COPPER
Profile of Copper
• Symbol: CU
• Density: 8930 kg/m3
• Melting point: 1083°c
• Available in all forms including sheet and strip
• Durability: Over 700 years
• 100% recyclable with no loss of properties
Some Amazing facts about copper
Ø Copper is the only metal other than gold that has natural color. Other metals are either gray or white.
Ø Copper does not corrode, rust, or damage easily.
Ø The Statue of Liberty is covered with 200,000 pounds of copper sheeting.
Ø In January 2000, the US Mint began production of the new “Golden Dollar Coin” which is made of 88.5% Copper.
Ø A Boeing 727 airplane uses 9,000 pounds of Copper.
Ø A car in the 1970s used about 35 pounds of copper. Now, 50 to 80 pounds of copper will go into one automobile.
Ø Copper ranks third in world metal consumption after steel and aluminum. It is a product whose fortunes directly reflect the state of the world’s economy.
Ø Copper ranks third in world metal consumption after steel and Aluminum.
Introduction
Copper is a reddish brown nonferrous mineral, which has been used for thousands of years by many cultures. The metal is closely related with silver and gold, with many properties being shared among these metals.
Characteristics of Copper
Ø Copper is valued for strength, ductility and ability to conduct electricity and heat.
Ø Copper is an essential component of energy efficient motors and transformers and automobiles, transporting water and gas.
Ø Copper is also used in power cables, either insulated or uninsulated, for high, medium and low voltage applications.
Ø Copper is creep and corrosion free metal.
Copper: Natural, Recyclable and Essential
Copper occurs naturally in the environment in a variety of forms. Copper is one of the most recycled of all metals. It is our ability to recycle metals over and over again that makes them a material of choice. Recycled copper (also known as secondary copper) cannot be distinguished from primary copper (copper originating from ores), once reprocessed. Recycling copper extends the efficiency of use of the metal, results in energy savings, and contributes to ensuring that we have a sustainable source of metal for future generations.
Copper also occurs naturally in humans, animals, and plants. Organic life forms have evolved in an environment containing copper. As a nutrient and essential element, copper is vital to maintaining health. Life sustaining functions depend on copper.
HISTORICAL IMPORTANCE
Archaeological evidence indicates that copper was used as far back as 10,000 years ago in western Asia. During the prehistoric Chalcolithic Period, societies discovered how to extract and use copper to produce ornaments and implements. As early as the 3rd-4th Millennium BC, copper was actively extracted from Spain’s Huelva region. Around 2500 BC, the discovery of useful properties of copper-tin alloys led to the Bronze Age .It has been documented that Israel’s Timna Valley provided copper for the Pharaohs. Papyrus records from ancient Egypt reveal that copper was used to treat infections and sterilize water. The island of Cyprus is known to have supplied much of the copper needed for the empires of ancient Phoenicia, Greece, and Rome.
While the Greeks during Aristotle’s era were familiar with brass, it was not until Augustus’ Imperial Rome that brass became abundantly used. In South America, the pre-Columbian Maya, Aztec, and Inca civilizations exploited copper, as well as gold and silver. During the Middle Ages, copper and bronze flourished in China, India, and Japan. Copper coins have also played an important role in the history as a medium of currency. The earliest instance found of copper being used as a currency was in the form of lumps in the 6th century BC by the people of Italy. The shape of copper lumps were molded to coins with the invention of new copper alloys. Rulers like Julius Caesar and Octavianus use to have their own coins having their own symbols. This shows that copper has ever been a prominent contributor to the all of the various aspects of history, culture, technology and medicine and is still used extensively.
It is a ductile metal with excellent electrical conductivity, and finds extensive use as an electrical conductor, heat conductor, as a building material, and as a component of various alloys. It occurs in various minerals on earth and is also forms part of a lot of alloys.
The discoveries and inventions in the late 18th and early 19th Centuries by Ampere, Faraday, and Ohm propelled copper into a new era. Demonstrating excellent electrical conducting and heat transfer characteristics; copper played a pivotal role in launching the Industrial Revolution.
Indian Scenario
India is not a major producer of copper ore but it produces the refined form of copper. It contributes to about 3.5 to 4% of the world’s total production of copper that sums up to a figure of 6 lakh tons. India is indulged in importing copper ores from the ore exporting countries of the world and extract copper out of them as there is a shortage of copper mines in the country. The production of copper in India is dependent on these imports only. The size of Indian Copper Industry is around 4 lakh tons, which as percentage of world copper market is 3 %. Birla Copper, Sterilite Industries are two major private producers and Hindustan Copper Ltd the public sector producers.
