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GFMS COPPER SURVEY 2014
UPDATE
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GFMS COPPER SURVEY AND ITS UPDATE
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© 2014 Thomson Reuters. 1006308 03/14.
1006308_v2.indd 1
14/03/2014 16:49
GFMS COPPER SURVEY 2014
UPDATE
BY:
Rhona O’Connell, Head of Metals Research and Forecasts
Bruce Alway, Manager, Base Metals Mining
Andrew Leyland, Manager, Regional Demand
Ross Strachan, Manager, Regional Demand
Karen Norton, Senior Analyst
Duncan Chan, Senior Analyst
Roger Sun, Analyst
Wenyu Yao, Analyst
Dante Aranda, Analyst
Gregory Rodwell, Analyst
Beverley Salmon, Customer Relationship Manager
PUBLISHED OCTOBER 2014 BY THOMSON REUTERS
The Thomson Reuters Building, 30 South Colonnade
London, E14 5EP, UK
E-mail: [email protected]
Web: https://thomsonreuterseikon.com/markets/metal-trading/
ISBN: 978-0-9928402-6-6 (Print)
ISBN: 978-0-9928402-7-3 (Online)
ISSN: 2055-1770 (Print)
ISSN: 2055-1789 (Online)
TABLE OF CONTENTS
1. Summary and Outlook
4
• Production 5 • Consumption 7 • Price and Market Outlook 10
2. Mine and Refined Production
11
• Mine Production 11 • Production Costs 13 • Refined Production 18
3. Consumption
21
• Mature Economies 21 • The BRICs 25 • Rest of the World 28
FOCUS BOX
• Copper Miners Face Cost Challenges as Ore Grades Fall, Impurities Rise
16
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FORTHCOMING PUBLICATIONS
• GFMS GOLD SURVEY 2014 UPDATE 2: January 2015
• GFMS COPPER SURVEY 2015:
April 2015
• GFMS GOLD SURVEY 2015 :
April 2015
• WORLD SILVER SURVEY 2015:
May 2015
• GFMS PLATINUM & PALLADIUM SURVEY 2015:
May 2015
NOTES
UNITS USED
Throughout the Copper Survey, “tonne(s)” refer(s) to “metric tonne(s)”, being equal to 1,000 kilogrammes. Where
conversions to and from figures quoted in pounds (lb), the following was used:
1 tonne = 2,204.62 lb
• Figures throughout the report are rounded to the nearest thousand tonnes, except where further accuracy is required.
• Throughout the tables, totals may not add due to independent rounding.
PRICES
Unless otherwise stated, US dollar prices and their equivalents refer to LME 3-month prices.
TERMINOLOGY
“-”
Not available or not applicable.
“0.0”
Zero or less than 0.05.
“dollar” US dollar unless otherwise stated.
End use consumption definitions:
“Building Construction”
Building Wire; Plumbing & Heating; Air Conditioning & Commercial Refrigeration; Builders Hardware; Architectural.
“Electrical & Electronic Power Utilities; Telecommunications; Business Electronics; Lighting & Products” Wiring Devices.
“Transportation Equipment”
Automobile, Truck & Bus; Railroad; Marine; Aircraft & Aerospace.
“Consumer & General Appliances; Cord Sets; Military & Commercial Ordnance; Consumer
Electronics; Fasteners & Closures; Coinage; Utensils & Cutlery; Miscellaneous.
Products”
“Industrial Machinery In-Plant Equipment; Industrial Valves & Fittings; Non-Electrical Instruments; & Equipment”
Off-Road Vehicles; Heat Exchangers.
ACKNOWLEDGEMENTS
In addition to relevant publicly available data and data from key industry bodies, many of the estimates shown in this Copper
Survey as well as our analysis of production, consumption and investor activity, have been based on visits to key markets and
discussions with local producers, consumers, traders and other institutions active in copper. We are grateful to all of them.
GFMS COPPER SURVEY 2014 UPDATE
SUMMARY AND OUTLOOK
1. SUMMARY AND OUTLOOK
The copper market continues to fight some strong
downward pressure from increased supply, a weaker
demand growth outlook and fears of metal previously
tied up in financing coming back to the market.
Marginal production cost levels around $6,200/tonne
are also getting closer to the price, with the cost-toprice comparison not including a return on capital
invested. LME 3-month prices have traded in a range
of $6,321-$7,460/tonne between the beginning of the
year and early October with a slow downward trajectory
punctuated by temporary market shocks, including
Chinese financing probes and State Reserves Bureau
purchases. More lately a series of weaker economic data,
falling Chinese refined copper imports and a stronger
dollar have also weighed on prices.
been a feature for many years, it could cause a temporary
slowdown in offtake. Government policy appears
centred around micro-stimulus and shoring up stateowned enterprises rather than the previous broad-based
injections of liquidity into the economy.
In the Chinese market consumption is still expected
to increase by 490,000 tonnes in 2014. This would
represent considerable growth considering the State
Grid Corporation of China’s under spend so far this year
and a weakening in housing starts. The main risk to the
copper sector appears to come from a hardening in the
government’s attitude towards credit in China. While
this prudence will ultimately be beneficial in reducing the
investment bubbles and over-heated sectors that have
On the supply side a much anticipated, albeit delayed,
increase in new copper mine output, a resumption of
concentrate shipments from Grasberg and a strong
performance from existing producers has seen a surplus
grow in the concentrate market. This kept mid-year
contract treatment and refining charges at $91/tonne
and 9.1 cents/lb respectively and we are expecting an
increase to over $100/tonne and 10.0 cents/lb to be
announced for the first half of 2015.
Global demand growth is forecast to grow by
859,000 tonnes in 2014, with significant contributions
coming from the EU-28 at 114,000 tonnes and the US
at 58,000 tonnes. This is in contrast with the BRIC
economies, excluding China, who between them only
total forecast growth of 19,500 tonnes. The recovery
in mature markets is also unlikely to be sustained, in
our view, as Europe weakens and mature economy
consumption gets closer to pre-crisis levels.
WORLD COPPER SUPPLY AND DEMAND
Change
Change
Change
(000 tonnes) 20132014Fy-o-y13.H113.H214.H1y-o-y
14.H2Fy-o-y
Refined Production Primary from Concentrate
13,091
13,933
6.4%
6,359
6,732
6,745
6.1%
7,188
6.9%
Primary SX-EW
3,796
3,885
2.3%
1,888
1,908
1,915
1.4%
1,970
3.0%
Secondary
3,845
3,993
3.8%
1,863
1,982
1,928
3.5%
2,065
4.2%
Total Refined Production 20,732
21,811
5.2%
10,110 10,622 10,588
4.7%
11,223
5.7%
Refined Consumption
Construction6,3426,563 3.5%3,0923,250 3,231 4.5% 3,332 2.5%
Electrical and Electronic Products
7,996
8,303
3.8%
3,912
4,084
4,029
3.0%
4,274
Transportation Equipment
2,353
2,497
6.1%
1,147
1,206
1,223
6.6%
1,274
5.7%
Consumer and General Products
2,027
2,138
5.4%
965
1,063
1,027
6.5%
1,111
4.5%
Industrial Machinery and Equipment
1,951
2,027
3.9%
953
998
1,005
5.5%
1,022
2.4%
4.2% 10,068
10,601
10,515
4.4%
11,013
3.9%
Total Refined Consumption 20,669 21,528
4.6%
Surplus/(Deficit)
64 283345%
42
21
73 73%
210897%
Exchange Stock Change
(85)
(241)
185%
320
(404)
(255)
n/a
14
n/a
Implied Off-Exchange Stock Change
149
525
253%
(277)
426
328
n/a
196
-54%
LME 3-Month Price ($/tonne)
7,346
6,810
-7.3%
7,572
7,128
6,885
-9.1%
6,735
-5.5%
LME Cash Price ($/tonne)
7,322
6,835
-6.7%
7,541
7,113
6,916
-8.3%
6,755
-5.0%
Source: GFMS, Thomson Reuters; ICSG, LME. Note that totals may not add due to independent rounding.
4
GFMS COPPER SURVEY 2014 UPDATE
COPPER SURPLUS/DEFICIT & PRICES
COPPER PRICE AND 50 DAY MOVING AVERAGE
9000
250
50-Day Moving Average
Surplus
150
10000
9000
$/tonne
8000
7500
7000
8000
50
0
7000
-50
-100
6000
-150
-200
6500
6000
Jan-12
Jul-12
Jul-13
Jan-13
Source: GFMS, Thomson Reuters; LME
5000
Deficit
-250
4000
-300
Jan-14
Jul-14
In the refined market we have also seen a surplus in the
first half of the year of 73,000 tonnes, which is forecast to
grow in the second half to 210,000 tonnes. This should
halt the marked decline in reported stocks witnessed
since Q1 2014 and return the market to more comfortable
stock-cover conditions, hopefully also with a greater
degree of confidence in the integrity of Chinese inventory.
Premia for physically delivered refined material have
already been falling in major markets and this is a trend
that we expect to continue.
In terms of risk to the outlook, unless Chinese offtake and
the global economy surprise on the upside, which seems
unlikely given current economic policies in China and
the most recent slowdown in Europe, there appear to be
few demand-side shocks that could push the market into
deficit over the coming year.
SUMMARY AND OUTLOOK
Tonnes (thousands)
100
Half-year Average Prices (US$/tonne)
Copper Price
8500
F
Price
200
H1-10
H1-11
H1-12
H1-13
H1-14
Source: GFMS, Thomson Reuters
PRODUCTION
——Copper mine production will regain some of the
momentum lost in the first half of 2014 during the
second half, even though the growth rate may not
look that impressive due to the surge in output
witnessed in the final quarter of last year.
——Concentrate stocks that accumulated last year
have been more than sufficient to fuel stronger
growth in refined output. While rising treatment
and refining charges will encourage higher
processing of concentrates.
With this in mind, the direction of the copper market
will increasingly be driven by supply-side events, in our
view. As new production capacity fights against lower
prices, ultimately, the seeds will be sown for the next bull
market.
Global mine production posted growth of 5% year-onyear in the first half as performances of some sizeable
mines, such as Collahuasi in Chile and Bingham Canyon
in the US, compared favourably with year-ago levels,
and as new mines and expansions ramped up. A
number of those ramp-ups encountered delays, however,
which meant that output still fell considerably short of
its potential. Other factors that pegged back growth
included technical problems, and the knock-on effect of
the suspension of concentrate exports from Indonesia.
TOTAL EXCHANGE STOCKS
EXCHANGE STOCKS AND PRICES
1000
LME
COMEX
Tonnes (thousands)
400
200
0
Jan-12
Copper Price
800
600
Jul-12
Jan-13
Jul-13
Jan-14
Source: GFMS, Thomson Reuters; LME, COMEX, SHFE
Jul-14
10000
9000
600
8000
400
7000
200
6000
0
LME Daily Price US$/tonne
Tonnes (thousands)
800
SHFE
COMEX
LME
1000
SHFE
5000
H1-10
H1-11
H1-12
H1-13
H1-14
Source: GFMS, Thomson Reuters; LME, COMEX, SHFE
5
In terms of miners’ costs, we estimate cash costs in the
first half at $1.74/lb ($3,842/tonne), or 3% lower than the
corresponding period in 2013. Including depreciation,
production costs came in at $2.19/lb ($4,825/tonne),
a more modest 1% improvement year-on-year. As for
margins, the position was largely unchanged, with the
drop in the average copper price offset by lower unit
costs, proving for a cash operating margin of 45%,
compared to 44% in 2013. Assessing quarterly trends,
unit costs in the second quarter were up by 10% from the
recent low of Q4 2013; a period which benefitted from a
sharp jump in average ore grades. That said, we don’t
expect this to signal a new trend in cost escalation. In the
near term, cost cutting efforts and low cost new mines
ramping up should keep costs relatively well contained.
