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Copper Market Outlook: Short-term weakness, long-term strength
Erik Heimlich
Principal analyst
Copper to the World Conference,
Adelaide Convention Centre,
18th June 2019
This presentation is private and confidential. It must not be disclosed in whole or in part, directly or indirectly or
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Legal notice
2
Copper Concentrates Market Outlook May 2019 Update
Contents
3
From long to short Policy uncertainty
Receding deficits Long-term strength
Copper Market Outlook
Price falls below $6,000/t; approaches 90th percentile cash cost position
4Data: CRU, LME
4,500
5,500
6,500
7,500
Jan-2018 Jul-2018 Jan-2019
LME 3M, US $/t 90th percentile cash cost
Daily LME 3-month copper price, $/t
Copper Market Outlook
Low growth on the supply side suggested
the copper market could tighten…
…but demand picture outside
of China has softened in 2019.
Low visible copper stocks give only a partial view of the market
5
0
500
1,000
1,500
Jan-2017 Jan-2018 Jan-2019
LME COMEX SHFE non-bonded China bonded
End of month stocks, ‘000t
0.7
0.8
0.9
1.0
Jan-2017 Jan-2018 Jan-2019
Copper content in Chinese imports of concentrates, blister,
cathode and scrap; Mt Cu, moving 3M average
Data: CRU, LME, SHFE, CFTC, IHS Markit
Copper Market Outlook
One pillar of support to the copper price
had been the drawdown in exchange stocks However, several indicators
suggested a rise in off-warrant
inventories.
Trade tensions and weak economic readings turn investors bearish
6
-80
0
80
Jan-18 Jul-18 Jan-19
US CFTC managed money + other reportable net positions, '000 lots
47
50
53
Jan-18 Jul-18 Jan-19
Chinese official manufacturing PMI
Data: CRU, CFTC, NBS
Copper Market Outlook
China’s official PMI for May was 49.4,
indicating a contraction and, more
significantly, it was below consensus
Some funds using copper as a
vehicle to play increased
macroeconomic uncertainty
Net long
Net short
Expansion
Contraction
Contents
7
From long to short Policy uncertainty
Receding deficits Long-term strength
Copper Market Outlook
China stimulus is smaller than in past and is mainly in form of tax cuts
0
2
4
6
8
10
12
14
2008-10 2015-16 2018-19
General Government LG (including Special bonds) Taxes Other
Fiscal stimulus; % of GDP
Data: CRU
Copper Market Outlook
8
Trade war has led to downgrade China’s GDP growth this year and next, but
revisions are small since policy easing expected to offset the decline.
Two thirds of fiscal
stimulus in the
form of taxes
Government spending will support Chinese copper demand growth
9Data: CRU, SGCC, CEIC
-12
0
12
24
36
Mar - 18 Sep - 18 Mar - 19
Investment Residential Starts
Infrastructure investment and residential starts, % y/y
-10%
0%
10%
20%
0
200
400
600
2013 2014 2015 2016 2017 2018 2019
Grid infrastructure investment y/y change
Grid infrastructure investment, Bn RMB
Copper Market Outlook
…but Chinese demand will not react as in previous stimulus rounds
10Data: CRU
-400
0
400
800
1,200
2000 2003 2006 2009 2012 2015 2018
Export Growth Domestic growth
Change in Chinese total copper demand y/y, ‘000t
-10%
0%
10%
20%
30%
1996 2000 2004 2008 2012 2016
% of Chinese total copper demand export related
Copper Market Outlook
