abare.gov.au - Australian commodities – June quarter . volume 15 . number 2 2008

Copper

In April 2008, world copper prices traded at a record US$8880 a tonne. The record high copper prices reflect tight market conditions triggered by labour-related disruptions at a number of Chilean mines at a time when copper stocks are historically low.

Supply disruptions to support copper prices in 2008…

In 2008, world copper prices are forecast to increase by 10 per cent to US$7828 a tonne (US355.1c/lb). In the first five months of 2008, prices averaged US$8077 a tonne, an increase of 22 per cent year on year. Copper prices in the second half of 2008 are expected to decline moderately but remain well above the historical average in real terms. For the remainder of 2008, copper prices are expected to be supported by the tight supply–demand balance as a result of the likelihood of continued industrial disputes in Chile (the world’s largest copper producer) lower ore grades and strong demand from emerging market economies.

World consumption is expected to slightly exceed production in 2008, and as a result, world copper stocks are expected to decline to around two weeks of consumption, well below historical averages.

…but weakening in 2009

In 2009, world copper prices are forecast to decline by 8 per cent to average around US$7169 a tonne (US325.2c/lb). Additions to supply capacity are forecast to outpace growth in demand, allowing stocks to increase to 2.3 weeks of consumption.

Strong consumption growth in 2008

World refined copper consumption is forecast to increase by 5 per cent in 2008 to 18.8 million tonnes as strong demand from China offsets weaker demand from developed economies.

China is expected to remain a key driver of growth in world copper consumption, with strong growth in output of copper-intensive goods such as motor vehicles, electric motors and airconditioners forecast to continue. In addition, China’s electricity generation sector and power grid, which accounts for half of China’s copper consumption, will continue to expand. In 2008, expansions to China’s electricity generation capacity are expected to total 90 gigawatts, requiring an estimated 2 million tonnes of copper.

US consumption continues to decline

In the first quarter of 2008, consumption of refined copper in the United States declined by 7 per cent year on year. This reflects a slowdown in the housing and manufacturing sectors as a result of problems in the US subprime mortgage market. For 2008 as a whole, copper consumption in the United States is forecast to decrease by 6 per cent to 1.9 million tonnes. With weaker growth in the US economy likely to continue into the first half of 2009, growth in copper consumption is expected to be relatively subdued, although there is potential for it to recover later in 2009.

World mine production to increase despite disruptions

In 2008, world copper mine production is forecast to increase by 5 per cent to 16.3 million tonnes as production commences at a number of new mines. The largest of these, in terms of production capacity include Codelco’s Gaby and Andina projects in Chile (capacity of 150 000 and 120 000 tonnes a year respectively), Equinox Minerals’ Lumwana mine in Zambia (169 000 tonnes a year) and Oxiana’s Prominent Hill mine in Australia (90 000 tonnes a year). Increased production is expected to be partially offset by production losses associated with labour disputes in Chile and Mexico, which have persisted for a number of years and are expected to continue, at least in the short-term.

In 2009, world copper mine production is forecast to increase by a further 8 per cent to 17.5 million tonnes as a number of projects commissioned in 2008 approach full capacity, and two large projects in the Democratic Republic of Congo commence operations. These two projects are the Nikanor-Katanga joint venture KOV mine restart (250 000 tonnes a year) and Freeport’s Tenke Fungurume (114 000 tonnes a year).

Despite the forecast increase in output, mine production may be adversely affected by lower ore grades, labour disputes, and difficulties in sourcing equipment, all of which present a downside risk to this production forecast with the potential to further push up world copper prices.

Copper outlook

2006

2007

2008-09

% change

World

Production

– mine

15 569

16 286

17 530

7.6

– refined

17 972

18 733

19 987

6.7

Consumption

17 864

18 807

19 837

5.5

Closing stocks

812

738

888

20.3

– weeks consumption

2.4

2.0

2.3

15.0

Price

US$/t

7 133

7 828

7 169

– 8.4

USc/lb

323.5

355.1

325.2

– 8.4

2006

2007

2008-09

Australia

Mine output

859

874

1 014

16.0

Refined output

435

429

529

23.3

Exports

– ores and conc.