Returning to supply prospects, in the second half of 2014
we are looking for year-on-year growth of around 2%. It
is only in the fourth quarter that we expect mine output in
volume terms to regain and surpass the aforementioned
impressive levels achieved during the final quarter of
2013 as ramp-ups of new mines run more smoothly and
others start up. While still making allowance for the
potential for some further unforeseen disruptions in the
remainder of the year, we expect full year production
to reach 18.3 million tonnes, up about 2.5% from 2013.
On the subject of disruptions, it has to be said that
labour-related stoppages featured very little in the first
half of the year and into the second half. Furthermore,
notwithstanding the recent 24-hour warning strike at the
Escondida mine in Chile, the indications are that any that
may erupt in coming months will not prevent the copper
market’s transition to substantial surplus.
Taking a look at upcoming contract expiries as an
indicator of future potential flashpoints, our records show
there are very few to track through the rest of the year.
Those we currently understand yet to be negotiated are
at Codelco’s Gaby facility at the end of October and at
Glencore’s Lomas Bayas and Freeport McMoRan’s Chino
mining operations; both at the end of November. These
three operations produced a combined total of just over
300,000 tonnes last year.
While mine production this year has fallen short of
expectations the concentrate stocks that accumulated,
especially in China, during last year’s surge, and since
then have been more than sufficient to fuel stronger
growth in refined output this year. Meanwhile growth
from SX-EW operations has been rather constrained and
tight scrap supply has pegged back secondary production
levels in some countries.
Production of copper from secondary sources has still
risen overall so far this year, but supplies of the material
have been relatively tight. Scrap availability appears to
have improved of late, sources recently indicated, albeit
slightly. Top producer China will see growth in secondary
output this year, despite lower inflows of feed from
overseas. The country’s imports of copper scrap fell 12%
year-on-year in the first eight months on a gross weight
basis, despite a relaxation earlier in the year in customs
checks on scrap arrivals.
Rising treatment and refining charges (TC/RCs),
meanwhile, have helped to encourage higher processing
of concentrates and this is a trend which looks set to
continue. Closely watched spot treatment charges for
clean concentrate in China were recently quoted at
around $119/tonne and 11.9 cents/lb, up one-third from
July before the suspension of concentrate exports from
Indonesia was lifted. Further increases in processing
fees seem inevitable as mine supply continues to grow
apace. It has come as no surprise to learn therefore that
Pan Pacific, Japan’s biggest copper smelter is seeking a
near-double digit increase in annual benchmark terms
for 2015 from the $92/tonne and 9.2 cents/lb agreed for
this year. Other players in Japan and China are expected
to adopt a similar stance and there are indications that
smelters may push for even higher terms.
As custom smelters look to benefit from this greater
revenue potential, and as processing capacity continues
to expand in China, we estimate that world refined
output will remain on a strong upwards path in the
medium term. In the first half of 2014, metal output was
about 5% higher than the same period last year, and
acceleration to close to a 6% pace in the second half is
expected to combine to give full year production in 2014
of 21.811 million tonnes.
ANNUAL INCREASES IN MINE AND REFINED PRODUCTION
8
Mined
Annual Production Growth (%)
SUMMARY AND OUTLOOK
GFMS COPPER SURVEY 2014 UPDATE
6
Refined
4
2
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 (F)
Source: GFMS, Thomson Reuters
6
GFMS COPPER SURVEY 2014 UPDATE
CONSUMPTION
——Global refined copper consumption rose by over
In the first six months of 2014 global copper demand
has grown at an almost identical pace to the 2013
average, but at a faster rate than a year earlier. This
healthy increase of nearly 500,000 tonnes was split
more diversely across the globe than a year ago.
This was chiefly due to two counteracting features,
as the deceleration in Chinese growth was offset by
the improvement in the performance of the mature
economies. Consequently, the increase in Chinese
demand has accounted for 53% of global growth down
from 92%.
Having returned to growth in the second half of 2013,
European Union copper consumption in the first half of
2014 increased at almost 6%, its fastest rate since late
2010. Encouragingly, this growth was widespread across
the region with some of the former laggards, such as
COPPER CONSUMPTION BY REGION (VOLUME CHANGE Y-O-Y)
500
In a similar vein, there was a sharp increase in US
copper demand in the first half bolstered by auto sales
hitting their highest level since 2006. Another source of
demand growth was from the residential property sector,
which after a sluggish start to the year, due to abnormally
bad weather, soon accelerated. As a result, consumption
from the building construction sector was up more than
5% for the first half of the year. Japanese demand was
also up noticeably for the first six months as a whole.
However, in contrast to the US, growth was stronger in
the first quarter of 2014 as activity was brought forward
ahead of an increase in the sales tax at the start of April.
In China, demand has continued to grow at a healthy
rate, just shy of 6% year-on-year. Consequently, Chinese
consumption was up some 240,000 tonnes from a year
earlier, despite weakness in demand from the electrical
sector due to less tenders from the State Grid. The
still robust growth rate was aided by a lack of scrap,
strong growth from the transportation sector and for
air conditioners. It is worth noting that, due partly to
the output of air conditioners and the fact that copper
demand lags housing starts, building construction
demand in China was still up almost 6%.
Meanwhile, some other key emerging markets saw
demand actually fall year-on-year with declines
registered in both Russia and Brazil. Central to the
former’s woes was geopolitical tension, while the latter
was hit by a struggling economy and the World Cup.
COPPER CONSUMPTION BY END-USE (VOLUME CHANGE Y-O-Y)
200
H1-13
H1-14
400
H1-13
180
H1-14
160
Tonnes (thousands)
Tonnes (thousands)
140
300
200
100
120
100
80
60
40
20
0
0
-100
China
BRICS
(ex. China)
Source: GFMS, Thomson Reuters
Mature
Others
Global
-20
Building
Electrical Transport Consumer Industrial
Source: GFMS, Thomson Reuters
7
SUMMARY AND OUTLOOK
4% year-on-year in the first half of 2014 to just over
10.5 million tonnes. This was aided by the tightness
of the scrap market over that period which continued
to bolster the requirement for the refined metal.
——All major sectors of global copper demand grew
appreciably in the first half of the year, and as shown
in the chart below contributed meaningfully to the
additional demand, in contrast to a year earlier when
the industrial machinery sector dropped back.
——In the first six months of the year, transportation
demand was the fastest growing sector with
consumption up almost 7% compared to a year
earlier. Central to the rapid increase was a strong
upturn in auto sales, especially in the United States
and Europe and continued rapid growth in the
Chinese automotive sector.
Spain and Italy, among the fastest growing countries.
This upturn was felt across all sectors and was led by a
9% rise in offtake from the transportation sector, which
benefitted from a strong recovery in auto sales. It also
gained support from the rising exports to meet demand
for wiring harnesses in North Africa.
8
US$/tonne
Mar
Source: GFMS, Thomson Reuters
Feb
Apr
May
Worries mount over Chinese
and US growth; Eurozone
debt issues escalate.
Sequester triggers
US spending cuts
Jun
Jul
Aug
Fed says it could
start tapering
by end-2013
Sep
Oct
Nov
Dec
Jan-14
Typhoon damage
causes closure of Pasar
Feb
Mar
Apr
ECB cuts deposit
rates to -0.1%
May
Jun
Jul
China’s Qingdao port
metal financing fraud probe
Heavy sell-off triggered by concerns
over the health of Chinese economy
and first domestic bond default
US Fed reduces
bond buying by
$10bn per month
HSBC flash
China PMI
record its first
contraction
China unveil
mini-stimulus
package
Chaori Solar as first
domestic bond default
Indonesia announces
export ban on raw ore
Nearby spreads tighten once
more as exchange stocks
continue relentless decline
US government shuts
down temporarily
on budget impasse
Brief strikes at some
Chilean operations
Spot availability tightens,
cash-to-threes briefly moves
into backwardation
Concerns over
potential US
tapering, weak
China data
Grasberg down
following tunnel
collapse
Indian/Zambian
smelters restart
Failure of open pit wall at Bingham Canyon;
labour unrest in Chile; unplanned
smelter closures in India/Zambia
Industry guidance reaffirms
outlook for strong production growth
Data show Chinese
GDP +7.9% in Q4
2012 vs +7.4% in Q3.
Jan-13
6000
6500
7000
7500
8000
8500
Aug
Sep
ECB cuts rates
and triggers US
dollar rally
SUMMARY AND OUTLOOK
GFMS COPPER SURVEY 2014 UPDATE
LME COPPER PRICE EVENTS
GFMS COPPER SURVEY 2014 UPDATE
TECHNICAL ANALYSIS
Simple Moving Average, 365, Daily
9000
100.0% 8,765
2
8500
2
SUMMARY AND OUTLOOK
8000
US$/tonne
61.8%
7500
7,831
4
4
50.0% 7,543
1
b
38.2% 7,254
7000
1
1
3
6500
5
a
00.0% 6,321
3
6000
5
90
US Dollar Index, Daily
88
86
61.8%
84
82
50.0% 81.83
80
38.2% 79.35
78
03-Jan-12
9000
84.31
10-Jul-12
26-Jan-13
14-Aug-13
02-Mar-14
18-Sep-14
LME 3M Copper, Weekly
T
8500
US$/tonne
8000
7500
7000
6500
A
M
J
Q2 2013
J
A
S
Q3 2013
O
N
D
Q4 2013
J
F
M
Q1 2014
500
A
M
J
Q2 2014
J
A
S
Q3 2014
O
N
D
Q4 2014
J
F
Q1 2015
Oscillator, Weekly
400
300
> 0, Overbought
200
100
0
10
-100
-200
< 0, Oversold
-300
-400
03-Jan-12
10-Jul-12
26-Jan-13
14-Aug-13
02-Mar-14
18-Sep-14
Source: GFMS, Thomson Reuters
9
GFMS COPPER SURVEY 2014 UPDATE
SUMMARY AND OUTLOOK
PRICE & MARKET OUTLOOK
Headwinds are picking up for copper prices. China’s
property sector is slowing, growth in emerging markets
remains weak and mine supply continues an upward
trend. The resurgent dollar adds further resistance to any
price recovery. There could however, be some significant
‘stops’ to a major down leg in the price. Recall that
sentiment received a much needed boost earlier in the
year when it was reported that the State Reserve Bureau
bought at least 200,000 tonnes of refined metal over
March and April, around the year-to-date low copper
price of $6,321/tonne. If prices approach these lows
again, further strategic buying cannot be ruled out.
Price risks to the downside certainly remain; the technical
indicators for the metal present a particularly bleak
picture (as shown on Page 9). At the start of October the
metal broke a key level of support (the sixth wave of the
eight wave cycle, at $6,621/tonne), setting the scene for
a move lower to $6,321/tonne. Furthermore, if the dollar
rally continues on trend, copper can be expected to take
another step down to $6,000/tonne. The main controls
on price are expected to be the 365-day moving average
and the dollar index. The latter, currently at 85, is
expected to continue to strengthen and breach the 2010
high of 89. Short dated indicators support our broader
analysis. The weekly chart dates the start of the recent
sell-off on 12th September, while the ongoing divergence
between copper and the oscillators supports the view
that first, the metal is not yet oversold, and second, that
the downtrend towards the $6,321/tonne support level is
still in sight. The gap down in prices remains significant,
and without a narrowing here, a correction in the price
looks unlikely.
