COPPER SURVEY 2013 - Reutersshare.thomsonreuters.com/assets/forms/gfms_copper_survey_2013.pdf · producers in the world. ... Peñoles is a mining group with integrated operations

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COPPER SURVEY 2013Prepared by Thomson Reuters GFMS

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Thomson ReuTeRs GFms GRaTeFully acknowledGe The GeneRous suppoRT FRom The FollowinG companies FoR This yeaR’s Copper Survey

GFMS gratefully acknowledge the generous support from the fol lowing companies for this year’s Copper Survey

Kazakhmys PLC is an international natural resources company, listed in the UK, with its principal operations in Kazakhstan and the

surrounding region. The core business is the production and sale of copper. Kazakhmys is the largest copper producer in Kazakhstan

and in the top ten worldwide. Fully integrated production and good by products make Kazakhmys one of the lowest cost copper

producers in the world. These advantages, combined with a large reserve base, give the Group a strong platform for future growth

and development.

Pacific Road Capital manages and advises private equity funds investing in the global mining industry. We provide development and

expansion capital for mining projects, mining related infrastructure and mining services businesses located through-out the resource

rich regions of the world.

The Pacific Road team, located in Sydney, Australia and San Francisco and New York, USA is comprised of experienced investment

professionals that have extensive knowledge and experience in the mining and infrastructure sectors, including considerable

operating, project development, transactional and investment banking experience.

For further information, please go to our website at www.pacroad.com.au

Peñoles is a mining group with integrated operations in smelting and refining non-ferrous metals, and producing chemicals. Peñoles

is the world’s top producer of refined silver, metallic bismuth and sodium sulfate, and the leading Latin American producer of refined

gold and lead. The Company was founded in 1887 and it is part of “Grupo BAL”, a privately held diversified group of independent

Mexican companies. Peñoles shares have traded on the Mexican Stock Exchange since 1968 under the ticker PE&OLES.

Antofagasta plc is a Chilean based copper mining company listed on the London Stock Exchange which owns and operates three

copper mines in Chile -Los Pelambres, El Tesoro and Michilla-. A fourth mine, Esperanza, is currently being commissioned and is

expected to reach full production capacity in the first half of 2011.

Antofagasta produced 521,100 tonnes of copper in 2010 and, with Esperanza coming into production, is forecasting an increase in

production to approximately 715,000 tonnes in 2011, ranking it as one of the top 10 copper producers in the world.

Antofagasta is looking to grow its portfolio and currently has exploration and evaluation programmes in North America, Latin America,

Africa, Asia and Australia.

Intro Pages.indd 3 3/22/2011 5:21:59 PM

peñoles is a mining group with integrated operations in smelting and refining non-ferrous metals, and producing chemicals. peñoles is the world’s top producer of refined silver, metallic bismuth and sodium sulphate, and the leading latin american producer of refined gold and lead. The company was founded in 1887 and it is part of “Grupo Bal”, a privately held diversified group of independent mexican companies. peñoles shares have traded on the mexican stock exchange since 1968 under the ticker pe&oles.

kazakhmys plc is a leading natural resources group listed in the uk, with its principal operations in kazakhstan. The core business is the production and sale of copper. kazakhmys is the largest copper producer in kazakhstan and the eleventh largest copper producer in the world. The Group has some key strategic advantages, with fully integrated production and located next to the world’s major copper markets. Backed by long term funding, kazakhmys is currently developing two substantial low cost copper deposits, which will increase annual copper output from 300 kt to 500 kt over the next five years.

The center for copper and mining studies, cesco, is an independent, non-profit organization whose mission is to contribute to the design and debate of public policies which foster the best use of the mining industry’s potential for the development of economies of mineral producing countries, with a special focus on chile.

Throughout its history, cesco has positioned itself as a meeting point for diverse sectors that include academia, policymakers, professionals and those involved in the mining-business in order to promote ideas and discuss criteria about public policies related to economic and mining activities.

