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Global Copper Industry Supply and Demand: Key Challenges for 2019 - 2020

by Carlos Risopatron, Director of Economics and Environment, International Copper Study Group

Carlos will be speaking at the upcoming International Copper Conference taking place in Amsterdam from 11 - 13 March. Visit metalbulletin.com/events/copper to find out more. 

Summary

The objective of this insight is to summarize the ICSG presentation in Fastmarkets' International Copper Conference taking place in March 2019. The note provides updated information on the challenges set to affect global copper supply, demand and trade in the short and medium term. 

These challenges are:

- A more complex supply of copper concentrates with increasing contents of arsenic and other impurities.

- The increasing restrictions in international trade of industrial and municipal waste and scrap with less than 99% copper content.

- The limited expected new copper SX-EW and concentrates mine production capacity, compared with fast growing capacities for copper smelting and electrolytic refineries in recent years and in the future.

- The increasing volumes of mineral waste produced by the copper industry expansion of copper concentrates production and the related waste management costs including not only more efficient and less risky tailings management, but also hazardous waste controls on smelters and refineries emissions and final disposal of an increasing volume of hazardous waste.

- The overcapacity in the intermediate copper industries as copper wire and cable, copper and alloy tubes, flat rolled products and grass mills in some regions as China, against the shortages of this same capacity in other regions.

- The ongoing global consolidation of the main copper users (the wire and cable industry) and the volatility of copper end users driven by macroeconomic factors and technology changes.

1. The Challenges of More Complex Copper Concentrates 

More Impurities and Less Copper in Global Copper Concentrate Supply

More copper concentrates from countries with low or no smelter capacity are increasing the share of concentrate exports over output. Updated ICSG data (January 2019) reveals record growth in 2015-2017 of global exports of impurities in copper concentrates, and confirms a fall in copper content in global exports of copper concentrates to 28% in 2017. 

Copper concentrate trade costs are also expected to increase in 2020 with the UN IMO marine pollution protocol (MARPOL) 0.5% global sulphur emission cap affecting copper concentrates shipping costs. With more blending of copper concentrates, more impurities are placed on the custom concentrate market, so copper smelters anodes might be more complex to be transformed into cathode and the anodic mud composition is changing. 

With limited SX-EW and scrap supply, copper smelters now process more concentrates with low copper content and more impurities. In the 1990s Chinese smelters used Japanese copper sulphate process to recover Arsenic residues, but it was a long process with high costs and 45% of As re-melted. This process is being replaced by new Chinese technologies, but it is still not clear how the additional arsenic supply is being disposed of by copper smelters and refineries in China. In 2006 China set limits on impurities in imported concentrates, but the % of impurities in new concentrate output is growing every year.

More Arsenic in Copper Concentrates  

The global copper concentrates supply boom of 2013-2018 was driven by more copper smelter capacity in China in recent years. 

However the fast growth of concentrate supply is facing the challenge of many more minor minerals impurities, mainly, but not only, arsenic in copper concentrates produced and traded worldwide. Lower copper ore grades and the consequent increase in impurities are linked in recent years to higher costs at copper mines on energy, water, hazardous waste disposal and mine tailings management. 

Even with more water reuse from tailings in Chile and even urban wastewaters treated now by mining companies in parts of Peru, the cost pressure is increasing. As the global copper concentrates output broke global records in recent years, so did the output of copper mine waste and copper mine tailings. 

Lower Copper Ore Grades in Mine Supply and Concentrates Trade 

As the most profitable low grade copper porphyry deposits became mined first in recent decades, the global copper ore grade declined over 1990-2018. 

According to recent ICSG mineral waste studies, a low global average copper ore grade of 0.45% Cu was observed in 2015 copper mines reserves reported. Meanwhile average global copper ore grade mined was only 0.65% Cu in 2015 global copper mine production. 

The copper content in copper concentrates imported to Japan in 2017-2018 fell to 26% copper, and contained higher volumes of arsenic according to Japanese smelters data. Reported stocks of mineral contents in copper concentrate in the hands of some European traders reported less than 22% copper content in 2018. 