Turning back to the fundamentals, and while we take
some comfort in the improving picture in demand in
the US, the slowing property market in China remains
a real concern. Copper is a late stage material in the
construction process, so there is a lag in metal demand
in the ‘bricks and mortar’ building cycle. As this sector
slows, this will feed into a more meaningful drag on
copper demand in the coming months, in our view. On
top of the wobbles evident in the housing market, the
outlook in other sectors remains gloomy. For example,
our research suggests that stocks of air-conditioners are
well above usual levels. With high stock levels, seasonal
weakness in the second half, and the softer economic
outlook, we expect demand in the coming months to
scale back significantly. There are some bright spots.
Vehicle demand growth, for instance, continues to remain
above trend and electric vehicle demand is growing fast,
10
albeit from a small base. In addition investment in power
infrastructure is under plan, in part due to investigation
of one of the Chinese state power companies, which
suggests some pent up growth could yet filter through.
Overall, however, the tone is bearish, and coupled with
the expected increase in mine supply and refined copper
output we see the market moving into clear surplus,
pressuring prices to move lower.
Talking to mine supply in more detail, the strong growth
trend, in our view, is set to continue. Looking towards the
next six months, we calculate more than a million tonnes
of new copper capacity, or around 6% of global mine
production, coming on stream. Meanwhile, forced supply
cuts from existing operations look unlikely. Based on our
estimates, the 90% percentile of net cash unit costs at
Q2 2014 is around $5,300/tonne or $2.40/lb. Adding
in depreciation takes the total production costs figure to
around $6,200/tonne, or around $2.80/lb. Moreover,
the barriers to closing a mine are relatively high. For
instance, the owner’s view on the outlook of longer term
copper prices, the potential damage to relations with
government, the high cost associated with retrenchment
of labour and accelerating any environmental liabilities.
With growing concentrate supply and the incentive of
high and rising processing fees we expect refined copper
production to keep pace with mine supply, on a strong
upwards course. Chinese smelters should lead the way
with additions to refinery capacity in the country this year
expected to boost capacity by around 800,000 tonnes.
Official customs data shows China imported 7.3 million
tonnes of ores and concentrate in the first eight months
of 2014, an 18% increase year-on-year. This, despite
the fact that some Chinese smelters deferred spot
concentrate purchases in expectation that Indonesia
would resume concentrate exports in the third quarter
after halting shipments in January (Freeport actually
announced the resumption of exports late July).
The combination of the ramp-up in new mine supply
and the resumption of shipments from Grasberg and,
recently, from Batu Hijau, leaves the concentrate market
in decent surplus. In response spot treatment charges
have risen sharply, which will encourage smelters to
hit full year production targets. The risk of processing
bottlenecks related to smelter shutdowns or the need to
blend dirty concentrates (related to high arsenic levels in
new mines such as Hales and Toromocho), is an issue to
keep in mind, but we do not expect this to be a significant
headwind in the short term. Overall, for Q4 2014 we
forecast an average LME 3-month price of $6,500/tonne,
declining to $6,200/tonne for 2015.
GFMS COPPER SURVEY 2014 UPDATE
WORLD MINE PRODUCTION
2. MINE AND REFINED
PRODUCTION
25000
Africa
Europe
Oceania
•
World mine production fell short of expectations in
the first half of 2014, but still managed to post a year-onyear growth rate of 5%. For the year as a whole, we expect
growth of 2.3% in light of the comparison with the sharp
growth seen in the final quarter of last year, when output
was boosted by a jump in average ore grades.
Tonnes (thousands)
20000
15000
Asia
10000
Americas
5000
0
•
•
We estimate miners’ cash costs in the six months to
June at $1.74/lb ($3,842/tonne), or 3% lower year-on-year.
Unit costs in the second quarter were up by 10% from the
recent low of the fourth quarter of 2013. However, we do not
believe this heralds a new trend in cost escalation.
2006 2007 2008 2009 2010 2011 2012 2013 2014 (F)
Source: GFMS, Thomson Reuters
SX-EW operations was considerably more subdued.
The favourable overall year-on-year comparison was
due largely to start ups and continued ramp ups of
some new mines in Asia, South America and Africa,
as well as improved productivity at several significant,
well-established operations. Higher ore grades, along
with recoveries in productivity after earlier accidents or
technical problems also played a role.
MINE PRODUCTION
Nevertheless, the period was not without unforeseen
disruptions. Teething problems at new, or relatively new,
mines and the suspension of concentrate exports from
Indonesia conspired to prevent global production from
reaching its full potential. It is also worth noting that
mine output actually fell over 3% in the first half of this
year from the second half of 2013. This did, however,
represent an improvement from the first quarter 2014
performance, when production dropped by around 6%
from the preceding three month period.
Global copper mine output in the first half of 2014 rose
by 5% from the same period last year to fall just shy of
9.0 million tonnes. Within this, copper-in-concentrate
production rose by almost 6%, while output growth from
Aside from the Indonesia export suspension, which
pegged back supply in the first half and into the third
quarter, output also fell 3% year-on-year in January to
June at Chile’s Escondida, the world’s biggest copper
•
Boosted by ample and rising concentrate supplies,
world refined copper production (mainly primary metal from
concentrate) gathered momentum in the first six months
of 2014, having risen at a comparatively slower pace in
2013. Furthermore, high and rising treatment and refining
charges look set to underpin further strong growth in metal
output in the medium term.
MINE PRODUCTION BY REGION
(000 tonnes)
2011
2012
2013
14.H1
14.H2
2014F
Americas
8,948 9,276 9,847 4,998 5,264 10,262
Asia
3,033 3,091 3,361 1,636 1,750 3,386
Europe
1,658 1,736 1,783 900 892 1,792
Africa
1,295 1,417 1,809 912 1,026 1,938
Oceania Total
Year-on-year % change
Total minus disruption allowance
1,084 1,048 1,078 549 539 1,088
16,017 16,568 17,877 8,995 9,471 18,466
0.3%
3.4%
7.9%
5.0%
1.7%
3.2%
18,293
Year-on-year % change
2.3%
Source: GFMS, Thomson Reuters 11
MINE AND REFINED PRODUCTION
Mine supply will resume its strong upwards path in
late 2014 and into 2015 as some of the newer mines and
expansions continue to ramp up, while new capacity also
comes on stream. According to our estimates, more than
1.0 million tonnes per annum of capacity is due to start up
in the next six months.
GFMS COPPER SURVEY 2014 UPDATE
TOP 10 COPPER MINING PRODUCERS
mine. However, this was a marked improvement on the
mine’s first quarter performance. Against this backdrop,
it is only in the final quarter of 2014 that we expect
global mine output on a quarterly basis to exceed the 4.8
million tonnes produced in the last quarter of 2013.
(000 tonnes)
Not surprisingly, Collahuasi and Bingham Canyon both
delivered a much improved first half performance yearon-year, Collahuasi having been impacted by a 45-day
shutdown of SAG mill 3, starting 21st March 2013 (which
reduced plant throughput by roughly 70%), and Bingham
Canyon by a pit wall failure in April 2013. As a result, first
half copper output at Collahuasi increased by 88,000
tonnes or by 58%, while at Bingham Canyon, a 44,000
tonne or 50% gain was recorded.
14.H1
Change y-o-y
842 8774.1%
Freeport McMoran
808
Glencore
658
74112.6%
BHP Billiton
641
635
-0.9%
Southern Copper
297
329
10.6%
Rio Tinto
296
323
9.0%
Anglo American
239
277
15.8%
807
-0.1%
KGHM
272 258-5.1%
Antofagasta
235 225-4.4%
First Quantum
178
186
4.7%
Source: GFMS, Thomson Reuters; Company Reports
Lumwana, Zaldivar, and KGHM’s international
operations. At Grasberg in Indonesia, a 25% drop
in first half copper production was explained by the
reduction in the milling rate in the second quarter to
around half normal capacity. The cut was due to the
delay in obtaining approvals for 2014 exports, prompting
the company to move to align the mine’s concentrate
production with domestic smelting operating plans.
Meanwhile, new mines, Codelco’s Hales in Chile and
Turquoise Hill’s Oyu Tolgoi in Mongolia, provided a
combined year-on-year increase of 114,000 tonnes.
Glencore’s African assets registered a 24%, or roughly
40,000 tonne increase year-on-year, mainly due to the
ramp-up at Mutanda and Katanga, both in the DRC.
Codelco’s Radomiro Tomic mine registered a 24%, or
48,000 tonne drop year-on-year, while Barrick Gold
reported reduced output at both Lumwana and Zaldívar.
The fall in copper output at Lumwana was due to a
collapse of the conveyor belt, which shut down the mill
and concentrate production for much of the second
quarter. At Zaldívar, meanwhile, lower tonnes processed
and lower recoveries impacted volumes. At KGHM’s
international operations, copper production declined
by 13,000 tonnes or by 24%, chiefly as a result of lower
production at the Robinson mine due to lower grades.
By-product volumes of gold similarly dropped and
adversely impacted unit cash costs.
A similar rise was reported at Freeport McMoRan’s North
American copper mines. The division includes seven
open-pit copper mines, with growth in the first half
mostly attributable to Morenci, where commissioning
of the expanded mill commenced in May 2014, and at
Chino. Lastly, Codelco’s Chuquicamata mine posted a
19% or 26,000 tonne increase year-on-year in the six
months to June.
Partly offsetting some of the gains there were doubledigit percentage falls at Grasberg, Radomiro Tomic,
COPPER’S SHARE OF TOTAL REVENUE
90
80
2
70
6.
7.
8.
9.
10.
Los Pelambres
FCX North America
Anglo American Sur
FCX South America
Collahuasi
11. Escondida
4
5
7
6
8
9
10
100
11
90
80
3
2
70
60
60
50
50
40
40
30
30
1
20
20
10
10
0
0
0
10
Source: GFMS, Thomson Reuters
12
20
30
40
50
60
Cumulative Production (%)
70
80
90
100
Copper ‘s share of total revenue (%)
1. Norilsk Nickel, Russia
2. Olympic Dam
3. KGHM Polska Miedź
4. Glencore, Africa
5. EI Teniente
100
Copper ‘s share of total revenue (%)
MINE AND REFINED PRODUCTION
MINE-BY-MINE PERFORMANCE
13.H1
Codelco
GFMS COPPER SURVEY 2014 UPDATE
REVENUE BREAKDOWN FOR Q2 2014
COPPER PRODUCERS’ REVENUE SPLIT BY METAL
2.1% 3.6%
2.2%
2.7%
4%
Copper
45000
36000
Copper
Molybdenum
Zinc and Others
Gold
Palladium
LME Copper Price
Nickel
Silver
10000
9000
5%
Molybdenum
Palladium
27000
8000
18000
7000
9000
6000
US$/tonne
US$ Millions
Gold
Nickel
Silver
Zinc and others
80%
0
Q1-13
Q3-13
Q1-14
The analysis in this section is based on a subset of global
copper production and financial data. Our figures are
based on just over 25 mining companies and more than
70 mining units. In some instances, a mining unit may
represent multiple operating assets. This is because our
data capture reflects the level of detail reported by each
individual company which varies across the industry.
Quarterly copper production, for instance, is almost
universally reported at the mine level. Financial data,
however, is often only published at a divisional or
regional level. We make adjustments and estimates
where necessary. For example, in some instances we
adjust for provisional pricing to better estimate the
implied underlying operating costs. We also use a
benchmark model for the calculation of metallurgical
charges, which we add back to operating costs where
appropriate. The “net cash unit cost” is a direct cash cost
measure, expressed in US cents per pound on paid metal
sold.