COPPER SURVEY 2013

BY:

Sanjay Saraf, Head of Base Metals Research & Forecasts

Nick Pickens, Research DirectorRob Smith, Senior Analyst Karen Norton, Senior AnalystYang Lu, Analyst

PUBLISHED APRIL 2013 BY THOMSON REUTERS GFMS

The Thomson Reuters Building, 30 South ColonnadeLondon, E14 5EP, UKSwitchboard: +44 (0) 207 250 1122Direct: +44 (0) 207 542 1682E-mail: [email protected]: www.gfms.co.uk

CS 2013 Intro Pages.indd 1 25/03/2013 19:20:35

© THOMSON REUTERS 2013. ALL RIGHTS RESERVED.

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ISBN: 978-0-9568286-7-5

ISSN: 2043-9822

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TABLE OF CONTENTS

1. Summary and Price Outlook 5 Production 7 Consumption 8 Market Balance and Inventories 9

2. Copper Prices 10 Introduction & Price Summary 10 Copper’s Relative Price Performance 12 Prices in Other Currencies 12 Price Outlook 13

3. Investment 19 Introduction 19 Activity on Commodity Exchanges 20 Physical Investment 26

4. Mine and Refined Production 27 Mine Production 27 Production Costs 36 Refined Production 41

5. Trade Flows and Stocks 46 Introduction 46 Trade in Concentrates 47 Trade in Refined Metal 49

Trade in Copper Products 51 Exchange Stocks 53 Off-Exchange Stocks 54

6. Consumption 58 Introduction 58 Regional Overview 60 End Use Overview 68

7. Appendices 77

FOCUS BOXES

Real Copper Prices 14 Copper Price Correlations 15 Copper Physical Premiums 16 A Review of Price Volatility in 2012 17 Investment in Commodities 21 Physically-Backed Copper ETFs 25 Mine Production: 2012 versus 2011 28 Corporate Activity 29 Copper Projects’ Pipeline 32 Treatment and Refining Charges 33 The Mining Workforce in 2012 39 Copper Production Processes 40 Copper Scrap Recovery 44 Chinese Bonded Warehouse Stocks and Copper Imports for Financing 55 Intensity of Use 63 Substitution, Miniaturisation and Thrifting Trends in Copper Consumption 67


UNITS USED

Throughout the Copper Survey, “tonne(s)” refer(s) to “metric tonne(s)”, being equal to 1,000 kilogrammes. Where conversions to and from figures quoted in pounds (lbs), the following was used:

1 tonne = 2,204.62262 lbs

Figures throughout the report are rounded to the nearest thousand tonnes, except where further accuracy is required.

Throughout the tables, totals may not add due to independent rounding.

PRICES

Unless otherwise stated, US dollar prices and their equivalents refer to the official LME cash quote.

TERMINOLOGY

“-” Not available or not applicable.

“0.0” Zero or less than 0.05.

“dollar” US dollar unless otherwise stated.

End use consumption definitions:

“Building Construction” Building Wire; Plumbing & Heating; Air Conditioning & Commercial

Refrigeration; Builders Hardware; Architectural.

“Electrical & Electronic Power Utilities; Telecommunications; Business Electronics; Lighting &

Products” Wiring Devices.

“Transportation Equipment” Automobile, Truck & Bus; Railroad; Marine; Aircraft & Aerospace.

“Consumer & General Appliances; Cord Sets; Military & Commercial Ordnance; Consumer

Products” Electronics; Fasteners & Closures; Coinage; Utensils & Cutlery; Miscellaneous.

“Industrial Machinery In-Plant Equipment; Industrial Valves & Fittings; Non-Electrical Instruments;

& Equipment” Off-Road Vehicles; Heat Exchangers.

ACKNOWLEDGEMENTS

In addition to relevant publicly available data, many of the estimates shown in this Copper Survey as well as our analysis of

production, consumption and investor activity, have been based on visits to key markets and discussions with local producers,

consumers, traders and other institutions active in copper. We are grateful to all of them.

