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Copper market outlook: Transitioning to deficits
Prepared for:
Copper to the World Conference,
Adelaide Convention Centre, 27th June 2017
Prepared by:
Vanessa Davidson,
Director of Copper Research & Strategy
Structure of Presentation
www.crugroup.com 2
Demand Outlook: Period of transition as China slows2
Supply Outlook: Still in need of more supply3
Current Copper Market: Deficits delayed but still expected 1
4 Investment Cycle: Have we moved to the upside of the cycle?
Price has recovered from the lows but next step-up remains elusive
Mine output losses*, ‘000t H1 2017
Escondida 233
Grasberg 253
Other 66
Total 552
www.crugroup.com 3Data: CRU, LME
4,000
4,500
5,000
5,500
6,000
6,500
01 16 04 16 07 16 10 16 01 17 04 17
New range established for the LME price
LME 3-M, $/tonne
Production losses were sizeable in H1
*Estimated
Spot TC’s pick-up unexpectedly
60
70
80
90
100
110
120
130
140
01 14 07 14 01 15 07 15 01 16 07 16 01 17
Spot TC’s (Chinese smelter), $/t
4
5
6
7
8
9
10
0
50
100
150
200
250
12 13 14 15 16 17
CIF Rotterdam (LHS)China imported (LHS)US East Coast (RHS)
Cathode premiums remain depressed
Refined copper market insulated by scrap and stocks
www.crugroup.com 4Data: CRU, LME, Comex, SHFE *Western Europe, North America and North East Asia
0
500
1000
1500
2000
01 12 01 13 01 14 01 15 01 16 01 17
LME Comex SHFE Chinese Bonded
Cathode stocks are still sizeable despite recent drawdown
‘000t
Scrap availability has surged this year…
-1.4%
1.6%
-0.1%
0.5%
-1.0%
6.3%
-2%
0%
2%
4%
6%
8%
2012 2013 2014 2015 2016 2017
Global growth in direct use scrap, %
Blister stocks were high at start of 2017
…depressing global refined copper demand
-1%
0%
1%
2%
3%
4%
World China Eur/Am/Asia* Other
Semis production Refined consumption
Cu consumption growth, 2017, %
0
500
1000
1500
2014 2015 2016
Smelter
Refinery
Change in Cu production by smelters & refineries, ‘000t
Blister
stock-
build
Medium term market deficits remain intact
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
8,000
-700
-600
-500
-400
-300
-200
-100
0
100
200
300
400
500
2015 2016 2017 2018 2019 2020 2021
$/t’000t Cu
Balance forecast in April Balance forecast in June
Price forecast in April Price forecast in June
LME cash price and annual global refined supply/demand balance, 2015-2021
-200
600
Q1 Q2 Q3 Q4
Quarterly SD Balance, 2017
www.crugroup.com 5Data: CRU
Structure of Presentation
www.crugroup.com 6
Demand Outlook: Period of transition as China slows2
Supply Outlook: Still in need of more supply3
Current Copper Market: Deficits delayed but still expected 1
4 Investment Cycle: Have we moved to the upside of the cycle?
Global demand per capita still increasing steadily with GDP per capita
1.00
1.50
2.00
2.50
3.00
3.50
6,000 6,500 7,000 7,500 8,000 8,500 9,000 9,500 10,000 10,500 11,000
Global GDP per capita (US$ '000 - 2010 prices)
Refined copper consumption, kg/capita
The S-curve for copper
continues to grow at a steady
pace
By 2016, global refined copper
consumption had reached
3kg/capita
Over the years 1980-2016, a
$1M increase in GDP/capita, led
to a 0.22kg/capita increase in
refined copper consumption
globally
Can we expect this pace of
growth to continue?