More Blending of Copper Concentrates and Industry Response

The response of copper concentrate traders and global major miners to the challenge of more impurities in 2016-2018 has been record blending of complex and clean copper concentrates. 

The practice is profitable for traders but is spreading arsenic, mercury and other hazardous minerals worldwide along the value chain, and affecting the operational costs of copper smelters and refineries. As a response, some copper smelters are planning or investing in technology re-design. 

Meanwhile, copper mining companies and research centres are looking for new technologies for on-site ore impurity removal with the objective to export only high grade copper concentrates in the future. The outcome is an increasing inter-dependence of copper mining companies and processing plants located in different countries to sustain the copper value chain volumes achieved in recent years. 

Arsenic is a major cause of concern for copper smelters using imported copper concentrates. Almost half of the arsenic in copper concentrates output is in “clean concentrates” (<0.5% As). The Japanese government, universities and Japanese copper industry are working together in the development of new technologies to remove impurities before copper concentrates are traded internationally. Important research centres in Europe and Australia are developing technical solutions pointing in the same direction.

Copper Smelters Challenges On More Complex Copper Concentrates

Copper smelters are receiving more complex concentrates, so the emissions control is challenging social licences to copper smelters and refineries in India, China, EU, and Chile. 

On less concentrate supply in 2017 and less scrap supply in 2018, Chinese refineries imported more smelter products as copper anodes and blister, creating an import boom that accelerated over 2016-2018. 

In 2018, the Japanese guidelines for air quality and water emission limits became particularly tight for arsenic and enforcement looks increasingly difficult as the Japanese copper smelters are processing more arsenic and the slags are unable to be used as before in artificial islands, cement and other applications. In Chile, the Environmental Impact Assessment System is facing changes in 2019, and in the case of Chilean copper smelters' air emission limits the enforcement time has come. 

Meanwhile the Chinese Ministry of Environment in 2018 actively inspected and controlled copper smelters air, water and soil emissions. China's “Special Emission Limits” on SO2, NOx, H2SO4, PM, Fe issued in 2014 are only for sensitive areas (47 cities) so smelter projects in these areas had been cancelled in recent years. In addition there is a new and strict minimum sulphur recovery rate for copper smelters in China, so around 1.2 Mt of small old smelters capacity are expected to be replaced. Under the Minamata Convention, high mercury copper concentrates can be classified as “mercury waste”, needing more research and development in technologies to remove minor metals directly from copper ores. 

The European Commission also announced that 60% of current atmospheric mercury deposition is from industrial areas of Europe. Spain is now a key blending/trading point of complex concentrates, after CODELCO closed its Taiwan (China) blending plant early in 2018. With more hazardous waste produced by overseas copper miners, import limits compliance is now more difficult for Chinese miners overseas, and blending plants are opening in some Chinese ports. 

2. Role of Recycled Copper in the Global Copper Industry in 2019 

Global Use of Recycled Copper: Scrap Refined

Global refined copper output from scrap increased from 3.8 Mt-Cu per year in 2016, to 4.1 Mt-Cu per year in 2017. 

Copper smelters and refineries outside China increased production of refined copper from scrap by only 40 kt over 2017-2018. Japan, Germany, Russia, Belgium and Korea produced over 1 million tonnes of refined copper from recycled sources in January-November 2018. Iran and Japan reported the most dynamic growth of secondary refined output (scrap refined into copper) in 2018. In China, refined copper output from recycled sources fell in 2018 in China and might fall again in 2019 with the full implementation of the metal waste import ban.  

Recycled Copper Use in Fabrication of Copper and Alloy Manufactures

The global direct use of recycled copper in fabrication increased from 4.93 Mt-Cu in 2016 to peak 5.40 Mt-Cu in 2017, but preliminary estimates show lower volumes in 2018. 

