Resources and Energy Quarterly March quarter 2012

Copper

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  Copper prices are forecast to peak in 2013 at US$8830 tonne before declining steadily over the remainder of the outlook period to around US$6770 (in 2012 dollars) in 2017.
  
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  World copper consumption is expected to increase at an average rate of 4 per cent a year to total 24.4 million tonnes by 2017. In 2017, China is expected to account for over 45 per cent of total world copper consumption.
  
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  World copper mine production is projected to grow strongly over the outlook period supported by extensive capacity additions in Chile and Peru. Mine production is projected to increase at an average annual rate of 5 per cent to total 21.5 million tonnes by 2017.
  
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  The value of Australian copper exports is set to decline over the outlook period to $9 billion in 2017 (in 2011–12 dollars) as falling copper prices counterbalance increasing Australian export volumes.
  

In 2011, the price of copper averaged a record US$8852 tonne, an increase of 17 per cent compared to 2010. Throughout much of 2011 copper prices were supported by supply disruptions at a number of key operations including in Latin America and Indonesia. In the last quarter of 2011, the copper price fell because of uncertainty surrounding European debts and market expectations of weaker global economic growth (see Figure 1). At the end of 2011, the copper price was trading at US$7554 a tonne, compared with a peak of US$10048 a tonne in February 2011. At the end of 2011, copper stocks were around 2.6 weeks of consumption, down from 2.8 weeks of consumption at the end of 2010.

In 2012, copper prices are forecast to average $US8430 a tonne, a decrease of 5 per cent relative to 2011. The decrease in prices primarily reflects the absence of the large speculative component which was present in the first half of 2011. Thus, while the copper market is expected to remain tight in 2012, the average price is expected to be reflective of physical supply and demand fundamentals rather than financial factors, which was the case in early 2011. Copper stocks are expected to decline further in 2012 to 2.2 weeks of consumption (see Figure 2).

Copper prices in 2013 are forecast to increase by 5 per cent to US$8830 a tonne as world copper consumption increases in line with the assumption of improved economic growth. While growth in refined copper production is expected to outpace growth in consumption in 2013, the market is expected to remain in deficit with stocks decreasing to around 2 weeks of consumption at the end of 2013.

Figure 2: Annual copper prices and stocks

Please refer to page 107 of the Resources and Energy Quarterly – March quarter 2012 PDF version.

Over the remainder of the outlook period (2014 to 2017), copper prices are projected to decline gradually. Growth in world copper consumption in the second half of the outlook period is projected to moderate to an average annual rate of 3 per cent compared with 5 per cent in 2012 and 2013. Production growth between 2014 and 2017 is projected to increase at an average annual rate of 4 per cent a year. As a result, stocks are projected to gradually increase each year reaching 3.4 weeks of consumption at the end of 2017. In 2017, world copper prices, in real terms, are projected to be US$6770 a tonne (in 2012 dollars).

In 2011, global copper consumption increased by less than 2 per cent, relative to 2010, to total 19.5 million tonnes. During the first half of the year, growth in apparent copper consumption was weak as high copper prices encouraged many consumers to run down stocks rather than make additional purchases. In the second half of 2011 copper consumption growth was limited by uncertainty surrounding the global economic outlook.

In 2012, world copper consumption is forecast to increase by 5 per cent to 20.4 million tonnes with the majority of this growth expected to occur in China. Copper consumption growth in the OECD in 2012 is forecast to be weak as housing construction and manufacturing activity remains subdued.

World copper consumption in 2013 is forecast to increase by a further 5 per cent, relative to 2012, to total 21.4 million tonnes as OECD economic growth is assumed to strengthen. Over the remainder to the outlook period (2013 to 2017) world copper consumption is projected to grow at an average annual rate of 4 per cent to reach 24.4 million tonnes in 2017. China is projected to contribute the majority of this growth and account for over 45 per cent of world copper consumption in 2017.

In 2012, China’s copper consumption is forecast to increase by 8 per cent to 8.6 million tonnes following growth of 7 per cent in 2011. The strong rate of growth in 2012 reflects copper demand for housing and infrastructure construction and the manufacturing of consumer durables. In addition, China’s copper demand in 2012 is expected to be supported by the rebuilding of stocks after a large drawdown in 2011 in response to high prices and tighter restrictions on liquidity. As a result, China’s copper consumption in 2013 is forecast to increase by 8 per cent relative to 2012 to total 9.2 million tonnes.