NOTES


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1. SUMMARY AND PRICE OUTLOOK

Having recorded an all-time high of $10,148/tonne on 14th February 2011, and a record annual average price of $8,811/tonne in 2011, copper prices declined through August of that year, before a sharp sell-off in September and October, recording a low official cash quote for the year of $6,785/tonne on 4th October. However, as investor sentiment improved over better macroeconomic prospects, and from a fundamental perspective copper supply still appeared to be tight and inventories low, prices rallied into the year-end. Prices in excess of $8,000/tonne were maintained through April 2012, as Eurozone concerns faded to some degree and China and the United States appeared to be relatively robust.

In 2012, copper mostly traded within a $7,500-$8,500/tonne range, with limited forays outside of this. The price peaked at $8,658/tonne in February and hit a low of $7,252/tonne in June, on an official cash basis. Chinese prospects had disappointed, with a plethora of less-than-sanguine data and consumption indicator releases. Chinese GDP growth fell to its lowest level in three years in the second quarter, of 7.6%, whilst Chinese industrial production growth eased to 9.5% in June (from 11.9% in March). Copper prices then embarked on an upward trend, peaking around $8,400/tonne in mid-September. This was driven by a series of announcements on fresh monetary loosening by major central banks which,

combined with a weaker dollar, re-stimulated investor interest in commodities. Thereafter, however, as the euphoria waned, prices eased to trade within a $7,500-$8,200/tonne range through most of the fourth quarter.

Thomson Reuters GFMS estimate that global mine production, after posting two consecutive years of barely positive growth, grew by 4% to 16.669 million tonnes last year. This was the highest annual increase since 2004. In 2012, declines were more characterised by the net fall in grades and recoveries, rather than unexpected disruptions and this is arguably more representative of a longer-term structural trend in the industry. Meanwhile, global refined copper supply increased by 2% to 20.059 million tonnes and, in contrast to mine supply, represents a decline in the rate of growth when compared to the previous two years. This also corresponds with a moderation in the rate of supply from secondary sources, although total production from scrap of 3.6 million tonnes was still 3% higher than 2011. Production from SX-EW plants increased by 4%.

Global copper consumption totalled 19.845 million tonnes in 2012, up less than 1% year-on-year. Performance was particularly weak over the first half, with global offtake contracting marginally on a year-on-year basis, reflecting the weakness in economic activity

2007 2008 2009 2010 2011 2012

Refined Production

Primary from Concentrate 12,217 12,295 12,210 12,443 12,685 12,836

Primary SX-EW 2,979 3,120 3,265 3,310 3,483 3,627

Secondary 2,738 2,823 2,842 3,250 3,481 3,596

Total Refined Production 17,933 18,238 18,316 19,003 19,649 20,059

Refined Consumption

Building Construction 6,278 5,923 5,507 6,015 6,182 6,115

Electrical and Electronic Products 5,919 6,201 6,545 7,077 7,404 7,583

Transportation Equipment 2,144 2,014 1,833 2,128 2,186 2,265

Consumer and General Products 1,821 1,814 1,749 2,010 2,010 1,951

Industrial Machinery and Equipment 2,014 1,887 1,682 1,897 1,959 1,931

Total Refined Consumption 18,178 17,839 17,315 19,127 19,742 19,845

Surplus/(Deficit) (244) 399 1,001 (124) (93) 214

Exchange Stock Change (13) 153 304 (123) (21) 43

Implied Off-Exchange Stock Change (231) 245 697 (1) (71) 171

Price ($/tonne) 7,126 6,952 5,164 7,539 8,811 7,950

Source: Thomson Reuters GFMS, ICSG, LME

WORLD COPPER SUPPLY AND DEMAND (000 TONNES)

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in a number of key consumers during this time. The sharp slowdown in the rate of expansion in Chinese demand was a primary factor behind this, with growth halving to 4% last year, as the wider slowdown in economic growth and a high level of downstream product inventories, most notably in the appliances market, weighed on performance. The EU-27 was the major area of weakness, with all end-use sectors recording declines, as sovereign debt concerns and stagnation in economic activity weighed on demand.