Contents
11
From long to short Policy uncertainty
Receding deficits Long-term strength
Copper Market Outlook
China will add large volumes of demand but growth rates slow down
12Data: CRU
0.0%
2.0%
4.0%
Utilit
y
Con
str
uction
(C
ivil
and
build
ing)
Con
sum
er
Du
rable
s
Air
conditio
nin
g a
nd
refr
igera
tion O
ther
Tra
nsp
ort
Machin
ery
CAGR of key sectors; 2018-2023
13,000
14,000
15,000
201
8
Civ
il and b
uild
ing
constr
uction
Utilit
y
Air
conditio
nin
g a
nd
refr
igera
tion
Con
sum
er
Du
rable
s
Tra
nsport
Machin
ery
Oth
er
Net-
export
s a
s s
em
is o
rcable
202
3
Consumption growth by sector; 2018-2023 ‘000t
Copper Market Outlook
GDP to fall below
6% after 2020
IP is slowing at a faster
pace than GDP
Economy in
transition
Other priorities
other than just
short-term GDP
growth
Growth outside of China required to maintain momentum
13Data: CRU
0%
2%
4%
6%
2016 2017 2018 2019 2020 2021 2022 2023
Rest of world China Global
Growth in global refined copper demand, % y-o-y
Copper Market Outlook
China53%
India12%
ASEAN10%
Other8%
Europe7%
North America6%
Middle East & Turkey4%
Absolute growth in copper demand 2018-2023; %
CAGR 2018-2023 = 2%
Projects receive board approval leading to increased mine supply
14Data: CRU
0
500
1,000
1,500
2,000
Forecast inJanuary 2018
Forecast inApril 2019
2018-23 supply increase, ‘000 t
2018
2019
2020
2021
2022
2023
0
100
200
300
400
To
quepala
Exp.
Gra
sberg
BC
Ch
uq
uic
am
ata
UG
Cob
re P
an
am
a
Duo
baoshan II
Mir
ad
or
Spen
ce
Qulo
ng
Yulo
ng II
To
min
skoye
Tsaga
an S
uvarg
a
Kam
oa
I
To
rom
ocho E
xp.
Manto
verd
e S
ulp
.
Oyu
Tolg
oi II
QB
2
Quella
veco
Ce
ntine
la D
istr
ict
Akto
gay E
xp
.
El T
enie
nte
NM
L
Oly
mpic
Dam
Exp.
Rosem
ont R
anch
Tim
ok
Crista
lino
Operating Firm Probable Possible
Capacity and status of mine projects with LOM capacity >=75,000 t/y; ‘ 000 t
Copper Market Outlook
Cumulative
addition of
0.8 Mt to
forecast
Cash costs and US dollar supportive of copper price in medium term
15Data: CRU
0
2,000
4,000
6,000
2018 2019 2020 2021 2022 2023
90th percentile 75th percentile 50th percentile
Copper mine cash costs net of by-product, $ /t
115
120
125
130
2015 2016 2017 2018 2019 2020 2021 2022 2023
US$ broad trade weighted index, March 1973=100.
Copper Market Outlook
Receding deficits limit the upside for copper prices
16Data: CRU, LME
4,500
5,500
6,500
7,500
2015 2017 2019 2021 2023
High Case Low Case Base case
$/t LME 3M price
-300
-200
-100
0
100
200
2015 2017 2019 2021 2023
Refined copper market balance, 2015-2023; '000t
Copper Market Outlook
Contents
17
From long to short Policy uncertainty
Receding deficits Long-term strength
Copper Market Outlook
EVs are key to refined copper, without them global demand will plateau
20,000
24,000
28,000
32,000
2015 2020 2025 2030 2035
Global Refined Copper Demand - No EVs (000t)
Global Refined Copper Demand (000t)
Refined copper demand, '000 t
0
1
2
3
4
5
15 17 19 21 23 25 27 29 31 33 35
HEV PHEV BEV FCEV* Infrastructure
World EV copper consumption, Mt
Copper Market Outlook
18Data: CRU
BEVs reach 10% of global light
duty vehicle production in 2028.
By 2030, BEVs represent 16%
of global output.
What would be the effect of stripping
out EVs and associated infrastructure
from our demand projections?
