NBHC’s First Kharif Crop Estimates for 2019-20

As the arrival of monsoon delayed over a week, the withdrawal has also delayed this year. Met experts believe that the withdrawal is likely to commence only by the end of September. In June this year, the delay in the arrival of monsoon and the subsequent impact of cyclone Vayu resulted in the worst performance of monsoon in the last five years. However, bountiful rains in July and August made up for a substantial deficit of 33 per cent. Now, the 2019 monsoon figures are the best in the last five years with over 5 per cent excess rainfall. India received a total of 931.6 mm rainfall from 1^st June to 30^th September as against the normal of 869.4 mm. Heavy rains in August and September caused floods across Rajasthan, Maharashtra, Karnataka and Kerala. Based on the above conditions we fell that the total Kharif crop production scenario for the year 2018-19 would turn out to be as explained in table given below.

Total Rice is expected to show marginal improvements in area by 2.80 per cent because of farmers are shifted 20 per cent – 25 per cent crop area from non-basmati rice to basmati rice in Punjab on higher export demand of last year. Receding waters in flood affected regions of Bihar, Odisha and Karnataka have helped in recovering area under paddy cultivation but delayed in sowing we are expecting lower yield by 4.82 per cent. To save water for our future generations, Department of Agriculture and Farmers welfare, Haryana launched a new pilot scheme. The scheme is for replacement of paddy by Maize and other crops in 7 dark zone brocks with a target to diversify around 5oooo Ha area from this season.  A smaller crop last year pushed India to import maize after a gap of two years; acreage is expected to increase by 7.17 per cent this year but still we are expecting a 10.64 per cent lower crop size because of the widespread fall armyworm infestation which is already showing signs of aggravations. Area and production of Jowar is expected to fall by 4.79 per cent and 3.70 per cent respectively and Bajra area is expected to increase by 2.47 per cent despite decline in production by 5.83 per cent.

In the pulses sector, acreages under Tur and Urad exceeded last year’s levels after widespread rains in early August boosted the sowing, the government has begun to dispose of stocks. Tur production is expected to be low by 2.78 per cent. Urad area is expected to increase by 0.36 per cent but production is expected to decline significantly by 15.73 per cent. We expect the area under Moong to decrease by 4.66 per cent whereas the production is expected sharply lower by 22.93 per cent mainly due to flooding of fields in Madhya Pradesh, Maharashtra & Rajasthan.

In oilseeds, Castor area is expected to increase by 5.32 per cent and likely to see significant increase in production by 12.25 per cent due to good prices of castor in domestic Mandis. The decline in production is expected to the tune of 11.00 per cent, 7.63 per cent, 1.65 per cent and 0.76 per cent for Sesamum, Sunflower, Groundnut and Niger Seed respectively. Soybean acreage expected to improve by 5.68 per cent but the production is expected significantly lowered by 21.97 per cent due to heavy rains and widespread flooding in major growing area which has diminished hope of normal crop in the major soybean growing regions.

In this current monsoon season, the cash crop section is likely to show an overall neutral scenario as area for Sugarcane is expected up by 14.32 per cent but decline in production by 12.32 per cent because of farmers from major sugarcane growing belts are shifted sugarcane crop to other crop as government gives incentives to encourage farmers to grow crops other than sugar cane. Among the potential recommendations is an incentive of 6,000 rupees ($121) an acre for farmers who stop growing sugarcane, especially in the major sugarcane growing states such as Uttar Pradesh. Cotton area and production is expected up by 4.32 per cent and 7.45 per cent respectively.

Resurgence of Sino-US Trade War Dampens Positivity in Global Economy

The new tangent drawn between the US and China has practically brought the entire global copper economy on the brink of inevitable crises as China accounts for nearly half of global copper consumption estimated at 24 million tonnes and the United States accounts for only about 8 per cent. The macro economic factors have successfully prevailed over the copper market sentiments even if the S&D fundamentals are strongly favouring surge in prices. US President Donald Trump's threat to increase tariffs on $200 billion worth of Chinese goods on Friday has raised the risk of an escalation in the trade spat between Washington and Beijing. Washington has accused Beijing of reneging on substantial commitments made during months of negotiations aimed at ending their trade war, counter to which fresh negative signals have come up on China’s threats to use rare earth minerals as a reaction in trade war pushed metal’s price sharply lower. In the situation that the US is imposing tariffs and China retaliates by signals of possible ban on the export of rare earths, there are little chances for any upside action, but rather turning focus fully to the downside. 

In the current development, the tone in the continuing trade dispute between the US and China became increasingly harsh in May after a lack of any kind of breakthrough in the on-going talks. As a result, the United States raised its import duties from 10 to 25 per cent on Chinese goods worth about US$ 200 billion. This further increased the risks for global economic development, which didn’t go unnoticed on the copper market and placed additional pressure on the copper price.

