Conditions specific to the industry
Aurubis is mainly active on the international copper market and its sub-markets. These vary considerably in some cases.
Copper concentrates are offered by mining companies and trading companies on the global market. Here, Aurubis is a buyer competing with other primary copper smelters, which are chiefly located in China and Japan.
Aurubis primarily procures copper and metal-bearing raw materials for recycling on the European market. Metal trading companies are the main actors on the supplier side, though some recycling materials also reach us directly from product manufacturers. On the demand side, we mainly compete with other copper and metal smelters, as well as metal processors that also utilize materials for recycling.
Copper cathodes serve as the basis for trade on the international metal exchanges. While Aurubis is one of the largest producers with an annual output of 1.2 million t of copper cathodes, it doesn’t hold a significant position relative to the overall market for refined copper, currently around 24 million t.
The sales markets for copper products are also distinctly fragmented, with a number of companies that mainly belong to the cable and wire industries, as well as the semi-finished product sector.
Sulfuric acid, which is produced in the course of our processes, is a particularly relevant by-product. Customers and competitors in this area are very diverse. The customers include companies in the chemical, fertilizer and mining industries.
Aurubis’ individual markets were subject to various developments during fiscal year 2016/17.
In contrast with 2016, the international market for copper concentrates in 2017 developed less favorably, particularly in the first half-year. Whereas the previous year did not see any larger production disruptions in mines due to strikes, accidents or unusual weather conditions, such disruptions were registered in 2017.
According to the International Copper Study Group (ICSG), mining output for copper in 2017 is expected to be approximately 2 to 3 % lower and amount to 19.9 million t. This has an impact on global concentrate output for 2017, with minus 2.5 % in comparison with the previous year. In contrast, the research company CRU expects a decline in mining output of 1.2 %, and minus 0.3 % for concentrate output.
Volume shortfalls resulted primarily from wage dispute strikes in the first quarter of 2017, among them the lengthy walkouts in South America and Indonesia. Unlike the previous year, there was also a lack of larger new and expansion project start-ups. Beginning in the second quarter of 2017, an improvement in the market situation slowly began, and the market for copper concentrates returned to a more balanced relationship between production and demand. The good supply of copper scrap and, on the demand side, multiple production shutdowns at smelters also contributed to this.
The European market for recycling raw materials once again proved to be a buyers’ market for smelters during the fiscal year. The supply volume for copper scrap remained high overall in all significant regions for scrap trading. The increased copper prices 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, as well as by restrained buying interest. The restrictions planned in China regarding the import of copper scrap gave rise to questions. However, no clear answers were given by the Chinese authorities by the end of the fiscal year. Volumes of complex raw materials for recycling, such as electrical and electronic scrap, were also readily available on the market.
Refined copper output was affected by multiple scheduled and unscheduled production standstills at smelters in fiscal year 2016/17, including those in Chile, Japan, the USA and China. These were in contrast with capacity growth in the People’s Republic and, in the time period from January to July 2017, good utilization of refining capacity (84 %). Also significant was the good availability of copper scrap, which according to ICSG estimates will lead to a 4 % increase in secondary production in 2017. Overall, the organization expects that global production of refined copper in 2017 will amount to approximately 1 % more than the previous year.
On the demand side for refined copper, there was very little change in the first seven months of 2017 compared with the previous year. At 13.7 million t, the level achieved was almost equivalent to that of the corresponding period in 2016. For the entire year, the ICSG expects an increase in global demand of approximately 1 %, to 23.7 million t. Larger uncertainties are associated with the calculation of the actual copper demand in China. Growth estimates range from 1–4 %.
To some extent, copper cathode inventory levels on the metal exchanges fluctuated significantly during the fiscal year. This was repeatedly attributed to larger volume entry and exit on the part of individual trading companies. After 542,858 t at the beginning of the fiscal year, a total of approximately 577,000 t was stored at the LME, COMEX and SHFE metal exchanges as at September 29, 2017. Additionally, copper inventories in Chinese bonded warehouses reached 500,000 t at the end of the fiscal year.
According to the ICSG, there was a production deficit of 163,000 t on the global market for refined copper in the first seven months of 2017. After taking seasonal effects and changes to the bonded warehouse inventories in China into account, the deficit was 93,000 t. The ICSG expects a production deficit of 131,000 t for the entire 2017 year.
On the international market for continuous cast wire rod, which accounts for about 75 % of global cathode output worldwide, there were fluctuations in production and demand from quarter to quarter in the course of the fiscal year. After a weaker fourth quarter in 2016, the first quarter of 2017 once again fell back significantly. Higher output and demand were seen from April to June 2017; however, both decreased again in the final quarter of the fiscal year (July to September). Supported by good economic development, the center of recovery was in Asia and Western Europe.
After the initial weak start in fiscal year 2016/17 on the global market for sulfuric acid, a narrowing of the market later led to higher prices. The growth in demand came primarily from the copper industry, where sulfuric acid is used in mining for the processing of specific ores, as well as in the fertilizer industry. For parts of the fiscal year, production disruptions and maintenance downtime at smelters had an impact, which limited the availability of sulfuric acid.
The copper price on the London Metal Exchange recovered significantly in fiscal year 2016/17. This was initially due to assumptions about a possible infrastructure program in the USA, and more recently the result of the assumptions about good copper demand in China. On the whole, investor interest in the commodities sector increased. Following a copper price of US$ 4,807/t (settlement) at the beginning of October 2016 and developments marked by price fluctuations, the fiscal year closed with an LME copper price of US$ 6,485/t (settlement). The lowest value of the year was US$ 4,620.50/t (October 24, 2016) and the highest was US$ 6,904/t (September 5, 2017). The average value for the fiscal year was US$ 5,781/t (previous year: US$ 4,767/t).