Overall, Thomson Reuters GFMS estimate that the market was in a surplus of 214,000 tonnes in 2012. Total exchange stocks ended the year up 43,000 tonnes, at 596,000 tonnes. This implies an increase in off-exchange stocks of around 171,000 tonnes. The bulk of this increase took place in bonded warehouses, with stocks of copper in Shanghai and Guangdong rising by around 500-600,000 tonnes during the course of last year, to 1.0-1.2 million tonnes, and was only partly offset by a drawdown in inventories elsewhere across the globe.This inventory build has contributed to capping the upside for prices through most of this year, as the copper price has traded within a broad sideways range.

Although we see mine output continuing to outperform its growth rates of recent years, and for the copper market to remain in surplus at least through this year and next, the forecast surpluses are still likely to be vulnerable both to any supply disruptions and/or to a sharper-than-expected recovery in demand. The threat to mine output remains a clear and present danger. Whilst the early resolution of some labour contracts eases strike prospects to some extent, it does not eliminate them, especially in a price environment where cash margins remain high for many producers. Also, although improved mine output has been due in part to new capacity, it also reflects improved production at existing mines. Mine utilisation rates rose from an

average of just under 81% in 2011 to 87% by end-2012, highlighting the tight situation.

Nevertheless, as prevailing prices remain well above both average and marginal costs of production, there is plenty of scope on the downside if market conditions worsen. The global average cash operating cost did continue to trend higher in 2012, rising 14.3% to $3,527/tonne. “Marginal cost” (as defined by the 90th percentile) is now at $5,512/tonne. Although this implies an operating margin of 31% from the 2012 copper price, the gap appears to be closing.

While we do identify a number of copper projects that will be commissioned over the next few years, 2012 was significant for a noticeable change in strategy from the mining industry from one of growth and capital expenditure to one of constraint and cost control. Looking forward, the project pipeline could be at risk from cancellations and deferrals as companies take a more disciplined approach to mine development, favouring returns to shareholders rather than further capital investment in new growth.

Investment activity is likely to remain an important driver of short term movements in the copper market, especially as macroeconomic forces are likely to promote continued uncertainty over the course of the year. However, a notable feature of the market last year, and so far in 2013, has been a lower volatility environment, as prices have tended to remain rangebound. This may be a result of a more risk-averse stance being adopted by many commodity and macro funds that trade copper. Furthermore, there has been a culling of proprietary trading at the major investment banks which would have also had an impact.

World demand and refined production growth are both currently expected to be in the region of 3-4% in 2013,

COPPER SURPLUS/DEFICIT & PRICESCOPPER AND THOMSON REUTERS GFMS BASE METALS INDEX

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201220112010200920082007

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Thomson Reuters GFMS Base Metals Index

Copper

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Thomson R

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with the market staying in surplus. Potential disruptions to mine supply, however, remain a threat. Given the factors that appear set to cap both the upside and downside for copper price prospects in the near future, we anticipate the red metal continuing to trade in a broad range of $7,500-$8,500/tonne this year, with risk weighted to the downside.

PRODUCTION IN 2012

Global copper mine production increased by 4% in

2012, the highest annual increase since 2004 and continues

a decade long period of year-on-year growth.

Global refined copper supply increased by 2% and, in

contrast to mine supply, represents a decline in the rate of

growth when compared to the previous two years.

The global average cash operating cost continued to

trend higher in 2012, rising 14% to $3,527/t (160 ¢/lb).

“Marginal cost” (as defined by the 90th percentile) is now

at $5,512/t (250¢/lb).

