Copper Mail No. 161 – July 02, 2018

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

In focus

In June there was some movement in the copper price. The short-term foray to levels above US$ 7,200 shows the nervousness of some market participants regarding possible effects from the ongoing wage negotiations surrounding the Escondida mine. This is in contrast to other wage agreements, including the Spence mine and a series of announcements relating to new copper projects. Combined with the current smelter shutdowns in India and the Philippines, the current good copper concentrate supply situation has recently led to increasing spot TC/RCs.


Economic situation

The developments in the ongoing trade disputes between the USA and China have not yet had a pronounced impact on the global economic outlook. Even though the World Trade Organization (WTO) sees early indications for a cooling down of global economic momentum, it nevertheless stands by its previous growth forecast. According to this, worldwide economic growth is expected to increase by 3.9 % in both 2018 and 2019. The institute reduced its estimates for Germany, and now anticipates growth of 1.9 % for 2018 (previously: 2.4 %) and 1.7 % for 2019 (previously: 1.9 %). According to statements by the Organisation for Economic Co-operation and Development (OECD), early economic indicators continue to point to overall stable growth in the member countries. This also applies for the USA, Japan, Canada, and China. For the eurozone, the organization expects a slight slowdown in growth at a high level.

In the meantime, the US dollar strengthened again in June and was at approximately US$ 1.16 against the euro at the end of the month.

Copper  essentials

In June, the International Copper Study Group (ICSG) announced that they expect a surplus of 143,000 t for global production of refined copper in the first quarter of 2018. With continued good copper concentrate supply from the mines, the approximately 3 % growth in the global market for refined copper was mostly attributed to higher capacities in China.

This is because China’s demand for refined copper is undiminished. As Macquarie Bank reported, imports of refined copper (incl. semis) have increased by 17 % to 2.1 million t since the beginning of the year compared to the previous year. Imports for copper concentrates also grew noticeably and, in the first five months of 2018, were – with 7.8 million t – approximately 4.5 % higher than the corresponding period in 2017. The bank expects that a portion of the increase will be used to compensate insufficient quantities of copper scrap, which are unavailable due to the ongoing import restrictions.

The steady demand is offset by a good supply situation: Chile stepped up its copper output significantly once again in April, by 6.4 %. As was reported by the state copper commission Cochilco, this was at nearly 450,000 t in April. From January to April, Chile was able to expand its production compared to the previous year by a total of 15.6 % to 1.86 million t. It should be noted that the previous year’s figures were negatively impacted by the Escondida strike in 2017.

There was news again in June regarding future mining projects and expansions:

Southern Copper plans to begin operations at its Michiquillay Mine in Peru significantly earlier than previously expected, as was reported by Reuters. The US$ 2.5 billion project is now anticipated to produce up to 225,000 t of copper annually beginning in 2022. Previously, a start of production was expected for 2025. The mine has a service life of more than 25 years.

According to Bloomberg, Freeport-McMoRan has received an important environmental permit from the government, which will allow production at the Cerro Verde mine in Peru to be expanded by up to 20 %. The measures combine so-called de-bottlenecking and further enhancements of the existing assets. Among other items, this includes the expansion of the concentrator facilities.

According to Metal Bulletin, the Chinese producer Aluminum Corporation of China (Chinalco) plans to expand the annual capacity of its Toromocho mine by up to 45 % in 2020. Chinalco will invest around US$ 1.3 billion in this.



Price trend

In June, the LME copper price (cash settlement) was characterized by high volatility. After the price was at around US$ 6,800 at the beginning of the month, by mid-month it rose to a level of more than US$ 7,200 before it fell again at the end of the month to the level from the beginning of the month. The copper price was thereby temporarily quoted at the highest level of the past four years. According to Reuters, the strong increase in price was especially attributed to the nervousness of individual market participants regarding an impending strike at the Escondida mine.


•   Copper raw materials

In June, the copper concentrate supply situation for the smelter industry continued to be very good. The ongoing Tuticorin smelter shutdown and the concentrate deliveries affected by this had a positive impact on freely available volumes.

