Conditions specific to the industry
We are mainly active on the international copper market and its sub-markets, which underwent the following developments in fiscal year 2017/18:
The international copper concentrate market was characterized by high mining output, and thus good concentrate availability, in 2018. Despite a series of wage negotiations between mines and unions, especially in South America, there were no notable production losses due to strikes. Production losses due to accidents or weather-related incidents were low as well. The rate of total production losses owing to these factors declined from 5.5 % in the previous year to 1.8 % for 2018, according to the research company WoodMackenzie. Apart from low production losses, mine expansions and ramp-ups of mines that had been previously decommissioned contributed to the higher output. As a result, according to the International Copper Study Group (ICSG), mining output for copper in 2018 is expected to be approximately 2 % higher and amount to 20.5 million t (copper content).
On the smelter industry side, in contrast, there were several shutdowns in Asia in 2018, primarily due to environmental regulations. In light of production restrictions, there was also a reduction in some Asian smelters’ demand for copper concentrate.
The European market for recycling raw materials once again proved to be a buyers’ market for smelters during fiscal year 2017/18. The supply volume for copper scrap was very high, especially in fall 2017, in all significant regions for scrap trading. The increased copper prices in 2017 resulted in good volume flow from the collection and treatment activities in the metal trade. On the demand side, this was accompanied by a good supply situation for smelters and other consumers. Because of the restrictions China introduced for copper scrap imports with high impurity levels, stronger demand among Chinese consumers for high-purity copper scrap from Europe was noticeable in calendar year 2018. Coupled with temporary declines in the copper price in 2018, this initially led to a shortage on the copper scrap market. A higher supply of recycling materials from the US due to the trade conflict between the US and China had a countereffect. The refining charges for copper scrap in Europe, which were published by the research firm CRU, remained at a good level compared to the past several years, however. Complex recycling raw materials such as electrical and electronic scrap were also sufficiently available on the market.
Refined copper output was mainly affected by two factors in fiscal year 2017/18. On the one hand, there were the previously mentioned production shutdowns at smelters in Asia, including India, China, and Japan, as well as isolated smelter shutdowns in Chile. These contrasted with capacity expansions in China and, from January to July 2018, with good utilization of global refining capacity, at about 85 %. Also significant was the good availability of copper scrap, which according to ICSG estimates will lead to a 6 % increase in secondary production in 2018. Overall, the ICSG expects that the global output of refined copper in 2018 will be 2.7 % higher than the previous year, or at roughly 24.2 million t.
On the demand side for refined copper, there was very little change in the first seven months of 2018 compared with the previous year. At 13.8 million t, the level achieved was slightly above the corresponding period in 2017. For the entire year, the ICSG expects a 2.1 % increase in global demand, to 24.3 million t. There are larger uncertainties when it comes to the calculation of copper demand in China.
The level of exchange inventories of copper cathodes declined notably in the course of 2018. After 577,000 t at the beginning of the fiscal year, approximately 495,000 t was stored at the LME, COMEX, and SHFE metal exchanges as at the end of fiscal year 2017/18. Additionally, copper inventories at the Chinese bonded warehouse decreased by about 13 %, to 430,000 t, at the end of the fiscal year.
According to the ICSG, there was a slight production deficit of 51,000 t on the global market for refined copper in the first six months of 2018. The ICSG also expects a marginal deficit of 90,000 t for the entire year 2018.
The international market for continuous cast wire rod, which accounts for about 75 % of global cathode output worldwide, continued its stable development in the first half of 2018. We deliver most of our wire rod to Europe. Growth in the first half of 2018 rose considerably in this area, at over 4 %. This was due to the ongoing good economic situation, but also, in part, to the low growth levels recorded for the same period in 2017. These in turn were attributable to inventory corrections in the cable sector, which had resulted from changes to fire resistance standards for cables within the European Union, and which had led to uncertainty on the part of customers. While the development of demand in northern Europe was stable, growth in southern Europe increased significantly. For the entire year 2018, CRU expects European demand growth of about 4 %.
The global market for sulfuric acid developed very favorably in fiscal year 2017/18. High demand on the one hand and smelter shutdowns on the other led to a tightening market and thus to rising prices. According to the industry service provider ICIS, the gliding averages for multiple quotations worldwide were at the highest level in years. Demand growth came from the metals industry, where sulfuric acid is used in mining to process specific ores, as well as from the fertilizer industry.
The LME copper price was highly volatile in fiscal year 2017/18, influenced especially by speculations about the outcome of the wage negotiations between mines and unions, as well as about the continued trade conflicts between the US and China. Following a copper price of US US$ nbsp;6,455/t (settlement) at the beginning of October 2017 and developments marked by price fluctuations, the fiscal year closed with an LME copper price of US US$ nbsp;6,180/t (settlement). The lowest price of the year was US$ 5,823/t (September 4, 2018). About three months prior, the high was US US$ nbsp;7,263/t (June 8, 2018). The average price for the fiscal year was US US$ nbsp;6,684/t (previous year: Us$ 5,781/t).