In the year 2018, major supplying companies responded to higher demand, and the year- on – year production grew by almost 7 per cent and their revenues were up by 12 per cent. However, 2019 is not looking as good as producers are forecasting a fall in output due to declining grades, higher costs, and the lengthy processes of bringing new projects online at a time when inventory levels are at ten-year lows. The ICSG expects global refined copper output of around 24.8 million MT in 2019, with visible consumption of 25.0 million MT worldwide. This would lead to a slight deficit of 189,000 MT on the global refined copper market in 2019. For 2020, the ICSG forecasts a slightly higher deficit of 250,000 MT and predicts an output of 25.1 million MT and consumption of 25.3 million MT. Reuters also released its latest analyst survey on the copper market in May. The survey result indicates that the global refined copper market will register a deficit of 205,500 MT in 2019, which will then fall to 172,000 MT in 2020. Currently, the preliminary data indicates that world mine production declined by about 1.8 per cent in the first two months of 2019, with concentrate production declining by 1.3 per cent and solvent extraction-electro-winning (SX-EW) by 4 per cent: Although a few countries experienced growth, this was largely offset by declines in two major producing countries, namely Chile and Indonesia. Production in Chile, the world’s biggest copper mine producing country, declined by 6 per cent mainly due to lower copper head grades. Indonesian concentrate production declined by 50 per cent primarily as a consequence of the transition of the country’s major two mines to different ore zones leading to temporarily reduced output levels. After aggregated growth of 13 per cent in 2018, production in the Democratic Republic of Congo (DRC) and Zambia increased by 1.3 per cent in the first two months of 2019 as reduced production at some mines partially off-set ramp-up output at other operations. Production in Peru (the world’s second largest copper mine producing country), Australia, China and Mongolia increased due to improved grades and recovery from constrained output in 2018. On a regional basis, mine production is estimated to have increased by around 2 per cent in Africa, 1 per cent in North America and 5 per cent in Oceania but declined by 3 per cent in Asia, 4 per cent in Latin America and 3 per cent in Europe.

Preliminary data also indicates that world refined production remained essentially unchanged in the first two months of 2019 with primary production (electrolytic and electro-winning) declining by around 0.6 per cent and secondary production (from scrap) increasing by 0.3 per cent. The main contributor to the growth in world refined production was China due to the continued expansion of Chinese capacity. Other countries recovering from production constraints in 2018 such as Australia, Brazil and Poland also contributed to growth. However, overall growth was partially offset by a 15 per cent decline in Chilean output which was mainly due to temporary smelter shutdowns whilst undergoing upgrades to comply with new environmental regulations. Production in India continued to be negatively impacted by the shutdown of Vedanta’s Tuticorin smelter and declined by 45 per cent. Aggregated refined production in the DRC and Zambia has declined by 7 per cent. On a regional basis, refined output is estimated to have increased Asia (2 per cent) and in Oceania (25 per cent) while declining in Africa (-8 per cent), in the Americas (-8 per cent) and remaining essentially unchanged in Europe. 

In the recycling market, there is still uncertainty regarding the impacts of the stricter scrap import bans in China. Beijing is likely to introduce a system with import licenses for high-quality scrap (so-called Category 6) starting July 1. To import these qualities, companies have to prove to the Ministry of Ecology and Environment that they have the necessary capacities to process the copper scrap volumes into refined copper or semi-finished products such as wire. This could influence the global copper scrap streams in the short to medium term. The situation is already been aggravated by the fact that China has announced that it would intensify environmental inspections in the future. Amidst, development in China, Malaysia has become an important buyer of copper scrap with low copper contents that was previously imported directly into China and now has become the new hub of dumping of the low grade copper scraps. Seeing the declining grade of copper scrap supplies, Malaysia has resorted to introduction of intensified inspections. As a result, some shipments have even been turned away, and other ships have been prevented from unloading their freights, mostly containing scraps of copper cable scrap and old engines, in the harbour. This step has led European copper scrap market to loose significantly by lower demand from Chinese companies and its lack of access in the Malaysian market.

The demand scenarios still remains robust and consistently in support of increased positivity in the overall copper market long term scenario. If we consider the demand for electrical cars (only in UK), which is harbouring 31.5 million cars on the UK roads – the shift from traditional fuel based to electric system would require a minimum of 207,900 MT of cobalt (just under twice the annual global production), 264,600 MT of lithium carbonate (LCE) (three quarters the world's production), 7,200 MT of neodymium and dysprosium (nearly the entire world production of neodymium) and 2,362,500 MT of copper (more than half the world's production). Thus, if such is the potential of one single country, the global transformation would inevitably result in significant surge in demand way beyond the capacity of the miners currently active in the world. Thus, in spite of the short term instability in investment scenario created by the Sino – US trade conflict; the long term investor should continue to have great confidence in the market.

Copper Shapes up for Good Long Term Upsurge

Copper continues to trade range bound on short term fundamentals, though the long term fundamentals continue to be robust providing increased underlying strength to the prices and not allowing it to slump drastically. The global economic uncertainties are been increasing as the final truce between US and China tariff dispute is yet to be achieved. US has escalated the trade war with China by announcing plans to hike the tariff imposed on $200 bn of Chinese goods from 10 percent to 25 percent and has further threatened to impose tariffs on all Chinese trade with America, a move that could further destabilize relations between the two economic powers. The U.S. imports goods from China totalling $539.5 billion and the trade deficit stood at $419.2 billion in 2018, according to the U.S. Trade Representative. If Trump follows through with his threats, virtually all goods imported from China to the U.S. would face some sort of tariff. The move is likely to impact more than 5000 products made by Chinese farms and factories, from fresh and frozen food to chemicals, textiles, metalwork, building materials, electronics, and consumer goods. The escalation of the dispute has been recently being blamed for a slowdown in global growth.

