Copper market and TC-RCs

Global demand and supply

Globally the copper demand remains strong.

In China, the copper demand is expected to grow at 2.2% CAGR over the next five years supported by government stimulus program and continuation of the expansionary fiscal policy, as well as robust infrastructure investments and tax incentives for small cars. In the rest of the world, higher expected government spending and lower taxes in the US, higher than previous GDP forecasts for the Eurozone and strong growth from other emerging nations should help sustain copper demand at CAGR of 1.7% over the next five years.

After a strong growth in mine supply in 2016, the global copper market started 2017 with production disruptions at the three largest copper mines (c300kt accumulated loss from Escondida, Grasberg and Cerro Verde). Giving the unrecoverable Q1 production loss, it is now anticipated that this year the copper market will be in a deficit. Mine supply growth is however expected to rebound in 2018 and 2019 with the restarts and ramp up of few significant mining operations.

In long term, lack of early stage investments and long lead times between project approvals and production mean supply growth is likely to slow towards the end of the decade, when again we expect to see the market in deficit.

Concentrate production is projected to increase in 2017, as well as in the next 5 years at an average of 1.5% per year. Solvent extraction-electrowinning (SX-EW) is expected to decrease in 2017 by -4% compared to 2016, and could continue on a slightly downward trend of -1.8% yearly towards 2021.

Globally smelting production is expected to increase at 1.8% CAGR over the next five years, while the idle capacity ratio might see a slight growth.

Metal Prices

Copper prices have been increasing significantly compared with 2016 from an average price of 4870$/t to aprox 5550$/t spot price as of beginning of June 2017. The average price forecast for 2017 is estimated to reach 5700$/t and continue to grow towards 2021 to up to 6600$/t.

Treatment charges

2017 announced already lower treatment charges compared with last year, with contract TC around 92$/t and spot prices reaching as low as 60$/t. Giving the supply disruptions as well as the deficit expected towards 2019, the contract treatment charges are expected to continue to slightly decrease during the next couple of years, stabilizing by 2020 and starting to grow towards 2021. In the current market situation, the expectation is that the price however will not go below 70$ contract price in the next few years.

Contract and spot TC for standing grade copper

Chinese smelter capacity will continue to grow

Despite tighter market, the Chinese smelter capacity is still expected to grow accounting for almost 70% of the increase in global smelter capacity up to year 2020. Even though China has been the biggest producer of copper cathodes in the world for several years, it still needs to import between 30-40% of its total cathode consumption every year, which means that government support, in the form of low-cost loans, environmental approval and access to land, among other, is readily available for smelters.

In China, at least 20 new smelter projects have been announced and we cannot rule out additional new projects, especially when considering the government sponsored self-sufficiency drive, the profitability of the business at current TC/RCs and rising copper prices after 2017.