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Michael Lampard
Copper prices are estimated to average around US$4625 a tonne in the first nine months of 2009, which is 42 per cent lower than the corresponding period in 2008. Despite this large decline, copper prices have more than doubled during the first nine months of 2009, reaching a high of US$6465 a tonne in September. The recent sharp rise in copper prices is attributable to significant increases in China’s imports of refined copper and improved market sentiment toward the short-term global economic outlook.
In the first seven months of 2009, China imported 2.1 million tonnes of refined copper, which was an increase of 170 per cent compared with the same period last year. This rapid increase is attributable to China’s US$586 billion stimulus package, strategic stock building, reduced availability of copper scrap and a positive price differential between the Shanghai Futures Exchange (SHFE) and the London Metals Exchange (LME).
In the second half of 2009, China’s imports of refined copper are likely to grow at a slower rate than in the first half of the year. China’s recent trade data show imports of copper scrap increased by 60 per cent month on month in July 2009 to their highest level since September 2008. Increased scrap imports are likely to place downward pressure on China’s imports of refined copper. The increased availability of copper scrap is likely to result in an increase in China’s refined copper production, reducing the need to import. Also, the completion of stock building by China’s State Reserves Bureau and the narrowing of the price differential between the SHFE and the LME are expected to contribute to further downward pressure on China’s imports of refined copper for the remainder of 2009.
Copper prices are forecast to average around US$6065 a tonne in the second half of 2009, as world economic conditions improve gradually and stock building in OECD economies takes place, leading to increased copper demand. For 2009 as a whole, refined copper production is forecast to exceed copper consumption, resulting in an increase in stocks to around 4.1 weeks of consumption by the end of the year. Reflecting this, the copper price is forecast to decline by 27 per cent to average US$5060 a tonne for 2009 as a whole. Movements in the copper price for the remainder of 2009 will be influenced by the extent to which China continues to import refined copper, market sentiment surrounding future world copper consumption, and the timing and rate of stock rebuilding outside China.
In 2010, world copper consumption is forecast to increase, underpinned by a gradual recovery in OECD economic growth. Consumption in China is also forecast to remain strong as infrastructure investment continues. The increase in global consumption is forecast to result in copper stocks declining to 3.7 weeks of consumption by the end of 2010 and the copper price increasing by 33 per cent to average US$6725 a tonne in 2010.
A key risk associated with the price forecast is the underlying assumption of world economic recovery in 2010, especially the pace of economic improvements in major OECD countries. If economic activity in major developed economies, especially the United States, Japan and western Europe, recovers significantly faster than currently assumed, copper prices in 2010 could average higher than currently forecast. Alternatively, copper prices could be significantly weaker for an extended period, if economic weakness in OECD countries persists into 2010.
Global copper consumption is forecast to decline by 3 per cent to 17.4 million tonnes in 2009, as world economic activity contracts. World consumption of copper, excluding China, is forecast to decline by 13 per cent to 11.2 million tonnes in 2009. In 2010, world copper consumption is forecast to increase by around 5 per cent to 18.3 million tonnes, as demand for copper in developed economies recovers in response to an assumed gradual recovery in global economic activity and rebuilding of stocks.
In the first six months of 2009, China’s apparent consumption of copper (production + net imports – reported stock changes) increased by 47 per cent year on year. China’s stimulus package has supported copper consumption in the first half of 2009, with significant expenditure on copper intensive infrastructure, such as public sector construction and electrical distribution networks. For the remainder of the year, China’s apparent consumption of refined copper is expected to moderate as the restocking process is expected to end. Nevertheless, copper consumption for 2009 as a whole is forecast to increase by 21 per cent to 6.2 million tonnes.
In 2010, China’s apparent copper consumption is forecast to continue to increase, albeit at a slower rate than in 2009. Continued urban infrastructure spending and a recovery in export demand for copper intensive goods associated with an assumed recovery in OECD economies are expected to support increased copper consumption.
Consumption in OECD economies in 2009 is forecast to contract by around 13 per cent to 7.6 million tonnes. Lower copper consumption reflects reduced construction activity and falling demand for consumer durables such as cars and household appliances. OECD countries with the largest recorded declines in copper consumption include Japan, Canada, Germany, France and the United States.
In 2010, OECD copper consumption is forecast to increase by 5 per cent to nearly 8 million tonnes, reflecting an anticipated improvement in construction activity and industrial production.
In the United States, the world’s second largest copper consumer, copper consumption is forecast to contract by around 15 per cent to 1.7 million tonnes in 2009, as demand for copper in housing construction and the production of consumer durables declines. Housing permits and starts, two leading indicators of copper consumption, recorded historic lows in the first half of 2009. In addition, production of copper intensive goods has declined significantly over the past 12 months, with large falls in production of automobile and consumer durables.
Weakness in the US housing market and production of copper intensive goods is expected to remain for the remainder of 2009 and into at least the early part of 2010, placing downward pressure on copper consumption.
For 2010 as a whole, copper consumption is forecast to increase by 6 per cent to 1.8 million tonnes in the United States, which reflects an assumed gradual recovery in both the US housing market and production of copper intensive goods later in the year. Despite this forecast growth in 2010, copper consumption is expected to remain below that achieved in 2008.
Mine production is forecast to remain flat at around 15.6 million tonnes in 2009, as increased production in Indonesia, Africa and Australia is offset by lower production in the United States and the European Union. In Indonesia, mine production is forecast to increase by around 250 000 tonnes, which reflects the intersection of higher grade ore at Freeport’s Grasberg operation and improved metal recovery at Newmont’s Batu Haiju mine. Mine production in Africa is forecast to increase by 20 per cent to 1.2 million tonnes, reflecting the start up of Freeport’s Tenke-Fungurume mine (110 000 tonnes) in the Democratic Republic of Congo and Equinox Minerals’ Lumwana mine (170 000 tonnes) in Zambia in the first half of 2009. In Australia, production is forecast to increase by 1 per cent following the commissioning of OZ Minerals’ Prominent Hill operation (120 000 tonnes) and Newmont’s Boddington gold mine. Partially offsetting these production increases is forecast lower production in the United States, where Phelps Dodge’s Morenci (380 000 tonnes) and BHP Billiton’s Pinto Valley (70 000 tonnes) have both lowered production in 2009.