The supply gap will reach 8 Mt by the end of the next decade
19
0
10
20
30
40
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Operating Firm Probable Possible Prospect Exploration Demand
Forecast committed copper mine production and potential from uncommitted projects versus primary copper demand; Mt
Copper Market Outlook
Data: CRU
Committed production
faces resource exhaustion
and declining grades
Gap between committed mine output and primary copper demand
opens up almost immediately and grows rapidly during the 2020s
Steep cash cost curve and high capex requirements for copper mining
20Data: CRU
0.0%
2.0%
4.0%
6.0%
8.0%
0 20 40 60 80 100
Ore processed (Mt/y)
Other Possible Probable Firm
Bubble size = capital expenditure
Copper projects Cu(eq) grade, tonnage and CapEx
Copper Market Outlook
-2,000
0
2,000
4,000
6,000
8,000
0 4,000 8,000 12,000 16,000 20,000
2018 CRU Cash Costs $/t including By-product credits; $/t
Cumulative copper production '000 tonnes
Economies of scale are
still one of the main
determinants of position
on the cost curve
Large projects can be
capital intensive
Copper mining projects are increasingly challenging to develop
21Data: CRU
0
40
0
40
80
0
40
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Open Pit Underground Grade
Chuquicamata
Grasberg
Oyu Tolgoi
Block caves throughput and head grades; Mt ore, % Cu
Copper Market Outlook
0.6%
0.7%
0.8%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Global head grades at milling operations; % Cu
Lower grades make mining copper
resources more challenging.
There are other factors: difficult
locations, complex mineralogy,
remoteness, lack of infrastructure…
Significant social / political challenges to develop uncommitted pipeline
22Data: CRU
Copper Market Outlook
0
1,000
2,000
3,000
4,000
Chile
Peru
US
A
DR
Congo
Can
ada
Arg
entina
Austr
alia
Mexic
o
Indo
nesia
Phili
ppin
es
Ecua
do
r
PN
G
Ru
ssia
Bra
zil
Oth
er
Probable Possible Prospect
2030 production capacity from uncommitted projects; ‘000 t
0
100
200
300
400
500
Resolu
tion
Ta
mpakan
Pebb
le
El A
rco
Llu
rim
agu
a
Haq
uira
Mic
hiq
uill
ay
Rio
Bla
nco
Ela
ng
Viz
ca
ch
ita
s
Pana
ntz
a
Fri
eda R
iver
Con
ste
llation
Los A
zule
s
Wa
fi-G
olp
u I
Agua R
ica
El G
ale
no
Nue
vaU
nio
n I
Probable Possible Prospect
Uncommitted greenfield projects >150kt/y by 2030; ‘000 t
Significant environmental and
social issues in some of the key
mining jurisdiction. Resource
nationalism on the rise.
0%
5%
10%
15%
20%
25%
2000-07 2007-13 2013-18 2018-23
Primary Aluminium Demand Refined Copper Demand
Annual demand growth in China, CAGR %
There are risks to the long-term view: scrap & substitution
23Data: CRU
0
1,000
2,000
3,000
4,000
5,000
2015 2020 2025 2030 2035
Scrap used in refined metal production
Direct use scrap
Copper scrap sources, copper contained; '000 tonnes
Copper Market Outlook
Substitution to aluminium remains a
threat, but pace of change has slowed.With strong government support
China can increase domestic
scrap generation
Copper demand
growth has lagged
aluminium in China
Conclusions
24
Copper price approaches the 90th percentile cash cost position. We think this is not reflective of market fundamentals.
China’s stimulus feeding through to real economy and copper demand, but stimulus is supportive rather than game changing.
Project pipeline firms up. Demand growth outside of China required. Receding deficits limit the upside for copper prices.
Greening of power and transportation markets to sustain long term demand. Mine project development increasingly challenging.
Copper Market Outlook
CRU International Limited
London | Sydney | Tokyo | Beijing | Shanghai | Singapore | Mumbai | New York | Pittsburgh | Sao Paulo | Santiago
Registered in England No.940750. Registered office: Charles House, 108-110 Finchley Road, London NW3 5JJ
25
Erik Heimlich
Principal analyst
+56 56 222 313 900
erik.heimlich@crugroup.com
Thank you for your attention!
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