Copper goes into various usage such as Building, Cabling for power and telecommunications, Automobiles etc. Two major states owned telecommunications service providers; BSNL and MTNL consume 10% of country’s copper production. Growth in the building construction and automobile sector would keep demand of copper high.
India’s Primary copper consumption increased 5.9% in FY2005 to 0.27 mt. Consumption increased 6% during FY2006 to 0.29 mt. Between FY2004-06, consumption has increased at a 3-year compound average growth rate (CAGR) of 4.8%. The total copper usage, including recycled scrap, is estimated to have increased from 0.335 mt in FY2004 to 0.386 mt in FY2005 and to 0.413 mt in FY2006. India’s copper consumption is expected to grow at around 8% per annum in the medium-term driven by growth in key end-use segments such as electricity, consumer electronics, industrial machinery and equipments, and construction.
Global Scenario
Economic, technological and societal factors influence the supply and demand of Copper. As society’s need for copper increases, new mines and plants are introduced and existing ones expanded. Land-based resources are estimated at 1.6 billion tons of copper, and resources in deep-sea nodules are estimated at 0.7 billion tons.The global production of refined copper is around 15 million tons.
The major copper-consuming nations are Western Europe (28.5%), the United States (19.1%), Japan (14%), and China (5.3%). Copper and copper alloy scrap composes a significant share of the world’s supply. The largest international sources for scrap are the United States and Europe.
Chile, Indonesia, Canada and Australia are the major exporters and Japan, Spain, China, Germany and Philippines are the major importers.
MAJOR COPPER PRODUCERS
USES OF COPPER
§ Electrical: Copper is the best non precious metal conductor of electricity. Copper is used in power cables, for different voltage applications. Copper’s exceptional strength, ductility, and resistance to creeping and corrosion, makes it the preferred and safest conductor for building wiring.
§ Electronics and Communications: The introduction of optical fibre in communication trunk lines has led to an increase in demand for copper. Copper continues to be the preferred carrier for the last mile or segment. Furthermore, domestic subscriber lines, wide and local area networks, personal computers and other hardware all require copper and copper alloys.
§ Construction: Copper and brass are the materials of choice for plumbing, taps, valves and fittings. The use of copper doorknobs and plates is also very common in building.
§ Transportation: All major forms of transportation depend on Copper to perform critical functions. Copper-nickel alloys are used on the hulls of boats and ships to improve fuel consumption. Copper’s superior thermal conductivity, strength, corrosion resistance, and recyclability make it ideal for automotive and truck radiators. Today’s average size automobile contains about 27.6 kilograms of copper and a Boeing 747-400 contains 4,000 kilograms.
§ Industrial Machinery and Equipment: Due to copper’s durability, machinability, and ability to be cast with high precision and tolerances, copper alloys are ideal for making products such as gears, bearings, and turbine blades. Copper’s superior heat transfer capabilities and ability to withstand extreme environments makes it an ideal choice for heat exchange equipment, pressure vessels and vats.
Industrial production VS Copper consumption
As depicted in the figure above, India’s copper consumption has increased with increased industrial production. Although copper demand stagnated in the early-2000s because of decline in demand from the telecom sector, demand has increased at a healthy rate during FY2004-06 because of a significant increase in the automotive sector and buoyant construction activity. Further, as depicted below, annual growth in copper consumption is related with annual growth in industrial production.
Commodity Currencies- Effects of a strong and weak US Dollar
The chart above, illustrates both a commodity currency effect and a metals vs. US Dollar hedge. Australia, Canada, South Africa and New Zealand are still seen as commodity countries. Their export mix of agriculture, precious metals, gold, iron ore and base metals provides an ideal investor tool to bet on both commodities and US $ weakness. The chart for the Australian dollar vs. the copper prices shows a very high degree of correlation. Obviously there are times when the currency leads the way or vice versa but the relationship is undeniable. The same relationship would be true if we replaced copper with a basket of commodities. The majority of world-traded commodities are priced in US dollars and consequently market forces do impact national currencies in countries where a significant proportion of export revenue is generate from commodities itself. In the simplest sense if commodity prices are rising, then the commodity producing country should benefit and in turn the nation currency gets stronger vs. the US
Dollar. Because of this natural reaction investors do, and also currently are, using commodities as hedge against US dollar weakness. Thus, we have seen with a high degree of correlation the LME metals complex moving higher in reaction to foreign exchange markets pushing US dollar values lower.
Demand and Supply
Demand
Between 1900 and 2000, copper demand grew from 500,000 tonnes to around 13,000,000 tonnes, with growth accelerating since the 1950’s. With some many widespread uses it is not surprising copper demand keeps growing and now with China, India and many other developing countries starting to industrialise and urbanise, demand is likely to grow from strength to strength. Per capita demand for copper rises as GDP per capita rises. The large populations of China, India, Eastern Europe and South America are all consuming less than 2kg per capita – this is a huge indicator of what lies ahead for copper demand.
