CRU View of the Global Copper Market

ICSG Meeting
22 October 2019

Vanessa Davidson
Director of Copper Research & Strategy
Base Metals Team
2019: Prices slide but market not heavily oversupplied
2019 Key Characteristics: Copper price wedded to e/r moves
LME e/r
Global GDP & IP slow, exacerbated by trade war 7,500 LME 3M Cu price $/t 6.2
RMB:US$
Market sentiment negative; Speculators net short
7,100 6.4
US$ strengthens further

World refined copper demand weakens sharply 6,700 6.6

Large number of disruptions to supply (mine and
refined)
6,300 6.8
Concentrates market tight; Low spot TC/RCs

Visible stocks close to multi-year lows 5,900 7.0

Refined market in small surplus in 2019

5,500 7.2
90th percentile for 2019 = $5,260/t Jan-18 Jul-18 Jan-19 Jul-19

LME 3-month price for copper

2019 Forecast = $5,980/t

DATA: CRU 2
Global copper demand downgraded as IP slows sharply
Global trade and IP Change in global refined Cu demand,
y/y % change Oct. 2019 vs Oct. 2018, ‘000 t

8 250
China
Trade IP ROW
6
0

4
-250

2
-500
0

-750
-2

-4 -1000
16 17 18 19 2018 2019 2020 2021 2022 2023

DATA: CPB
3
 2020 base case: Positive but below trend demand growth
Global growth in refined copper consumption by region, 2020, y/y % ch.

World
+1.4%
2020

Europe
+0.4%

N
America NE
+0.6% Asia
M. East & China +0.3%
Legend: Turkey +1.8%
< -0.25% +0.9%
ASEAN
0% - 0.25%
+2.3%
0.25% - 0.50% India
0.50% - 0.75%
+6.0%
< -0.5% S&C
- 0.25% 0.75% - 1.0%
America
% - 0.50%
1.0% - 1.5% +0.7%
1.5% - 2.0%

2.0% - 3.0%

> 3.0%
source: CIA World Fact Book (https://w w w .cia.gov/library/publications/the-w orld-factbook/index.html)

DATA: CRU 4
Recovery in global demand delayed until 2021
Kg/capita refined copper demand Global refined copper consumption, y-o-y %

China World ex China World Global China RoW

12 6

10
4
8

6 2

4
0
2

0 -2
1960 1970 1980 1990 2000 2010 2017 2018 2019 2020 2021 2022 2023 2024

DATA: CRU NOTE: Per capital demand based on working age population. 5
Disruptions to mine output in 2019: Recovery in 2020/21
Mine disruption rate, % Copper mine production, %
12% 4%
Major 2019 losses:
➢ Grasberg (-286kt)
➢ Mutanda (-94kt)
➢ Escondida (-57kt)
3.1% ➢ KCM
3% (-51kt)
9% ➢ MMH (-38kt)

2.2%
2% 2.0%

6% 1.6%
1.3%
1%
0.8%
Average disruption
2000-18 = 4.8%
3%
0%

-0.8%
0% -1%
01 03 05 07 09 11 13 15 17 19* 2018 2019 2020 2021 2022 2023 2024

DATA: CRU *Jan-Sept only 6

SXEW output to decline sharply: Major impact by mid-20s
Global SXEW production, Mt copper

Peak SXEW supply

4

3 USA

2 DRC

1
Chile

0
1998 2001 2004 2007 2010 2013 2016 2019 2022 2025

DATA: CRU 7
Strong pipeline of firm projects but others likely delayed
Firm mine projects (capacity >= 50,000 t/y), Global copper mine output, after disruptions,
‘000 t ‘000t
Oyu Tolgoi Phase II 2024 24,000
El Teniente - NML 2023 Committed mines
Udokan
Udokan (SXEW) Committed projects
Cobre Panama Exp.
Uncommitted projects
Quellaveco 2022
Quebrada Blanca
Kamoa - Phase 1
Aktogay (Concs) Exp.
Pinto Valley Ext. (PV3) 22,000
Qulong 2021
Lone Star
Toromocho Exp.
Los Pelambres Exp.
Zone 5 Starter

Spence - Sulphides 2020

Yulong Phase II
Tominskoye (concs)
Collahuasi Optimization 20,000
Mina Justa-Mar. (Concs)
Pumpi