Supply disruptions, including rains in Chile and protests in Peru, kept the market in deficit, even as demand for so-called concentrate or the semi-processed ore eased up as a result of a four-month stoppage at two of Codelco’s four smelters. New smelter capacity in China has been coming up owing to the new copper emission standards being implemented in China, which is expected to increase the competition for concentrates. The case for a supply-driven deficit in copper this year is strengthened by an announcement from Glencore Plc that it would cut capacity by half at its Mutanda plant in Congo, a two-month road blockage at MMG Ltd.’s Las Bambas mine in Peru and rains in northern Chile at the beginning of the year. The supply shortages to worsen in the second half of 2019, with less copper concentrate in the market and more smelting capacity.

The latest supply details reveal that world mine production is estimated to have remained essentially unchanged in January 2019 compared to January 2018, with concentrate production remaining flat and solvent extraction-electro-winning increasing by 0.4 percent. Although a few countries experienced strong growth, this was largely partially offset by declines in two major producing countries, namely Chile and Indonesia. Production in Chile, the world’s biggest copper mine producing country, declined by 4 percent mainly due to lower copper head grades. Indonesian concentrate production declined by 45 percent primarily as a consequence of the transition of the country’s major two mines to different ore zones leading to temporarily reduced output levels. Production in the Democratic Republic of Congo (DRC) and Zambia continues to ramp-up mainly as a result of the restart of temporarily closed capacity in both countries. Production in Peru (the world’s second-largest copper mine producing country), Australia, China and Mongolia also increased due to improved grades or recovery from the constrained output in 2018. On a regional basis, mine production is estimated to have increased by around 10 percent in Africa and 5 percent in Oceania but declined by 4 percent in Asia and 0.7 percent in Latin America and remained essentially unchanged in Europe. Preliminary data indicates that world refined production is estimated to have increased by 3 percent in January 2019 with primary production (electrolytic and electro-winning) increasing by around 3.1 percent and secondary production (from the scrap) by 1.9 percent. The main contributor to the growth in world refined production was China due to its continued expansion of capacity. Other countries recovering from production constraints in 2018 such as Australia and Brazil also contributed to growth. A rise in electro-winning (SX-EW) output in the DRC also contributed to higher world refined production. However, overall growth was partially offset by a 14 percent decline in Chilean output impacted by temporary smelter shutdowns while undergoing upgrades to comply with the new environmental regulations. Production in India continues to be negatively impacted by the shutdown of Vedanta’s Tuticorin smelter. On a regional basis, refined output is estimated to have increased in Africa (7 percent), Asia (6 percent), Europe (2 percent) and Oceania (25 percent) while declining by 7.5 percent in the Americas.

Despite the slowdown in the global economy and disruption to the Chinese economy which could probably trigger retaliatory action by Beijing, the fundamental demand for copper has been unshaken owing to expansion plans of several global countries. Nearly 28 million tonnes of copper are used annually. According to the World Energy Outlook, growing electrification means electricity is expanding to sectors previously confined to fossil fuels, including vehicles and heating and cooling systems. Countries continue to pivot away from conventional energy sources, supported by massive private sector investment into low-carbon energy. 2018 marked the fifth consecutive year clean-energy investment exceeded $300 billion. 2019 is expected to be close to reaching $300 billion for the sixth successive year. China remains at the heart of this energy revolution as the world’s largest producer, consumer and investor in renewable energy. The country is upgrading its capacities in renewable energy production and consumption and accounts for 36 percent of all renewable energy growth worldwide. During the first half of 2018, China’s hydro, nuclear, wind, solar and other non-fossil energy systems generated more than 25 percent of its overall power supply. China will remain a leader in electrification in 2019 as its Thirteenth Five-Year Plan prioritizes renewable energy development. As expected, in 2019, the copper industry will be monitoring proper investment initiatives to finance on-the-ground activities in developing countries of critical importance, as they represent one-billion new electricity consumers by 2030. Since the technology already exists, assisting these countries and their growing middle class will ensure a low-carbon and sustainable solution.