According to information from S&P Platts, the spot prices for processing copper concentrates (treatment and refining charges) have recovered noticeably for Chinese smelters. These were most recently at between US$ 81-87/t or 8.1-8.7 ¢/lb. Some transactions even took place at a level of US$ 88/t or 8.8 ¢/lb. For comparison: In April, transactions were still at spot prices of around US$ 70/t or 7.0 ¢/lb. A major reason for the pronounced increase in price was, according to S&P Platts, high volumes of freely available concentrates and limited purchasing activity on the smelter side.

According to Metal Bulletin, the China Smelters Purchase Team has not set a buying floor for Q3 2018 for the first time in more than 15 years. However, it currently expects – according to statements from the information service – TC values of more than US$ 90/t on the market. For the second quarter 2018, it had agreed to a buying floor of US$ 78/t or 7.8 ¢/lb.

A new three-year collective agreement for BHP Billiton’s Chilean Spence mine was reached early, as was reported by Reuters. The trade union accepted the company’s combined offer of a one-time payment of around US$ 22,000 and a wage increase of 2 %. The Spence mine produces nearly 200 kt of copper annually.

Many market participants are watching the Escondida mine wage negotiations with keen interest; these have been in progress since the beginning of June. According to CRU, the largest trade union “Union No. 1” is calling for a wage increase of 5 %, in addition to a one-time payment of US$ 34,000.

Codelco’s plans to convert its Chuquicamata open-pit mine into an underground mine are running into resistance from four of the six trade unions, as was reported by Reuters. The underground mining would most likely be accompanied by a reduction in the workforce. Chuquicamata is Codelco’s second-largest copper deposit, measured by output, and produced around 330,000 t of copper in 2017.


• Production

The current shutdown of Vedanta’s Tuticorin smelter, which has an annual production capacity of 400,000 t, is beginning to have an impact on the processing industry. As Reuters reported, Indian manufacturers of electronic goods are having to obtain copper from abroad more and more frequently. Since this normally occurs at higher prices, it could lead to an overall price increase for a variety of electronic products in India. India consumes approximately 1.5 million t of refined copper annually. Half of this is manufactured by two domestic copper producers, Vedanta Ltd. and Hindalco Industries. One market participant expects additional copper imports of 200,000-250,000 t this year, according to Reuters.

As Macquarie reported, the Chinese government began a new round of inspections of the Chinese smelter industry in June. In doing so, the authorities are verifying whether the smelters are complying with existing environmental standards in China. Production cuts (blister) in Jiangxi province are expected to result from this.

Furthermore, a smelter shutdown took place in China’s Henan province. A 110,000 t unit at Yuguang Gold & Lead had to halt production due to problems with the oxygen system, as was reported by Metal Bulletin. During the 40-day repair shutdown, the smelter had to purchase blister and anodes in order to be able to provide for its electrolysis.

• Inventories

Inventories in warehouses worldwide declined slightly in June, but remained at an overall high level. Around 500,000 t were situated in the Shanghai bonded warehouse at the end of June.

• Product markets

The automobile industry is an important buyer of copper products:

In May, new passenger vehicle registrations in the EU persevered at the current good level compared to the previous month, as was reported by the European Automobile Manufacturers’ Association. Compared to April, registrations increased by 0.6 % to 1.44 million vehicles. The slight growth was particularly supported by countries such as Spain and the UK, where new vehicle registrations increased by 7.2 and 3.4 % respectively. According to the manufacturers’ association CAAM, the Chinese automobile market performed even better. Here, the number of new registrations grew by almost 10 % in May compared to the previous month. In addition to sales of conventional vehicles, sales figures for electric vehicles also increased. In May, these were at around 102,000 vehicles, which corresponds to a market share of 4.5 %. The Chinese government plans to bring approximately 2 million e-vehicles to the market by 2020.

In line with this, a current study by the German-Chinese research team under the leadership of the Fraunhofer Institute for Systems and Innovation Research ISI comes to the conclusion that China’s per capita consumption of refined copper has increased eightfold since 1990. In concrete terms, China’s per capita copper inventory of approximately seven kilograms in 1990 rose to almost 60 kilograms in 2015. At the same time, copper imports increased by around 650,000 t/y to almost 10 million t/y. At around 1.4 million t, a large portion of Chinese copper imports consist of scrap. On the other hand, copper exports mainly comprise intermediate goods and products.


Your Contact

Christoph Tesch

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

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