MINE PRODUCTION

Global copper mine production recorded a significant step change in 2012, defying the recent trend of restricted supply-side growth. While the year started on familiar ground with output disappointing expectations, the second half of the year was characterised by a strong recovery and production in the final quarter was 12% higher than the first. In the end, the shortfall due to unexpected events, including strikes, technical problems or stoppages due to weather was around 267,000 tonnes, less than half that estimated in our 2011 analysis.

In 2012, declines were more characterised by the net fall in grades and recoveries, rather than unexpected disruptions and this is arguably more representative of a

longer-term structural trend in the industry. Meanwhile, mines moving through expansion projects were the major contributor to new supply, adding nearly 700,000 tonnes.

The source of new supply was focused around the African Copperbelt, with mine production from the Democratic Republic of Congo rising by a quarter, China, which has now established itself as the second largest producer of mined copper and finally Chile, with the country rebounding from the decline in output recorded the previous year to produce 5.433 million tonnes, or a third of total global supply.

Australia and Indonesia were two of the few major producing countries reporting lower output, driven by falling grades and disruptions. Grasberg and Batu Hijau mines continued on a downward trend in 2012 and, at just under 400,000 tonnes, Indonesia is now producing at only 40% of peak output achieved three years ago.

The year was also significant for a noticeable change in strategy from the mining industry from one of growth and capital expenditure to one of constraint and cost control. Looking forward, the project pipeline could be at risk from cancellations and deferrals as companies take a more disciplined approach to mine development, favouring returns to shareholders rather than further capital investment in new growth.

MINE PRODUCTION COSTS

The global average cash operating cost continued to trend higher in 2012, rising 14% to $3,527/t (160¢/lb). “Marginal cost” (as defined by the 90th percentile) is now at $5,512/t (250¢/lb), but although this implies an operating margin of 31% from the 2012 copper price of 361¢/lb, the gap appears to be closing.

REFINED PRODUCTIONMINE PRODUCTION

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The upward shift in the cost curve in 2012 was more a function of steady increases across all drivers of cost, rather than a seismic shift in any given variable. Local currency exchange rates were generally weaker, although not exclusively. Wages increased yet further as unions lobbied hard, by-product metal prices were mixed and the cost of key inputs such as fuel, acid and consumables were higher across the board.

Perhaps the most notable overall impact on costs this year was from the net decline in grade and recoveries experienced by the industry; this partly reflects a long-term structural trend in declining mining yields, but with over 1.2 million tonnes of copper coming into the market from new projects, expansions and re-starts during the year, it also reflects a number of mines that have still yet to reach optimal capability.

REFINED PRODUCTION

Global refined copper supply increased by 2% and, in contrast to mine supply, represents a decline in the rate of growth when compared to the previous two years. This also corresponds with a moderation in the rate of supply from secondary sources, although total production from scrap of 3.6 million tonnes was still 3% higher than 2011, contributing an 18% share of total refined output compared to only 12% a decade ago. Production from SX-EW plants increased in-line with the rise in total mine supply at 4% and cathode from this source now accounts for 18% of the global total.

China continues to be the source of growth, driven by domestic demand, with total refined production increasing by 10% to 5.7 million tonnes. Looking forward, there remain a number of scheduled near-term additions to smelting and refining capacity, with several projects adding a combined one million tonnes to the country’s

total production capacity. This is likely to keep a cap on treatment and refining charges for concentrate through the year ahead.

CONSUMPTION IN 2012

Global copper demand grew by less than 1% last

year, as a slowdown in Chinese consumption growth was

accompanied by a second successive year of contraction in

mature economy demand.

Contrasting performance was seen amongst the various

end-use markets. The electrical and electronic products

sector continued to find support from robust emerging

market demand and once again posted the largest gain in

tonnage terms. Meanwhile, the transportation equipment

market boasted the biggest rise in percentage terms, of 4%.

The remaining sectors all posted declines, ranging from

a 1% fall in both the building construction and industrial

machinery and equipment sectors to a 3% fall in the

consumer and general products segment.