Thus, sustainable copper production is becoming more prominent in the minds of consumers. The global visible inventory in the form of combined stocks held by the London Metal Exchange, Comex and the Shanghai Futures Exchange have nearly halved from a year ago to around 500,000 tonnes. Thus, 2019 is shaping up to be the year for accountability. The global industry is planning for substantial growth in the next decade thanks to an expected boom in production of electric vehicles, which use twice as much copper as internal combustion engines. Automakers are vowing to produce all-electric fleets. Consumer electronics companies, auto manufacturers and major retailers, among others, are going green through their certified sourcing programs and are working increasingly close to their supply chains to help achieve sustainability goals. A lack of new supply and steady demand this year for the metal, widely used in power and construction, should keep the 25-million-tonne market in a slight supply deficit and support prices. The current year presents major opportunities for clean energy and the copper industry. Copper has a key role to play in the development and roll out of new technologies leading to a more sustainable economy, such as EVs and global electrification. With outstanding conductivity, copper significantly enhances the efficiency of electrification, making it an indispensable component in developing renewable energy. The copper industry is also at the forefront of the move to more responsible supply chains and recycling. This shift is relevant for all downstream businesses and consumers who are reliant on copper every time they use an iPhone.

Decisive Positivity is Likely to Prevail in Copper for 2019

Amidst reports of easing economic tariff war between US & China (Extension on imposition of fresh tariff beyond March), expectation of decline in supply and continued robust demand prospect despite marginal slowdown of Chinese growth numbers is expected to keep the copper prices buoyant for entire 2019. The US dollar’s performance played a significant role in commodity price direction throughout 2018 and is likely to do so again this year. The US dollar should continue to weaken as the US Federal Reserve holds off on rate increases. Not only will this support commodity prices, including copper, but it will also be good for emerging markets. Moreover, the global market is keenly concentrating on the reports that Chinese government’s is likely to revisit its policy regarding scrap copper. In 2018, tightness in scrap was partly attributable to the upward revision of refined consumption numbers. Despite the potential upside again in 2019, any slowdown in the Chinese economy could cap that country's requirements. 

The disruptions to the supply side are they mine or smelter stoppages will provide upside support to prices, given that the copper market is not flush with visible inventories, which are currently at levels last seen back in January 2015. Following a near-3 per cent increase in mine production during 2018 to 20.7 million MT; it is expected that this rate would slowdown in 2019, with growth of only 0.3 per cent after applying a 5 per cent disruption allowance. Supply increases in 2018 were driven by higher contributions from existing base case mines; between them, Grasberg and Escondida produced around 430 thousand MT more last year, close to 65 per cent of the global net increase on 2017. Despite the start-up of greenfield projects such as Cobre Panama, Mirador and Carrapateena in 2019, their contribution is likely to be be more than offset by lower production from existing mines, and by Grasberg in particular. This Indonesian operation is expected to deliver less than half the amount of copper that it produced in 2018, as it transitions from the end of open pit mining to additional contributions from underground block caving. 

On the supply front the concentrate market is also expected to be tightened through the 2019. There are concerns that smelters may continue to falter through the first months of 2019. While there are risks that the issues at Pasar, Aurubis and Gresik are not resolved, there are also uncertainties in Chile regarding new air quality laws, introduced on 12th December, 2018. All Chilean copper smelters now have to comply with the latest environmental regulation. Codelco’s Chuquicamata and Potrerillos now look set to be under extended maintenance in 2019. We understand the downtime at Potrerillos could be anywhere up to 6 months. The introduction of a 5% duty on concentrates imported into Zambia could materially reduce copper production, particularly at KCM's Nchanga smelter and NFC's Chambishi operation, both of whom rely on concentrates from the DRC to bolster blister/anode production. Thus the Supply side is expected to be squeezed up leading to extended support to the copper prices. Globally, the refined production is estimated to have increased by 1.5 per cent in the first eleven months of 2018 with primary production (electrolytic and electro-winning) increasing by around 2 per cent and secondary production (from scrap) remaining flat. World growth was constrained by an unusually high frequency of smelter disruptions and temporary shutdowns for technical upgrades/modernizations. The main contributor to the growth in world refined production was China due to its continued expansion of capacity. A rise of 2 per cent in Chile was a consequence of a recovery from 2017 when output was negatively impacted by a series of smelter maintenance shutdowns. However, despite this increase, Chilean output over the first eleven months of 2018 was still 6 per cent lower than the same period of 2016. Japanese output rose by 6.5 per cent recovering from reduced output in 2017 when a major smelter undertook extended maintenance. Increases in electro-winning (SX-EW) output in the DRC and Zambia also contributed to world refined production growth. Overall growth was partially offset by a 34 per cent decline in India’s output due to the shutdown of Vedanta’s Tuticorin smelter in April and declines in Indonesia, the Philippines and Poland as a consequence of maintenance shutdowns and operational issues. On a regional basis, refined output is estimated to have increased in Africa (10 per cent), Asia (1.5 per cent) and Latin America (2 per cent) whilst remaining more or less unchanged in Europe and Oceania and declining in North America (-2.5 per cent).

Copper scrap market is already showing signs of tightening and is heading for one of the biggest uncertainties for the Chinese copper market in 2019. Category 6 copper scrap will be reclassified as a ‘restricted import good’ as of 1st July this year, which means that importers will need to obtain an import quota from the government. As we go to print, details are still to be confirmed as to whether some category 6 copper scrap components will be exempt, and also how limited import quotas will be during second half of 2019. However, the impact on scrap supply in China will be negative regardless of the details. It is expected that demand for refined copper as a share of total consumption in China will be proportionately higher. Refined copper supply from secondary producers is likely to be lower resulting in increased import of cathode, blister and/or concentrates by China. Thus, much would be depended on how refineries in the rest of world will be able to raise their production given the current issues around Indian and Chilean smelters and refineries. 

