abare.gov.au - Australian commodities – September quarter . volume 15 . number 3 2008

Copper

Michael Lampard

In July 2008, copper traded at a record $8985 a tonne. The record price reflected strong demand and concerns over mine supply as industrial disputes in South America continued at a time when copper stocks were historically low.

Supply constraints continue to support high prices in 2008…

The copper price averaged around US$8090 a tonne in the first eight months of 2008, a 15 per cent increase year on year. However, in the second half of 2008, copper is forecast to trade below US$7500 a tonne. Reflecting this, copper prices are forecast to average around US$7700 a tonne in 2008, an increase of 8 per cent year on year. Despite forecast weaker growth in copper consumption in the second half of 2008, the world copper price will be supported by a tight supply and demand balance as a result of continuing supply constraints including industrial disputes and production of ore with lower copper grades.

… but weakening in 2009

In 2009, the average world copper price is forecast to decline by 8 per cent to around $7100 a tonne. The growth in world copper supply is forecast to exceed the growth in demand resulting in an increase in world stocks. However, stocks in 2009 will remain low by historical standards, at only 2.8 weeks of consumption, and any significant disruptions to mine output, such as industrial disputes, present an upside risk to this price forecast.

Moderate consumption growth in 2008 and 2009

Consumption of refined copper in the first six months of 2008 was flat as weaker demand growth in Asia reinforced weaker consumption in a number of OECD countries. For 2008 as a whole, world copper consumption is forecast to increase by 2 per cent to 18.4 million tonnes as demand increases in the second half of 2008. In 2009, refined copper consumption is forecast to increase by 5 per cent to 19.3 million tonnes, supported by strong demand growth in China and other developing countries. In addition, OECD demand is expected to rebound toward the end of 2009 as economic growth picks up pace.

China is expected to remain an important driver of growth in world copper consumption as its rapid urbanisation and industrial transformation continue. Demand for copper in the construction of housing and infrastructure and the expansion of electricity grids is expected to support growth in copper consumption. In the first half of 2008, China’s investment in fixed assets such as infrastructure and housing is estimated to have increased by 27 per cent. For 2008 as a whole, electricity generating capacity in China is expected to increase by around 90 gigawatts, which is equivalent to almost double Australia’s generating capacity.

OECD consumption weak

In 2008, OECD demand is expected to remain weak as many developed economies undergo a slowdown in manufacturing and housing sectors as a result of falling house prices and reduced availability of credit.

In the United States, the world’s second largest copper consumer, consumption is forecast to be 5 per cent lower in 2008 and then to increase marginally in 2009. This reflects weak residential and industrial construction markets in the United States which account for around 50 per cent of US domestic copper consumption. In the first half of 2008, housing permits and housing starts, two leading indicators of future residential construction, declined by more than 30 per cent compared with a year earlier. The US housing market is not expected to recover until well into 2009, hence downward pressure is expected to remain on US copper demand.

World mine production to increase despite disruptions

In 2008, world copper mine production is forecast to increase by 4 per cent to 16.2 million tonnes as production commences at a number of new mines. The largest of these, in terms of production capacity, include Codelco’s Gaby and Andina projects in Chile (capacity of 150 000 and 120 000 tonnes a year, respectively) and Oz Minerals’ Prominent Hill mine in Australia (110 000 tonnes a year). Increased production is expected to be partially offset by production losses associated with labour disputes in Chile and Mexico, which have persisted for a number of years and are likely to continue in the short term.

In 2009, world copper mine production is forecast to increase by a further 8 per cent to 17.4 million tonnes as a number of projects commissioned in 2008 approach full capacity. In addition, three large projects are scheduled to be completed in 2009. These are the Nikanor-Katanga joint venture KOV mine restart (250 000 tonnes a year) and Freeport’s Tenke Fungurume (114 000 tonnes a year), both in the Democratic Republic of Congo, and Equinox Minerals’ Lumwana mine (169 000 tonnes a year) in Zambia.

Copper outlook

2007

2008

2009

% change

World

Production

– mine

15 561

16 195

17 421

7.6

– refined

17 985

18 349

19 632

7.0

Consumption

18 034

18 400

19 343

5.1

Closing stocks

812

761

1 050

38.0

– weeks consumption

2.3

2.2

2.8

27.3

Price

US$/t

7 133

7 723

7 115

– 7.9

USc/lb

323.5

350.3

322.7

– 7.9

2006-07

2007-08

2008-09

Australia

Mine output

859

863

1 027

19.0

Refined output

435

442

526

19.0

Exports

– ores and conc.

