2013

COPPER OUTLOOK

NILESH SOMAN The Key Notes Financial Opiniery Pvt. Ltd. 30/01/2013

COPPER OUTLOOK 2012

Copper (Cu) About Copper: Copper is a natural element a metal that has been one of mankinds most useful and valuable materials. It is represented by the chemical symbol Cu and the atomic number 29. Copper is also an essential nutrient that is required all higher life forms. It is essential component of dietary nutrition that enables the body to metabolize energy and function properly. As with humans, plants and animal health rely on adequate copper intake. The worlds 2 most important food crops --- rice and wheat are both highly dependent on sufficient copper in soil. Copper has been indispensable to human progress. In fields ranging from medical equipment to energy efficiency from jet planes to satellites from television to the internet. Copper is vital to our well being in day to day life. Copper is by far the most sustainable gift of natures bounty. For as long as humans have put copper to use, they have taken advantage of the fact that it is virtually 100% recyclable. It has always made economic sense to retrieve as much copper as possible from a product at the end of its life cycle and reuse it for some new purpose. Moreover, most copper is use such as roofing; wiring and plumbing will remain in use for over half a century. Copper has the ability to acquire additional features like hardness, tensile strength & much greater resistance to corrosion. Its key property is the fact that it is an excellent conductor of electricity. Copper can be utilized in various applications and across industries. Main Uses of Copper: Its main use is for the production of cable, wire and electrical products. Construction industry accounts for the second largest usage in areas like building wire, pipes for plumbing, heating & ventilating and sheet metal facings. Key Applications as per European Copper Institute: 1. Electricity & Energy 2. Aquaculture

Copper was the first mineral that man extracted from the earth and along with tin gave rise to the Bronze Age.

China is the worlds locomotive. Copper is its partner in development.

3. Antimicrobial Copper 4. Telecommunications 5. Architecture 6. Plumbing & Heating 7. Rational Use of Energy 8. Renewable Energy

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Global Copper Production Share

Copper Fundamentals:

World Copper Production

Electrical 9 12 28 Consumer Indsutrial Machinery 9 42 Transportation Construction

Demand for Copper: The outlook for copper is greatly focused on china. Copper consumption will grow as a consequence of overall economic growth. China has been a shining example of overall economic growth, growing at an annual rate of 8.0% between 1980 & 2010. Most forcast do not have china slowing down anytime soon; the IMF predicts chinas economy will expand at an annual rate of 9.7% over the next 5 years. Huge spending on copper intensive power infrastructure on the grid in rural areas will continue through 2012. Beijing has also renewed the home appliance subsidiary scheme and is promoting electric cars which are twice as copper intensive as conventional vehicles. Key Drivers: 1. 2. 3. 4. Overall urban population increases. 221 Chinese cities will have over 1 million people (Europe has 35 cities with over 1 million people). Along with those massive increases, increased demand will be seen for buildings & transit. It is more people, more buildings or more instracture, more copper will be needed to facilate construction. One of the largest drivers of copper will be the growth of the Chinese consumers.

Source: LME, World Bureau of Metal Statistics Industrial Consumption

5.

Industrial Consumption
Electrical 9 12 28 9 42 Construction Transportation Consumer

Supply for Copper: 1. 2. 3. 4. 5. Discoveries of higher grade deposits are becoming less frequent. Declining average grades. More underground mines are producing copper at a smaller output capacity than open pits. Greater country risks and infrastructure challenges. Inadequate exploration funding.

Source : LME, Standard CIB Global Research India Copper Balance Sheet (000 Tonnes) 2001 2002 2003 2004 2005 2006 2007 2008 Production Consumption 325 293 374 301 391 307 419 335 518 397 627 407 719 475 669 500 Key Notes Financial Opiniery Pvt. Ltd.

The reason why the prices are holding up so very high is that there has been only marginal increases in new copper mine development over the past 5 years. The trends in global refined copper consumption are also progressing to an alarming state. Industrial production is not keeping up with copper consumption & recent indication have pointed to estimates in Chinese consumption to be very conservative. It now appears that in the next 25 years, the world will need to produce as much copper as has been produced in the history of humanity.

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INDIAN COPPER INDUSTRY: The Indian industry can be classified into two broad categories--- Manufacturers of refined copper (copper cathodes) and manufacturers of copper products. The history of Indian copper industry goes back to 1967 with the incorporation of Hindustan Copper ltd (HCL) and thereafter acquisition of mines from public sector National Minerals Development Corporation (NMDC). The Indian copper industry was opened for private sector investment in 1992. Earlier the industry was dominated by Hindustan Copper Limited (HCL), a public sector undertaking. The industry currently has just 3 major players like Sterlite Industries, Hindalco Industries ltd, and Hindustan copper Ltd. HCL is the only integrated producers who process both indigenous and imported copper concentrated to produce end products like copper bars, rods and wires. HCL was incorporated in Nov 1967 with the objectives, inter alia, to carry out mining operations and produce copper and related products. HCL subsequently took over the copper ore mines from NMDC. These mines are located at Khetri and Kolihan in Rajasthan and Rakha Copper complex in Jharkhand. Till 1997, the only producer of primary refined copper was HCL. The installed capacity for refined copper plants was around 47.5 ktpa which used to meet approximately 25-30% of Indias requirement for refined copper. The balance demand was met through imports. The other 2 producers of copper in India are Hindalco and Sterlite. Their present annual capacities are 500 ktpa and 405 ktpa respectively. Their plants are based on imported copper concentrate. The copper industry is highly dependent on the performance of & demand for products like power and telecommunication cables, transformers, generators, radiators and other ancillary components. Hence its growth is closely linked to the countrys economic and industrial growth. Although the industry is capital and power intensive, entry barriers are moderate. These basically relate to economies of scale, access to ore supplies and environmental issues. In India, copper reserves are mainly concentrated in Bihar, Rajasthan and Madhya Pradesh and only HCL has been allocated all these mines having a copper content of just 1.2-1.3% against the world average of 2-3%. Private copper producers including Hindalco Industries and sterlite Industries, however, import concentrate and then produce refined metal. Distribution of Indian Copper Industry: (Source: Metal World)

Even after 40 years of competition, Copper is maintaining a 40% share of the car radiator market.