On the Positive side, China has elevated the adoption of new “Phase 6” emissions standards under its anti-pollution “Blue Sky Defence” action plan. Just as we’re seeing in parts of Europe right now, China will soon begin banning the production of the most polluting diesel engines. This is likely to provide significant boost to the electric vehicles (EVs). Currently, China accounts for 60 per cent of global EV sales and it is expected that in about a decade, the Asian country will account for nearly 40 per cent of the global EV market, followed by Europe (26 per cent) and the U.S. (20 per cent). At the same time, strong grid investment driven by the government's stimulus package, as well as improving housing completions driven by positive housing starts since 2016, will offer some support to growth. Fresh incentive programs for both the auto and home appliance sectors are in discussion according to a recent statement from the government. This may yet offer some support to total copper consumption within both of these sectors. Moreover, Chinese the world’s largest copper consumer’s GDP growth is not falling, but is simply slightly behind expectations on a percentage basis which is not expected to pull down the overall demand which has been ever improving in quantum. But, going forward, even if we see GDP growth drop significantly on a percentage basis, there’s still a lot of copper that needs to go to China just to maintain their current demand.

NBHC’s First Rabi Crop Estimates for 2018-19

The northeast monsoon, between October and December, over the country had been “Substantially below Normal”. The cumulative rainfall in the country during the post-monsoon season i.e. 01st October, 2018 to 31st December, 2018 has been 44 per cent lower than LPA. Rainfall in the four broad geographical divisions of the country during the above period have been lower than LPA by 51 per cent each in Central India & East & North East India, 45 per cent in North West India and 36 per cent in South Peninsula. This coupled with the drought in some parts have impacted Rabi sowing and could aggravate the distress in the farm sector. The southwest monsoon was almost 22 per cent below normal in the Marathwada region of Maharashtra, while in north interior Karnataka, the deficit was almost 29 per cent and 37 per cent below normal in Rayalseema. In Maharashtra, Vidarbha reported 88 per cent post-monsoon rainfall deficiency, which is the highest in the state. Similarly, drought affected regions like Marathwada received 84 per cent less rainfall, followed by central Maharashtra at 64 per cent deficiency and Konkan and Goa at 56 per cent rainfall deficiency in the post-monsoon period. Keeping in consideration the large scale post monsoon deficiency and the sowing reports from various parts of the country, NBHC Pvt. Ltd. Has come up with its 1st Rabi Crop Estimates for 2018-19. 

As per our study, the total Rabi Cereals production for the year 2018-19 is expected to be lower by 9.91 per cent to 115.49 Million MT and Wheat is expected to show a decline in area by 2.54 per cent to 29.66 Million Ha and production by 4.99 per cent to 94.72 Million MT owing to scanty and inequitable distribution of rainfall in major growing areas. Rabi Rice acreage is recorded lower by 14.17 per cent and its production is expected to decrease significantly by 28.91 per cent due to major rice-growing states West Bengal, Odisha, Tamil Nadu, Karnataka and Andhra Pradesh are lagging sowing area. Total coarse cereals are expected to fall by 6.9 per cent to 12.1 million MT in 2018-19. This is due to a fall in production of Jowar, maize and barley. Jowar has seen the biggest fall in sowing, with around 2.52 million hectares, a fall of 18.82 per cent over last year. Area sown under maize and barley fell by 5.67 per cent and 2.62 per cent, respectively.

The most affected is the cultivation of pulses, particularly Gram or Chana. The acreage under Gram is down in major growing States of Maharashtra, Madhya Pradesh and Karnataka, which is reeling a drought. The Gram acreage has decrease by 9.92 per cent to 9.70 million hectares from 10.76 million hectares in last year. Overall, the pulses have shown decrease by 6.75 per cent and the production is expected at 14.48 Million MT despite Kulthi acreage and production increase significantly by 29.84 per cent and 31.23 per cent respectively. Masoor production is estimated 1.76 per cent lower at 1.71 Million MT as against 1.74 during 2017-18.

However oilseeds are the only crop which managed to retain last year’s level in terms of acreage with less than one per cent increase. A surge in mustard cultivation in Rajasthan has been critical in taking the total oilseeds sowing area to about 8.04 million hectares, which was 0.71 per cent higher than that in 2017-18. Mustard acreage is expected to increase by 5.03 per cent at 7.02 million hectares likewise production is expected to increase by 4.46 per cent to 8.69 million MT. Groundnut, Sunflower and safflower production for 2018-19 has been estimated to be lower at 0.97 million MT.