India produces approximately 650,000 tons of refined copper per annum and consumes nearly 290,000 tpa. The rest is exported.The demand is likely to grow by 7-8 % over the next few years, owing to the growing demand from the electronic equipments, wiring & telecom sectors. The global usage of refined copper is expected to be approx. 17.16 million metric tons for 2006, up about 5.4%.The consumption is slated to rise approx 5% in the year 2007. Consumption growth will be mainly driven by Asia, EU and the US. Global mine production is expected to be nearly 16 million tons in 2007. This will be on the back of ramping up operations at the existing mines due to availability of better facilities like equipments.
Supply
India produces copper from the imported copper ore that accounts to around 6 lakh tons of production. This production level is contributes to a mere 4% share in the total copper production in the world. Indian market is divided into three parts i.e. primary and secondary. Primary segment comprises of the producers that convert copper ore into refined copper.
Market influencing factors of Copper
Ø Price fluctuations of copper in London Metal Exchange.
Ø Production level of copper in the world.
Ø Growth prospects of the major copper consuming countries of the world.
Ø Growth prospects of the various consuming sectors in the market.
Ø Inventory Levels at LME, Comex and Shanghai Warehouses.
Ø Smelter capacities around the world.
Ø Economic growth of China and the US, especially from the housing, construction and electronic and Telecom sectors
International trade in Copper
Copper is traded around the world. Producers store it in warehouses until it is sold and shipped to the buyer. The price changes daily, depending on the supply of copper and the demand for copper. The principal place where the trading takes place is in London, at the London Metal Exchange. There, copper sellers try to find a buyer who will pay the highest price for shipment at a certain time, while buyers look for the lowest priced copper. Other metals can substitute for copper in some uses. For example, Aluminum may be used in electrical equipment, automobile radiators and refrigerator tubing. Titanium and steel are used in heat exchangers. Steel is used for artillery shell castings. Plastics substitute for copper in water pipe and plumbing fixtures.
CONSUMPTION OF COPPER IN CHINA
China has now developed to be the world largest country for Copper consumption, processing & manufacture and even for copper primary products export. The year of 2005 witnessed a growth of world copper ore and refined copper in output, reaching 14.98 million tons and 16.34 million tons respectively, both up 3.1%. Meanwhile, China also made a great progress in Copper output and consumption in 2005. The output amounted to 2.53 million tons, increasing by 23% year on year.
Copper industry has experienced a rapid development but still cant satisfy the demands. In 2005, only 73.7% of refined copper can be self-supported, so 1.082 million tons of refined copper and 68,000 tons of copper alloys had to be imported. The supply-demand gap and shortage of raw materials resulted in the rise in copper price. The average price rose 26% to RMB 35254 per ton at home in 2005 while that in the international market increased by 28.4%. All these factors accelerated the growth in profit and investment in domestic copper smelting industry, each up 92.4% and 130.2%.
In the first half of 2006, Chinas copper products totaled at 2.4232 million tons, increased by 7.99% compared to the same period of 2005. As the domestic price was lower than that in the international market, the total imports of copper dropped by 43.7% to 389,560 tons over the same period of 2005, among which 65,521 tons of refined copper were imported in June, down 52.3% over June 2005.
After 26 years of development since reform and opening policy, China national economy will still remain a rapid growth in a long run and so does Copper consumption due to the potential drives from three industries including power, appliance and construction.
According to nearly 20 years of statistics on copper raw material import structure and average copper consumption and growth, the copper consumption in China will be expected to keep growing at an average rate of 5%-10% in 2006-2010 and then reach a peak in 2015-2020.
Factors to watch for Copper in the year 2008
Ø China
China, the growth engine for economic growth around the world is already showing some signs of fatigue. The Chinese authorities have been trying their best to bring about a soft-landing and cool down the economy since 2005. While their measures of curbing credit and hiking rates has not worked as well as they would have expected, it is now showing signs of lag effects working their way through. The markets have been working on 9.5-10.0% GDP growth projection for China. Any slowdown in the USA and other markets will only hurt Chinese growth more. Also, while they’ve been importing all the raw materials and we all know how much their prices have risen in recent years, it is very easy to understand it will be increasing the cost of living for the Chinese. Inflation will bring about a nasty surprise to any optimistic projections for their GDP.
