According to OECD, Germany’s GDP is expected to continue to grow solidly, with 2.4 %.


Copper  essentials

As specified in the most recent ICSG publication, December 2017 revealed a surplus of 17,000 t of refined copper, after a deficit of 41,000 t in November. For the whole of 2017, the ICSG sees a slight deficit of 163,000 t, which is thereby at the previous year’s level (prior year: 150,000 t).

According to an ICSG forecast survey from mid-March, the production capacity at mines is expected to grow by an average of approximately 2 % per year until 2021. Lower ore content would be compensated by mine expansions. In comparison, the study group anticipates an average increase in smelter capacity of around 3.5 % per year until 2021. Copper refining capacities are expected to gain approximately 3 % per year on average. In the future, China’s capacity expansion will proceed more slowly than before, according to the ICSG’s predictions.

According to Bloomberg, Tongling Nonferrous Metals advocates withdrawing older smelters from the market in China, in order to avoid overcapacities on the national smelter market. Atlantic Copper holds a similar point of view and points out that this would be a sensible step, particularly from an environmental perspective. Many of the older and smaller Chinese smelters would not come close to fulfilling the minimum environmental standards, as was stated in Metal Bulletin.

As reported by CRU, the local environmental authorities in Chile have approved Codelco’s plans for a seawater desalination plant. The capital expenditure of more than US$ 1 billion is expected to benefit the Chilean company’s mines in the north of the country, among them Radomiro Tomic.

According to Financial Review, signs are increasingly indicating that the Chinese mining company MMG will make an offer for Anglo American’s share of the Quellaveco copper project in Peru. MMG is focusing in particular on growth possibilities in South America and Africa, according to its own statements. The share of Quellaveco is estimated to have a value of approximately US$ 6.4 billion.

In China, demand for refined copper remains steady. According to statements by the Chinese research institute Antaike, in 2018 this is expected to increase by 3.3 % to around 11 million t. For comparison: 2017 growth amounted to 4.2 %. In the opinion of Antaike, China thus also still has a need for copper imports of close to 3 million t in 2018, as was reported by Platts.


•  Price trend

In March, the copper price mostly fluctuated in the range of between US$ 6,800 and 7,000/t and was thereby at a slightly lower level than in the previous month. Despite good economic data from China, the ongoing discussions regarding possible trade disputes, the prospect of additional interest rate hikes in the United States and the recently somewhat stronger US dollar appear to be prompting market participants to act more cautiously. After the LME settlement price once again briefly exceeded the US$ 7,000/t mark in the middle of the month, it was significantly weaker in the subsequent trading days. On March 23, this was at around US$ 6,680/t.


•   Copper raw materials

Supplies of copper concentrates were also satisfactory in March, according to statements by Metal Bulletin. In addition, there was some news regarding the talks between mines and trade unions.

In the course of wage negotiations at the Los Pelambres mine, the mine operator Antofagasta and the relevant union are in a mediation process at the end of the month, which is being led by the government. According to Berenberg Bank’s estimate, both sides are making an effort to avoid possible strikes.
BHP Billiton would also prefer the latter for its Escondida mine. According to statements by Reuters, the mining company called for early talks with the relevant union “Union 1” because the collective agreement expires in June. These should have actually only begun at the beginning of June. 

Bloomberg reported that the Collahuasi copper mine received the green light from the Chilean environmental authorities to ramp up daily production to 170,000 t from the current 136,000 t.

The copper scrap market was once again primarily impacted by news from China in March. As was already reported in previous issues of Copper Mail, the import ban on copper scrap has been in force since the beginning of the month. In this context, Reuters reported that Chinese market participants have increased their efforts to acquire scrap with a higher copper content outside of China. At the same time, a speaker from Jinrui Futures estimates that the People's Republic could double its domestic collection activities in the next seven years. He assumes that this will compensate for the loss of a portion of the scrap affected by the import ban – the so-called Category 7.


• Production

China’s production of refined copper continued to climb in the first two months of the year. Despite the Lunar New Year festivities, this was approximately 7.4 % higher than in the comparative period of the previous year. As was published by the National Bureau of Statistics (NBS), output was at 1,481,000 t for the corresponding period in 2018 – compared with 1,371,000 t in the first two months of 2017. This despite the fact that Jinchuan had to curtail production in February at its 400,000 t refining facility in the Gansu province after the failure of a power transformer, as was reported in Metal Bulletin.

At the beginning of March, ENP newswire reported that removal transport at the Oyu Tolgoi mine in Mongolia is once again proceeding as normal. In January, the Turquoise Hill mine operator had declared “force majeure”, which has been lifted since March 1. Despite the logistical restrictions that occurred at times, no production losses occurred, according to statements by the mine operator.

• Inventories

In March, inventories in the LME warehouses remained at the level from the end of February and were at around 320,000 t on March 23. Currently, around 45,000 t are booked for removal. In contrast to this, SHFE copper inventories increased significantly, which can be attributed to a good supply situation. After an increase of around 40,000 t, these were most recently at approximately 297,000 t. Close to 500,000 t were said to have been situated in the Shanghai bonded warehouse at the end of March. The volumes stored at COMEX warehouses amounted to around 232,000 t and were thereby slightly above the previous month.


• Product markets

According to a study by the German Institute for Economic Research (DIW Berlin), construction activity will also experience a significant upwards trend over the next two years. However, the long winter Europe is currently facing could have an impact on the construction sector, whereby postponement of projects may result.

The IKB Deutsche Industriebank predicts that physical demand on the global copper market will remain very robust. The bank considers branches such as electronics, the information and telecommunications industry and energy production to be the biggest drivers of increasing demand.
The industry association for the electrical industry ZVEI correspondingly reported that the German electrical industry began 2018 with a significant order increase of approximately 14.1 %. The orders are said to come from both Germany and abroad.

The automotive sector also remains an important customer for the copper sector. After a strong January, new car sales in February were slightly below the previous year’s level in the USA, Japan and China, according to the German Association of the Automotive Industry (VDA). For China, this can be explained chiefly by the Lunar New Year festivities. In February, new registrations in Europe experienced upward movement of around 4 % compared to the previous year, thanks to high growth rates for new vehicle registrations in Spain (+13 %), Germany (+7 %) and France (+4 %).

Your Contact

Christoph Tesch

Senior Manager Investor Relations Phone: +49 40 7883-2178 Fax: +49 40 7883-3130