30%Building Construction

Equipment31%

15%Infrastructure

12%Trasport

12%IndustrialChina

11,923

Key copper consumer markets (thousand tonnes), 2017

United States

1,781

Germany

1,200

Japan

974

South Korea

656

Italy

652

Australia is the world’s3rd largest exporter of copper ores and concentrates

Copper is 100% recyclableand nearly 80% of the copper that has ever been produced is still in use today

The average home contains 180 kg of copper

WA

NT

QLD

SA

NSW

VIC

TAS

Major Australian copper deposits (Mt)

Global uses of copper

DepositOperating mine

>6.92.2–6.80.9–2.10.03–0.80.02<0.01

producer of copperin the world

7th largestAustralia is the

CopperResources and Energy Quarterly September 2018

Resources and Energy Quarterly September 2018 83

12.1 Summary

Trade tensions have hit copper prices in recent months, causing a 20

per cent decline. However, rising demand is expected to gradually

reverse this fall, with prices forecast to rise from US$6,726 a tonne in

2018 to US$7,734 by 2020.

Australia’s copper exports are forecast to rise from 888,000 tonnes in

2017–18 to over 1 million tonnes (in metal content terms) in 2019–20.

This reflects an increase in production from several existing mines.

Australia’s copper export earnings are forecast to lift from $8.5 billion

in 2017–18 to $11.3 billion by 2019–20. Exports should benefit from

rising production and from price growth later in the outlook period.

12.2 Prices

Copper prices have dropped, temporarily

Copper prices have turned bearish in recent months, plunging by 20 per

cent to a 14-month low (of around $US6,000 a tonne) in early August. US–

China trade tensions played a significant part in the recent decline: these

tensions are widely considered to be one of the leading threats to global

economic growth in the coming year. Copper is often considered a global

economic barometer as a result of its importance for infrastructure

development and manufacturing.

Instability in copper prices has been exacerbated by events in Turkey,

where high current account deficits and a government freeze on interest

rates have led to a currency crisis. Recent progress in wage talks at

Escondida — the world’s largest copper mine — has also boosted copper

supply, stemming potential upward pressure on copper prices.

Copper prices are expected to recover

Copper prices appear increasingly out of step with the fundamentals of

global copper supply and demand, and are consequently expected to start

recovering in the near-term. While trade tensions are likely to continue, it is

Figure 12.1: Outlook for copper stocks and prices

Source: LME (2018) official cash price; Department of Industry, Innovation and Science (2018)

Figure 12.2: Long-term change in quarterly copper consumption

Source: World Bureau of Metal Statistics (2018); Department of Industry, Innovation and Science (2018)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0

1,500

3,000

4,500

6,000

7,500

9,000

2013 2014 2015 2016 2017 2018 2019 2020

Wee

ks o

f co

nsu

mp

tio

n

US

$ a

to

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e

Weeks of Consumption Spot price

0

1

2

3

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6

7

1998 2002 2006 2010 2014 2018

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es

Europe Africa Asia Americas Oceania

Resources and Energy Quarterly September 2018 84

expected that this will lead to greater price volatility rather than further

declines. Rising demand (see Figure 12.2) should see copper prices

recover late in 2018, and then lift to around $US7,088 a tonne in 2019 and

$US7,774 a tonne in 2020. The fundamental conditions for copper remain

strong, with industrial production rising and new consumer products

emerging rapidly.

12.3 World consumption

Copper consumption is set for solid growth over the next two years

Global copper consumption is projected to rise from 24.5 million tonnes in

2018, to 25.7 million tonnes by 2020. Higher copper consumption reflects

solid growth in global industrial production (see Figure 12.3) and a ramp-

up in the development of copper-intensive technologies. Consumption

over the short term is likely to be constrained to some degree by recent

soft outcomes for fixed asset investment in Chinese manufacturing, real

estate and infrastructure. Spending on Chinese infrastructure has been

consistently below expectations in recent months (see Figure 12.4). As

China consumes around half of all copper, this drop in usage has led to a

significant fall in monthly consumption, even though industrial demand

from the US and other countries has remained solid (see Figure 12.5).