Copper’s Strong Fundamentals Finally Gives in to Bulls

Copper’s dramatic price slide began from about mid-year of 2018. The strong dollar, rising US interest rates and concern over the escalating trade dispute between the USA and China weighed heavily on copper. Currently, the dollar has started showing signs of cooling, the FED rate hikes have been stabilised and both parties have agreed to enter a period of negotiation that would normalise trade deal within 90 days from the beginning of 2019. An on-going trade dispute between the U.S. and China could send the global economy into a recession, therefore the odds favour a trade deal between the nations, as it is in the best interests of both countries. The global copper demand is expected to continue on the rise in 2019. According to the latest analysis the market is under supplied with demand set to increase from 23.6 million MT in 2018 to 29.8 million MT by 2027 - at 2.6 per cent annual growth. Thus, we can see the increased positivity in the various factors as 2019 continues to roll on. 

Global copper mine production is expected to process with steady growth over the next few years, supported by markets with low operating costs and improving copper prices. In terms of tonnage, global copper output is likely to climb from 20.4 million MT in 2018 to 28.1 million MT by 2027, thus depicting a marginal shortfall in supplies over the years. Moreover, Declining ore grades for copper, continued lack of investment in new mines and the time required to bring new discoveries to production will constrain metal availability and, ultimately, the metal sector’s ability to meet growing demand from automakers for battery electric vehicle production. World mine production is estimated to have increased by about 2.4 per cent in the first ten months of 2018, with concentrate production rising by 2.3 per cent and solvent extraction-electro-winning (SX-EW) by 2.6 per cent. The increase in world mine production of about 390,000 MT copper was principally due to constrained output in 2017 (mainly in Chile, Indonesia and the DRC). Production in Chile, the world’s biggest copper mine producing country; increased by 6 per cent primarily because production in February/March 2017 was restricted by a strike at Escondida (the world’s biggest copper mine). Indonesian output increased by 19 per cent due to the fact that comparative output in 2017 was negatively affected by a temporary ban on concentrate exports that started in January and ended in April. SX-EW production in the Democratic Republic of Congo (DRC) increased by 12 per cent and Zambian mine output increased by 8 per cent as a result of the restart of temporarily closed capacity in both countries. Although no major supply disruptions occurred in the first ten months of this year, overall growth was partially offset by lower output in Canada (-11 per cent) and the United States (-3.5 per cent). After a strong increase over the last few years due to new and expanded capacity, output in Peru (the world’s second largest copper mine producing country) stabilized. On a regional basis, mine production is estimated to have increased by around 8 per cent in Africa, 3.5 per cent in Latin America, 2 per cent in Asia and 10 per cent in Oceania but declined by 5 per cent in North America and remained essentially unchanged in Europe. For the year 2019, The Grasberg mine production is forecast to drop nearly 40 per cent as the operation is retooled from open-pit to underground and the overall normalisation of supply is expected only by 2022. Copper output growth from Australia is decelerating as no major new mine is expected till 2020.

World refined production is estimated to have increased by 1.2 per cent in the first ten months of 2018 with primary production (electrolytic and electro-winning) remaining essentially unchanged and secondary production (from scrap) increasing by 5 per cent. World growth was constrained by an unusually high frequency of smelter disruptions and temporary shutdowns for technical upgrades/modernizations. The main contributor to the growth in world refined production was China due to its continued expansion of capacity. A rise of 2 per cent in Chile was a consequence of a recovery from 2017 when output was negatively impacted by a series of smelter maintenance shutdowns. However, despite this increase, Chilean output over the first ten months of 2018 was 6 per cent lower than the same period of 2016. Production in Indonesia and Japan was also higher in the first ten months of 2018, recovering from reduced output in 2017. Increases in electro-winning (SX-EW) output in the DRC and Zambia also contributed to world refined production growth. Overall growth was partially offset by a 34 per cent decline in India’s output due to the shutdown of Vedanta’s Tuticorin smelter in April and declines in Australia, the Philippines, Poland, and the United States as a consequence of maintenance shutdowns and operational issues. On a regional basis, refined output is estimated to have increased in Africa (10 per cent), Asia (1 per cent) and Latin America (2 per cent) whilst remaining essentially unchanged in Europe and Oceania and declining in North America (-4 per cent).

Amidst all, the development in Vedanta is also a crucial happening as far as Indian market is concerned. The National Green Tribunal in India ruled in December that the local government’s closing of Vedanta’s Tuticorin copper smelter in the southern Indian province of Tamil Nadu was invalid. Tamil Nadu’s Pollution Control Board was called on to provide relevant permit for the smelter’s continued operation within three weeks. Tuticorin has a capacity of about 400,000 MT per year.

In terms of demand, China in 2018 consumed 12,262 TMFT of copper up 4 per cent from 2017 and now representing 52 per cent of world supplies. China’s expansive; multi-billion-dollar Belt and Road Initiative (BRI) traverses several continents – Southeast Asia to Eastern Europe and Africa – and encompasses major projects in 71 countries. In their pursuit for a global network, it is thought that Chinese firms have secured more than $340 Billion in construction contracts. China remains the world’s biggest copper consumer as it continues its massive infrastructure build. The health of its economy therefore remains an important factor in the outlook for copper. This is why all eyes are currently on progress with respect to trade negotiations underway between the U.S. and China. Global demand increased 0.9 per cent in 2018. Excluding China, global demand would have actually been down about 1 per cent. India is the other rapidly growing copper consumer with demand forecast to grow 12 per cent in 2019 and expected to double by 2026, to a still relatively modest 5 per cent of global demand. Other important countries and regions for copper demand including Europe, U.S., Japan, and South Korea are expected to have relatively flat growth in the coming years.