The total installed capacities for copper in India are presently around 947.5 ktpa.

With the increasing shift from fixed line to wireless mode of communication, there is a treat for demand growth for copper from this segment.

At Present, the demand for copper for primary copper production is met through two sources i.e. copper ore mined from indigenous mines and imported copper concentrates.

Distribution of Indian Copper Industry

Electrical

The per capita consumption of copper in India is currently at 0.4 kg per annum which compares poorly with Chinas per capita consumption of 3 kg per annum.

6 9

12

36

Telecom Engineering Construction

20

Consumer Durable Transports Others

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Copper Surprises :

The Euro coin to be introduced in 2002 is an excellent example of how copper coins have managed to perpetuate in the wake of technological advancement.

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Copper Recycling: Copper is among the few materials that do not degrades or lose their chemical or physical properties in the recycling process. Considering this, the existing copper reservoir in use can well be considered a legitimate part of world copper reserves. In the recent decades, an increasing emphasis has been placed on the sustainability of material uses in which the concept of reuse and recycling of metals plays an important role in the material choice and acceptance of products. If appropriately managed, recycling has the potential to extend the use of resources and to minimize energy use some emission and waste disposal. Closing metal loops through increased reuse and recycling enhances one of the key elements of societys transition towards more sustainable production and consumption patterns. It is widely recognized that recycling is not in opposition to primary metal production but is a necessary and beneficial complement. ICSG estimates that 35% of copper consumption came from recycled copper. Some countries copper requirements greatly depend on depend on recycled copper to meet internal demands. However, recycled copper alone cannot meet societys needs, so we also rely on copper produced from the processing of mineral ores.

Source: International Copper Study Group

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International Copper Prices

Copper Market Forecast 2012-2013: For 2012, International Copper Study Group data projections indicate deficit of about 2, 50,000 metric tons as supply growth will continue to lag behind demand growth. For 2013, however increased production and lower growth in demand are expected to yield a nearly balanced market. In developing its projections, the international Copper Study Group recognized that numerous factors including a world economic slowdown, European Union sovereign debt issues, political disturbances in the Middle East and North Africa and market price volatility create significant uncertainty and that the global market balances could vary from those projected. Secondary refined production which is anticipated to increase by 5% in 2012. For 2013, world usage is expected to grow by 3.6% mainly supported by a growth of 6% in china as the rest of the world is expected to grow by only 2%.

Source: www.metalprices.com,

Global Forecasts: Copper Production & Consumption Imbalance 2010 2011 2012 2013 2014 2015 World 18816 19583 20565 21928 23218 24021 Refined Cu Production Y/Y Change 2.6% 4.1% 5.0% 6.6% 5.9% 3.5% World 18598 19476 20912 22067 23245 24256 Refined Cu Consumption Y/Y Change 5.3% 6.2% 5.9% 5.5% 5.3% 4.3% Global 218 -163 -348 -138 -27 -235 Balance Copper Price 315 330 390 410 380 360 LME cash (c/lb) Source: International Copper Study Group Technical Outlook for Copper: Range from 390-480.

2016 25219

5.0% 25329

4.4% -110 360

Source: www.metalprices.com

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Copper Market is forecasted to remain in deficit for Financial Year 2012.

REGIONS MINE PRODUCTION (100 TON) 2010 2011 2012 Africa 1,215 1,350 1,619 N.America 1,915 2,080 2,353 Latin 7,031 6,985 7,727 America Asean-10 1,087 851 786 Asia ex 1,626 1,655 1,741 Asean/CIS Asia CIS 491 474 501 EU-27 758 784 792 Europe 826 836 847 Others Oceania 1,030 1,084 1,246 TOTAL 15,979 16,098 17,612 Adjustment for Primary Feed Shortage 1/Allowance for Disruption 2/World 15,979 16,098 17,612 % Change 0.5% 0.7% 9.4% Refined Production Usage Balance REFINED PRODUCTION 2010 2011 2012 859 996 1,188 1,690 1,661 1,833 3,897 3,917 4,048 534 7,558 413 2,624 1,035 424 19,035 569 7,806 440 2,704 1,086 498 19,676 - 110 - 91 19,475 2.3% 573 8,301 497 2771 1,119 510 20,480 - 704 20,136 3.4% REFINED USAGE 2010 2011 2012 285 285 301 2,182 2,230 2,279 646 628 657 748 11,052 96 3,348 897 131 19,386 758 10,990 101 3,346 1,198 140 19,676 772 11,556 101 3,362 1,223 141 20,392

19,035 4.2%

19,386 7.1% -351

19,676 1.5% -201

20,392 3.6% -256

Note : China the leading global consumer of copper , apparent copper usage is based only on reported data(production + net trade +/- SHFE stock changes +/- industry stock changes, if reported) and does not take into account changes in unreported stocks(State Reserve Bureau (SRB), producer, consumer and merchant/trader), which may be significant during periods of stocking or de-stocking.

Source: International Copper Study Group, Copper Market Forecast 2012.

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