In 2010, world mine production is forecast to increase by 4 per cent to 16.2 million tonnes as production in Africa, Chile and Australia increases. In Africa, Vedanta’s Konkola Deep mining project in Zambia is expected to begin production, while Freeport’s Tenke-Fungurume in the Democratic Republic of Congo (100 000 tonnes) is forecast to increase production as it approaches capacity. In Chile, production increases at a number of existing mines including Escondida, Andina, El Teniente, Pelambres and Candelaria are also expected to contribute to increased copper production. The largest increase is expected to come from Codelco ’s El Teniente expansion (100 000 tonnes), which is scheduled for completion in the first half of 2010. Some mines that were closed in 2008, as a result of low prices, are expected to reopen during the course of 2010. This is also expected to increase world production.
In 2009, refined copper production is forecast to fall by 3 per cent to 18 million tonnes, as both primary and secondary refined production decline. Weak demand and low profit margins in the European Union and most developed economies are forecast to lead to a decline in refined primary production. Profitability of refineries remains low, which reflects low treatment and refinery charges (the price refineries receive for refining copper) and falling sulphur prices (sulphur is produced as a by-product in the smelting process). In addition, secondary refined production is expected to be lower in 2009 as reduced availability of copper scrap in the first half of 2009 has limited production. Offset to some extent by these forecast production declines is an expected increase in solvent extraction electrowinning (SX-EW) production driven primarily by the start up of Tenke-Fungurume (100 000 tonnes) in Africa as well as Inmet Mining’s Las Cruces operation (70 000 tonnes) in Spain.
In 2010, a forecast increase in copper demand is expected to result in refined copper production increasing by 2 per cent to 18.3 million tonnes. Growth in refined production is forecast to come from increased SX-EW production and higher secondary refined production as availability of scrap returns to more usual levels. Most of the increased SX-EW production is forecast to come from operations commissioned in 2009 and from the restarting of small SX-EW operations that were closed as a result of low prices in 2008.
In 2008-09, Australian copper mine production increased by 3 per cent to 889 000 tonnes. Increased production at BHP Billiton’s Olympic Dam and the commissioning of Oz Minerals’ Prominent Hill more than offset lower production at Xstrata’s Queensland operations and mine closures in the first half of the financial year. Mines that closed in the financial year include Compass Resources’ Browns Oxide SX-EW (10 000 tonnes), Barminco’s Eloise (16 000 tonnes), Matrix Metals Leichardt SX-EW (9000 tonnes) and CopperCo’s Lady Annie SX-EW (20 000 tonnes). Despite significant closures to Australia’s SX-EW capacity in 2008-09, refined production increased by 12 per cent to 499 000 tonnes, reflecting significant increases in refined production at Xstrata’s Townsville Refinery and BHP Billiton’s Olympic Dam operation.
Australian production of copper ores and concentrates is forecast to increase by 9 per cent to nearly 1 million tonnes in 2009-10, which is attributable mainly to the commissioning of Newmont’s Boddington gold mine and a full year’s production at Oz Mineral’s recently started Prominent Hill operation. Refined production is forecast to decline by 6 per cent to 470 000 tonnes in 2009-10, primarily reflecting lower SX-EW production as a result of mine closures in 2008.
Reflecting both higher mine and refined production in 2008-09, the metallic content of copper exports increased by 18 per cent to 847 000 tonnes. In 2009-10, the metallic content of exports is forecast to decline to around 813 000 tonnes, as increased concentrate exports are expected to be offset by lower refined copper exports.
Australia’s copper export earnings declined by 14 per cent to $5.8 billion in 2008-09. This reflects a significant decline in world copper prices, that was not fully offset by increased export volumes and a lower Australian dollar. In 2009-10, a forecast increase in world copper prices and steady export volumes are expected to more than offset an assumed appreciation of the Australian dollar, resulting in export earnings increasing by 8 per cent to $6.2 billion.
Copper outlook |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
f |
2010 |
f |
% change |
|||||
| World | ||||||||||
| Production | ||||||||||
| – mine | kt |
15 556 |
15 587 |
16 157 |
3.7 |
|||||
| – refined | kt |
18 475 |
17 988 |
18 284 |
1.6 |
|||||
| Consumption | kt |
18 032 |
17 420 |
18 340 |
5.3 |
|||||
| Closing stocks | kt |
808 |
1 376 |
1 321 |
– 4.0 |
|||||
| – weeks consumption | 2.3 |
4.1 |
3.7 |
– 9.8 |
||||||
| Price | US$/t |
6 976 |
5 060 |
6 725 |
32.9 |
|||||
USc/lb |
316.4 |
229.5 |
305.0 |
32.9 |
||||||
2007-08 |
2008-09 |
s |
2009-10 |
f |
||||||
| Australia | ||||||||||
| Mine output | kt |
863 |
889 |
973 |
9.4 |
|||||
| Refined output | kt |
444 |
499 |
470 |
– 5.8 |
|||||
| Exports | ||||||||||
| – ores and concentrates | kt |
1 694 |
1 802 |
1 860 |
3.2 |
|||||
| – refined | kt |
296 |
361 |
310 |
– 14.1 |
|||||
| – total value | A$m |
6 730 |
5 766 |
6 221 |
7.9 |
|||||