Copper and Copper Semis

Global Market Outlook on Copper and Copper Semis

• The global demand for copper semis is expected to grow at approx. 2-4 percent CAGR through 2022–2024.

• The electronics, transportation (especially EV), and construction sectors are the major growth drivers

• China is expected to have accounted for the largest share of the world’s copper semis production, holding nearly 48 percent of the global market share. China is expected to have added capacity of around 11.5 MMT of copper and copper semis in the long term.

Market Overview Copper Cathodes

Cathode Demand and Supply (MMT) - Global

• In 2021, while primary production declined slightly by 0.1 percent, secondary production grew by 8 percent. Production increased in China, DRC, India, US, and Belgium, whereas it witnessed downtrend in Chile, Japan, Russia, and Germany.

• World’s (excl-China) refined usage is estimated to have increased by about 8.5 percent in 2021, Chinese apparent usage declined by 3.8 percent, partially offsetting the usage growth in other regions of the world.

• Global copper smelting activity decreased by 3 percent M-o-M in Oct-22 to 47.5. The global dispersion index of 50 indicates average levels of activity.

• The global combined visible stocks (LME/COMEX/SHFE) decreased by 19 percent in Q3 2022 over Q2 2022 to 657,357 MT.

• The refinery capacity utilization rate, which stood at 82.4 percent in 2021, decreased slightly to 82.2 percent during Jan–Sep 2022.

• With production expected to slowdown due to output constraints at primary smelters, lower secondary production and longer maintenance shutdowns market is likely to witness slight deficit as demand also cools due to slowing economy and high energy prices.

Cathode End Use Demand Share (2022 E)*

• Globally, the end-use demand for copper cathodes is primarily from the wire rods market. This constituted to approximately 68 percent, followed by copper tube products that contributed to 12 percent

• Demand took a hit due to COVID-19, yet it has picked up in the recent term, due to high demand from downstream sectors, as industries restarted operation. Though refined usage grew slightly by 1.2 percent, it remains below pre-COVID-19 levels.

• After declining in 2019 and 2020, secondary refined production grew in 2021 but it is expected to decline in 2022. Currently, the overall recycling efficiency rate stands at 56 percent, which is expected to increase in the future

• Global Copper Users Purchasing Managers Index™ (indicator of operating conditions of heavy users of copper) declined sharply to 48 in Sept-22 from 50.7 in Aug-22.

• Industrial and construction activity shall be the major driver of demand, followed by the Electrical and Electronics sector

Copper Market Overview: Copper Wires

Copper Wire Demand and Supply (MMT): Global

• The global copper wire demand rebounded in second half of 2020, led by China, where economic activity resumed

• In 2020, production resumed slowly when compared to consumption. Market remained in deficit in 2021 as industrial activity picked up

• The nature of the market is highly fragmented, and the ability of suppliers varies, based on the size of the wire, quality of copper, and the facilities available for production

• China is the leading producer, accounting for around 47 percent of global production, followed by Asia, excl. China (21 percent) and Europe (17 percent)

• Some of the major suppliers of wires include Aurubis, Jiangxi Copper, Jiangsu, Nexans, LS Group, etc..

Copper Wires Demand Share (2022 E)*

• Copper wire rods are primarily used in the electrical and building industry

• Wires may include cables for power transmission, building wiring, communication wiring, etc..

• An average copper content in a car is 22 kg, and the length of wires used in a car is nearly close to 1.8 km

• Due to low thermal expansion and corrosion resistance, several applications, like industrial wiring, marine wiring, underground wiring, and wiring used in salty environments are copper wires

• Electronics also uses wiring to a minor extent; however, the conduction in electronics is mostly using other forms of copper semis

Market Forms of Copper Overview Copper Plates, Sheet, and Strips (incl. Foil)

Plates, Sheet and Strips: Demand and Supply (MMT) - Global

• Both global supply and demand of copper plates, sheets, and strips increased in 2021, as the market resumed activity by the end of 2020, especially in China. Demand from electronics, telecommunication, and power witnessed a robust growth

• The PSS market is forecasted to grow at a CAGR of 2–4 percent from 2021 to 2024

• China accounts for nearly 46 percent of global production of PSS, followed by Asia, excl. China (30 percent) and Europe (17 percent)

• Some of the primary suppliers across the globe include Aurubis, Wieland Werke, KME, Poongsan Corporation, Mitsubishi, Termomecanica

Global Copper Semis Drivers and Constraints

Drivers:

End Use Market

Major end-use industries such as construction, consumer electronics, medical and powder metallurgy after declining in 2020 are expected to drive the demand for copper PSS, tubes, wires, rods and bars, foils and powder respectively.

Technical Advantage Over Substitutes

End-use products such as industrial power cables, automotive radiators and high temperature applications depend on copper due to their high corrosion resistance and low expansion coefficient. This technical advantage is expected to result in driving the market for copper semis like wires, PSS and tubes.

Environment Concerns

Copper is a green earth metal, having a 100 percent recyclability. With growing environmental concerns of depletion of mineral sources, copper semis such as PSS are preferred in the construction industry and this is a very important driver for the copper semis market.

Constraints:

Pandemic, Geo-political tension & Economic outlook

Volatile conditions due to Russia-Ukraine conflict, logistical constraints, IMF slashing forecast for global economic growth, re-emergence of Covid-19 in China, regulatory constraints in Chile and Peru have high chances of affecting global copper market.

Cost Reduction Pressure

With a growing demand from end-use industries of copper, a constant pressure has been there to reduce the cost of production of semis. Although prices reduced in the period of 2018-2019, copper proves to be four times more expensive than aluminum, which proves to be a substitute for many applications.

Inefficient Recycling

Though the potential for recycling copper is 100 percent, the global, net effective recycling rate is less than 60 percent as per the ICGS. This essentially creates a supply deficit for copper semis production by almost 5-8 percent annually coupled with declining ore grades. This scenario drives the end-use markets to look into aluminum substitutes and there by proves to be a market constraint for copper semis.

Cost Structure - Copper Semis

• Production of copper semis depends primarily on the raw material from smelters and refiners. Most of the mining companies also have smelting and refinery facilities to supply end products as cathodes

• Semis producers, who procure cathodes, may also have casting facilities for alloy preparation and equipment for metal forming. These facilities are power intensive and forms the second major component of the cost of production

Procurement Best Practices

Long Term and Spot Market Contracts

• The alloy composition being controlled at the casting stage, integrated suppliers with clarity on their annual demand preferred annual or biennial contracts for procurement of cathodes. This generally has suppliers of copper semis like PSS, rods bars, ingots and billets

• With a provision for hedging in LME, semis producers with casting capabilities can realize cost savings during an increasing price trend

• Service centers without casting facilities however do not prefer to go on long term contracts and prefer buying their pre-rolled copper products such as wire rods, powders, flakes, foils at spot markets