Portfolio

Production surplus to keep copper on leash

Arvind Jayaram | Updated on November 19, 2014 Published on December 14, 2013


Already in surplus this year, global copper output is expected to outstrip demand by an even greater margin in 2014. This is likely to keep prices of this key input for the electricity and telecom sectors depressed in the medium-term. Copper is currently trading at $7,054 a tonne on the London Metal Exchange, down 12 per cent since the start of the year.

According to International Copper Study Group estimates, world production of refined copper will exceed demand by about 3.9 lakh tonnes this year, due to the lag in consumption growth vis-à-vis output expansion. In 2014, even though usage is expected to pick up amid the improved global economic environment, the surplus is expected to widen further due to enhanced production from new and existing mines.

Project pipeline

After three years of relatively stagnant production, mine production is estimated to have risen this year by 6.5 per cent to 17.8 million tonnes from 2012 levels. The strong growth is expected to continue in 2014 and 2015 as more mine projects that were deferred or delayed during the financial crisis come on stream. The world mine production is expected to increase to 18.6 mt in 2014. Most of the new production is expected to be in copper concentrate, with only limited electrowinning expansion.

Demand growth

With respect to refined copper production, the ICSG has pegged growth at around 5.5 per cent to 22.1 mt next year. This will be primarily due to the resumption of activities at existing plants and new and expanded capacity at electrolytic plants in China, besides solvent extraction and electrowinning plants in Africa.

Primary refined copper production is tipped to grow by about 7 per cent and secondary production by 2 per cent.

World refined copper demand is expected to have dipped by 0.1 per cent in 2013 to 20.5 mt, the same volume as in 2012. This is mainly on account of lower imports of refined copper by China, even as overall imports of copper inputs rose by 6 per cent due to the Communist country’s strategy of value addition to imports.

Usage in other parts of the world is estimated to have increased by 1 per cent during the year.

The demand situation in 2014 is more optimistic. With better prospects expected for the world economy, consumption is expected to grow by 4.5 per cent in 2014 to 21.4 mt. However, the ICSG has warned that factors such as Euro Zone sovereign debt concerns, political transitions in West Asia and North Africa and production shortfalls due to labour unrest, utility and capital shortages, besides technical factors, could skew its projections.

India impact

Falling prices of copper will benefit India, which is one of the world’s top 20 producers of the base metal, but also one of the largest importers. Copper production in India totalled 7.1 lakh tonnes in 2008, while demand amounted to about 5.5 lakh tonnes, according to a report by the Indian Commodity Exchange. Typically, over 30 per cent of India’s copper demand comes from the telecom sector and 26 per cent from the electrical sector in India. In addition, the building and construction, engineering, transport and consumer durables sectors are major consumers of copper in the country. These sectors stand to benefit the most from lower prices of copper.

> arvind.jayaram@thehindu.co.in

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