Over the remainder of the outlook period, (2014 to 2017) China’s copper consumption is projected to increase at an average annual rate of 5 per cent to reach 11.3 million tonnes in 2017. Trends that have contributed to copper consumption growth in China over the past decade, such as industrialisation and urbanisation, are assumed to continue over the outlook period.

One of the characteristics of China’s economic development over the past decade has been the rate of urbanisation as people have migrated from rural areas to cities in search of employment. By 2017, over 51 per cent of the population is expected to live in cities around China, compared with a rate of 47 per cent in 2010. This equates to around 70 million people moving into urban areas over the next five years. In order to accommodate this shift, and to improve the affordability of housing, China’s 12^th Five-Year Plan (2011–15) sets out a target of constructing an additional 36 million housing units. The increase in urban population will also need to be supported by an expansion of China’s electricity grids, and other infrastructure such as roads, rail and water networks.

The construction of housing and electricity infrastructure is particularly copper intensive and will underpin consumption growth into the second half of this decade. Also supporting growth in China’s copper consumption will be the production of consumer durables such as motor vehicles, white goods and electronic appliances.

In other emerging economies such as India and Brazil, and also in the Russian Federation, copper consumption is also projected to increase over the medium term. As with China, increased copper consumption in these countries reflects assumed growth in housing and infrastructure construction and consumption of consumer durables.

In the OECD, copper consumption growth is forecast to be moderate in 2012 and 2013 at around 2 per cent a year and to total 7.9 million tonnes in 2013. Copper consumption growth will be supported by reconstruction activities in Japan following the March 2011 earthquake and tsunami. Copper consumption in the US is also forecast to increase as automobile manufacturing and production for consumer durables are assumed to increase.

In 2014, and for the remainder of the outlook period, OECD copper consumption growth is projected to increase in line with improved economic conditions across the European Union, the US and Japan. Increased manufacturing activity and housing construction is expected to result in OECD copper consumption increasing at an average annual rate of 1 per cent between 2014 and 2017 to reach 8.1 million tonnes in 2017.

World copper mine production supported by Latin America

In 2011, world copper mine production increased by less than 1 per cent, relative to 2010, to total 16.2 million tonnes. The weak growth in copper production reflects higher output in Africa being partially offset by lower output in Indonesia and Latin America that were associated with industrial relation disputes.

Mine production in 2012 is forecast to increase by 4 per cent relative to 2011 to reach 16.8 million tonnes, underpinned by production growth in Africa and Chile. In Africa, mine production is forecast to increase to around 1.7 million tonnes as First Quantum Minerals’ Kansanshi mine (annual capacity of 250000 tonnes) and Vedanta Resources’ Konkola operation (175000 tonnes) increase production to capacity after being commissioned in 2011.

In Chile, copper production in 2012 is forecast to increase by 14 per cent, relative to 2011, to 6 million tonnes. This increase is expected to be supported by the start up of new mines such as, Codelco’s and Freeport MacMoran’s El Abra mine (annual capacity of 135000 tonnes) and an expansion at Anglo American’s Los Bronces operation (additional 70000 tonnes). Also supporting global copper production growth is higher output from mines which were affected by industrial action in 2011.

Over the remainder of the outlook period (2013 to 2017) global copper mine production is projected to grow at an average rate of 5 per cent a year to reach 21.5 million tonnes by 2017. The bulk of this additional capacity is expected to come from large, existing producers in Chile and Peru.

In Chile, the world’s largest copper producer, production growth is projected to increase at around 3 per cent a year, reaching 7.1 million tonnes by 2017. A number of large copper mines are also scheduled to start production within the outlook period including Codelco’s Mina Minestro Hales operation (annual capacity of 170000 tonnes), Pan Pacific Copper’s Caserones project (180000 tonnes) and Goldcorp’s El Morro mine (200000 tonnes).

Peru is projected to be one of the fastest growing copper producers between 2013 and 2017, with production projected to increase at an average annual rate of 15 per cent a year to reach 2.6 million tonnes by 2017. New mines scheduled to commence production during the outlook period include Chinalco’s Toromocho operation (annual capacity of 275000 tonnes), Xstrata’s Las Bambas mine (310000 tonnes) and Minmetals’ El Galeno mine (200000 tonnes).