In the recent positive development, China and the US said this month progress had been made in resolving some of the thorniest issues in their trade war, prompting optimism that the stand-off may be ended. The inventories of copper are at a 10-year low and are set to fall further in the second quarter of this year which is enough to keep the copper market in a deficit of 200,000 MT in 2019 and 2020. Furthermore, an import ban for copper scrap with high impurity levels (called category 7 scrap) will go into effect in 2019 leading to a roughly 250,000 MT (copper content) decrease in Chinese copper scrap imports of this quality. All these factors are keenly reiterating the fact that fundamentals are highly stalked in favour of bulls and long term investors should stay invested for the entire year of 2019 as well as 2020.

NBHC’s Final Kharif Crop Estimates for 2018-19

The year 2018-19 has indicated that below average and erratic distribution of monsoon rains. The season (June-September) rainfall over the country as a whole was 91 per cent of its long period average (LPA). Seasonal rainfalls over Northwest India, Central India, South Peninsula and Northeast (NE) India were 98 per cent, 93 per cent, 98 per cent and 76 per cent of respective LPA. Out of the total 36 meteorological subdivisions, 23 subdivisions constituting 68 per cent of the total area of the country received normal season rainfall, 1 subdivision received excess rainfall (1per cent of the total area), and 12 subdivisions (31 per cent of the total area) received deficient season rainfall. Monthly rainfall over the country as a whole was 95 per cent of LPA in June, 94 per cent of LPA in July, 92 per cent of LPA in August, and 76 per cent of LPA in September. Major states affected by this monsoon pattern were Bihar, Gujarat, Uttar Pradesh (West), Madhya Pradesh, Jharkhand , Telangana, Karnataka and Maharashtra.

In our first estimate (First Kharif Crop Estimates for 2018-19 – 25^th September 2018) we had broadly concluded that in the year 2018-19, the production of coarse grains, pulses and cotton are expected to decline by 9.78 per cent, 2.68 per cent and 4.57 per cent over 2017-18. In the current assessment, the Pulses and oil seed have marginally pushed themselves further in the negative region with an expected decline of 2.68 per cent and 5.36 per cent over the last estimate.

The crop wise analysis reveals that in the group of cereals, the rice crop was least affected by the irregularity in monsoon as it is grown mostly in well irrigated areas. For the year 2018-19, rice production has expected to decline marginally by 0.73 per cent over last year and decline marginally by 1.91 per cent over last estimate. It is to be noted that the Basmati rice production is expected to fall decline by about 9.24 per cent but this short fall is being compensated by the increase in the Non-Basmati rice. Maize is expected to decline significantly by about 10.41 per cent over last year. The decline in the sowing area in Karnataka & Telangana was the main cause for the decline in production. In the minor cereals, Small Millets, Ragi and Bajra production is expected to improve by 6.15 per cent, 18.40 per cent and 6.29 per cent respectively while Jowar is expected to decline by 10.59 per cent over last year.

Pulses production is projected to drop marginally to 9.10 million MT from 9.35 million MT last year due to the fall in Urad output by 10.11 per cent mainly due to the shift in acreage towards soybean in some parts of Madhya Pradesh and Maharashtra.

Total oilseeds production is estimated to be 19.87 million MT, which is 5.36 per cent declined than the last year production 21.00 million MT mainly due to falling groundnut (22.11 per cent), castor (27.16 per cent) and sesame (3.21 per cent) production in major producing states. Other oilseed such as Niger expected to increase by 11.83 per cent.

In the cash crop section, cotton is been seriously affected fluctuating weather conditions. The annual cotton output in India might drop 4.57 per cent due to inadequate rainfall in the top two producing states Maharashtra and Gujarat has cut crop yields, potentially reducing exports from the world's leading producer.

Sugarcane is expected to increase marginally by 3.25 per cent on increased sowing and lastly Jute & Mesta is expected to improve marginally by 5.11 per cent amidst favourable weather conditions.

The table below shows the details of the final estimate for the 2018-19 Kharif crop:

Increased Positivity in Economic Scenario likely to Boost Copper in 2019

Between January 2016 and the end of 2017, prices soared 72 per cent as China’s pace of growth picked up and the rest of the world economy boomed. For 2018, however, copper prices had fallen 18 per cent by late November amid concerns over trade wars, U.S. fiscal and monetary policy, Brexit, the Italian debt situation and a possible slowdown in China. The first half of the year faired positive and stable but once the trade war burst onto the scene it smothered all positive expectations and market witnessed significant slump. The slowing of the Chinese demand is adding pressure on the copper market. Copper Market is currently feeling the pressure of increased economic uncertainty and lack of concrete demand direction. The supply of copper in 2018 is ever on the rise as the copper majors’ smoothly negotiated wages at large scale mines putting the large scale disruptions at bay for the entire year and the repeat of 2017’s supply disruption was averted. An increasing flow of copper emanating from the world’s mines makes copper especially sensitive to any slowdown in demand growth. The coming year of 2019 is expected to be more promising with expected supply increase of over 1.5 per cent and increased demand of scrap in the global market. 

