Conditions specific to the industry
The Aurubis Group is active on the international copper market and in its sub-markets, whose structures vary strongly in some cases.
On the global market for copper concentrates, which are supplied by mining companies and traders, Aurubis competes with other primary copper smelters, mainly in China and Japan.
Aurubis is a significant purchaser and processor of recycling raw materials containing copper and other metals, which it procures in the European market first and foremost. Metal trading companies are the main actors on the supplier side of this market, though some recycling materials also reach us directly from product manufacturers as production residues. On the demand side, we primarily compete with other copper and metal smelters that also utilize recycling materials.
The market for copper cathodes is international. Copper cathodes, which are made of refined copper, serve as the basis for trade on the international metal exchanges. While Aurubis is one of the largest producers in this area with an annual output of about 1.1 million t, it doesn’t hold a significant position relative to the overall market of roughly 22 million t.
The markets for copper products are also distinctly fragmented, with a number of companies that mainly belong to the semi-finished product and cable and wire industries.
Aurubis’ sub-markets were subject to various developments during fiscal year 2014/15:
On the international copper concentrate market, the trend towards higher outputs continued and contributed to good concentrate availability. According to the International Copper Study Group (ICSG), the mine output in 2015 will likely be 1.2 % higher at 18.8 million t, thus achieving around the same growth rate as the previous year. The growth rate published in the ICSG fall forecast is nevertheless more moderate than generally expected back in the summer. The market research firm CRU International reduced its estimate of mine output somewhat after taking price-related production cuts into account. The firm now predicts a growth rate of 1.4 % for the entire year after 2.3 % in the middle of the year. The ICSG reports that the mines’ capacity utilization for the first seven months of 2015 was 83.5 % following 85.0 % in the corresponding period of the prior year. Overall, the international copper concentrate market registered a largely balanced relationship between production and demand.
The European copper scrap market, one of Aurubis’ central procurement markets, reflected differentiated trends in the reporting year. Availability was good during long periods of the fiscal year, continuing in the phase of the first copper price drop in the second quarter of 2014/15. Refining charges recovered significantly during this development. Furthermore, copper scrap processors were well supplied and were not under pressure to buy. The situation changed starting in summer 2015. The supply on offer declined, due on the one hand to falling copper prices but also to lower collection activity among metal traders overall, who experienced an unfavorable situation for other metal scrap, e.g. aluminum and steel. The effect on the copper scrap market remained limited, however, as consumers were still able to rely on a good supply.
Although there was a good market supply of copper raw materials overall, the ICSG determined that the production of refined copper in 2015 will likely only increase by 0.8 % compared to the previous year. This is an increase of just 190,000 t, much lower than the 7 % growth of 2014. A roughly 7 % rise in production in China contrasts with losses in Chile, North America and Japan. The latter are related to the copper production in the SXEW (solvent extraction electrowinning) procedure in particular. This is used at the newly tapped copper mines with oxidic ores. The global capacity utilization of copper refineries was 81.4 % on average from January to July 2015 (previous year: 81.2 %).
The visible copper inventories in the metal exchange warehouses, which should be taken into account in addition to copper production, grew continuously during the fiscal year at first, therefore confirming that the trend had reversed at the end of the previous fiscal year. Starting at about 265,000 t, inventories reached a high of 601,000 t in April 2015. There was an inventory reduction afterwards that ended at about 450,000 t in late June 2015. Developments moved in the opposite direction during the following months. Overall, the inventory level was established at slightly over 500,000 t. The copper inventories in Chinese bonded warehouses, which are also viewed as an indicator of availability, didn’t show a clear trend during the fiscal year. They ranged from 570,000 t in November 2014 to 700,000 t in June. They were estimated at 380,000 t at the end of the fiscal year. On the whole, however, the inventory trend was largely neutral since the volume developments in the various copper warehouses compensated for part of it.
Global demand for refined copper was disappointing in fiscal year 2014/15. The ICSG estimated it to be 1.2 % lower than the previous year for 2015. Others still expect growth of 1.0 % (CRU International) to 2.3 % (WoodMackenzie). The one thing they all have in common is that they significantly corrected their original forecasts downward in the course of the year.
Weaker demand resulted first and foremost from lower Chinese copper demand, which was triggered by weaker industrial production, delayed investments in the electricity grid and a considerable decline in construction activities. In addition, there was an inventory reduction in certain areas, such as air conditioners.
In the US, the general economic recovery didn’t influence all of the consumer sectors equally. Copper demand growth for 2015 is estimated at 1.9 % to 2.0 %. Growth in automotive production slowed down and the recovery in home construction wasn’t evident in the copper demand level. The strong dollar is also viewed as a negative factor, as it benefits imports.
The opposite happened in Western Europe, as the weak euro promoted exports. In Germany alone, the Federal Association for Wholesale, Foreign Trade and Services (BGA) expects an export plus of 6 % for 2015. Otherwise, the growth rates became more moderate after a recovery in the prior year, which was significant in some cases. Western Europe is viewed as stronger than Eastern Europe, where copper demand is lower than the previous year. In the Eurozone, industrial production could increase by 1.5 %. The automotive sector in Western Europe will probably register solid growth with a 2.7 % production increase.
On the whole, the ICSG expects a largely balanced copper market for 2015, following a production deficit of just over 400,000 t on the global market for refined copper in the prior year. The last available monthly figures up to July 2015 also point to this result. If this tendency is confirmed in the remaining months and the ICSG forecast is therefore accurate, our market estimate provided in last year’s outlook is in a realistic scope. The Aurubis Group conceded that there could be a production surplus but also pointed out that it would remain low.
Copper price and metal exchange copper inventories
The copper price on the London Metal Exchange decreased further in fiscal year 2014/15. The average price was US$ 5,933/t (LME settlement), around 15 % below the prior-year average (US$ 6,996/t). Although copper prices stayed well above US$ 6,000/t during the first quarter of the new fiscal year, with a high of US$ 6,859.50/t on October 28, 2014, the first weak phase started in mid-January. The price hit a low of US$ 5,390.50/t for this period on January 29. While a recovery set in afterwards and the copper price rose to slightly over US$ 6,000/t in the second half of March, this level only continued until May.
The influences of China’s economic development intensified starting in the summer. Pressure on the copper price rose again. In the course of the turbulence on the Chinese financial market, the price fell to a six-year low and thus a fiscal year low of US$ 4,888/t on August 24, 2015. Though the copper price recovered by the end of September, it never moved out of the range of US$ 5,100 to 5,400/t.