TONNES OF ORE PROCESSED AND GRADE
The cost curves are represented as a composite of
both by-product and co-product costing methods. For
by-product costing, revenue from secondary metals is
credited against the cost of production. Where copper
is less than 65% of total revenue, we use a co-product
basis, where costs are allocated to each metal on the
same proportion as revenue. We exclude royalties and
any other direct mineral taxes. In addition we estimate
“total production cost”, which includes depreciation.
Overall our sector models capture around two-thirds of
global copper production (ex-China).
MINE AND REFINED PRODUCTION
PRODUCTION COSTS
REVENUE
Within our population of mines, gross copper revenue
accounts for around 80% of total revenue. By-product
and co-product material, in decreasing importance,
include gold, nickel, molybdenum, palladium and silver,
accounting for around 16%. Lastly, gross revenue from
zinc, platinum, cobalt, lead, uranium, pyrite, and others
accounts for the balance, or just below 4% of total
revenue. Only 11 mines in our subset have by- or coPAYABLE COPPER PRODUCED AND SOLD
4500
0.80
Ore processed
4000
Recovered grade Implied (rhs)
320000
3500
160000
0.65
80000
20
Total payable copper production
Total payable copper sold
Year-on-Year change
15
3000
2500
10
2000
1500
year-on-year %
0.70
Pecentage
240000
Tonnes (thousands)
0.75
Tonnes (Thousands)
Q3-12
Source: GFMS, Thomson Reuters; LME
Source: GFMS, Thomson Reuters
400000
5000
Q1-12
5
1000
500
0
0.60
Q1-12
Q3-12
Source: GFMS, Thomson Reuters
Q1-13
Q3-13
Q1-14
0
Q1-13
Q2-13
Q3-13
Source: GFMS, Thomson Reuters
0
Q4-13
Q1-14
Q2-14
13
GFMS COPPER SURVEY 2014 UPDATE
NET CASH UNIT COST MARGIN VS TOTAL PRODUCTION MARGIN
NET UNIT CASH COST BY REGION
70
2.5
Net cash unit cost margin
60
Total production margin
Africa
Asia Pacific
North America
South America
Total
Europe
2.2
1.9
40
US$/lb
Margin (%)
50
30
1.6
20
1.3
10
1
0
Q3-13
In the most recent reporting period (the three months
to June 2014), year-on-year revenue trends and price
performance have mostly been correlated. Silver,
platinum and gold revenues falling in a range of 19%
to 6%, while palladium and nickel revenues posted a
respective 12% and 20% increase, see chart on page 13.
Outliers include copper and molybdenum.
For the first three months, copper revenue was flat yearon-year, compared to a 5% fall in commodity prices,
while molybdenum revenues were up 43%, versus a 21%
increase in the underlying. On a longer time horizon, the
pattern is repeated. From Q1 2012 to date, copper prices
are 18% lower compared with a 2% decline in copper
revenues. This is explained by a sharp increase in copper
production over the same period, discussed below.
TOP-10 PRODUCERS, H1 COST AND PRODUCTION VARIANCE
UNIT CASH COSTS
Notwithstanding the improvement in grades and
volumes, high underlying cost inflation has meant only
modest gains on a unit cost basis. World net cash unit
costs, calculated using our methodology, averaged
$1.75/lb in the three months to June 2014, flat compared
with the previous quarter, and only 5% lower on a yearon-year basis. On a half year analysis, first half unit costs
MARGINAL OPERATING CASH COST AND COPPER PRICE
Y-o-Y Costs
4
Source: GFMS, Thomson Reuters
80
70
Price Premium to 90th Percentile (rhs)
60
50
3
40
2
30
20
1
Antofagasta
First Quantum
Anglo American
Freeport McMoRan
Glencore
BHP Billiton
Total
KGHM
Rio Tinto
-30
Codelco
-20
Southern Copper
-10
90th Percentile
Average Copper Price
10
0
Q1-12
Q3-12
Q1-13
Source: GFMS, Thomson Reuters
0
Q3-13
Q1-14
Percentage
US$/lb
10
0
Q1-14
The growth in mine production over the last two years is
a combination of increased tonnes processed and higher
recovered grade. On our analysis, and for the subset
of mines included in our copper cost models, and for
concentrate production only, we record a 13% increase in
tonnes processed, a 12% improvement in recovered grade
and a 27% increase in payable copper-in-concentrate.
Quarterly trends are illustrated in the pair of charts on
Page 13. On average, the last six quarterly periods have
delivered an 8% year-on-year growth.
Y-oY Production
20
Q3-13
ORE PROCESSED & RECOVERED GRADE
5
30
14
Q1-12
Q3-12
Q1-13
Source: GFMS, Thomson Reuters
Q1-14
product revenue representing more than 45% of total
revenue, illustrated in the chart on page 12.
Year-on-Year change (%)
MINE AND REFINED PRODUCTION
Q1-12
Q3-12
Q1-13
Source: GFMS, Thomson Reuters
GFMS COPPER SURVEY 2014 UPDATE
WORLD CASH OPERATING COSTS
3.5
1.
2.
3.
4.
5.
6.
7.
3.0
2.5
8.
9.
10.
11.
12.
13.
Codelco
First Quantum
Antofagasta
Norilsk Nickel
Southern Copper
KGHM
Rio Tinto
3.5
Freeport McMoran
Vale
BHP Billiton
Glencore
Anglo American
Kazakhmys
3.0
13
2.0
2
1
1.5
3
4
5
10
9
8
7
6
2.5
12
2.0
1.5
1.0
1.0
0.5
0.5
0
US$/lb
US$/lb
11
0
0
10
20
30
Source: GFMS, Thomson Reuters
40
50
Cumulative Cost (%)
70
80
90
100
as the lowest cost copper miner with costs estimated at
just below $1.40/lb, its closest peer, with costs some 6%
higher, is First Quantum. This is followed by a closely
packed group of copper miners with only 2 US cents
separating costs estimated at Antofagasta, Norilsk Nickel
and Southern Copper Corporation.
The marginal operating cost of copper production,
referenced by the 90th percentile on the cost curve, is
illustrated on page 14. Over the last 10 quarters this
has averaged $2.35/lb, between $2.02/lb to $2.63/lb.
Over the same period the copper price premium to the
marginal cost, has declined from 60% to around 30%.
This premium is likely to narrow further as prices come
under pressure from the glut of new mine supply.
Among the four major diversified global miners, BHP
Billiton, Glencore, Anglo American and Rio Tinto,
the latter is the lowest cost copper producer with net
cash unit costs estimated at just below $1.70/lb. The
remaining three, all feature in the fourth quartile of our
sector cost curve, with BHP Billiton unit costs estimated
at just below $1.90/lb and both Glencore and Anglo
American with costs a shade over $2.00/lb. Freeport
McMoRan, one of the world’s biggest producers, sits in
the third quartile of the cost curve, between Rio Tinto to
the left and BHP Billiton to the right.
Estimates of cash costs by company is shown above. On
a net unit cash costs basis for Q2 2014, Codelco ranks
The ten largest copper producers in our sub-sector
of companies reported a combined 4% year-on-year
NET CASH UNIT COSTS
(US$/lb)
Q1.12
Q2.12
Q3.12
Q4.12
Q1.13
Q2.13
Q3.13
Q4.13
Q1.14
Q2.14
Africa
1.71 1.75 1.95 1.94 2.03 1.78 1.47 1.55 1.92 2.05
Asia Pacific
1.33 1.63 1.81 1.98 2.05 2.09 1.87 1.49 1.93 2.18
Europe
1.15 1.19 1.19 1.27 1.38 1.61 1.63 1.87 1.50 1.41
North America
1.43 1.75 1.73 1.76 1.89 2.05 1.86 1.88 1.72 1.62
South America
1.48 1.45 1.52 1.60 1.63 1.80 1.58 1.52 1.71 1.68
World
1.44 1.51 1.59 1.67 1.73 1.85 1.64 1.59 1.74 1.75
World Total Production Costs
1.80 1.87 1.95 2.02 2.13 2.29 2.05 2.01 2.18 2.20
LME Cash Copper Price
3.57 3.50 3.59 3.60 3.24 3.21 3.24 3.19 3.08 3.22
Net Cash Unit Cost Margin
60%
57%
56%
54%
47%
42%
49%
50%
44%
46%
Total Production Margin
50%
46%
46%
44%
34%
29%
37%
37%
29%
32%
Source: GFMS, Thomson Reuters 15
MINE AND REFINED PRODUCTION
for 2014 are only 3% lower than the same period in 2013.
The regional breakdown is included in the table below.
Cash margins for cash unit costs and total production
costs, which include depreciation, are shown in a chart
on page 14. As costs have been relatively well controlled,
the main damage to margins has been the weak
performance of the copper price. From the recent peak
in Q1 2012, net cash unit margins are down by 13%, while
total production margins have narrowed by 17%.
60
GFMS COPPER SURVEY 2014 UPDATE
COPPER MINERS FACE COST CHALLENGES AS
ORE GRADES FALL, IMPURITIES RISE
and other deleterious elements can pose. Sources said that
problems with the roaster at Ministro Hales, designed to
process the high arsenic concentrate had forced the firm to
This is a piece published on Eikon in early September. In
cancel sales and buy raw material from the spot market. In
the past decade or so, falling head grades at existing copper
mid-August reports suggested that Codelco had reached a
mines, along with deteriorating concentrate quality and rising
deal with a trader to blend Hales’ concentrate with third-party
costs for key inputs have resulted in substantial operating and
material for sale in China. The Hales roaster was most recently
capital cost inflation across the sector. While copper prices
reported by a mine official as operating normally at close to
have largely kept pace with these rising costs, miners’ margins
full capacity. Ultimately, the mine should be able to produce
are likely to be squeezed further as they are forced to develop
160,000 tonnes per annum (tpa) of copper.
previously overlooked, technically challenging deposits in
order to meet global demand.
We also understand that Chinalco’s 300,000 tpa Toromocho
MINE AND REFINED PRODUCTION
mine in Peru, which has so far struggled to produce in line
Geological considerations, along with a number of market factors
with ramp up plans, has taken the route of blending material
such as rising energy, fuel, labour and commodities prices have
from different portions of the ore deposit to dilute arsenic
already caused mining cash costs to surge by over 10% per annum
content. Given the amounts of material required, this would
since 2008.
not constitute a final solution for the industry as a whole as
impurities become a broader issue over the long term. New
Geologically, the bulk of the world’s economic copper deposits
technology will be needed on an industry-wide scale.
are hosted within porphyry copper systems which formed on
continental areas along subduction zones (for, e.g., the South
Possible Solutions
American Andes and the western seaboard of the United States).
A number of companies are at various stages with hydro-
Over the past decades, many of the higher grade portions of these
metallurgical processes designed to treat material with higher
deposits were exploited leaving producers with declining grade
impurities. Teck Resources and Aurubis have tested (at pilot
profiles at existing operations.
plant scale) the CESL Cu-As process on over 100 copper-gold
and copper-arsenic concentrates.