S-curve for global refined copper demand, 1980-2016
www.crugroup.com 7Data: CRU
There appears to be plenty of potential for further demand growth…
S-curve for refined copper demand by country, 2017
Italy
France
India
Canada
Indonesia
Russia
Thailand
S.Korea
Vietnam
Germany
UK
Mexico
Brazil
JapanChina
USA
Malaysia
Turkey
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 55.0
GDP per capita (US$ '000 - 2010 prices)
kg/capita refined copper consumption 2017
Developing countries
Developed countries
www.crugroup.com 8Data: CRU
…but China is set to slow which influences the global outlook
1.5
2.0
2.5
3.0
3.5
6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000
Global GDP per capita (US$ '000 - 2010 prices)
Global refined copper demand per capita,1980-2026
Cu consumption, kg / capita
0.0
3.0
6.0
9.0
0 2,000 4,000 6,000 8,000 10,000 12,000
Global GDP per capita (US$ '000 - 2010 prices)
China refined copper demand per capita,1980-2026
Cu consumption, kg/capita
0.0
2.0
4.0
6.0
8.0
15,000 20,000 25,000 30,000 35,000 40,000 45,000Global GDP per capita (US$ '000 - 2010 prices)
Developed world refined copper demand per capita,1980-2026
Cu consumption, kg/capita
0.0
0.4
0.8
1.2
1.6
2,500 3,000 3,500 4,000 4,500 5,000 5,500
Global GDP per capita (US$ '000 - 2010 prices)
Developing world refined copper demand per capita, 1980-2026
Cu consumption, kg/capita
Note: Excludes Russia and China
Demand per capita levels
off after 2021 reflecting
developments in China
Phase of heavy
industrialisation
ends
Per capita consumption growth
picks up but from low baseSome support from
developed world
www.crugroup.com 9Data: CRU
Demand growth will increasingly be driven by world ex-China
Growth in global refined copper demand, %
Growth in world refined copper consumption and volume growth in selected 5-year periods
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
2006-11 2011-16 2016-21 2021-26
China Rest of World
Absolute consumption growth in period, Mt
2.6Mt
2.9Mt
2.3Mt
1.2Mt
1.2%
2.5%
1.7%
2.3%2.1%
1.8% 1.8%
0.0%
1.0%
2.0%
3.0%
www.crugroup.com 10
1.0%
Data: CRU
Structure of Presentation
www.crugroup.com 11
Demand Outlook: Period of transition as China slows2
Supply Outlook: Still in need of more supply3
Current Copper Market: Deficits delayed but still expected 1
4 Investment Cycle: Have we moved to the upside of the cycle?
Our estimates suggest growth in mine output will be <1Mt in 2016-21
-1,000
0
1,000
2,000
3,000
4,000
5,000
2001-06 2006-11 2011-16 2016-21
SXEW
Concentrates
Dramatic increase in mine production
following heavy phase of investment
Growth in global mine production including EW, ‘000t Cu
Growth slows sharply due
to lack of new projects,
declining ore grades and
reserve exhaustion
www.crugroup.com 12Data: CRU
Pipeline of large mine projects is thin: No new projects starting up in 2017
Copper mine projects with capacity of >100,000t/y; LOM annual copper production capacity; ’000t
www.crugroup.com 13Data: CRU
0
100
200
300
400
Operating
Firm
Probable
Possible
2016 2018 2019 2020 2021
There are more smaller-sized projects being developed but it is still not enough
0
20
40
60
80
100
120
Yu
long
Pha
se II
Mira
dor
To
min
sko
ye
(C
on
cs)
Akto
ga
y (
Co
ncs)
Min
a J
usta
-Ma
rc.
(Co
ncs)
Du
ob
ao
sh
an
Ph
ase
II
Tsagaan S
uvarg
a
Nkan
a S
yn
clin
oriu
mS
ha
ft
Me
talk
ol R
TR
Ph
ase
I
So
lwa
ra 1
Bystr
insko
ye
Ch
am
bis
hi S
ou
the
ast
Ca
rra
pate
ena
Lo
s P
ela
mb
res E
xp
.
Xie
tongm
en-X
iongcun
Su
ngu
n E
xp
ansio
n III
Kh
oem
aca
u/Z
on
e 5
Mo
ka
mb
o
Bo
se
to R
esta
rt
En
cu
en
tro
Oxid
es
To
rom
och
o E
xp.