1 493

1 693

1 727

2.0

– refined

290

296

378

27.7

– total value

A$m

6 526

6 698

7 509

12.1

f ABARE forecast. s ABARE estimate.

Refined production expanding

World production of refined copper is forecast to increase by 2 per cent to 18.3 million tonnes in 2008 and a further 7 per cent to 19.6 million tonnes in 2009 as production expands rapidly in China and Chile.

In China, refining capacity is expected to increase in 2008 and 2009 as new capacity comes on line. By 2009, China’s production of refined copper is forecast to have increased by more than 600 000 tonnes to around 4 million tonnes. In Chile, refined production is forecast to increase by 500 000 tonnes by the end of 2009 as a result of new solvent extraction-electrowinning (SX-EW) production (see box).

Anticipated limited availability of copper concentrates is expected to constrain refined copper production growth in 2008 and 2009. In particular, China’s refined copper production could be limited by the ability of refineries to source imported copper concentrates. China’s copper concentrate production is forecast to grow at a slower pace than its refining capacity, resulting in increased imports.

Solvent extraction-electrowinning (SX-EW)

Solvent extraction-electrowinning uses copper oxide ores. It is a hydrometallurgical process, as the copper is either in an aqueous or organic environment during processing until it is reduced to a metal form. This process involves leaching the material with a weak acidic solution (generally sulfuric acid). The solution (pregnant liquor) is then recovered and contacted with an organic solvent (extractant) in the solvent extraction phase. This extracts the copper and leaves most of the impurities in the leach solution. The copper-bearing material is advanced to the electrowinning stage, while the leach solution is returned to the solvent extraction stage. In the electrowinning stage the copper is reduced electrochemically from the copper sulfate solution to a cathode.

SX–EW has a number of benefits over conventional processing, including the production of pure cathode on site, the ability to treat lower grade ores and its suitability for both small and large-scale projects. However, the SX–EW process is electricity intensive, so the economics of production are sensitive to electricity costs.

Australian export earnings to increase

In 2007-08, Australian copper mine production remained relatively unchanged at around 863 000 tonnes. Higher production from CopperCo’s Lady Annie project, Matrix Metal’s Leichardt mine (both in Queensland) and Jabiru Metal’s Jaguar mine (Western Australia) was offset by lower production at Rio Tinto’s Northparkes (New South Wales) and BHP Billiton’s Olympic Dam (South Australia) projects.

Australian copper mine production in 2008-09 is forecast to increase by 19 per cent to around 1 million tonnes as a number of new projects start operations and recently commenced projects approach full capacity. Projects scheduled to begin production in 2008-09 include Oz Minerals’ Prominent Hill in South Australia (110 000 tonnes a year), Newmont’s Boddington project (30 000 tonnes a year), CBH Resources’ Sulfur Springs (20 000 tonnes a year) (both in Western Australia) and Compass Resources’ Browns Oxide (10 000 tonnes a year) in the Northern Territory.

In 2007-08, production of refined copper increased by 2 per cent to around 442 000 tonnes, reflecting higher production at Xstrata’s Townsville copper refinery and the start up of CopperCo’s Lady Annie SX-EW project. In 2008-09, refined production is forecast to increase by 19 per cent to 526 000 tonnes, supported by the commencement of Compass Resources’ Browns Oxide SX-EW project and full production at Xstrata’s Townsville copper refinery and CopperCo’s Lady Annie SX-EW project following the completion of construction in 2007.

In 2008-09, the export volume of Australian copper ores and concentrates is forecast to increase by 2 per cent to around 1.7 million tonnes. However, the volume of refined copper exports is forecast to grow by 28 per cent to 378 000 tonnes, reflecting the increasing proportion of copper ores being refined in Australia for export markets.

The value of Australian copper exports in 2007-08 increased by 3 per cent to $6.7 billion. While export volumes increased, the influence of high copper prices was largely offset by an appreciation of the Australian dollar. In 2008-09, the export value of Australian copper is forecast to increase by 12 per cent to $7.5 billion. The forecast increase in export volumes and the assumed depreciation of the Australian dollar are expected to more than offset the effect of lower world prices.