These intrinsic (geological) and extrinsic (commodity prices)
factors behind cost inflation have left producers with the tightest
Taking a closer look at the CESL process it essentially involves
simple cash margins since 2009.
fixing an autoclave vessel to an existing SX-EW line and
leaching sulphide concentrates at high pressure in a hot acidic
Compounding the cost pressure for copper producers is the fact
solution which typically results in extraction of 97-98% of the
that along with declining grade profiles at existing operations,
copper from concentrate. Arsenic is fixed within the same
the proportion of deleterious elements such as arsenic, antimony
leaching vessel to a thermodynamically and environmentally
and bismuth have crept up relative to copper concentrate grades
stable ferric arsenate (scorodite) within the leach residue.
over the past decade. This has resulted in producers incurring
The remainder of the process exploits the standard SX-EW
progressively higher penalty charges and receiving lower payables
methodology of producing copper cathodes, negating the
from smelters.
need for traditional smelting and refining. Precious metals
may be recovered from the leach residue through an additional
For producers to meet global demand growth, economies of scale
step which involves pressure leaching in cyanide; importantly,
and swelling capital expenditure budgets will be required to
during this step scorodite preservation is maintained.
develop progressively higher tonnage, lower grade deposits which
tend to host relatively higher proportions of these deleterious
With the capital expenditure outlays for equipping such plants
elements. However, due to increasing environmental restrictions,
estimated to be fairly sizeable, the economics of the process
most smelters no longer accept concentrates with greater than
lend themselves best to brownfield operations with an existing
0.5% arsenic.
SX-EW plant.
Arsenic Problems
Perhaps a key consideration for the use of hydro-metallurgy
A major topic of conversation at CESCO earlier this year and
lies in the ability of this process to generate revenue certainty
subsequently has related to the outlook for copper concentrate
for operations while traditional smelting and refining would
quality, and the methods being employed to treat so-called
require them to blend and dilute their dirty concentrates.
dirty concentrates. The recently commissioned Ministro Hales
Mitigating this area of supply-chain risk could ensure
(Codelco) and Toromocho (Chinalco) operations have served to
operational cash flow certainty for these operations. By
highlight the difficulties that higher concentrations of arsenic
removing a large portion of traditional realisation charges,
16
GFMS COPPER SURVEY 2014 UPDATE
which are subject to the vagaries of concentrate supply
treat laterite ore as availability of easier to exploit sulphide
(treatment and refining charges recently jumped by 15%
deposits diminished.
in the space of a couple of weeks after Freeport resumed
shipments from Indonesia), producers should theoretically be
However, development and production costs far exceeded
able to lower the rate at which these asset specific free cash
expectations as some companies strived to bring on plants
flows are discounted. This should result in higher net present
with sizeable capacity too quickly. Geological considerations
values (NPVs) for hydro-metallurgical-enabled projects
have also proved problematic in some instances. Some
even considering the large upfront capital commitments for
of those early stage PAL projects failed to see the light
installing such technology.
of day. Burnt by this earlier, and comparatively recent,
experience, financiers no doubt will need to see proof that
Mindful of Nickel
these copper processes to deal with higher impurities can
While contemplating the need to adapt to this brave new
work on an industry-wide basis. That may take time; possibly
world, the copper industry may well be mindful of nickel’s
even decades some industry sources say, and require the
experience in the late 1990s/early 2000s. Miners will want to
incremental implementation of small scale projects.
be certain that processes to treat copper concentrate with high
In the interim, while a lasting solution is sought, copper
any meaningful extent.
industry costs inevitably will rise further as declining ore grade
profiles continue and development of copper deposits which
The advent of nickel pressure acid leach (PAL) projects using
host higher concentrations of deleterious elements becomes
hydrometallurgical technology was heralded as the industry’s
increasingly necessary to meet demand.
salvation, enabling low cost processing of previously hard to
increase in copper output in the first half 2014, and a
4% decline in net unit cash costs to $1.73/lb. Half year
changes are charted on page 14 and the ranking table on
page 12. It is important to note these figures are adjusted
to show attributable copper production and as a result
may not correspond with companies reported figures.
Talking to the first half performance by company, Rio
Tinto reported a strong first half with an improved
performance at Bingham Canyon and the ongoing
commissioning of Oyu Tolgoi with volumes up 9% and
costs falling by 17%. Codelco, meanwhile reported a 4%
increase in production and an impressive 23% decline in
unit costs, the combination of a sharp increase in output
at Chuquicamata and the start of production of the low
cost Hales mine.
Cost rises, on the other hand, were most pronounced
at First Quantum and Antofagasta. At the latter, costs
were adversely impacted by lower gold and molybdenum
credits at Centinela Concentrates, a one-off signing
bonus with labour unions, and the completion of
mining at El Tesoro’s low cost Mirador open pit. At First
Quantum, higher costs were chiefly due to higher mining
costs at the flagship Kansanshi mine related to the
relocation of waste dumps and lower gold credits. A fall
in grade at Guelb Moghrein also made a contribution to
higher costs.
MAJOR COPPER PROJECTS
Project
Company
Location
Process
Type
Aktogay
Kazakhmys
KazakhstanConc/SX-EW2
New Project
104
2,000
2015/16
Buenavista SX III
Southern Copper
Mexico
SX-EW
Expansion
109
444
2014
Buenavista Southern Copper
Mexico
Concentrate
Expansion
170
1,384
2015
Caserones
JX/MitsuiChile Conc/SX-EW New Project
180
4,200
2013/14
Cerro Verde expansion
Freeport
Peru
Concentrate
Expansion
272
4,600
2016
Las Bambas
MMG
Peru
Concentrate
New Project
400
5,900
2015
Morenci
Freeport
United States
Concentrate
Expansion
102
1,600
2014
Sentinel
First Quantum
Zambia
Concentrate
New Project
300
1,900
2014
Sierra Gorda
KGHM/Sumitomo
Chile
Concentrate
New Project
220
3,980
2014
Tia Maria
Southern Copper
Peru
SX-EW
New Project
120
1,400
2017
3
Additional
Production1
Capex US$M
Start
Date
Measured in "thousand tonnes per year"
2
SX-EW production to start 2015, concentrate 2016
3
SX-EW production started 2013, concentrate 2014
1
Source: GFMS, Thomson Reuters
17
MINE AND REFINED PRODUCTION
impurities are viable on a wide scale before adopting them to
GFMS COPPER SURVEY 2014 UPDATE
TC/RC AND THE COPPER PRICE
35
Copper
500
30
400
300
20
15
10
5
200
Benchmark TC/RC
Spot Price (¢/lb)
TC/RC (¢/lb)
25
100
0
0
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14
N.B. TC/RCs are expressed on a combined basis not including price participation
Source: GFMS, Thomson Reuters; LME
MINE AND REFINED PRODUCTION
REFINED PRODUCTION
Global refined production has grown strongly in the
first half of 2014, rising by 5% year-on-year. Capacity
expansions in China, improving concentrate availability
on top of the continued rise in concentrate production
have all played a role, even though mine output growth
actually fell short of its full potential in January to June.
We estimate that global copper cathode output reached
10.6 million tonnes during the period, with the bulk of
that around half a million tonne increase accounted for
by China, as smelter capacity there expanded, global
mine output rose and smelters moved to process
previously stockpiled concentrate. Outside China, the
most notable increases were posted in the Democratic
Republic of Congo (DRC) and in the United States, which
helped to more than offset declines to date in some
major producing nations such as Chile.
Supplies of secondary feed were reported to be relatively
tight in the first half of 2014. Nevertheless, production of
copper from secondary sources still rose, we estimate, by
more than 3% year-on-year during the period. Declines
in output from secondary material in the first half appear
to have been confined to a handful of countries. Our
sources have indicated that scrap supplies have eased
recently, albeit not to any great extent, and weaker prices
will likely leave the industry watchful of curtailments
from this source. Either way, the prospect of ample and
growing concentrate supply and the incentive of high
and rising processing fees will still leave refined copper
production on a strong upwards course over the medium
term, with Chinese smelters leading the way.
Output in China has continued to grow despite
occasional, well-flagged problems. In March, for
example, Jinchuan declared force majeure on some
copper concentrate purchases after technical problems
18
at an oxygen facility. Latest figures from the National
Bureau of Statistics indicate that Chinese copper output
jumped 11% in the first eight months to 4.930 million
tonnes and by 20% year-on-year in August alone to
680,128 tonnes. While we allow for an element of
double counting within these statistics, we still expect
Chinese output to jump by almost 10% this year to
approach 6.9 million tonnes.
Additions to capacity in China this year are expected
to boost refinery capacity by around 800,000 tpa.
Expansions include the ramp-up of Jinchuan’s
400,000 tpa in Guangxi, and at projects owned by
Dongying Fangyuan Copper, and Henan Yuguang Gold
and Lead.
As mentioned, rising treatment and refining charges are
encouraging custom smelters globally to produce more.
Spot TC/RCs for clean, standard concentrate in China,
for example were recently quoted at $119/tonne and
11.9 cents/lb, which compares with around $87/tonne
and 8.7 cents/lb respectively in July, when concentrate
exports from Indonesia were still suspended, and with
around $105/tonne and 10.5 cents in January.
Reuters News recently reported that Chinese smelters
are likely to increase spot purchases of concentrates in
the next couple of months. They are also expected to ask
for higher benchmark processing fees next year. Indeed,
Japan’s Pan Pacific Copper, which is likely to set the tone
for other smelters, recently said it will be seeking a 9%
increase to more than $100/tonne and 10 cents from this
year’s benchmark of $92/tonne and 9.2 cents.
The copper market may have been unnerved amid tight
market conditions by news in May of problems at LSNikko Copper No. 1 and No. 2 units, although production
in South Korea actually rose around 8% in the first half
of 2014. The No. 2 unit (290,000 tpa) at LS-Nikko’s
operations was closed first after a steam explosion, while
the 200,000 tpa No. 1 unit was shut down following a fire
at a cooling tower.
In Japan, the region’s second largest producer, cathode
output was up around 5% year-on-year in the first six
months of 2014, underpinned by higher processing fees
and strong domestic demand in infrastructure work as
the rebuild in the northeast of the country continued
after the 2011 major earthquake and tsunami. In early
October, Mitsubishi Materials announced that it would
cut its output by 11% to around 142,000 tonnes in
the six months through to end-March 2015, citing a
maintenance closure during the period. The Saganoseki
GFMS COPPER SURVEY 2014 UPDATE
and Tamano facilities are scheduled to close for
maintenance in the final quarter of this year. However,
the country’s smelters are still targetting 3% year-onyear growth for the October to end-March period.
Indian output was substantially higher in the first half,
boosted by a return to normal operation at Sterlite’s
Tuticorin smelter after it was closed from April to June
last year following a gas leak. Cathode output during the
March to June quarter was 66,000 tonnes versus 16,000
tonnes a year earlier and was achieved despite a 23-day
maintenance shutdown at the smelter during the period.
Cathode output at the company’s associated Silvassa
refinery fell by almost one-fifth or 65,000 tonnes in 2013.
In the DRC, SX-EW output, which accounted for around
95% of the country’s total last year, rose by more than
one-fifth year-on-year in the first half. Glencore’s
Katanga and Mutanda operations, which were reported
to have reached 200,000 tonnes per annum (tpa)
capacity by the end of last year, continued to make
significant and increasing contributions. Further gains
are expected through to the end of the year and beyond
with the addition of a further 100,000 tpa of capacity
at Katanga’s Luilu facility. Output at Luilu rose despite
continuing, albeit improving, disruptions to power,
the company said. Against this backdrop, it is worth
reiterating concerns voiced earlier this year that a lack
of power might peg back production growth in Katanga
province in coming years, giving rise to a degree of
caution over expansion plans in the country.
MINE PRODUCTION WINNERS AND LOSERS, H1 2014 VERSUS H1 2013
-25 kt
-10 kt
-5 kt
-1 kt
+1 kt
5 kt
+10 kt
+25 kt
Source: GFMS, Thomson Reuters
19
MINE AND REFINED PRODUCTION
Elsewhere in the region, refined output in Kazakhstan
dropped by around one-third in the January to June
period from a year earlier, as a result of the closure last
September of Kazakhmys’ Zhezkazgan smelting-refining
operation. Kazakhmys is in the process of restructuring,
and, as part of this, ownership of the smelter will be
transferred to private company Cuprum Holding. The
transfer of assets is due to be completed by the end of
the year. The company recently said the Disposal Assets’
management team was conducting an assessment of the
benefits of restarting the facility in the final quarter of
this year.