Firm Probable Possible
Projects and expansions due on-stream in 2017-21, with capacity of >50kt and <100kt, ‘000t of contained Cu
www.crugroup.com 14Data: CRU
Codelco’s mine production static in next 10 years
Output from Codelco mines*, committed and uncommitted, ‘000tpy Cu; Mine project details to 2025
ProjectCapacity,
‘000t/y
Estimated
Start DateStatus
Chuqui’mata
Ripios35 Q2 2017 Firm
RT SBL
(bio-leach)30 Q3 2018 Probable
Chuqui’mata
Underground320 Q1 2020 Firm
Salvador
Extension
(Rajo Inca)
50 Q3 2022 Possible
El Teniente 430 Q3 2023 Firm
RT Sulphides 150 Q3 2024 Possible
Andina
Expansion II120 Q3 2025 Possible
www.crugroup.com 15Data: CRU
1,000
1,500
2,000
2,500
3,000
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
CRU Forecast: Probable and possible projects
CRU Forecast: Existing mines and firm projects
Codelco's 2014 Business Plan
1730
*Note: Production quoted before disruption allowances
1740
2570
‘000 t
0
100
200
300
400
500
600
700
800
2010 2012 2014 2016 2018 2020 2022 2024
CRU Forecast: Jan 2015 CRU Forecast: Jun 2017
2014 Disruption: Dispute over
progressive export tax on concentrates
2017 Disruption: Dispute over
replacement of Contract of Work
(CoW) by Special Mining Licence
We are cautious on Grasberg but there could be upside potential
Grasberg output ‘000t Cu: Current vs. previous forecast (LHS); Annual average production (RHS)
www.crugroup.com 16Data: CRU
0
100
200
300
400
500
600
700
800
1998-00 2000-05 2005-10 2010-15 2015-20 2020-25
2019 Transition: End of OP and
treatment of low grade stockpiles
2015 Disruption and Delay: Labour
dispute and DMLZ expansion project
delays
2022-25 Grades: Planned decline
in Cu ore grade at bloc cave
Structure of Presentation
www.crugroup.com 17
Demand Outlook: Period of transition as China slows2
Supply Outlook: Still in need of more supply3
Current Copper Market: Deficits delayed but still expected 1
4 Investment Cycle: Have we moved to the upside of the cycle?
Investment in the copper industry is highly pro-cyclical
0
2,000
4,000
6,000
8,000
10,000
12,000
0
500
1,000
1,500
2,000
2,500
3,000
85 88 91 94 97 00 03 06 09 12 15
Price, RHSInvestment plans, LHS
Selected projects* investment plans**, ‘000t LME 3-month copper price, real (2016$)
Note: *35 projects with an average nominal capacity of 185,000t **based on nominal capacity and measured from date of first approval to first commercial production
www.crugroup.com 18Data: CRU
Next phase of investment should begin as long as prices hold up
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
0 2000 4000 6000 8000
<100t/y >=100t/y
Real (2016$) full economic costs for all projects due to start-up between 2017-2028, $/t
Cumulative production (‘000t Cu)
25% 50% 75%
LME 3 month price, H1 2017 average
www.crugroup.com 19Data: CRU
In the meantime, prices set to rise faster than costs: Margins to improve
0
2,000
4,000
6,000
8,000
10,000
12,000
1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
Annual price range
Net of by-product cash cost, 75th percentile
LME Copper, Cash
LME cash price and 75th percentile net of by-product cash costs, $/t, 1983-2021
www.crugroup.com 20Data: CRU, LME
Copper prices have maintained the trading range established at the start of the year but have not found the
impetus to move higher
A combination of stocks of concentrate, blister, cathode and scrap have insulated the refined copper market
in 2017
Modest sized global surpluses are forecast for 2017 and 2018, before structural deficits emerge in 2020 on
the back of limited supply growth
Following the market downturn of recent years, the pipeline of major copper projects is extremely thin.
Many new projects will be needed by the mid-2020s
Global demand growth is expected to slow in the years 2016-26, as China’s heavy industrialisation phase
comes to an end
There is no new China about to take-off in the short term but global demand growth is nevertheless
anticipated
Producer margins are expected to improve to a level of $3,123/t by 2021 for the mine at the 75th percentile
of the cost curve; an increase of 154% compared to 2016
Have we moved onto the upside of the cycle?
www.crugroup.com 21Data: CRU