Partly offsetting this, China has recently announced significant stimulus

measures, in an effort to offset the impact of trade tensions with the US.

These measures include tax cuts, which have been heavily targeted at

research and development (R&D) spending. (Any resulting rise in R&D

spending should benefit long term copper demand, due to copper’s use in

many forms of emerging technology.) The Chinese Government has also

brought forward a planned release of RMB1.35 trillion in bonds to sponsor

infrastructure investment by local governments. These measures are

expected to boost copper usage from mid-2019.

Dependence on China may also be reduced in the medium term by a rise

in global electric vehicle usage. Electric vehicles typically contain about 90

kilograms of copper, and strong growth in sales across many nations is

likely to result in a more balanced global market in the next few years.

Figure 12.3: World copper consumption and industrial production

Source: World Bureau of Metal Statistics (2018); Bloomberg (2018) Netherland CPB; Department of Industry, Innovation and Science (2018)

Figure 12.4: Growth in China’s energy sector

Source: Bloomberg (2018) National Bureau of Statistics China; Department of Industry, Innovation and Science (2018)

-8

-4

0

4

8

12

16

2013 2014 2015 2016 2017 2018 2019 2020

Ye

ar-

on

-ye

ar

pe

r ce

nt ch

an

ge

Consumption Industrial Production

-40

-25

-10

5

20

35

50

0

100

200

300

400

500

600

2012 2013 2014 2015 2016 2017 2018

3 m

on

th r

olli

ng

Yo

Y g

row

th

Bill

ion

Kilo

wa

tt H

ou

rs

Thermal Hydro

Nuclear Power Grid Investment (rhs)

Resources and Energy Quarterly September 2018 85

12.4 World production

World copper mine production has been constrained by supply disruptions

Copper production faced some significant disruptions in the first half of

2018. Persistent threats of industrial action in Chile, export curbs in

Indonesia, and sudden cuts in recycled supply from China have all created

volatility and uncertainty within copper markets. However, the primary

uncertainty now appears to have switched to the consumption side, and as

supply has steadied, prices have plunged significantly. It is expected that,

on the supply side at least, copper will have a less volatile end to 2018,

with new supply kicking in from several sources.

The underlying supply picture remains strong, as Figure 12.6 shows.

Output from South America and Southeast Asia provided a solid lift to

global copper production during 2018. Production in Chile has increased

by almost 14 per cent over the past year, and the threat of industrial action

at the Escondida mine (which accounts for almost 5 per cent of global

supply) has receded for the time being. Management at the mine has

announced a deal in a new labour contract with the union, though the

terms have yet to be put to the rank-and-file union members for a vote. At

the time of writing, strikes at the mine have been put on hold after several

months of unrest.

Copper supply from Zambia is also rising significantly, as substantial

investment begins to unlock new ore deposits. Investment has been

supported by improved stability in Zambia’s domestic power supply, as

well as a period of strong growth in prices. Output from Indonesia is also

growing significantly, after its temporary ban on concentrate exports was

terminated in April.

Partly offsetting these positive supply trends, production in Canada and

the US appears to be contracting at present, with trade tensions affecting

investor confidence and discouraging some potential ramp-ups.