Also worth a mention in Asia, is the more than halving of
output at Glencore’s Pasar operation in the Philippines
as it struggled to recover after sustaining structural
damage from Typhoon Haiyan late last year. The plant
was closed in early November 2013 and only seems to
have resumed meaningful production levels in May. The
year-on-year comparison in the second half is likely to
look more favourable in light of the aforementioned
closure last year.
MINE AND REFINED PRODUCTION
GFMS COPPER SURVEY 2014 UPDATE
In the meantime, output in Africa’s other major producer,
Zambia fell year-on-year in the first half. SX-EW output
was stable over the period, but primary production from
concentrate recorded a double-digit drop amid declines
at both Mopani and Konkola.
Poland registered the most significant decline in
secondary output in the first half of the year in both
volume and percentage terms, although higher
production of primary metal from concentrate helped to
mitigate the negative impact on the total figure.
Copper cathode output in Chile fell by around 3% in the
first half from year ago levels, as a 7% decline in SX-EW
supply more than offset a modest rise in production
of primary metal from concentrate. Largely to blame
was a near-one-quarter decline in output at Codelco’s
Radomiro Tomic SX-EW facility to 156,000 tonnes,
while output at the smaller Gaby operation also fell by
around 20%. We are expecting some improvement in the
second half of the year, but do not believe that this will
be sufficient to prevent a fifth successive year of declines
in Chilean refined copper output, with SX-EW production
falling around 4% from 2013.
We understand that output at Freeport’s Atlantic Copper
smelter-refinery in Spain may have been adversely
affected by the suspension of concentrate exports from
Indonesia and the company’s large Grasberg mine. First
half figures do not seem to support this view, although it
is possible that output was constrained somewhat from
July ahead of the resumption of shipments, and that this
has yet to reflect in numbers. Freeport said that in the
first half Atlantic Copper took 31% of its concentrate from
its North American mines, 22% from its South American
mines and just 4% from Indonesia, which was shipped
before the suspension.
Brazilian refined copper output in the first half of 2014
was curtailed by around 20,000 tonnes as a result of
unscheduled maintenance work at the country’s sole
smelter and electrolytic refinery Camacari, owned by
Caraiba. The company said its main priority was to
continue to pursue high utilisation levels of installed
capacity, which it put at 280,000 tpa of primary copper.
Production in North America, and more particularly the
United States has benefitted in the first half of this year
from stronger output at Rio Tinto’s Kennecott operations.
In the first half the unit produced 123,200 tonnes, up
38% from a year earlier, while in the second quarter
output of 70,000 tonnes was almost 80% higher yearon-year. The positive comparison was largely down to
the impact last year of the pit wall slide at the Bingham
Canyon mine, although cathode output in the second
quarter was also brought forward in advance of a 65-day
planned maintenance shutdown which was scheduled to
start in September.
In Europe, production in Germany, the region’s top
producer and home to Aurubis, the world’s second
largest producer of refined copper, was lower in the first
half. Ramp-up at the company’s Hamburg operation
took longer than expected after major maintenance and
repair work was carried out in September/October 2013,
and the negative impact on concentrate throughput
carried over into the first quarter of 2014. The company
said that scrap supplies have also been tight, although
it had managed to secure sufficient material at all times.
The country’s secondary output was slightly lower than in
the same period last year.
20
GFMS COPPER SURVEY 2014 UPDATE
GLOBAL COPPER CONSUMPTION BY END USE (YEAR-ON-YEAR
CHANGE IN VOLUME, H1 2013 AND H1 2014)
3. CONSUMPTION
200
•
•
The mature economies, which saw copper demand
growth return to positive territory in the second half of 2013,
have accelerated. Indeed, in stark contrast to recent years,
the percentage growth rate in the United States and the
EU was very similar to that of China in the first six months
of this year, albeit with Chinese growth on a very different
trajectory. The performance in mature economies was
bolstered by autos and private sector construction.
H1-14
160
140
•
In China, the slump in the property market has been a
key contributor to the overall easing of growth there. When
coupled with an industrial sector which has seen growth fall
to multi-year lows it is unsurprising that copper demand
growth has fallen. However, it is noteworthy that the lag
between construction starting and copper use means that
demand for the red metal from this sector is still growing
appreciably. What’s more, the growth in Chinese copper
demand still accounted for 53% of the global increase.
H1-13
180
Tonnes (thousands)
Global refined copper consumption rose by 4% in the
first half of 2014, while a little slower than in the second
half of last year, this rate matched the improved growth rate
recorded overall in 2013. This performance though masks
a significant acceleration in demand growth in mature
economies which has been offset by a slowdown in China.
120
100
80
60
40
20
0
-20
Building
Electrical Transport Consumer Industrial
Source: GFMS, Thomson Reuters
MATURE ECONOMIES
UNITED STATES OF AMERICA
Demand in the United States has continued its gradual
recovery from the 2009 lows as consumption in the first
half of the year increased by 2.9% to 900,000 tonnes.
However, this apparently steady growth rate masks a
sluggish start to 2014 as the economy spluttered, due at
least in part to a particularly severe winter, before much
more rapid growth thereafter. This pattern has been
seen across all segments of demand with the second
quarter of the year marking sharp acceleration.
•
•
Despite this, the transportation sector globally has
been the star performer so far in 2014, with 7% growth
aided chiefly by surging car sales in the United States,
China and at last in the European Union. Despite the acute decline in copper’s use in the
construction sector in the later years of the last decade
due to the combination of a tumbling property market
and substitution losses (particularly for plumbing tube),
it remains by far the largest category of copper demand.
The sector consists of building wire, plumbing and
heating, air conditioning and commercial refrigeration,
builders’ hardware and architectural. The long-awaited
upturn in this sector finally arrived in earnest in 2013.
Furthermore, it has quickened over the first half of 2014,
to rise almost 6% and send demand to its highest since
the second half of 2008. Driving the uptrend has been
GLOBAL COPPER CONSUMPTION BY END USE
(000 tonnes)
H1.12 H2.12
H1.13 H2.13
H1.14
H1.12
H2.13
H1.14
Building construction
2,976 3,125 3,092 3,250 3,231 -3%
0%
4%
4%
4%
Electrical and Electronic products
3,729 3,837 3,912 4,084 4,029 1%
4%
5%
6%
3%
1,115 1,144 1,147
1,206 1,223 4%
3%
3%
5%
7%
951 1,000 965 1,063 1,027 -5%
-1%
1%
6%
6%
959 962 953 998 1,005 -2%
-2%
-1%
4%
5%
9,731 10,068 10,068 10,601 10,515 -1%
2%
3%
5%
4%
Transportation Equipment
Consumer and General Products
Industrial Machinery and Equipment
Total
% y-o-y
H2.12
H1.13
Source: GFMS, Thomson Reuters
21
CONSUMPTION
The picture in a number of emerging markets has been
distinctly disappointing. This is most acutely noticeable in
Brazil and Russia where copper demand in both countries
has actually dropped year-on-year. While the exact causes
vary vastly from policy paralysis and arguably the World
Cup in Brazil to geopolitical tensions and sanctions in
Russia, the net result is tumbling consumption from the
transportation sector in both countries.
GFMS COPPER SURVEY 2014 UPDATE
GLOBAL COPPER CONSUMPTION BY REGION (YEAR-ON-YEAR
CHANGE IN VOLUME)
GLOBAL COPPER DEMAND BY END USE
Industrial Machinery
& Equipment 9%
500
Building Construction
31%
Transportation
Equipment 11%
H1-14
400
Tonnes (thousands)
Consumer & General
Products 10%
H1-13
300
200
100
0
-100
BRICS
(ex. China)
Source: GFMS, Thomson Reuters
Electrical & Electronic
Products 39%
Source: GFMS, Thomson Reuters
CONSUMPTION
the strength in the residential property sector, a key
consumer of copper in the form of building wire. The rate
of expansion slowed briefly at the start of 2014, owing
in part to abnormally poor weather, but soon picked up
with a vengeance. Starts over the first six months rose
6% from the corresponding period of 2013 while housing
completions rose 15% year-on-year during the period.
Such solid growth has helped to balance the more erratic
performance seen in non-residential construction.
As a result, semi-fabricators have generally reported
robust demand for their products such as electrical
building wire, and have been amongst the beneficiaries
of an improving housing market. The performance of the
building wire sector has been assisted by the fact that
copper remains the material of choice for this application,
owing to its superior conductivity and the failure of past
experiments with aluminium. This has historically limited
the extent of substitution away from copper in this
sector, in contrast to other products such as plumbing
tube, where the development of cheaper alternatives
China
Mature
Others
Global
has dented copper’s market share irrevocably. That said,
there are signs that aluminium is gaining market share in
building wire in the United States.
Meanwhile, the transportation sector similarly saw
further growth fuelled by the automotive sector which
continues to recover from its recession lows. Indeed, by
August new car sales and light trucks had recovered to
their highest annualised rate since 2006 at 17.4 million
and up 10% year-on-year. What’s more, there is a slight
uptrend in the usage of copper per vehicle. The increased
requirement for wiring sparks greater copper use which
is only partially offset by thrifting. Demand from the
aviation industry has also been robust, with deliveries
from Boeing on course to increase some 11% for the year
as whole. Overall, we estimate growth in copper use in
transportation equipment to be up almost 5% in the first
half of 2014.
The weakest area of copper demand in the US was
the electrical and electronic products segment, which
WINNERS AND LOSERS IN FIRST HALF 2014, BY MAJOR GROUPINGS AND CONSUMING COUNTRIES
(000 tonnes)
Consumption H1.13
H1.14
Global Total
10,068 10,515
Change H1.14 vs H1.13 % Share of Change
Percent H1.13
H1.14
447
4%
100%
of which Mature
2,964
3,111
147
5%
-15%
100%
35%
of which BRICs
5,109
5,350
241
5%
102%
54%
China
4,260
4,499 238
6%
92%
53%
United States
875
900 25
3%
6%
6%
Germany
568
587 18
3%
-3%
5%
Japan
479
511 32
7%
-5%
8%
Russia
333
328 -5
-1%
10%
-1%
Italy
295
311
17
6%
0%
4%
Turkey
223
229
6
3%
3%
1%
Brazil
206
202 -4
-2%
1%
-1%
Source: GFMS, Thomson Reuters. Note that totals may not add due to independent rounding.
22
GFMS COPPER SURVEY 2014 UPDATE
UNITED STATES COPPER CONSUMPTION BY END USE
(000 tonnes)
H1.12 H2.12
H1.13
H2.13
H1.14
H1.12
% y-o-y
H2.12
H1.13
H2.13
H1.14
Building construction
371
373
385
393
406
-1%
1%
4%
5%
6%
Electrical and Electronic Products
183
169
185
167
173
-1%
-3%
1%
-1%
-6%
Transportation Equipment
121 113127 119133
Consumer and General Products
96
90
98
94
104
0%
2%
2%
4%
6%
Industrial Machinery and Equipment
82
66
81
68
84
-3%
-6%
-2%
3%
5%
853
810
875
841
900
2%
1%
3%
4%
3%
Total
19%7%5%6%5%
Source: GFMS, Thomson Reuters
suffered particularly from the poor weather at the start
of the year that hit demand, for example for aerial
transmission cables. The subsequent improvement in
the weather has seen consumption recover but weak
demand from utilities for distribution cables means this
sector remains the laggard for US copper demand. The
downturn in demand in Q1 from copper in consumer and
general products was less steep than in other sectors.