Global copper consumption totalled 19.845 million tonnes in 2012, up less than 1% year-on-year. Performance was particularly weak over the first half, with global offtake contracting marginally on a year-on-year basis, reflecting the weakness in economic activity in a number of key consumers during this time. Ongoing trends towards substitution, miniaturisation and thrifting, as well as the destocking of inventories at the semi-fabricating and downstream product stage, also served to exacerbate the downturn. Positively, consumption growth did return to positive territory over the second half, although the improvement was not significant enough to prevent the full-year global total growing at the slowest rate since 2009, when demand slid 3%.

COPPER CONSUMPTION BY REGION (YEAR-ON-YEAR CHANGE IN VOLUME, 2011 AND 2012)

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The 1% expansion seen last year was also considerably below trend growth rates of around 3% per annum that have been seen over recent decades. The sharp slowdown in the rate of expansion in Chinese demand was a primary factor behind this, with growth halving to 4% last year from an 8% rise in 2011, as the wider slowdown in economic growth and a high level of downstream product inventories, most notably in the appliances market, weighed on performance. Positively, Chinese demand growth did show signs of improvement over the second half of the year, from the lows seen over the first half, although growth remained well below the rates of expansion that the market had become accustomed to over previous years.

Meanwhile, lacklustre performance in the mature economies also continued to weigh on the total, with consumption there sliding 4%. The EU-27 was the major area of weakness, with all end-use sectors recording declines, as sovereign debt concerns and a stagnation in economic activity weighed on demand. Japanese usage also fell, in large part owing to the downturn in demand for the country’s electronic goods. Meanwhile, although the more positive economic environment in North America helped offtake there rise 3%, this was not enough to prevent the ongoing downtrend in the mature economies’ share of global demand. Outside of the mature economy grouping, notable declines were also seen in South Korea and Taiwan.

MARKET BALANCE & INVENTORIES IN

2012

Although the copper market recorded a second consecutive year of deficit in 2011, the levels in both years were revised lower from initial estimates. Both years also saw drawdowns in exchange inventories, confirming the tighter market conditions. An improvement in mine output, especially during the latter half of 2012, helped

move the market into surplus. This was accompanied by a build in exchange stocks in Europe and Asia, as well as reports of a jump in bonded warehouse inventories over the year. Total exchange inventories fell to 1.6 and 1.5 weeks’ consumption in 2010 and 2011, respectively. Given that the bulk of stock build is estimated to have taken place off-exchange last year, the ratio increased only marginally to 1.6 weeks in 2012, despite the market posting a 214,000 tonne surplus.

Most attention regarding stocks has been focused on bonded warehouses in China, as the potential stocking activity there is of a far greater magnitude than on exchanges. Our estimates suggest that around 500-600,000 tonnes of cathode inventory was built up in bonded warehouses in Shanghai and (to a lesser extent) Guangdong last year, to a total of 1.0-1.2 million tonnes. This was driven in part by financing/collateral deals in a tight credit environment (see Chapter 5) but also reflected the weaker demand environment in a slower economy. On the other hand, there was destocking of refined copper inventory elsewhere across the globe (according to our estimates), such as at consumers in the West. Further downstream, there was also a notable destocking of inventories in the appliance sector, such as in the Chinese air conditioning market.

Another notable feature of the market is the location of exchange inventories. In 2012, there was a shift in on-warrant stocks, as those in the United States were drawn down, whilst those in Europe and Asia grew. Total stocks held in LME and COMEX warehouses in the US fell by 183,100 tonnes (49.0%) in 2012. European stocks in LME warehouses added 24,200 tonnes (49.4%) and Asian exchange inventories (including LME and SHFE) grew over 1.5 times (202,100 tonnes). Given the emergence of a contango in the copper forward curve structure, it remains to be seen whether this may tempt more metal into LME warehouses in Europe or the US during 2013.

LME STOCKS AND PRICESEXCHANGE STOCKS AND PRICES

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2. COPPER PRICES

Copper prices retreated after hitting an all-time high of

$10,148/tonne in February 2011, recording a low of $6,785/

tonne that October and averaging $8,811/tonne for the year.