Figure 12.5: World copper demand growth vs. US PMI

Source: Bloomberg (2018); Department of Industry, Innovation and Science (2018)

Figure 12.6: World copper production and prices

Source: World Bureau of Metal Statistics (2018); Department of Industry, Innovation and Science (2018)

40

43

46

49

52

55

58

61

64

-16

-12

-8

-4

0

4

8

12

16

May-14 May-15 May-16 May-17 May-18

Ind

ex

Ye

ar-

on

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ar

pe

r ce

nt ch

an

ge

Consumption YoY US PMI (RHS)

4,000

5,000

6,000

7,000

8,000

9,000

10,000

0

5

10

15

20

25

30

2013 2014 2015 2016 2017 2018 2019 2020

US

$ a

to

nn

e

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ion

to

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es

Refined production Mine production Spot price (rhs)

Resources and Energy Quarterly September 2018 86

World mine production is expected to recover rapidly

Rising output from South Asia and South America should support a lift in

global copper mine production, which is forecast to rise from 21.2 million

tonnes in 2018 to 23.2 million tonnes in 2020. Two mines are likely to play

a particularly significant role in enabling supply growth over the outlook

period: First Quantum Minerals’ new Cobre Panama mine is expected to

produce 330,000 tonnes annually from 2019, while Qulong’s new copper

mine in Tibet is expected to supply 120,000 tonnes. A further 300,000

tonnes is expected to be added by expanded capacity and upgrades

across numerous other mines around the world.

Rising production remains subject to several risks. These include a

potential re-emergence of industrial unrest in Chile, as well as ongoing

US-China and US-EU trade tensions, which could discourage output from

marginal facilities. However, copper stocks are currently relatively sound

(see Figure 12.7) which could curb supply risks somewhat.

World refined copper output is expected to rise over the outlook period

World refined copper output is forecast to grow from 24.3 million tonnes in

2018 to 25.5 million tonnes in 2020. This is expected to be driven by

emerging markets, which have already accounted for virtually all growth in

refined copper output over 2018 to date.

Over the first half 2018, output from Africa increased by about 10 per cent

(through the year), while output from South America grew by just over 4

per cent, and output from Asia rose by 2 per cent. Output from the EU has

been largely stable, while output from the US declined during the first half

of 2018. Efforts to build new refinery capacity have been concentrated in

countries with significant raw materials and relatively low labour costs, with

Chinese companies making up the most significant investors.

Secondary production faced some volatility after China cut its imports of

low grade scrap under new environmental laws (see Figure 12.8).

Recycled copper output is expected to drop in 2019 and then rebound in

2020, as Thailand and the Philippines move into the recycling market.

Figure 12.7: Copper stocks by location

Note: Selected key producers are forecast to increase production over the outlook

Source: AME (2018) Strategic Study 4Q 2017; Department of Industry, Innovation and Science (2018)

Figure 12.8: Secondary copper production and price

Source: Bloomberg Statistics (2018); Department of Industry, Innovation and Science (2018)

0

100

200

300

400

500

600

2012 2013 2014 2015 2016 2017 2018

Mill

ion

to

nn

es

Shanghai Futures Exchange LME (USA) Japan Canada

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

100

150

200

250

300

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2012 2012 2013 2014 2015 2015 2016 2017 2018

US

$ a

to

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Th

ou

sa

nd

to

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Scrap Production Spot price (RHS)

Resources and Energy Quarterly September 2018 87

12.5 Australia

Mine production will be supported by rising output from existing mines

Australian production is projected to rise from 885,000 tonnes in 2017–18

to just over 1 million tonnes in 2019 and 2020 (see Figure 12.9). This

reflects higher output from several key mines, including Newcrest’s

sizeable Cadia Valley mine, which is expected to ramp up its production

significantly in 2019. CuDeco’s Rocklands mine in Queensland is also

ramping up production, while Sterlite Industries’ Mount Lyell mine is set to

return to normal production in 2019 following a brief period of care and

maintenance.

Copper production in Australia is likely to be supported by the strong

outlook of the fast-growing electric vehicle market. Growth in global

electric vehicle sales are expected to lift sharply from the early 2020s as

electric vehicles become fully price competitive with petrol vehicles. This is

likely to draw significantly on copper supplies, which are essential for

electric vehicle batteries. Rapid growth in battery supply chains is already

encouraging firms to lock in additional raw materials and develop new

refinery capabilities. Cassini Resources is currently seeking to develop

substantial deposits of copper and nickel in South Australia to support the

electric vehicle market, and the company has already received a $US3

million placement from Guanzhou Tinci Materials in China.

