The copper market continues to find increased support from the highly positive growth outlook projected for the Asian Economies. The International Monetary Fund projects an economic growth rate of 6.6 per cent in 2019 for the region, comparable with rates forecasted for 2017 and 2018. This steady growth creates a strong platform for base metals markets, particularly copper. While Asia accounts for more than 60 per cent of global copper demand, the region is woefully lacking in domestic supplies and must import copper to meet that demand. The positivity in the copper is also supported by the fact that the supply crunch brought on by low levels of current aboveground supply, the dearth of new copper discoveries and the lack of new mines coming into production over the past decade. The lack of new copper discoveries around the world has led the big players like BHP and Antofagasta investing in a lot of juniors (Smaller mines), picking up where they can to feed production. In the new strategic shift, the advanced Asian economies such as China, Japan and South Korea are looking to lock the access to high-quality copper deposits through strategic partnerships with junior explorers in mining-friendly jurisdictions.
The current level of S&D analysis, suggest that the mining supply is consistently declining. World mine production is estimated to have declined by 2.4 per cent in the first eleven months of 2017, with concentrate production declining by 2 per cent and solvent extraction-electro-winning declining by 3.5 per cent. The decline in world mine production was mainly due to a 1.6 per cent decline in production in Chile, the world’s biggest copper mine producing country which was negatively affected by the strike at the Escondida mine and lower output from Codelco mines, Reductions in concentrate production in Argentina, Canada and Mongolia of 57 per cent, 15.5 per cent and 15 per cent respectively were mainly due to lower grades in planned mining sequencing and Argentina’s Alumbrera mine approaching end of life, a 14.5 per cent decline in Indonesian concentrate production as output was constrained by a temporary ban on concentrate exports that started in January and ended in April, and 12 per cent decline in production in the United States mainly due to lower ore grades, reduced mining rates and unfavourable weather conditions at the beginning of the year. However these reductions in output were partially offset by 30.5 per cent and 3.7 per cent increases in Kazakhstan and Peruvian mine production, respectively, with both countries benefiting from new and expanded capacity that was not yet fully available in 2016. Brazil, Mexico, Myanmar, Spain and Sweden also contributed to world growth. On a regional basis, mine production is estimated to have declined in the Americas by 2.5 per cent, in Asia by 4.5 per cent and in Oceania by 5 per cent while increasing in Europe (including Russia) by 2.5 per cent and remaining essentially unchanged in Africa.
World refined production is estimated to have slightly increased by 0.5 per cent in the first eleven months of 2017 with primary production (electrolytic and electro-winning) declining by around 1.5 per cent and secondary production (from scrap) increasing by 9 per cent. Increased availability of scrap allowed world secondary refined production to increase, notably in China. The main contributor to growth in world refined production was China (increase of 5 per cent), followed by India (6.5 per cent) and some EU countries recovering from maintenance shutdowns in 2016. However, overall growth was offset by a 7.5 per cent decline in Chile, the second largest refined copper producer, where both primary electrolytic refined production and electro-winning production declined. Production also declined in the third and fourth world leading refined copper producers, namely, Japan (-4 per cent) and the United States (-11 per cent). On a regional basis, refined output is estimated to have increased in Asia (3.5 per cent) and in Europe (3.5 per cent) while declining in the Americas (8 per cent) and in Oceania (15 per cent) and remaining essentially unchanged in Africa (2 per cent).
On the demand side, World apparent refined usage is estimated to have increased modestly by 0.6 per cent during the first eleven months of 2017. Improved scrap supply constrained world refined copper usage growth globally in 2017. Preliminary data indicates that world ex-China usage increased by 0.3 per cent while Chinese apparent usage (currently representing almost 50 per cent of world refined usage) increased by around 0.9 per cent. Chinese apparent usage (excluding changes in unreported stocks) increased by 0.9 per cent as although refined copper production increased by 5 per cent, net imports of refined copper declined by 9 per cent. Among other major copper using countries, usage increased in India and Japan but declined in the United States, Germany and South Korea.
Seeing the developments in the patterns of supply and demand, we can see that the demand is expected to surpass the supplies leading to upside pull in the prices in the months to come. Infrastructural development in major countries such as China and India will continue to sustain growth in copper demand. An interesting technological factor influencing rising copper demand stems from the growth in the electric vehicle (EV) market. As per a study, conventional cars use 23 kilograms of copper compared to 51 kilograms in plugins and 77 kilograms in EVs. This market is expected to grow at a CAGR of 5.2 per cent (by volume) over the forecast period and reach a volume of 2,826,309 MT by 2027 end. Currently, the global automotive wires market is estimated to be about 1,700,440 MT in terms of volume by 2017 end. Moreover, the Chinese government has issued the first two rounds of solid waste import licenses for 2018, and copper scrap import license numbers and tonnages are down by more than 94 percent each. By such moves China has taught the rest of the developing world a valuable lesson as it pertains to acquiring affordable raw materials through the leveraging of their labor markets, the strategy well followed by Japan & South Korea.
Copper demand is highly correlated with global economic activity. With Asia accounting for 69 per cent of the global copper usage, demand from emerging economies, like China and India, significantly impacts the metal's overall demand. In the coming times, copper prices are likely to be supported by supply constraints, such as Chinese scrap import restrictions, potential labour disputes at large mines and a looming shortage further ahead. In China, demand was likely to be driven by power demand and greater investment in electricity infrastructure. Currently, a combination of rising freight rates and anemic physical premiums, particularly for Chinese delivery, has effectively trapped this metal. Overall, Copper demand is expected to rise 2 per cent in 2018, driven primarily by infrastructure development in major countries such as India, China, and the United States resulting in steady support for the copper market.