Scrap directly melted by fabricators in China was lower not only on less imported scrap/waste supply, but on less domestic old scrap on lower economic growth in 2018. Less recycled copper use in Chinese copper wire rod plants was expected in recent years after tighter quality controls on “Made in China” copper wire and cable products. The gross weight use of scrap in Chinese brass mills and some semis is higher, and might achieve over 2.2 Mt in gross weight but with low copper content. Much more production in Chinese brass mills and semis ex-wire rod has been observed over 2013-2018 with a growing share of refined copper inputs over copper scrap inputs. Fabricators' direct use of recycled copper is following the refined prices: down in 2016, fast recovery in 2017, and down again in 2018. 

In the region conformed by Eastern Europe ex-EU, Central Asia and MENA, the use of recycled copper was growing well over 800 kt-Cu per year in 2016 and 2017 and might have stagnated in 2018. Volumes of refined copper output from scrap slightly increased  in 2017 and in 2018 in the Russian Federation and in Turkey. 

More direct use of scrap by fabricators is observed in the United States, Brazil, Mexico and Argentina, but a flat refined copper output from scrap was observed in the Americas region in 2018, mainly on lower prices. In the Americas, refined copper output from scrap is marginal and fabricators consistently are using more recycled copper in recent years. 

Industrial Use of Recycled Copper Across the World

On limited global capacity and volatile copper prices the use of recycled copper has stagnated worldwide over 2005-2018. 

Recycled copper use recovered in 2017 and fell in 2018 on lower prices and trade bans. In 2018, the use of recycled copper recovered only outside China but fell in Chinese smelters, refineries and fabricators. The use of recycled copper in European Union achieved over 2 Mt-Cu in 2017 and remained at these levels in 2018, even with more copper alloys and brass mill scrap available. 

Italian fabricators remain the regional leaders in direct scrap use, over Germany, Poland and Spain. But most of the scrap is refined in Germany, Spain, Belgium, Poland and Austria. So Germany and Italy were leading by far in EU-28 recycled copper use in 2016-2018. Spain, Poland and Austria are using increasing volumes of recycled copper in Europe.

In East Asia, ex-China, the recycled copper in scrap use remains close to 2 Mt-Cu mainly Japan, India and Korean Republic. More secondary refined copper (from scrap) has been observed in Japan, Germany, Russia, Belgium, Korea and Iran as China is reducing scrap imports from some of these countries. 

Copper Recycling Input Rate

Worldwide the Copper Recycling Input Rate (or recycled content) was below 30% in recent years. In the European Union, the rate has been stable around 45%, meanwhile the rate keeps falling in China in recent years on more concentrate supply, remains stable in the US and is growing fast in Japan and in Italy. In countries like Turkey and Thailand the rate is converging to ~20%, while in Russia the copper RIR has been affected in both directions in the past by a volatile fabrication output related to export tax volatility.

Impact of China Waste Ban on Chinese Copper Imports

One of the most important developments for the copper market was China banning waste imports, which reduced the global trade of copper and alloy scrap in gross weight by about 700 kt in 2018 compared to 2017. The Chinese waste import ban impacted on EU-28 gross exports of copper and copper alloy scrap, that might have fallen to around 800 kt per year in 2018 (a fall of 220 kt for the year 2018). Large volumes of copper scrap and low copper content waste imported by China was replaced by imports of copper concentrates and other copper intensive commodities as anodes and refined copper. In 2018 and early 2019 the collapse in Chinese copper and alloy scrap imports was replaced by imports of more blister, copper concentrates and more refined copper imported into China. 

Impact of China Waste Ban on Refined Copper Output 

As a consequence of the waste ban on imports, the Chinese output of refined copper from recycled sources might have fallen in 2018 and is expected to fall again in 2019. 

Even with more scrap supply outside China, slightly more refined copper from recycled sources was produced outside China in 2018. So the global use of recycled copper was stable on more scrap use outside China and less scrap use in China. As a result of the Chinese ban on low copper content, scrap imports in 2018 to become more strict in 2019 and beyond, some recyclers and scrap traders in Europe and the United States are facing an increasing local glut of copper and alloy waste and copper and alloy scrap. That might intensify in 2019. 

It is not clear yet if the copper industry in the Western economies will find ways to deal with their own scrap or look for other scrap processing locations. It is not clear in early 2019 who will invest in dismantling and smelting copper scrap outside China yet. Potential copper recyclers as India still report a very low volume of copper and alloy scrap imports in 2018.   

