Development on the markets relevant to our business
General copper market
Economic circles don’t have much confidence in the raw material sector in general for the coming year. The focus in this case is on the weaker raw material demand, which is observed in China in particular. This is especially true for copper, as the country accounts for about 45 % of global copper demand. Nevertheless, sector analysts and specialist institutes don’t expect larger production surpluses on the market for refined copper. For example, the International Copper Study Group even calculated a minimal production deficit in its global copper balance for 2016. Others, such as Cochilco, Chile’s state copper commission, see a low surplus of 44,000 t, which must be viewed in relation to the overall market of about 22 million t.
The international copper market could thus have a solid foundation for 2016 again, which stands counter to an ongoing price decline. Uncertainties will continue to impact the market trend, however, so continued price volatility should be expected.
Opinions regarding China are all over the spectrum, which makes a clear statement impossible.
According to CRU International, in the US, which accounts for 7.5 % of global copper demand, about one-third of the national copper demand is seen in correlation with industrial output, which could grow by about 2 % in 2016. This rate is considered possible for the US automotive sector as well, which accounts for roughly 14 % of national copper demand. All in all, there may be a moderate increase of slightly over 2 % in US copper demand in 2016.
For western Europe, the slow economic recovery is expected to affect copper demand, though with regional differences. Copper demand could grow by 1.5 % in this market in 2016. Momentum is coming from outside northern European countries, specifically Spain and Italy, in the meantime. There are good prospects for construction in the Eurozone, and the outlook for automotive production is also described as stable.
The international warehouses of the London Metal Exchange recorded a decline in copper inventories during the first few weeks of the new fiscal year. In mid-November 2015 the LME recorded copper inventories of 259,000 t, a nearly 62,000 t decrease since the beginning of the new fiscal year. Volumes registered for delivery are also high.
It is especially difficult to assess the production side of the copper market for the coming year since there could be considerable effects from the currently low copper price level in addition to the usual influential parameters such as strikes, raw material bottlenecks, technical disruptions, maintenance shutdowns, weather and forces of nature. This has been evident in the announcements of larger copper companies during the last several weeks. Glencore, which produces copper and other metals, intends to reduce its copper output by 455,000 t, for example. The other large international metal companies are also under price and cost pressure and are overhauling their portfolios and their business with the goal of cost reduction and optimization. This could lead to additional production cuts.
There are other influences on the copper market apart from production, demand and inventory availability. These include the developments on the foreign exchange markets, which affect the involvement of institutional investors. A strong US dollar reduces their interest in the dollar-based copper market. The price trend for other raw materials, such as crude oil, or developments on the capital market can also influence investor behavior. A reliable forecast isn’t possible for these markets. With respect to our own US dollar risks, we have hedged most of the known main currency positions for 2015/16.
The copper price, which is formed on the exchange, will be subject to indeterminable influences and fluctuations regardless of the fundamental factors. This is also due in part to different market assessments from analysts, investors and other actors.
Markets for copper concentrates and sulfuric acid
The raw material supply for copper production at Aurubis is largely made up of copper concentrates, for which there is an international market. Primary smelters without their own mines mainly source concentrates via long-term supply contracts whose treatment and refining charges are oriented to annual benchmarks for pure qualities.
The supply on the international copper concentrate markets will likely be good again during the new fiscal year, due in particular to the start-up of expansion capacities and new mine projects as well as customers’ purchasing needs. Production difficulties at mines or unpredictable events such as strikes, technical disruptions, energy bottlenecks and extreme weather could negatively influence supply, however.
Treatment and refining charges for spot shipments of copper concentrates are currently at a high level. This will likely have a positive impact on the conditions of the current negotiations for 2016.
The supply on European copper scrap markets is very low at the moment. Future development can’t be reliably forecast for the long term.
The unfavorable situation for prices of sulfuric acid, which we produce as a by-product of concentrate processing, could continue initially due to an ongoing surplus. The duration and extent of this situation can’t be predicted either. The trend in the emerging markets and the development on the fertilizer market will have a crucial impact.
Markets for copper products and recycling
The situation on the markets for copper products in the coming months will strongly depend on how the European economy and the individual sectors develop. The trend in these areas has been stable overall up to now and could continue.
The German Electrical and Electronics Manufacturers’ Association (ZVEI) anticipates 5 % growth for the global electrical and electronics market in 2016. This development is supported first and foremost by the emerging markets, whereas low growth of 3 % is expected in Europe.
Demand for cars and trucks in Europe rose by 8.8 % and 12.2 %, respectively, in the first nine months of 2015, according to the European Automobile Manufacturers’ Association. Whether and how the latest emission scandals will negatively affect European manufacturers’ sales in 2016 isn’t clear yet.
Forecasts for the German construction industry predict moderate growth of 2 % for 2016 year on year, with the main momentum coming from urban areas.
Based on these forecasts, we expect stable economic development in Europe for 2016 in the three main sectors in which copper is used, as long as the overarching political and economic risks don’t intensify.
The US economy, whose development is decisive for our plant there, is supposed to continue recovering in 2016, which should be reflected positively in copper demand. Nevertheless, the situation will also depend on how the higher pressure, which is a result of stronger imports, and ongoing weakness in demand affect individual key customers.
For continuous cast copper wire rod, European demand could initially remain at the current level during the next few months. The situation in France likely won’t improve significantly. Many factors speak for the continuation of the slight recovery in the Italian and Spanish market. On the whole, we expect largely stable demand activity in the cable and wire industry as well as in the automotive sector during the current fiscal year despite the first quarter, which is usually weak due to seasonal factors.
The trend for continuous cast copper shapes continues to move towards high-quality specialty products, which are increasingly requested in unique dimensions. At the same time, demand for standard products is expected to be weaker. Overall, we expect demand for shapes to stabilize at the current level.
On the European market for flat rolled products, we don’t anticipate much change in demand all in all. There will be growth opportunities in individual sectors. We don’t expect the market environment to change much in North America.
The difficult market conditions for copper scrap have intensified after the end of the fiscal year. Due to lower metal price quotations, scrap collection has been scaled back overall. This is also true for copper, which is collected by metal traders together with other metals such as aluminum and steel scrap. Moreover, the price trend motivates the upstream stages of the recycling chain to hold onto scrap and wait for better prices. A constant level of demand is therefore met by a somewhat reduced scrap supply. There is currently pressure on refining charges.
The availability of complex recycling materials, including electronic scrap, is fundamentally subject to other conditions and thus to changes that don’t go into effect as quickly. The situation for complex recycling materials in the new fiscal year has proven to be on the decline somewhat due to weak metal quotations and a weak supply from upstream suppliers. It should be assumed that pressure on refining charges could increase in this area as well if these market conditions persist.