1 493

1 694

1 673

– 1.2

– refined

290

286

381

33.2

– total value

A$m

6 526

6 628

7 159

8.0

f ABARE forecast. s ABARE estimate.

Refined production expanding.

World production of refined copper is forecast to increase by 4 per cent in 2008 to around 18.8 million tonnes, and by a further 7 per cent to 20 million tonnes in 2009. This growth is expected to be supported by 17 per cent growth in China’s refining capacity over the next two years and new solvent extraction electrowinning (SX–EW) projects in Chile. However, higher rates of growth of refined copper production is expected to be limited by the availability of copper concentrates.

Australian export earnings to increase

In 2007-08, Australian copper mine production is estimated to have increased by 2 per cent to 874 000 tonnes. The higher production was a result of CopperCo’s Lady Annie (25 000 tonnes a year), Matrix Metals’ Leichardt mine (10 000 tonnes a year), both in Queensland, and Jabiru Metals’ Jaguar mine (9600 tonnes a year) in Western Australia all beginning operation. In addition, production at Ernest Henry and Mount Isa increased during 2007-08 following lower production in 2006-07 as a result of maintenance shutdowns and the mining of lower grade ores.

Australian copper mine production in 2008-09 is forecast to increase by 16 per cent to around 1 million tonnes. Projects scheduled to begin production in 2008-09 include Oxiana’s Prominent Hill (90 000 tonnes a year), Newmont’s Boddington gold project (30 000 tonnes of copper a year), CBH resources’ Sulfur Ssprings (20 000 tonnes a year) and Compass Resources’ Browns Oxide (10 000 tonnes a year).

Refined copper production is estimated to have decreased by 1 per cent to 429 000 tonnes in 2007-08, reflecting lower production at Xstrata’s Townsville Copper Refinery and BHP Billiton’s Olympic Dam. In 2008-09, refined production is forecast to increase by 23 per cent to 529 000 tonnes, with production at Townsville and Olympic Dam expected to return to normal and CopperCo’s Lady Annie SX-EW project approaching capacity.

Reflecting higher production, Australia’s exports of ores and concentrates are estimated to have increased by 13 per cent. However, exports of refined copper are estimated to have decreased by 1 per cent in 2007-08.

In 2008-09, exports of Australian copper ores and concentrates are forecast to decline by 1 per cent to 1.7 million tonnes as Australian refining capacity increases and a larger proportion of ores and concentrates is refined domestically. As a result of higher production, Australian exports of refined copper in 2008-09 are expected to increase by 33 per cent to 381 000 tonnes.

Australian export earnings from copper are estimated to have increased slightly to $6.6 billion in 2007-08 as higher world prices and increased production were largely offset by the significant appreciation of the Australian dollar. In 2008-09 export values are forecast to increase by 8 per cent to $7.2 billion. This forecast increase in export earnings mainly reflects the effect of higher export volumes which more than offsets an expected decline in world prices.

Solvent extraction-electrowinning (SX-EW)

Solvent extraction-electrowinning uses copper oxide ores. It is a hydrometallurgical process, as the copper is either in an aqueous or organic environment during processing until it is reduced to a metal form. This process involves leaching the material with a weak acidic solution (generally sulfuric acid). The solution (pregnant liquor) is then recovered and contacted with an organic solvent (extractant) in the solvent extraction phase. This extracts the copper and leaves most of the impurities in the leach solution. The copper-bearing material is advanced to the electrowinning stage, while the leach solution is returned to the solvent extraction stage. In the electrowinning stage the copper is reduced electrochemically from the copper sulfate solution to a cathode.

SX–EW has a number of benefits over conventional processing, including the production of pure cathode on site, the ability to treat lower grade ores and its suitability for both small and large scale projects. However, the SX–EW process is electricity intensive, so the economics of production are sensitive to electricity costs.