An economic disaster just four decades ago, China now touches the lives of billions of people around the world. The growth in China is significant for industrial giants, auto industry, renewable energy, and countless others who depend on its economic might. The current situation of corona epidemic is worryingly unique, because unlike the SARS episode of 2002-2003, the world is considerably more integrated. NO sector has been left out from being significantly effected from this epidemic be it. The coronavirus is spreading across the world and is now causing governments to shut down schools and public gatherings, which mirror the enforced shutdown of factories all over China. Disruption of China's logistics and supply chains due to restrictions on travel and impacts on labour due to quarantines and fears of contagion have resulted in a marked slowing of industrial activity generally within the country. The resulting lower demand for raw materials among manufacturers and the construction industry, along with the disruption of road transport and congestion at Chinese ports, are having a strong impact on inbound and outbound trade. The Chinese construction sector accounted for 48 per cent of the country's refined copper demand in 2019. Construction activity in the country has remained largely suspended due to the coronavirus, with work unlikely to resume in the near term, significantly affecting the demand of copper. Copper consumption has been impacted by reductions in manpower at manufacturing plants. Even though rates of infection in China appear to be falling and the government has ordered a general return to work, there have been outbreaks of the disease in countries outside China, including Japan, South Korea, Italy, Singapore and Iran, since the middle of February. This has raised fears of a global pandemic and increased concern that the virus could have a significant, longer-term negative impact on economic growth globally.
Apart from the coronavirus thereat, the global economic slowdown is also taking the toll on the copper market. The truce in US – China tariff conflict had infused positivity. The long term demand scenario still looks very convincing. There is significant rise in the cars and small automobiles demand as owing to the recent corona epidemic people especially in China as they are avoiding public transport network to keep away from infection.
The supply Preliminary data indicates that world mine production declined by about 0.6 per cent in the first eleven months of 2019, with concentrate production down by 0.5 per cent and solvent extraction-electro-winning (SX-EW) declining by around 1 per cent. Reduced output in major copper mine producing countries more than offset growth in other countries. Production in Chile, the world’s biggest copper mine producing country, declined by 1 per cent mainly due to lower copper head grades and few production disruptions. Indonesian output declined by 46 per cent as a consequence of the transition of the country’s major two copper mines to different ore zones leading to temporarily reduced output levels. Ø After growth of 13 per cent in 2018, aggregated production in the Democratic Republic of Congo (DRC) and Zambia declined by 3 per cent as consequence of temporary suspensions at SX-EW mines, reductions in planned production and operational constraints. Production in a number of copper mine producing countries, including Australia, China, Mexico, Peru and the United States increased mainly due to a recovery from constrained output in 2018. Panama started producing copper in March 2019, with the commissioning of the Cobre de Panama mine, and was the most significant contributor to world mine production growth over the first eleven months of 2019. On a regional basis, mine production is estimated to have increased by around 4 per cent in North America, 1 per cent in Latin America and 4 per cent in Oceania but declined by 6 per cent in Asia, 2 per cent in Africa and 1 per cent in Europe.
Preliminary data indicates that world refined production declined by about 0.5 per cent in the first eleven months of 2019 with primary production (electrolytic and electro-winning) falling by 0.9 per cent and secondary production (from scrap) increasing by 1.6 per cent. World refined production growth was constrained as a consequence of a 25 per cent decrease in Chilean electrolytic refined output due to temporary smelter shutdowns whilst undergoing upgrades to comply with new environmental regulations. Total Chilean refined production (including Electro-winning) declined by 9 per cent. A 38 per cent decrease in Zambian refined output due to power supply interruptions, smelter outages and temporary shutdowns and the introduction on 1st January 2019 of a 5 per cent custom duty on copper concentrate imports that constrained smelter feed. Reduced output in Japan, Peru and United States and in several EU countries, due to smelter maintenance shutdowns and operational constrains. However, these reductions were partially offset by growth in Chinese output and by increases in countries recovering from production constraints in 2018 such as Australia, Brazil, Iran and Poland. On a regional basis, refined output is estimated to have increased in Asia (2.5 per cent) and in Oceania (10 per cent) but declined, in North America (-2 per cent), in Latin America (-7 per cent), in Africa (-10 per cent) and in Europe (-2 per cent).
Chinese smelters, facing high inventories of sulphuric acid and logistical problems resulting from measures aimed at halting the spread of the virus, have been forced to cut production in recent weeks. China’s own refined copper output is projected to grow by 3.8 per cent to 9.3 million MT year and its exports by 10.8 per cent to 350,000 MT. That leaves China’s refined copper market in a surplus of 650,000 tonnes in 2020, narrowed from 936,000 tonnes last year. Copper concentrate consumption, meanwhile, is expected to rise by 6.6 per cent on a copper-contained basis to 7.25 million tonnes, with domestic production holding steady at 1.56 million tonnes.
The demand prospect though is subdued owing to spread of the epidemic has shown no signs of slackening for the long term. The economic activity has slowed down significantly in China (which consumes over 40 per cent of the global copper) but is certain that it would bounce back with increased vigour once the coronavirus spread is contained and cured. China has sufficient capacity of semis in other provinces that a prolonged suspension in Hubei will not limit the recovery of copper demand. In addition, most semis fabricators usually run at reduced utilisation rates until the end of the second week after Chinese New Year. Therefore, the direct impact of the delayed restarts will be less than one-week of Chinese copper demand. However, the indirect impact and the downside risks on demand could be much larger. The actual impact on the demand could be assessed based on how long the coronavirus is expected to stay virulent. If China loses one month of copper demand, this means a reduction of more than one million tonnes of refined copper demand. However, some of the loss in copper demand, especially the demand from consumer durables, should be able to be clawed back later in the year if the health crisis dissipates in the first quarter. On the other hand, demand loss from infrastructure and construction sector will be harder to make-up; best case scenario is that it would be delayed to later this year. As a result, we believe that there is now a significant downside risk to our forecast of 0.9 per cent Chinese total copper consumption growth for 2020.
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