3. Global Capacity of Copper Mines Smelters and Refineries 

Major Copper Mine Capacity Delayed Beyond 2019 

After capital expenditures in copper mines fell over 50% in 2012-2017, more utilization in operational copper mines was expected in 2018-2020. 

The ICSG Directory of Copper Mines and Plants, published in January 2019 report that in 2018 more delays in new copper mine development and expansions shifted new capacity forward. Because of this, around 90% of the global expected copper mine capacity growth for the period 2019-2021 will occur in 2020/2021.

The reasons for this delay in additional copper mine capacity worldwide is related to several factors, but in particular to the length of new project permitting, opposition from local communities to new mining and smelting/refinery projects and also to budget/financial constraints at copper mining companies. 

After the 2017-2018 copper mines and plants investment stagnation, the annual copper mine capacity best-case scenario is for a rate of growth of 2.2% per year in the period 2019-2021. A more favourable trend in capital expenditure and new copper mining project approval was observed in recent months, but it remains sensitive to changes in market expectations. Delays in the ramp up of new capacity to 2021 are observed in copper mining projects originally expected in 2019 and 2020. 

Copper Smelting and Refinery Capacity and Technology in 2019-2021

In the case of global copper melting capacity, the latest review reveals that it might achieve a high >22.5 Mt in 2019, with global refinery capacity achieving over 27.5 Mt. This capacity is expected to be mainly because electrolytic copper refineries capacities are more than enough to process the expected production of copper anodes from concentrates and from dismantled scrap. 

There is no sign yet of a high utilization of the global copper smelter capacity, however this capacity is expected to keep growing at 3.5% per year over 2018-2021, mainly because China will further expand their current copper smelting capacity, albeit at a slower pace than before, to replace in part less environmental friendly technology. 

By 2021 copper smelter capacity with new Chinese high oxygen blowing technology capacity is expected to increase, although Flash technology will remain the global industry standard for at least the next decade. Almost 3 million tonnes of new copper refinery capacity is currently in the pipeline. Worldwide electrolytic refinery capacity, tied to new smelter capacities in many cases, might average an annual rate of growth of 3.2%/ per year between 2019 and 2021. 

With the annual copper mine capacity best scenario growth of 2.2% per year in the next 3 years and with copper smelting and refinery capacities growing well above 3% per year, in addition copper mine production will face many challenges, in particular those related to falling copper ore grades and more complex copper concentrate supply.    

Refined Copper Supply from Mines and Electrolytic Refineries

Refined copper supply is growing significantly only in China and remains stagnated or falling in the rest of the world. In 2018 refined copper production outside China might have grown by less than 1%, meanwhile Chinese copper refineries exported less refined copper in 2018 with a tight refined stock situation reported. 

The global growth of copper mine refined output (SX-EW) increased at about 2.8% worldwide in 2018, mainly because DRC Congo SX-EW output increased by 20% due to the restart of Glencore Kamoto SX-EW copper mine. SX-EW mine refined copper output fell 0.7% in Chile and fell 5% in the United States in 2018, and the global SX-EW copper mine refined output is expected to drop in 2020.

4. Challenges of More Mineral Waste from the Copper Industry 

More Mineral Waste in the Copper Industry and Responses

The global copper mine production is reporting a new record high in 2018, and so does the volume of mineral arids to dispose safely and tailings related volumes and incidents. 

Fatal incidents observed in Zambia in 2018 in areas known for illegal mining around the tailing dumpsites raise concerns about safety measures at some sites which continue to suffer periodic collapses. The UN agency UNEP reports no cohesive international public enforcement regarding mineral waste and reports that the % of serious and very serious failures of all tailing failures is growing. 

As far as covering remediation costs is cheaper than treating wet mine tailings and building strong tailing dams, more failures and accidents are expected if no regulatory action is taken. Tailings filtration is economically attractive only with high water recovery values (US$ 3-5/m3). As  water circuits are tightened, more impurities are retained which makes the processes more complex and more expensive counter measures as treating the bleed stream by either reverse osmosis or, more recently by nano-filtration. 


