Development on the markets relevant to our business
General copper market
The fundamental situation on the copper market offered analysts good reason to assume that a high copper price level is also to be expected for 2018. However, price volatility will remain a feature of the market. Market experts’ estimates range from around US$ 6,500/t to US$ 7,000/t. In October 2017, prices of approximately US$ 7,000/t (settlement) were attained on individual days at the London Metal Exchange.
Much will again depend on how production development at the copper smelters presents itself. China is once more the central focus. According to a Chinese producer, capacity growth at Chinese smelters will decrease in the current Five-Year Plan for the country. Additionally, tightened financial conditions are complicating the implementation of planned private smelter projects, which previously accounted for a majority of new capacities. Only one new project is expected to be realized in 2018. It should also be noted that the start-up phase continues for a long time before full capacity utilization is achieved.
The International Copper Study Group (ICSG) anticipates a 2.5 % increase in the global output of refined copper for 2018, attributing this to the resumption of temporarily halted production, among other factors. Risks that could have a negative effect on production (should they occur) continue to exist. As in the previous year, these include strikes, technical disturbances or maintenance shutdowns.
Because copper is an essential material for economic development in core branches such as the electrical and automotive industries or construction, good demand can also be expected for 2018. Solid economic growth in countries with the strongest demand, among them China, the USA and Europe, is providing direction here.
Representing 48 % of global demand, China has the strongest copper needs worldwide. A majority of this continues to come from investments in infrastructure projects, among them energy grid projects that are relevant for copper use. Emphasis should be placed on the Chinese government’s “One Belt, One Road” program, which has already led to contracts for cable manufacturers. In the Chinese automotive sector, there is also growth potential for copper applications. The ICSG expects China’s copper demand to increase by around 3 % in 2018.
According to the ICSG, the global market for refined copper will have an estimated slight production deficit overall in 2018. This should amount to 105,000 t and, against the backdrop of a 24-million-ton market, amounts to a largely balanced relationship. As in the past, unforeseen developments can lead to major changes. From today’s perspective, however, the expectation of a slight production deficit in light of foreseeable developments on the production and demand side appears to be justified. Others, such as the International Wrought Copper Council (the international industry association of copper and copper alloy products) or the research companies CRU and Wood Mackenzie also view the 2018 copper market as largely balanced or expect a slight production deficit.
The copper inventories at the metal exchanges decreased at the beginning of the new fiscal year and cannot be classified as excessively high. After the end of the 2016/17 fiscal year there was a decline of 7,000 t to approximately 570,000 t in October. In the Chinese bonded warehouse in Shanghai, a further estimated 460,000 t were in storage at the end of October.
Markets for copper concentrates, recycling and sulfuric acid
Copper concentrates make up a large part of the supply of raw materials for copper production at Aurubis. There is a global market for copper concentrates in which mining companies, traders and primary smelters are active. The primary smelters are largely those that don’t have their own mines or mine stakes. Copper concentrates are generally sourced through long-term supply contracts. The treatment and refining charges agreed in these contracts are based on the annual benchmarks for purer qualities but deviate from these benchmarks depending on complexity. The first larger contract concluded for delivery in the entire year 2018 between a mine and a concentrate smelter serves as a benchmark.
We continue to anticipate good availability of copper concentrates on the global market. It is to be expected that the mines will make full use of their production capacities, especially due to the copper price increases seen since the beginning of the fiscal year. Supported by our position on the market and our supplier diversification, we are confident that we will be able to secure a good supply once again. The expected treatment and refining charges will likely move to a satisfactory level.
For copper scrap, the market situation improved further after the end of fiscal year 2016/17 due to the continued high copper price, as well as declining demand from China. However, falling metal prices can lead to a market change with declining refining charges in the short term.
Sulfuric acid sales are mostly dependent on short-term developments; this is reflected in the duration of the contracts. In addition, sales options are very different from region to region due to the varying conditions. Aurubis supplies the global sulfuric acid market, with a focus on Europe, North America and North Africa. The relationship between local sales and exports fluctuates depending on market circumstances.
Markets for copper products
The situation on the markets for copper products in the coming months will strongly depend on how the overall economy in Europe and the individual sector economies develop. The following developments are evident:
The German Electrical and Electronics Manufacturers’ Association, in its last forecast for the global electrical and electronics products market dating from mid-2017, confirms 4 % growth for the years 2017 and 2018, respectively, for the sector. This forecast was based on 53 countries, which together comprise approximately 97 % of the global market. Europe accounts for 17 % of the global market. Growth of 2 % is expected for 2018; this rate also applies for Germany.
According to the European Automobile Manufacturer’s Association, demand for automobiles in the EU increased by by 4.7 % in the first half of 2017, with more than 8 million newly registered cars. As a result, the primary markets recorded growth from 3 % (France) to almost 9 % (Italy). Germany achieved a 3.1 % increase. After two good years, the association expects European demand for automobiles to grow by only 1.5 to 2 % in 2017. The German Automobile Manufacturer’s Association expects 4 % growth for Germany. Premiums for switching from diesel-powered automobiles are favorable for the situation. This is expected to also lead to good automobile demand in 2018. The intensifying discussion regarding e-mobility is not expected to have a significant impact on our sales markets in 2018.
The good economic situation in construction developed better than expected in 2017, according to statements from the German construction industry. For the entire year 2017, a 6 % nominal revenue increase in the main construction sector is expected. The industry association expects a further increase of 5.5 % for 2018. Positive driving forces are the acute need for additional housing and increasing local investments.
Based on these forecasts, we expect stable to good economic development in 2018 in the three most important sectors for copper applications. However, political and economic developments may influence the respective market situation decisively.
Wire rod business is generally somewhat weaker in the first quarter of a new fiscal year due to seasonal factors, whereas we expect stable to slightly increasing demand for the second quarter. The upward trend is continuing in the Southern European markets, and Northern Europe appears stable. Demand is developing well in North Africa and South-East Europe. We expect the economic situation in the automobile and construction user industries to continue at a high level. Demand from cable producers, particularly for energy cables, did not meet expectations in 2017 but light growth is probable in 2018.
With regard to market development for copper shapes, we expect the very strong product demand to continue. This could reach the very high level from 2017. From the current perspective, the positive demand trend for lower-oxygen and higher-alloyed materials will continue.
The situation is stable in the specialty product sector, to which bars and profiles also belong. We expect strong competitive pressure for standard products in 2018, but sales of specialty applications and alloys will continue to be good.
For flat rolled products, we see the following developments: The US economy, whose development is crucial for our plant there, is expected to improve slightly in 2018. This could support the copper business there. In the European market for flat rolled products, we expect a stable demand situation at a high level, with further opportunities for growth in important sub-markets.