Copper Mail No. 160 – May 31, 2018

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

In focus

Following a number of wage discussions between mines and unions in March and April, none of which ended with production downtimes, May was noticeably calmer on that front. Higher production figures in Chile and Peru fit this mood of cooperation. Both countries increased their concentrate output significantly in March. On the other side of the equation, ongoing smelter standstills in Asia started to affect the concentrate market in May. The combination of these events led to a three-month high for copper concentrate treatment and refining charges (TC/RCs). The short- to medium-term impacts of China’s announcement that it will tighten controls on scrap imports from the US remain to be seen.

 


Economic situation

According to the US Department of Commerce, the US economy grew by 2.3 % in the first three months, which was stronger than expected. The Chinese economy also remained robust in April, as reported by the German newspaper Börsenzeitung. The Chinese statistical office stated that industrial production during the month was 7.0 % higher than April 2017 (March 2018: +6.0 % over the previous year). Furthermore, the Chinese Purchasing Managers Index (Caixin Manufacturing PMI) improved to over 51 points.

The statistical offices Eurostat and Destatis reported that Germany grew somewhat more slowly than expected in Q1 2018, with an increase of 0.3 % in gross domestic product (GDP). This was due to a series of special factors, lower exports, and declining state consumption. Economists don’t believe the upswing is at risk, however. Spain and Austria developed well, with both recording a 0.7 % increase in GDP. Economists also view the upswing in the eurozone as intact overall, as the economy continued to grow vigorously in April. The Purchasing Managers Index PMI Composite persisted at the high level of 55 points, signaling continued growth.

The US dollar was stronger again throughout May due to the somewhat weaker growth rates in Europe. The US dollar ended the month at about US$ 1.17 in relation to the euro.

Copper  essentials

The International Copper Study Group (ICSG) published in May that it anticipates a slight surplus of 23,000 t and 86,000 t for the months of January and February 2018, respectively, for global refined copper production. In mid-May, moreover, the market achieved the latest forecast issued by the International Wrought Copper Council regarding supply and demand of refined copper. The IWCC expects a slight deficit of 270,000 t on the global market for refined copper in 2018.

In May, the large copper mining regions released positive production figures for the past few months. Peru, the world’s second largest copper producer, recorded an output boost in March 2018 – compared to March 2017 – of 5.8 %, to over 200,000 t, as reported by Platts. The country registered the strongest increases in production from the Cerro Verde and Antamina mines. Chile, the world’s number one producer, enhanced output by roughly 31 % in March 2018, to 488,000 t, according to information from Reuters and the news agency Cochilco. However, the low prior-year level due to the Escondida strike in 2017 should be kept in mind.

Reuters reported that China announced stricter import controls for scrap imports from the US in early May. From May 4 on, all scrap deliveries arriving in China by sea are to be opened and inspected. Additionally, from May 4 to June 4, the North American offshoot of the China Certification and Inspection Group (CCIC) is to cease its preliminary controls and stop issuing licenses for scrap shipments to China.

According to Bloomberg, BHP Billiton and the Spence Mine union agreed to hold talks about an extension of the wage agreement ahead of schedule, starting in mid-May. The wage agreement of the mine, which produced just around 200,000 t of copper in 2017, is still in effect until early December 2018.

        

        In May, the LME copper cash settlement moved slightly upward but was primarily between US$ 6,800 and 6,900. The current situation is difficult from a macroeconomic point of view, as robust global economic data continues to be pitted against ongoing threats of trade conflicts. The LME settlement price was US$ 6.870/t at the end of May, and therewith at the closing price level of April. At the American Copper Council Spring Meeting in Denver, analyst Edward Meir from the International Assets Holding Corporation said he expected a price between US$ 6,500 and 7,200/t for 2018 – provided that there were no significant strikes.

 

•   Copper raw materials

The supply of copper concentrates at most smelters continued to be good in May, which was partly a result of the current smelter standstills. In particular, the concentrate deliveries impacted by the Tuticorin smelter standstill led to a further improvement in TC/RCs in April and May from the perspective of the smelter industry. TC/RCs were at a three-month high in May, with contracts reportedly concluded at a level of around US$ 80/8, according to Metal Bulletin. The scheduled 35-day standstill at the Birla Dahej smelter in India could also influence the demand side.

The production start at the Pampacancha deposit in southern Peru should positively affect the supply side. The operator, HudBay, says the start-up will take place in the first half of 2019, according to Platts. At the same time, the Canadian company is waiting on the final approval for the production start at its Rosemont copper mine in the US state of Arizona. The production standstill at the Sierra Gorda mine, which came at short notice, likely hasn’t led to any large production losses. Reuters reported that production had to stop there after a serious accident took place in the middle of the month in the course of maintenance work.

Furthermore, there was no major news in May from the ongoing wage discussions between the mining industry and trade unions.

 

• Production

As reported in the last Copper Mail newsletter, the Tuticorin smelter in India is currently at a standstill and was forced to declare force majeure for concentrate deliveries. The situation is the result of ongoing demonstrations by local residents against Sterlite Copper’s plans to double the smelter’s capacity despite environmental concerns. Following violent riots with fatalities, the local government in India closed the smelter permanently, according to Reuters. The standstill currently affects prices for copper concentrate processing – due to the volumes that are freed up – as well as for sulfuric acid. The smelter belongs to Sterlite Copper, which is owned by the Vedanta Group. The 400,000 t/a facility accounts for 35 % of primary copper production in India and also exports to the Gulf region and Asia.

Glencore’s PASAR smelter in the Philippines is currently running at reduced capacity. The smelter, which has a capacity of 330,000 t/a, is undergoing maintenance work on the sulfuric acid facility at the moment. This is supposed to continue for the next 4 to 6 months. Force majeure was already declared back in January due to a technical defect caused by Typhoon Haiyan in November 2017.


• Inventories

Warehouse inventories developed differently in May but were high overall. Copper inventories in the LME warehouses decreased slightly in May. They were 24,000 t lower at the end of the month, for a total of 300,000 t. In contrast, the SHFE inventories rose again in May and were roughly 20,000 t higher at the close of the month, at a level of approximately 269,000 t. Comex inventories were about 250,000 t, the level of the previous month. The Shanghai bonded warehouse supposedly held roughly 510,000 t in late May.

 

 
• Product markets

The automotive industry is a key buyer of copper products:

In April, new car registrations rose by 10 % compared to the previous month, as reported by the German Association of the Automotive Industry. This was driven by strong growth in Spain (+12 %) and the UK (+10 %). Car registrations in France and Germany were also high, at plus 9 % and 8 %, respectively.

American Metal Market wrote in mid-May that Navigant Research forecasts copper demand for electric vehicle charging stations at roughly 560,000 t until 2027. The company indicated that moving towards electric vehicles would also necessitate significant infrastructure measures. Although only 1 to 2 % of vehicles sold worldwide are currently electric, Navigant Research expects that this proportion will grow to 14 % by 2027. The research company estimates that copper demand for charging stations will be at about 102,000 t in 2027. Today, this demand level is just 16,500 t. A reason for the high demand forecast is automakers’ trend towards high-performance charging stations with charging capacities of 320 kW, which require about 40 kg of copper each. The quantity is even higher for bus charging stations.

 

Your Contact

Christoph Tesch

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