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Weaker demand counter-balances production cuts
Copper Market Outlook
October 15th 2019
Erik HeimlichPrincipal Analyst, Copper
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2
Contents
3
Demand outlook
Copper supply outlook
Copper price forecast
Peru copper mining
Metals intensive macroeconomic drivers facing headwinds
4
0 20 40 60 80 100
NE Asia
N.America
W.Europe
China
S&C America
India
ASEAN
E.Europe
RoW
World
agriculture industry services
Industry less than 30% of GDP
GDP composition by sector, %
-10%
-5%
0%
5%
10%
15%
1960 1970 1980 1990 2000 2010 2020
Refined Cu demand IP
Copper vs. IP
World economic activity, y/y % change
Copper Market Outlook
DATA: Oxford Economics, CRU
Global trade sees sharp slow down, hitting copper uptake
5DATA: Oxford Economics, CRU
Copper Market Outlook
-5%
0%
5%
10%
15%
20%
25%
30%
1996 2000 2004 2008 2012 2016
% of demand for exports
Percentage of Chinese total copper demand exported as,
semi, finished or final product
-4
-2
0
2
4
6
8
16 17 18 19
Trade IP
Slowdown in global trade and industrial activityy/y % change
China: Domestic demand sees headwinds
6DATA: CEIC, NEA
Copper Market Outlook
-15
-10
-5
0
5
10
15
20
25
2016 2017 2018 2019 YTD
Sales Starts Completions
Completions data remains weak in H1
Residential real estate floor space, y/y% ch.
-60
-40
-20
0
20
40
60
16 17 18 19
ytd y/y
Grid investment to recover in Q4 2019?Electricity grid investment, ytd and y/y % change
Demand falls outside of China
7
Copper Market Outlook
DATA: CRU
0
2
4
6
8
10
12
1960 1970 1980 1990 2000 2010
China World ex China World
Demand outside of China has plateaued
Kg/capita refined copper demand (working age population)
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
17 18 19 20 21 22 23 24
Global China RoW
Recovery likely delayed until 2021
Global refined copper consumption, y-o-y % ch.
2019 marked by disruptions in South America & Africa
8
Constancia
Tintaya
Antapaccay
Cerro Verde
Imata transfer station
Arequipa
Matarani port
Cusco
Apurimac
Arequipa
Ayacucho
Puno
Moquegua
Las Bambas
Tia Maria
Disruptions to mine production in 2019
Rudna: Miner killed and others
injured following seismic tremor
Copper Belt: Nchanga,
Boss Mining, Tenke
Fungurume, Kamoto,
Nkana, KCM
Cuajone: Processing
halted during heavy rains
Las Bambas: Community
protests & road blockade.
MMG declares force majeure
on shipments
Matarani port disruptions
Nifty: Q1 2019
production to fall short
due to loss of power
Mt Polley: Closure due
to low copper price
El Abra, Chuquicamata, Ministro
Hales, Radomiro Tomic, Gabriela
Mistral: operations suspended
during heavy rains
Robinson, Butte
affected by tariffs
dispute
Chuquicamata: Strike
ongoing, union votes to reject
the company’s latest offer
Las Cruces: slope
collapse
Matarani port blockade impacts shipments
DATA : CRU
Copper Market Outlook
Tough times for producers in the African Copperbelt
9
KamoaCommus &
SicominesMutanda
KCC
RTRTenke Fungurume
Boss
Shituru
Kipoi
Mabende
Kinsevere
Ruashi
Etoile
Kansanshi
Lumwana
Sentinel
Kinsenda
Mufulira
Frontier
CMR
Nkana
Luanshya
KCM
Lumwana
Solwezi
Chingola
Ndola
Lubumbashi
Likasi
Kolwezi
Deziwa
Zambia
DR Congo
DATA : CRU
Main operations in the African Copperbelt
⚫ Copperbelt facing effects of lower copper and cobalt prices,
changes to mining codes and deteriorating infrastructure,
which is affecting costs and output.
⚫ 5% import duty on concentrates into Zambia has been the
most disruptive of recent policy changes.
⚫ All this has impacted our forecast, with 2019 mine, smelter
and refined output down.