Chuquicamata UG 2019
Grasberg BC
Cobre Panama
Duobaoshan II
Mirador
Metalkol RTR I
Carrapateena
18,000
0 100 200 300 400 500 2019 2020 2021 2022 2023 2024
DATA: CRU 8
Supply risks: African Copper Belt and Block Cave projects
Main operations in the African Copperbelt Mine throughput and head grades;
Mt ore, % Cu
RTR
60 2%
Tenke Fungurume DR Congo
KCC Kolwezi 40
Commus & Mutanda
Boss 1%
Kamoa Sicomines Likasi Mabende 20
Deziwa
Chuquicamata
Shituru
Kinsevere 0 0%
Kipoi
Ruashi 80 2%
Etoile
Lubumbashi 60
Lumwana
Kansanshi 40 1%
Kinsenda
Lumwana 20
Solwezi Grasberg
Sentinel
KCM 0 0%
Mufulira
Chingola 40 2%
Frontier
CMR
Nkana
Ndola 20 1%
Zambia Luanshya
Oyu Tolgoi
0 0%
⚫ 5% import duty on concentrates into Zambia has been the
most disruptive of recent policy changes.
⚫ Heavy downgrades to mine and refined output in 2019 OP ore UG ore
DATA: CRU 9
 Smelter disruptions reduce growth in 2019
Main disruptions to smelter production in 2019 Refined production y-o-y growth; %
3%
Kennecott: extended LS Nikko: Accident
maintenance during maintenance
Hamburg: boiler 2.6%
issues
Hayden: 2.4%
Running below Technical
capacity issues at Naoshima:
Nanguo & boiler
Huelva: force Chifeng issues
majeure Jinfeng Toyo: fire 2%
Tuticorin: Supreme
Court revokes order
to reopen smelter
Ilo: PASAR: 1.6%
maintenance Dias d’Avila Reduced
brought energy & gas Nchanga: UR 1.4%
forward due to suspended due to
1.4%
supply
technical disrupted government tariffs
issues Mufulira: extended
maintenance 1.1%
Paipote:
production
Tsumeb: 1%
shutdown
issues
Mount Isa: flooding
Chuquicamata &
disrupts rail
Potrerillos restart
shipments
delayed

0% 0.0%
2018 2019 2020 2021 2022 2023 2024
DATA: CRU 10
 Firm project pipeline but low TCs will reduce profitability
Smelter projects (capacity >= 100,000 t/y);
Annual benchmark TC/RC, $/t & c/lb
‘000 tpy
Chifeng Jinfeng 2019
100
Nanguo
Baiyin II 93/9.3
Qiqihaer
Firm
90
Lualaba 2020 Probable

Chifeng Jinjian I 2021 Possible

82 /8.2 81/8.1
Guorun exp. II 80 /8.0
Houma exp. 80

Daye exp. 2022 78 /7.8

Nanguo II
74 /7.4
SmeltCo 2023 70
Gresik 70 /7.0
Sumbawa
Kansanshi exp.
Chifeng Jinjian II
60
0 100 200 300 400 500 2017 2018 2019 2020 2021 2022 2023

DATA: CRU 11
Prices have breached 90th percentile on CRU AISC basis
2019 Cash cost curve and all-in sustaining cost (AISC) curve, $/t copper
10,000
2019 Cash Cost curve
2019F AISC Curve
8,000

90th percentile AISC costs - $6,350 /t

6,000
90th percentile cash costs - $5,260 /t

4,000

2,000 Average LME 3M price:

1-11 Oct = $5,686 /t

0
0 4,000 8,000 12,000 16,000 20,000
Cumulative mine production, '000 tonnes

DATA: CRU 12
 Sub-$6,000/t price in 2020; $7,000/t attainable by 2024
Market balance in refined copper, '000 t, LHS, Stocks close to multi-year lows
and LME 3M copper price, $/t, RHS End of month visible stocks, ‘000t
240 8,000 1,800
LME
COMEX
180
SHFE non-bonded
China bonded
120
184 192
7,000 1,200
136
60
93 95
65

0
-39

-60 -120
6,000 600
-120

-180

-240 5,000 0
2017 2019 2021 2023 11 12 13 14 15 16 17 18 19

DATA: CRU 13
Conclusions: Deficit story still intact

Copper demand has weakened this year and supply has suffered disruptions…

…leaving market in small surplus overall. Stocks lowest for several years

Strong pipeline of firm projects but others will be subject to delays…

…and other risks to mine supply exist - technology and African Copperbelt

SXEW production has peaked and is set to decline

Price unlikely to recover in ST - $5,900/t for 2020 – but $7,000/t attainable in MT

DATA: CRU 14
Thank you for your
attention!

Vanessa Davidson
Director of Base Metals & Research &
Strategy

T: +44 207 903 2207

E: Vanessa.Davidson@crugroup.com

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