However, weak consumer confidence led to lacklustre
retail spending at the start of 2014 and ensured
sales of consumer electronics started the year poorly.
Nevertheless, the rebound arrived sooner and more
sharply than in the electrical sector.
EUROPEAN UNION
In contrast to the US, EU demand started 2014 rising
strongly year-on-year with signs of a broadening
economic recovery. Against this backdrop, the longawaited pick-up in copper demand that had begun in the
closing months of 2013 accelerated. Indeed in January
the Markit Eurozone Manufacturing PMI data had soared
to the highest level since June 2011 as the region exited
recession and as growth picked up elsewhere in Europe
too, for example in the UK. Even more encouragingly,
the recovery spread such that by April all countries
covered by the Eurozone PMI indicated growth for the
first time since November 2007. Growth was again led by
Germany, while Spain and Italy, which had struggled for
so long, also posted robust gains on renewed strength in
exports.
Both our own field research and reporting by European
consumers indicated this widespread improvement
Consequently, the fastest growing segment of European
copper demand lay elsewhere, namely in transportation
equipment. Our figures indicate that consumption in
the first half of the year in this area was up by over 9% to
205,000 tonnes, a three-year high. Crucial to this upturn
has been the long awaited pick-up in European auto
sales. Registrations of both passenger and commercial
vehicles have grown strongly in 2014, despite signs of a
slowdown in year-on-year growth in vehicle registrations
for both categories. This recovery is widespread with
France the only major market not benefitting directly
from an improving domestic market. Furthermore,
exports to North Africa for wiring harnesses have risen
strongly, with just the occasional exception when
political turmoil has struck. Meanwhile demand from the
aviation sector has also been robust, with offtake more a
reflection of continued strong deliveries of planes than of
the deceleration in orders which has taken place so far in
2014.
The largest area of copper demand in Europe, namely
building and construction which represents 38% of the
total, has also recovered, with consumption of building
wires growing sharply. The 5% increase in demand
from this area to 616,000 tonnes saw offtake rise to its
highest level since the second half of 2011. Underpinning
23
CONSUMPTION
Looking ahead, with building-related copper products
generally consumed at the latter stage of the
construction cycle, the ongoing strength in the housing
market looks set to continue to filter through to boost
copper consumption from the construction sector over
the coming months.
in conditions was felt across the continent’s copper
consumers and in all sectors, albeit to varying
degrees. Growth has been stellar in high-voltage
submarine cables in Northern Europe, aided by the
growth in offshore wind projects. This contributed to
the healthy 6% increase in fabrication demand from
the electrical and electronics segment in the first
half of the year. However, the weakness in the power
distribution business for both low and medium voltage
cables was held back by lower capital expenditure
by utilities. Meanwhile, despite an upturn in activity
in the telecommunications sector the further loss of
market share means that copper demand from this area
continues to languish.
GFMS COPPER SURVEY 2014 UPDATE
EU-28 COPPER CONSUMPTION BY END USE
(000 tonnes)
H1.12 H2.12
H1.13
H2.13
H1.14
H1.12
% y-o-y
H2.12
H1.13
H2.13
H1.14
Building construction
610596587596 616
-13%-6%-4% 0% 5%
Electrical and Electronic products
387
-8%
Transportation Equipment
195 178 188 188205
Consumer and General Products
Industrial Machinery and Equipment
Total
369
368
370
389
-3%
-5%
0%
6%
-7%-8%-4% 6% 9%
95
85
93
89
98
-13%
-12%
-2%
5%
5%
302
276
293
284
310
-7%
-7%
-3%
3%
6%
1,589
1,503
1,528
1,529
1,619
-10%
-6%
-4%
2%
6%
Source: GFMS, Thomson Reuters
CONSUMPTION
this was building construction (i.e. excluding civil
engineering) which as measured by Eurostat, was up
some 7.4% year-on-year in the first three months of 2014.
This was aided by double-digit growth in Germany and
construction up by over a fifth in Spain (albeit from pitiful
levels). However, demand from civil engineering was
steady rather than spectacular and building construction
has clearly slowed over the summer.
Indeed, economic indicators, particularly consumer
confidence, have shown a marked slowdown over the
summer months. However, our field research suggests
that while copper demand growth ebbed in the middle
of the year this was largely a reflection of seasonal
trends rather than any drop in underlying demand.
Geographically, as mentioned, the upturn has been
widespread across the continent, with the southern
markets including Spain, finally starting to pick-up. As a
result, we estimate consumption in the largest European
consumer, Germany has risen by 3% to 587,000 tonnes
and consumption in Italy is up by an even more rapid
6%, meaning it is on course for the first annual increase
since 2010. It is also worth noting that the recent events
in Ukraine, while appearing to have knocked consumer
confidence in some parts of Europe, do not seem to have
had any appreciable effect on EU copper demand, at
least to the time of writing. The exception to this positive
pattern is that copper use is down in Scandinavia.
We believe this is not a reflection of economic activity
but instead due to the closure of flat rolled product
capacity at Finspang in Sweden which has led to a slight
redistribution of flat rolled products output across the
region.
Overall, consumption in the European Union is up 6%
compared to a year earlier, to 1.62 million tonnes in the
first half of this year. This is the highest half yearly total
since the first six months of 2011. In addition to the
already mentioned factors demand for refined copper has
gained from a relative shortage of scrap. This shortage
appears to have eased a touch over the summer months,
helped in part by the continued absence of substantial
24
Chinese scrap purchasing. This slight easing of scrap
availability, combined with the slowing of the European
economy, means we would expect the growth rate in
refined copper demand to ease in the remainder of
the year. However, we would still expect growth to
occur as the recent steps from the ECB should provide
some solace to domestic demand and the consequent
weakness of the euro in recent weeks means that
exporters will undoubtedly benefit.
JAPAN
The recovery in the Japanese economy picked up pace in
the first quarter of this year, spurred in large part by the
(then) impending increase in the consumption tax from
5% to 8%. As a result copper demand was up by almost
10% in the first quarter of this year. Subsequently, the
increase in the consumption tax has sparked a sharp
slowdown in the second quarter both in the economy
and in copper demand. Overall, for the first half of 2014
demand is 7% higher, at a three-year high.
Unsurprisingly, given the sales tax increase, consumer
and general products saw an even more spectacular start
to the year as consumers brought forward purchases
of consumer electronics. In keeping with the growing
market for mobile devices, especially smartphones,
demand for ultra-thin copper foil used in highperformance applications was robust. Therefore, and
despite a slowdown in growth from April, demand from
consumer and general products was up 14% year-on-year
for the first six months of 2014. Meanwhile, domestic
demand continues to be bolstered by more infrastructure
work to rebuild the northeast of the country after the 2011
earthquake and tsunami and to prepare for the 2020
Olympic Games to be held in Tokyo. Japan’s domestic
copper demand has also been aided by the construction
of solar power plants which have boosted demand for
electric cables.
As in most of the mature economies, demand was also
strong from the transportation sector, with sales of
GFMS COPPER SURVEY 2014 UPDATE
GLOBAL SEMICONDUCTOR BILLINGS
MATURE ECONOMY COPPER CONSUMPTION
4000
Canada
United States
Japan
Tonnes (thousands)
3000
2000
1000
0
H1-09
H1-10
H1-11
Source: GFMS, Thomson Reuters; ICSG
H1-12
H1-13
200
Europe
Other Asia Pacific
Americas
Japan
Electronics Fabrication
160
automobiles rising very rapidly at the start of the year
as consumers brought forward purchases. However,
after the tax rose on April 1st auto sales have dropped
back markedly, to a three year low by August, and
consumption has eased, albeit not as sharply.
160
120
120
80
80
40
40
0
0
H1-08 H1-09 H1-10
H1-11
Source: GFMS, Thomson Reuters; SIA
H1-14
200
Global Electronics Fabrication (tonnes)
EU-28
Global Semiconductor Billings (millions of USD)
Ch4 Mature economies consumption
H1-12
H1-13
H1-14
Against this backdrop the actual state of copper demand
in the world’s largest consumer has actually held up
better than some may have expected. This is partly a
reflection of some copper-specific factors and, to a lesser
extent, government attempts to stimulate the economy.
Arguably the single most important factor has been a
relative shortage of scrap leading to a greater use of
refined metal by semi-fabricators.
This post-tax increase slowdown is, in our view, likely to
have finished by the end of the third quarter. However,
year-on-year comparisons will be harmed over the
following six months as they compare to the period of
peak activity ahead of the change. A more substantial
upturn is unlikely until it becomes crystal clear that the
second leg of the proposed sales tax increase (currently
scheduled for October 2015) is nearer and more certain.
Thus far in 2014 Chinese GDP growth has, by its own
stellar standards, been modest, at 7.4% and 7.5% for
the first and second quarters of the year respectively.
Furthermore, two of the areas which are vital for copper
demand have been creaking even more, namely property
and industry. In addition, the level of power grid
investment by the State Grid Corporation of China has
been well below its own targets so far this year, while it
has been audited.
The biggest sector of Chinese copper consumption is
electrical and electronic products, which accounts for
nearly half of total domestic consumption of the red
metal. Growth in this sector slowed unexpectedly in
the first half of the year, dragged down by the lack of
investment by the top Chinese power grid operators. At
the beginning of 2014, the investment plan announced by
the State Grid Corporation of China and China Southern
Power Grid was to increase spending by 12% year-on-
THE BRICS
JAPANESE COPPER CONSUMPTION BY END USE
(000 tonnes)
H1.12 H2.12
H1.13
Building construction
Electrical and Electronic products
Transportation Equipment
H2.13
H1.14
76 76 77 83 84
190
187
189
186
187
H1.12
% y-o-y
H2.12
H1.13
H2.13
H1.14
-4%6% 1%8%9%
-13%
-1%
-1%
0%
-1%
3531313433 46%
-4%
-13%7%
8%
Consumer and General Products
60
59
57
64
65
-7%
-1%
-5%
9%
14%
Industrial Machinery and Equipment
135
128
126
142
142
2%
-3%
-7%
11%
13%
Total
497
481
479
509
511
-4%
0%
-4%
6%
7%
Source: GFMS, Thomson Reuters
25
CONSUMPTION
CHINA
Overall, Chinese copper consumption has risen by 6%
year-on-year in the first six months of the year and, while
substantially weaker than the growth rate in 2013, it
means we still expect demand to be almost half a million
tonnes higher in the whole of 2014 compared to last year.
While this increase is less than that seen in many recent
years it is still very considerable for the copper market.
By way of context, it is larger than total demand for Brazil
and the United Kingdom combined.