Ø Housing Sector
The US housing sector has been another source of fuel for the rally in copper prices in recent years. Signs of slowdown are now quite evident and the Fed chairman has introduced the word ‘significant’ to his outlook on the slowdown in the US housing sector. This can add the weight on copper prices and will take copper prices lower as we head into 2007. Similar slowdowns in housing sectors of other countries in Europe, Middle East, and Asia can also be expected to further curtail projections for demand of copper.
Ø Monetary Tightening
Central banks have stuck to hawkish views and monetarism has begun to influence global policy makers once again. While the global markets have seen incredible amounts of funds being released for the last decade or so (commencing from the Mexican Crises in the mid-90’s), we’re now entering an era where a increased monetary tightening can be seen from the central bankers of the world. Any tightening is going to cause collateral damage in commodities as well. This will impact Copper from two sides. First, the real sector (industry) will face lower demand owing to rising cost of funds and second, the financial sector (speculators and investment funds) will find it increasingly difficult to fund their long positions in commodities. This will be negative for the outlook on the price of copper and other base metals.
Ø Industrial Sector
After the gigantic rally in Copper prices, it has become increasingly difficult for manufacturers of industrial and consumption goods to pass-on the prices to the end-user. As history has repeatedly taught us, business will always find a cheaper alternative/substitute when prices go up alarmingly. While substitutes are one issue, business is already working its way to find other alternatives. One glaring example that has come to our attention is that the cable industry has begun reducing the amount of copper that is used in their cables. Since conduction occurs mainly at the periphery of the conducting media, some cable manufacturers have been busy cutting copper usage by using it only on the periphery rather than using it in complete. When the industry has started resorting to such alternatives, we need to adopt a cautious outlook for the price of the underlying commodity.
Ø Inflation
Inflation numbers in many economies have moved above comfort zone for central bankers. The US is seeing higher inflation, Japan has certainly moved out from deflation, China, India, Eurozone, Asia-Pac have all been throwing up rising inflation numbers. While prices of commodities have been on an incline since 2002-03, so far we have seen that has caused no damage to global demand and economic growth. However, constantly rising prices extended over time can surely put a spoke in the wheels of global growth. Rising wages are good for some time as consumers get more money to spend, but while that is good for consumables, it has the potential to cause a dent in the Industrial and capital sector. Rising wages and commodity prices mean rising cost of production and increasing capital outlay for capital projects. What is a threat to capital projects and investments is a threat to demand for copper as well.
Major trading centers of Copper
Ø The London Metal Exchange (LME)
Ø New York Mercantile Exchange (NYMEX)
Ø The Shangai Exchange
Ø Multi Commodity Exchange (MCX)
Ø National Commodity and Derivatives Exchange (NCDEX)
Ø National Multi Commodity Exchange of India. (NMCE)
Conclusion
In India the users segment such as winding wire, power cables, transformers industry and continued increased export of down stream products supporting higher Deemed Export sales have enabled the copper producers to report high production growth Other Segments help in expectation of slight recovery in the domestic demand. Further, increased exports of downstream products from India continue to support higher Deemed Export sale. India’s copper demand is expected to increase at an annual rate of 7-8% per annum over the short-term. India is expected to emerge as a potentially large consumer of copper. India’s population exceeds 1.1 billion, and is expected to eventually surpass that of China. India is attempting to substantially expand its electric power generating capacity to reduce the frequency of power outages and provide the basis for strong economic growth. The government has targeted capacity increases of 100,000 MW over 2002-12. Thus as such, copper consumption in India is forecast to grow strongly.
Outlook
Copper market is expected to continue to witness strong prices for next couple of years, thanks to extremely low inventory, supply disruptions helping to maintain tightness and continuing robust demand. A large number of supply disruptions due to strikes, mine production problems, equipment delays and lower ore grades are cited as factors for the bullish view on prices. As a result, the refined market could swing into deficit in the current year. Their calculations suggest that market stocks are unlikely to return to reasonably comfortable levels before 2010.
Copper is almost reaching the peak of the cycle on account of strong GDP growth, as well as by being aided by very strong Chinese demand. Strong Chinese demand will help offset a US economic slowdown and supplies will continue to be constrained by a lack of “meaningful” new production capacity.. Global demand for copper is healthy and supply will remain tight, keeping stockpiles low compared to historic averages. A five-year rally in metals has boosted profits at mining companies and fueled a record amount of mergers and acquisitions in the metals industry.
The Long-term fundamentals still remain encouraging. While supply will be higher in coming years, demand will keep growing as well. The telecom and housing sectors in will keep creating demand for the metal like it was in the past. WE REMAIN BULLISH ON COPPER PRICES SEEING THE UPCOMING DEMANDS FROM VARIOUS COUNTRIES.