The global supply of copper is expected to slowdown in 2019, as production at the Grasberg Copper Mine in Indonesia, operated by Freeport McMoran and Rio Tinto is expected to fall by more than 50 per cent next year as the transitions in underground operations is likely to happen. The transition is expected to reduce copper supply in the market by about 300,000 metric tons, or 1.5 per cent of annual copper mine production. BHP Billiton Ltd’s Escondida Copper Mine in Chile is also expected to produce less copper this year. Currently, the World mine production is estimated to have increased by about 2.8 per cent in the first nine month of 2018, with concentrate production rising by 2.7 per cent and solvent extraction-electro-winning (SX-EW) by 3 per cent. The increase in world mine production of about 410,000 MT copper was mainly due to constrained output in 2017 (mainly in Chile, Indonesia and the DRC). The production in Chile, the world’s biggest copper mine producing country, increased by 7 per cent primarily because production in February/March 2017 was restricted by a strike at Escondida (the world’s biggest copper mine) and also because there has been an improvement in Codelco’s production levels in 2018. The Indonesian output increased by 23 per cent because comparative output in 2017 was negatively affected by a temporary ban on concentrate exports that started in January and ended in April. The SX-EW production in the Democratic Republic of Congo (DRC) increased by 11 per cent and Zambian mine output increased by 9 per cent due to the restart of temporarily closed capacity in both countries. Although no major supply disruptions occurred in the first nine months of this year, overall growth was partially offset by lower output in Canada (-11 per cent) and in the United States (-4.5 per cent). After a strong increase over the last few years due to new and expanded capacity, output in Peru (the world’s second largest copper mine producing country) has stabilized. On a regional basis, mine production is estimated to have increased by around 7.5 per cent in Africa, 4 per cent in Latin America, 3 per cent in Asia and 8 per cent in Oceania but declined by 5 per cent in North America and remained essentially unchanged in Europe. World refined production is estimated to have increased by 1 per cent in the first nine months of 2018 with primary production (electrolytic and electro-winning) declining by 1.3 per cent and secondary production (from scrap) increasing by 12 per cent. The main contributor to growth in world refined production was China due to its continued expansion of capacity. Production in Chile was up by 3.5 per cent mainly supported by a 9 per cent increase in primary electrolytic production as output was constrained in the comparative period of 2017 due to a series of smelter maintenance shutdowns. Production in Indonesia and Japan was also substantially higher, recovering from reduced output last year. Increases in electro-winning (SX-EW) output in the DRC and Zambia also contributed to world refined production growth. However, overall growth was partially offset by a 32 per cent decline in India’s output due to the shutdown of Vedanta’s Tuticorin smelter in April and declines in production in Australia, the Philippines, Poland, and the United States as a consequence of maintenance shutdowns and operational issues. On a regional basis, refined output is estimated to have increased in Africa (10 per cent), Asia (1 per cent) and Latin America (2.5 per cent) whilst remaining essentially unchanged in Europe and declining in North America (-5 per cent) and Oceania (-8 per cent). 

On the demand side, China consumes 40-50 per cent of the world’s copper supply, making it by far the world’s dominant consumer. China’s economy did well in 2018, growing at 6.5 per cent though; the strength of China’s current demand for copper is faced with concerns about the future. The trade dispute between the US and China might impact the Chinese economy, shaving a few tenths of one per cent off the country’s growth going forward. So long as China’s growth remains strong, copper prices can probably remain near their current levels. But any signs of slowing in China, and copper prices would have a long way to fall. For the world market, China is a particularly difficult source of demand to replace in the event of its slowdown. While India continues to grow at around 7-8 per cent, its economy is only one-fifth the size of China’s. Meanwhile, the other BRICs (Brazil and Russia) are likely to struggle. The recent selloff in oil could be bad news for copper demand from Russia, Brazil and other oil producers. 

The other factor vastly affecting the copper prices is the strengthening dollar. If the U.S. economy is sufficiently robust to support continued monetary tightening, USD might strengthen considerably to the probable detriment of copper prices. However, it is also possible, perhaps even likely, that the Fed will soon pause or significantly slow its tightening pace, depriving the dollar of the upward pull of rising short-term interest rates. Moreover, if over-tightening of dollar unintentionally produces an economic slowdown or recession that could have unpredictable effects on copper. Any dollar weakness would most likely be bullish for copper prices. The weakness in European market is also expected to affect the copper trade. In 2019, Europe is likely to face two key tests that may influence copper price - Brexit and the Italian debt situation. If Brexit turns out badly for the British pound (a no-deal exit) this could pull the euro down to the benefit of USD. The same could happen if the Italian debt situation spirals out of control. The Italian debt situation is particularly worrisome given that the European Central Bank has bought European debt up to its legal limit and a second European debt crisis would be of much greater economic consequence than Brexit.