GFMS COPPER SURVEY 2014 UPDATE
CHINA COPPER CONSUMPTION BY END USE
(000 tonnes)
H1.12 H2.12
H1.13 H2.13
Building construction
Electrical and Electronic products
H1.14
988
1,082
1,063
1,150
1,125
1,966
2,031
2,131
2,260
2,220
H1.12
% y-o-y
H2.12
H1.13
H2.13
H1.14
3%3%8%6%6%
6%
6%
8%
11%
4%
Transportation Equipment
378 410 415460 455
5% 3%10%12%10%
Consumer and General Products
431
488
457
530
491
2%
6%
6%
8%
Industrial Machinery and Equipment
185
199
194
211
208
2%
1%
5%
6%
7%
3,949
4,209
4,260
4,610
4,499
5%
5%
8%
10%
6%
Total
7%
CONSUMPTION
Source: GFMS, Thomson Reuters
year, which would have been a sharp increase on the
5% growth in 2013. However, the work undertaken by
the State Grid Corporation of China has been sluggish
so far in 2014. This appears to have been caused by the
auditing of the organisation which has already reportedly
uncovered $1bn of misappropriated funds. Consequently,
grid investment in the first half of the year totalled
RMB 164.9 billion, according to NBS figures, down 0.6%
year-on-year. Therefore, we estimate consumption in
Chinese electrical and electronic products had year-onyear growth of “only” 4%, to 2.2 million tonnes in the first
half of 2014. Looking to the second half of the year, we
estimate growth will accelerate slightly to 5% year-onyear given the impending roll out by the government of
Ultra High Voltage cables and new energy projects.
same period of 2013. There were two main catalysts for
this more rapid growth in the air conditioner sector. First,
domestic growth in demand was strong, up some 10%
compared to a year earlier. Second, demand was also
higher from overseas, due to an uplift in consumption by
other countries and also to the depreciation of the RMB
which made Chinese producers more competitive.
The trials and tribulations of the Chinese property
sector have been the area of greatest concern for the
state of copper demand so far in 2014. However, for
now, copper consumption by the building construction
sector has been supported by two factors. First, there
is a substantial lag between the decline in property
starts and this feeding through into copper demand and
second, the robust state of output of air-conditioners in
the first half of 2014.
The brightest spot of Chinese copper demand for the
first half of the year was the transportation equipment
sector as it grew by 10% to 455,000 tonnes. According
to the Chinese Association of Automobile Manufacturers
(CAAM), the total sales of passenger vehicles jumped by
11.2% year-on-year in the first half of 2014 to 9,094,000
units. Sales have also remained strong in July and
August as China remains the largest and most rapidly
growing major market. Demand is also being bolstered
by the rising market share of premium brands with their
higher level of gadgetry which use more copper wiring.
Looking in more detail at the property market, the total
amount of Chinese commercial housing sold in the first
half of the year amounted to 483.65 million sq. metres,
down by 6% year-on-year. Demand in the eastern part of
the country substantially underperformed even this poor
performance, as it was 14% lower. Furthermore, property
sales have been weak despite some recent policy
loosening in second and third tier cities. From a copper
demand perspective future prospects are gloomy as the
16% drop in floor space started in the first half of 2014 is
likely to feed through into weak copper demand from this
sector in 2015.
The air-conditioner market has bolstered this sector as it
has achieved year-on-year output growth of 16% over the
first six months of this year, compared to 5% during the
26
However, output is expected to decelerate in the second
half of 2014. This will be a function partly of the usual
slowdown in the second half of the year but weak
electricity consumption also shows that the country has
slowed down at the start of the third quarter. Finally, we
believe that stocks of air conditioners have also risen to
above normal levels which may lead to some destocking.
Another sub-sector of particular strength are new electric
passenger cars, which saw sales soar for the first seven
months of the year, up 280% on the level a year before, to
25,946 units. Electric vehicles have approximately three
times the copper content of typical passenger vehicles.
We would acknowledge though that the total copper
usage in this area is still only a small fraction of that
used in conventional automobiles. In a very similar vein,
production of hybrid cars has risen tenfold over the same
timeframe. However, volumes are even more miniscule
than that of pure electric vehicles in China and usage of
copper is closer to double, rather than treble, the amount
in a conventional family car.
GFMS COPPER SURVEY 2014 UPDATE
10
50
40
6
30
4
20
2
10
0
% Change y-o-y
Million Units
% y-o-y change
8
0
H1-10
H1-11
H1-12
H1-13
H1-14
Source: GFMS, Thomson Reuters; CAAM
Floor Space of Newly Started Buildings* (y-o-y %)
CHINA FLOOR SPACE OF NEWLY STARTED HOUSING
PERCENTAGE CHANGE*
CHINESE AUTO SALES BY HALF-YEAR
100
80
60
40
20
0
-20
-40
Jan-08 Jan-09 Jan-10 Jan-11
*3 Month Moving Average
Source: GFMS, Thomson Reuters; NBS
Jan-12
Jan-13
Jan-14
The rail sector is an important area of transportation
demand for copper in China. Indeed, investment in
railway construction was up 20% year-on-year over the
first eight months of 2014 compared to the same period
a year earlier, according to data from the China Railway
Corporation. This has been achieved following a splurge
of investment in July and August and means that 46 of a
total of 64 projects were completed by the end of August.
Accordingly, and unlike in recent years, this sector is on
course to complete its ambitious targets. In the whole of
2014 some 800 billion yuan is to be invested in Chinese
railways which will ensure that demand from the sector
will remain strong throughout the year.
ahead, output is set to see continued strong growth,
supported by the 4G infrastructure investment.
The prospects for auto demand are also promising.
Central and local government initiatives to eliminate
high-polluting vehicles look set to ensure robust
replacement demand. For example, since 1st September
2014 the government has exempted new energy cars
from a 10-percent purchase tax and this is set to last to
the end of 2017.
REST OF THE BRICS
While the Chinese economy has slowed, its growth rate
remains the envy of the other BRICs. In fact, the first half
of 2014 has seen copper demand in Brazil and Russia
actually fall compared to a year earlier.
In Russia, while the escalating events in Ukraine do not
seem to have had any appreciable effect on European
Union copper demand there has been a slowdown in
the Russian economy, partly as a result of the sanctions
that have ensued and the increased uncertainty. This
has seen the Russian economy stagnate over the past
six months or so and copper consumption has been
particularly hit by the slump in sales of cars and light
commercial vehicles which are down by 12% for the first
eight months of the year. Furthermore, the situation
is deteriorating with sales down 26% year-on-year in
August, and GM in Russia announcing that it would be
closed for all but a handful of days in September and
October. Overall, Russian copper demand in the first half
of the year was down 1% to 329,000 tonnes.
27
CONSUMPTION
Chinese copper consumption in the consumer and
general products sector achieved 7% year-on-year growth
in the first half of 2014, similar to the growth rate in
2013. The strong upturn in sales (and hence production)
of smartphones and tablet devices is a key driver of
demand in this area. A series of factors stimulated sales
of the smartphone in the first half of 2014, including the
accelerated transition of 2G subscribers to the 3G/4G
network and the replacement demand stimulated by
attractive 4G packages. However, it is worth cautioning
that where sales of these devices are replacing sales
of traditional PCs, and not just adding to the number
of electronic devices, this is actually leading to a loss
of copper consumed overall as the volume of copper in
them is much smaller than in traditional PCs. Looking
Turning to the smallest category of copper consumption
in China, the industrial machinery and equipment sector,
demand increased by 7% year-on-year in the first half of
2014. This level was constrained by faltering industrial
activity, in addition to the ongoing government-induced
slowdown in the property sector and, as a result, growth
was half the 2010/2011 average. The scale of the
slowdown in the industrial sector is highlighted by the
drop in industrial production growth to a five-year low of
6.9%, the weakest growth rate since December 2008.
GFMS COPPER SURVEY 2014 UPDATE
CONSUMPTION
In addition, Russia eliminated a 10% tax on cathode
exports, which was reintroduced in 2010, by signing a
law on July 24th. This was passed in order to comply
with rules governing its WTO membership, although it
was undertaken considerably ahead of a 2016 deadline.
This move is likely to have the effect of boosting Russian
exports of cathode as opposed to semi-finished products
(the country has been a big exporter of wire rod in recent
years). Naturally this would lower copper consumption
in Russia but it should benefit other wire rod producers,
most likely those based in Europe and the Middle East.
Recent field research suggests that at the time of writing
the immediate impact appears to have been minimal. It
is also worth noting that the vast bulk of Russian cathode
is 99.5% purity whereas much of the cathode used in
Europe is high grade.
Turning to Brazil, the picture becomes even gloomier
from both a general economic standpoint and from
the perspective of copper demand. Consumption in
the largest South American user of the red metal has
dropped by 2% year-on-year in the first half of 2014
to 202,000 tonnes. Just as in Russia, transportation
has been the weakest sector, with car sales down some
8% year-on-year in the first half and exports of autos
35% lower over the same timeframe. As a result, we
estimate copper demand from this sector was down
some 14% over that period. Overall, the third quarter
has seen copper demand continue to languish as the
economy has almost certainly tumbled into recession,
exacerbated from an economic standpoint by a series of
public holidays to mark the fact that the football World
Cup was being staged there. Meanwhile demand for
aerial transmission cables for the power sector has also
softened so far in 2014.
The prospects in Brazil are partly contingent on the
presidential election that is pending at the time
of writing. Overall, it is hard to imagine that the
Brazilian economy is not set to improve from its poor
performance over the past six months, especially as some
infrastructure is still to be built for the 2016 Olympics.
India in contrast provided some good news on the
demand front. Copper demand has at least grown
in the first half of this year, by an estimated 4% to
321,000 tonnes. Even this mediocre performance was
helped by no repeat of the shutdown of the Birla smelter
a year earlier (this had restricted supply to local cable
manufacturers and engineering firms in May 2013).
Looking ahead, India’s prospects appear to be improving,
however this does rely on the new Modi government
starting to deliver on its promises.
28
REST OF THE WORLD
Demand in the rest of the world is up 3% in the first
half of 2014 compared to a year earlier, slightly faster
than the pace at any time since the first six months of
2010. As ever with such a disparate group the overall
performance masks some stark contrasts. At one end of
the spectrum lies Australia, suffering from the effect of
the Chinese slowdown which is triggering slower growth
in the Antipodean island. This has particularly affected
the mining sector with knock-on impacts for industrial
machinery and building and construction. The latter
is not helped by the competitive pressures from Asian
neighbours. That is only likely to be compounded by the
Federal government’s new free-trade deal with South
Korea, which cut the 5 per cent tariff on copper products
imports from that country. The latest symptom of this
is the announcement in September of the closure of the
Crane copper tube business. Copper demand is already
down by half from its 2008 level in this country.
In addition to the aforementioned potential gain from
the free trade deal with Australia, South Korea, the
largest consumer in this category, has seen demand
start to grow again after three consecutive years of
declines. Crucial to this turnaround was the pick-up in
the underlying economy after a trough in late 2012/early
2013.
At the other end of the spectrum in tonnage terms, lies
the continued growth in demand from the United Arab
Emirates due to the growth in semi-manufacturing
capacity. This boost is chiefly from energy cables to feed
the ongoing expansion of the Gulf Cooperation Council’s
infrastructure networks. This is having a similar, if more
muted impact, in Saudi Arabia.
THE GFMS TEAM AT THOMSON REUTERS GRATEFULLY ACKNOWLEDGES
THE GENEROUS SUPPORT FROM THE FOLLOWING COMPANIES FOR THIS YEAR’S
GFMS COPPER SURVEY AND ITS UPDATE
The Center for Copper and Mining Studies, CESCO, is an independent, non-profit organization whose mission is to
contribute to the design and debate of public policies which foster the best use of the mining industry’s potential for
the development of economies of mineral producing countries, with a special focus on Chile.
Throughout its history, CESCO has positioned itself as a meeting point for diverse sectors that include academia,
policymakers, professionals and those involved in the mining-business in order to promote ideas and discuss criteria
about public policies related to economic and mining activities.
KGHM is a Poland-based and globally operating mining company, with more than half a century of experience in
the industry. It is the world’s leading copper and silver producer, with the offered range of products also including
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development and exploration projects, spanning the globe in Poland, Germany, Canada, Chile and the USA. In July
2014, the company started production in its copper, molybdenum and gold mine in Sierra Gorda, which is located in
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GFMS COPPER SURVEY 2014
UPDATE
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