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.