➢ Mufulira: smelter suspended for H2
➢ KCM: Zambia Government liquidating asset
➢ Boss: Went into C&M in Q1 2019. FS on project
➢ Chambishi RLE entered C&M in Q1 2019 (import duties
and Boss)
➢ Kamoto: Ramping up to 300kt/y Cu. Cobalt line
suspended
➢ Mutanda: Production guidance halved & removed from
forecast. FS on sulphides project
Copper Market Outlook
Risks to mine supply: block caves & SXEW production
10
Mine throughput and head grades; Mt ore, % Cu
Data: CRU, *before adjustments
0%
1%
2%
0
20
40
60
Chuquicamata
0%
1%
2%
0
20
40
60
80
Grasberg
0%
1%
2%
0
20
40
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
OP ore UG ore Grade
Oyu Tolgoi
0
1
2
3
4
5
1998 2001 2004 2007 2010 2013 2016 2019 2022 2025
Global SXEW production, Mt copper cathode
Chile
DRC
USA
Peak SXEW supply
Operating mines to decline
at 6.0 % p.a. by 2025
Copper Market Outlook
Projects continue to progress
11DATA : CRU, industry sources.
First concentrate shipped in June. Forecast to produce 160,000 t in 2019
PT-FI have commenced ore extraction from three active blocks - cave propogation is running smoothly
Underground mining started in H1 2019 and ore processing start in early H2 2019
Western Mining expected to complete expansion in H2 2020
The project is on schedule and budget - the overall project is 60% complete
Ivanhoe have completed the twin declines and the underground development is approaching the initial high-grade mining zone
Teck secured $2.5B project finance in Q2 2019 - Earthworks activities are fully underway - EPC is 80% complete
Project under construction- Main access road and river diversions are complete - Earthwork contracts awarded
The project is under construction and is 51% complete
2019
2020
2023
2021
2022
2023
0 100 200 300 400 500
Cobre Panama
Grasberg BC
Chuqui UG
Yulong
Spence
Qulong
Kamoa P1
Mutanda Sulphides
QB2
Quellaveco
El Teniente NML
Operating Firm Probable Possible
Tier 1 projects (capacity >= 100,000 t/y) by status & start date 2019-2023, with LOM production capacity; ‘000 t
Delayed to 2021. Financing problems, construction has stopped
FS ongoing
Key projects delayed / downgraded:
Oyu Tolgoi Phase 2 Tia Maria Olympic Dam Brownfield Expansion Rosemont Ranch
Copper Market Outlook
Refined copper market well supplied but concentrates market tightens
12DATA : CRU
-1%
0%
1%
2%
3%
4%
2018 2019 2020 2021 2022 2023
Copper mine production y-o-y growth; %
0
2
4
6
8
10
12
0
20
40
60
80
100
120
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
Jan2017
Jan2018
Jan2019
Miner / Trader
Trader / Smelter
AnnualBenchmark
Spot TC/RCs; TC (LHS) & RC (RHS); $/t, ¢/lb
Copper Market Outlook
Copper market balanced in the mid term
13
-240
-180
-120
-60
0
60
120
180
240
2017 2018 2019 2020 2021 2022 2023 2024
Market deficit emerges only after 2023
'000 t
DATA : CRU
5,000
5,400
5,800
6,200
6,600
7,000
7,400
7,800
8,200
2017 2018 2019 2020 2021 2022 2023 2024
High Case Low Case Base case
LME Price to remain under pressure in 2020
$/t LME 3 M price
Copper Market Outlook
Copper mining remains profitable
14DATA: CRU
Cumulative copper production, '000 tonnes
2019 CRU cash costs including by-product credits $/t Cu
-2,000
0
2,000
4,000
6,000
8,000
10,000
0 2,500 5,000 7,500 10,000 12,500 15,000 17,500 20,000
75th Percentile
50th Percentile
90th Percentile
Copper Market Outlook
0 500 1,000 1,500 2,000 2,500
Peru’s operations 2019 CRU Cash Costs Including By-product Credits
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
0 250 500 750 1,000 1,250 1,500 1,750
Peru’s copper mining projects 2030 Economic Cost, $/lb (2019 real terms)
Project economics is not holding back development in Peru
15
Copper Market Outlook - Chilean mine production
DATA: CRU
Conclusions
16
• Cyclical slowdown, trade frictions, disruption to the automotive sectorDemand
• Mine supply to decline in 2019 due to disruptions and Grasberg but growth to resume thereafter
Supply
• Project economics not holding back project development in PeruPeru
Copper Market Outlook
• Balanced/surplus market over next 4 years, longer term deficits still expected
• Price close to recent trading levels over near term, medium term increasesBalance & Price
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Erik Heimlich
Principal Analyst, Copper
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