New In Situ Recovery Technologies and Limitations

The record growth in copper concentrate impurities in recent years is being driven by record global production of copper concentrates. 

Meanwhile, the expectations of a new In Situ Recovery (ISR) technology that might reduce waste/impurities, is facing its own environmental challenges to keep underground water quality and hazardous reactants under control.  One show case is the new Florence copper mine in Arizona, with no open pit, no tunnels, no blasting, no waste dumps, and no large equipment. The selection of the chemicals to be injected is critical for the success of the ISR technology: sulphuric acid, nitric acid, sodium bicarbonate, or ammonium carbonate are used in uranium and copper ISR operations to date with oxide minerals. It must be efficient at liberating the target metal, must have limited toxicity and must be neutralized or destroyed at the end of leaching operations, all difficult objectives. Therefore ISR recovery of metals from sulphide minerals require aggressive acid chemicals, with risks of underground water pollution. 

Copper Mineral Waste Management and Impacts on Cost and Supply

Different agencies are discussing proposals to reduce mine waste related incidents, from banning upstream and cascading mining dams to move away from wet, slurry tailings whenever possible. 

Ban large water covers at closure, including dry closure, dry covers are proposed with limited permits for mine waste sites above highly sensitive areas or communities with assessments of catastrophic scenarios. Spotting financially risky new projects or expansions  is an option, as are mandatory independent tailings review boards, with mandatory ‘tailings engineers’ and ‘water balance engineers’ present on copper mine sites. 

In 2019 investment funds are calling for new independent mine safety system to address tailings dam failures. The investment funds proposals are expected to include a new system, independent of companies with annual audits of all tailings dams to verify that the highest safety standards are being implemented with all reporting to made public through a public access database. 

The impact on project and operational mines will increase costs and might reduce future supply, in particular of small and higher risk operations.  ICSG will publish a detailed report on mineral waste affecting the copper, lead, zinc and nickel industries in 2019.

5. Global Copper Use Trends, Capacity and Fabrication

Recent Copper End Use Trends

The global end use of copper was close to 28.1 Mt-Cu in 2017 according to most recent data available from the industry. 

This year the main copper end uses became power distribution, transmission, ammunition and coins, with almost 45% of total end uses. It is expected that the global copper end use achieved around 29.2 million tonnes in 2018 on consolidation of the main users (cable makers) but falling end use demand might have produced a lower copper end use growth for 2018. 

Copper wire and cable makers are estimated to have remained the main global copper uses in 2018 meanwhile copper alloys uses reported a falling share to only 16% of global copper uses in 2017. 


Copper Use in Fabrication of Copper and Alloy Products

The use of copper in intermediate copper fabrication was reported higher in 2017 and close to 29.3 Mt-Cu worldwide according to industry associations data, and might be around 30 Mt-Cu in 2018. 

New fabrication capacities in India and China are observed, at a time that India is facing a bottleneck of domestic refined coper output. Copper use in fabrication in East Asia ex-China became higher than copper use in fabrication in Europe in recent years according to the industry. The ICSG reported global demand of copper increased to ~28.9 Mt-Cu in 2017, well over industry end use data, and in 2018 the refined copper demand was expected to grow +2.1% even when less scrap was expected to be directly melted by fabricators versus 2017 when more scrap use in fabrication became as an answer to high refined copper prices. 

Meanwhile in China, the property and vehicle demand slowdowns observed in 2018 was accompanied by important contractions in copper end uses in copper intensive products as electric motors exports down over 20% also affected by trade constraints. Domestic sales of electric motors fell almost 20% in 2018 in China, and investment in power grids and electric generation has fallen in the one digit area. 

Domestic sales of air conditioners and AC motors remained high in 2018 sustaining copper tube demand, but China was affected by a lower growth in copper end use demand and falling exports of copper intensive products after new import tariffs overseas. On the supply side of the end use market in China, intermediate fabricated copper and alloy output increased almost 15% in 2018 versus 2017.