BHP is also assessing the options for a potential $2.1 billion expansion of

its Olympic Dam mine. This expansion would lift copper output from the

facility by around 50 per cent to over 300,000 tonnes per year. A decision

is expected by 2020. Although the long-term prospects for Olympic Dam

remain strong, the mine has had some mixed results this year, with copper

production disrupted in August by the failure of boiler tubes at its acid

plant. This led to some further technical difficulties which are expected to

hinder production for around two months.

Copper exports are expected to keep rising over the outlook period

Australia’s copper export earnings are estimated to have lifted by 11.9 per

cent to $8.5 billion in 2017–18. This represents a slight downward revision

from the last Resources and Energy Quarterly, reflecting the recent price

drop. Export earnings have, however, been supported by a return to

normal production among operations at the Cadia Valley, Mount Lyell and

Rocklands mines.

Higher production and modest price growth are expected to increase

Australia’s copper export earnings from $8.5 billion in 2017–18 to $10.5

billion in 2018–19. Further price growth is then forecast to push earnings

up to $11.3 billion by 2019–20 (see Figure 12.9).

Figure 12.9: Australia’s copper exports

Source: Department of Industry, Innovation and Science (2018)

Exploration expenditure is picking up, with broad growth across states

Exploration spending lifted from $46.2 million in the March quarter to

$59.8 million in the June quarter 2018. Higher exploration was recorded in

NSW, Queensland, South Australia and Western Australia.

0

3

6

9

12

0

300

600

900

1,200

2013-14 2015-16 2017-18 2019-20

A$

bill

ion

s

Me

talli

c c

on

ten

t kilo

to

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Volume Value (rhs)

Resources and Energy Quarterly September 2018 88

Table 12.1: Copper outlook

Annual percentage change

World Unit 2017 2018f 2019f 2020f 2018f 2019f 2020f

Production

–mine kt 20,193 21,204 22,002 23,181 5.0 3.8 5.4

–refined kt 23,522 24,281 24,924 25,513 3.2 2.6 2.4

Consumption kt 23,733 24,467 25,195 25,674 3.1 3.0 1.9

Closing stocks kt 1 063 878 608 447 –17.4 –30.8 –26.4

–weeks of consumption 2.3 1.9 1.3 0.9 –19.9 –32.8 –27.7

Prices LME

–nominal US$/t 6,164 6,572 7,037 7,774 6.6 7.1 10.5

USc/lb 280 298 319 353 6.6 7.1 10.5

–real b US$/t 6,317 6,572 6,882 7,517 4.0 4.7 9.2

USc/lb 287 298 312 341 4.0 4.7 9.2

Australia Unit 2016–17 2017–18 2018–19f 2019–20f 2017–18 2018–19f 2019–20f

Mine output kt 917 885 1,019 1,034 –3.5 15.1 1.5

Refined output kt 448 367 409 397 –18.0 11.3 –3.0

Exports

–ores and cons.c kt 1,752 1,988 2,200 2,336 13.5 10.7 6.2

–refined kt 413 316 375 364 –23.6 18.8 –2.9

–total metallic content kt 920 890 1 003 1 030 –3.2 12.6 2.7

Export value

–nominal A$m 7,569 8,426 9,958 11,691 11.3 18.2 17.4

–reald A$m 7,892 8,620 9,958 11,414 9.2 15.5 14.6

Notes: b In 2018 calendar year US dollars; c Quantities refer to gross weight of all ores and concentrates; d In 2018–19 financial year Australian dollars; f Forecast

Source: ABS (2018) International Trade, 5465.0; LME (2018) spot price; World Bureau of Metal Statistics (2018) World Metal Statistics; Department of Industry, Innovation and Science (2018)