A potentially significant contributor to world copper production over the outlook period is the Oyu Tolgoi mine in Mongolia. The mine is based on one of the world’s largest undeveloped copper and gold resources and is majority owned by Rio Tinto. The US$6 billion project will have a copper production capacity of 450000 tonnes a year when complete in 2014.

Growth in refined copper production to continue over the outlook period

Refined copper production in 2012 is forecast to increase by around 4 per cent, relative to 2011, to 20.3 million tonnes. Supporting increases will be the commissioning of various solvent extraction-electrowinning (SX-EW) projects, such as Freeport McMoRan’s El Abra operation (annual capacity of 135000 tonnes) in Chile and continued production ramp up at Katanga Mining’s Kamoto mine (150000 tonnes) in the Democratic Republic of Congo. Additionally, China, already the worlds largest producer of refined copper, is expected to continue increasing its refining capacity in 2012 through expansions at existing refineries in Jinchuan (additional 150000 tonnes) and Tianjing (100000 tonnes), as well as new refineries such as Zijin (150000 tonnes).

World refined copper production is projected to increase on average by 4 per cent a year over 2013–17 to total 24.6 million tonnes by 2017. Growth in SX-EW capacity is expected to account for a large proportion of this growth. Operations that use SX-EW technology are increasingly being developed due to their low capital and operating costs, relative to traditional refining processes, and the ability to extract metal from low grade ore that would otherwise be uneconomic to mine. In Africa, increase refined production from SX-EW operations is scheduled to come from the phase 2 expansion of Freeport McMoRan’s Tenke Fungurume project (annual capacity of 190000 tonnes) and the commissioning of China Nonferrous Metal Group’s Muliashi mine (40000 tonnes) in Zambia.

Australian production to increase

In 2011–12, Australia’s copper mine production is forecast to increase by 8 per cent, relative to 2010–11, to total 1 million tonnes. Increased production is supported by the start up of Hillgrove Resources’ Kanmantoo mine (annual capacity of 20000 tonnes) and Sandfire resources’ DeGrussa operation (77000 tonnes). Australian production of refined copper in 2011–12 is expected to remain unchanged compared to 2010–11 levels at 487000 tonnes, as an expected production increase by CST Mining’s Lady Annie operation balances out a planned refinery outage at BHP Billiton’s Olympic Dam operation.

Australian copper mine production in 2012–13 is forecast to increase by 14 per cent, relative to 2011–12, to total 1.2 million tonnes. Increased mine output is expected to come from initial production of underground operations at Newcrest's Cadia East Underground expansion (additional 80000 tonnes) and higher production from Ivanhoe’s Osborne mine and the commissioning of Venturex Resources’ Pilbara VMS operation (80000 tonnes).

Over the remainder of the outlook period (2013–14 to 2016–17) Australian copper mine production is projected to grow at an average rate of 3 per cent to reach 1.3 million tonnes by 2016–17. New operations scheduled to start up over this period include Golden Cross’ Copper Hill project (annual capacity of 37000 tonnes) in 2015 and Ivanhoe Australia’s Mount Elliot operation (40000 tonnes) in 2016. Additional output is assumed to come from an expansion at Rio Tinto’s Northparkes operation towards the end of the outlook period. Significant increases in copper production associated with the expanded Olympic Dam project are not assumed to occur until after 2016–17.

Australian production of refined copper in 2012–13 is forecast to increase by 3 per cent to 504000 tonnes before decreasing at an average rate of 7 per cent a year to 374000 tonnes in 2016–17. The significant decrease in Australia's refined copper production over the outlook period primarily reflects Xstrata’s decision to close its Townsville and Mt Isa refining operations by 2016. The closure of some refining capacity will be partially offset by the start up of new capacity such as Ivanhoe Australia’s Mt Dore SX-EW operation (annual capacity of 20000 tonnes) which is scheduled to commence operation in 2014.

Australian export earnings to decline

In 2011–12, the metallic content of Australian copper exports is forecast to increase by 10 per cent to 929000 tonnes, supported by higher export volumes of ores and concentrates. This increase is expected to more than offset the effects of a lower Australian copper price, resulting in a 7 per cent increase in the value of Australian copper exports to $9 billion.