Consolidation of the Main Copper Fabricators

The consolidation of the global copper wire and cable industry in 2017-2019 is revealed in different successful or failed industry mergers, pointing to a reduced number of copper wire rod and refined copper users in Europe and in the US, but more demand volumes in less hands in the future. 

This trend is evidenced by Prysmian and General Cable integration as the new global frontrunner, ahead of Nexans, Southwire and the emerging Chinese cable makers: after 2 years controlling South Africa, Spain and Portugal's largest copper wire and cable plants, Hengtong Group is now world´s 6th cable maker. 

In the European Union important fabricators mergers such as the KME takeover of MKM was approved by the European Commission in late 2018, with the MKM expansion plan based on more copper wire rod production capacity in 2019-2021. Other European copper users mergers as the Aurubis and Wieland Werke merger of copper flat rolled plants and the railway manufacturers merger between Siemens and Alstom, had been rejected by the European Commission. 

More Fabrication Output and Capacity Worldwide

In 2018 lower prices for refined copper and less scrap availability in China had been a driving force for the use of more refined copper use in industrial fabrication. 

ICSG's recent data reveals that refined copper demand in 2018 increased in EU-28, the United States and India, was stable in Japan, but fell in Taiwan (China), in the Russian Federation and South Korea. In China, copper wire rod remained the main copper use in fabricated products and after many fabrication projects were cancelled in China in 2017, new copper wire rod and other plants were commissioned in 2018 and many are under construction to start operations in 2019. 

India is adding new important copper wire rod plant capacity in 2018-2019, at the same time that the country is experiencing a shortage of refined copper due to the closure of the main copper smelter. Record copper uses in fabrication are reported in South Asia-Pacific region as we confirm copper use growing in India, Thailand, Malaysia and Vietnam in recent years. 

In 2017, over 3.1 Mt of copper and alloys fabrication output are now confirmed in the data of North East Asia ex-China fabrication for 2017 data, with Japan holding 44% of the output, Korea Rep. 38% is the top copper alloy producer. Copper and copper alloy fabrication output reported by ICSG in the European Union in 2017 was below 3.7 Mt in gross weight, including less than 2.4 Mt-Cu in copper products and 1.3 Mt in copper alloys in gross weight. 

But if we add the European Union refined copper demand reported in 2017 by ICSG with the copper in scrap directly melted by fabricators we obtain a higher copper demand for 2017 with a total close to 4.5 Mt in copper content. We observe the Russian Federation slowly recovering in 2017 and 2018 from their 2015 fall in copper use close to minus 50% fall, meanwhile Ukraine fabricators are been using more direct scrap than refined copper. 

A review of ICSG reported copper demand in the Americas in 2017 we account close to 4 Mt-Cu on more fabrication in Brazil, the United States and Mexico. 

Global Deficits of Refined Copper in Recent Years and 2018

Over 2013-2018 chronic but smaller global deficits in the refined copper market had been reported by ICSG, with a higher global deficit of 466 thousand tonnes reported for 2018. 

ICSG does report changes in Chinese bonded stocks in ports, but does not report changes in governments and refined users stocks. As the global deficit has been reducing in recent years, the refined copper price has been trending down and experiencing volatility in 2017-2018, based on expectations instead of a supply-demand based shortage. 

In 2017, the global use of recycled copper jumped to a historically high 8.8 Mt-Cu, but in 2018, a fall in Chinese use of recycled copper was observed. Fabricators used less scrap and more refined copper in 2018. Refineries outside China responded to fabricators with more production. 

In 2018, recycled copper use was expected to fall globally on a recovery of copper concentrates volumes and more SX-EW mine refined supply from Africa. The case of a closure of the largest copper smelter in India in 2018, and the maintenance problems experienced in early 2019 by copper smelters in Indonesia, Philippines and Chile are liberating copper concentrates to be re-allocated mainly to Chinese smelters. As demand stay strong, mainly in Asia ex China, a downstream copper use recovery might keep the refined copper market tight in 2019.



Carlos will be speaking at the upcoming International Copper Conference, taking place from 11 - 13 March in Amsterdam. To find out more visit: metalbulletin.com/events/copper.

This content is provided by Fastmarkets MB Events for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.