In 2012, copper mostly traded within a $7,500-$8,500/

tonne range, with limited forays outside of this. The price

peaked at $8,658/tonne in February and hit a low of

$7,252/tonne in June, on an official cash basis.

Copper traded well in comparison to the other LME

metals in 2012. On an intra-year basis, its price gained just

over 3% to $7,915/tonne, only bettered by lead and tin, both

of which boasted superior fundamentals. On an annual

average basis, despite falling 10% on the previous year, to

$7,950/tonne, copper was the best performer, falling the

least amongst its peers in the complex.

The run-up in copper prices earlier last year was

against the backdrop of what still appeared to be a tight

concentrate market, with low inventories of refined metal.

As Chinese growth prospects dimmed, and Eurozone

fears intensified, copper sold off, only recovering as fresh

monetary loosening by central banks re-stimulated investor

interest.

Price volatility, which peaked at the end of 2008,

returned to more “normal” levels over the following two

years, but since the end of 2011 has been on a declining

trend. When measured on a quarterly average basis, it was

in a range of 14-22% in 2012 (closing the year at the lower-

end of the range), compared to 24-36% in the previous year.

INTRODUCTION & PRICE SUMMARY

In Q1 2011, the copper price had briefly exceeded $10,000/tonne, peaking at an all-time high of $10,148/tonne on 14th February. However, periodic concerns about the sustainability of rapid Chinese demand growth, which were largely unjustified, and then legitimate fears about the deepening of the Eurozone debt crisis, put copper prices under pressure later in that year. A broader market sell-off in October of that year pushed the cash copper price down to a fifteen month low of $6,785/tonne on 4th October but there was a fairly swift recovery back over $7,500/tonne. Since then, throughout 2012, and so far into 2013, the spot price of copper has remained within a broad range of $7,500-$8,500/tonne, with limited forays outside of this.

DAILY LME COPPER PRICES

COPPER PRICES

US$/tonne 8,811 7,950 -9.8% 3.3%

US¢/lb 400 361 -9.8% 3.3%

Euro/tonne 6,329 6,182 -2.3% 2.3%

Yuan/tonne 56,999 50,148 -12.0% 2.3%

Yen/kg 704 634 -9.9% 16.0%

Won/kg 9,743 8,952 -8.1% -4.3%

Chilean peso/lb 1,926 1,751 -9.1% -3.6%

Rouble/tonne 258,150 246,600 -4.5% -0.5%

Rph/kg 77,101 74,331 -3.6% 9.2%

Kwacha ‘000/tonne 42,676 40,823 -4.3% 4.7%

Nuevo sol/tonne 24,267 20,957 -13.6% -2.2%


US$

/ton

ne

Source: Thomson Reuters GFMS

5000

6000

7000

8000

9000

10000

11000

12000

DecNovOctSepAugJulJunMayAprMarFebJan-12

China implements second interest rate cut of 2012

Weak Eurozone data and Greek fears heighten; US “fiscal cliff” looms Mine output data

show pick-up

Fed announces new monetary stimulus

Renewed optimism over Chinese growth and avoidance of “fiscal cliff”

Positive European, US and Chinese economic data released

Uncertainty over Greek elections; Spanish bond yields blow out


Fed comments on maintaining low interest rates through 2014

Various producers report production declines for 2011

China lowers 2012 GDP target to 7.5% Fed launches QE3;

ECB introduces bond-buying programme; China announces large infrastructure project spending

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During the first quarter of 2012, copper traded in a $7,471-8,658/tonne range and averaged $8,310/tonne, up 11% on the final three months of the previous year. The market was buoyed in this period as supply disruptions continued to be a feature against the background of what already was an exceptionally tight concentrate market, while reported inventories remained at low levels. In the second quarter, prices fell from a high of $8,576/tonne in April, to a low of $7,252/tonne in June. Chinese prospects had disappointed, with a plethora of less-than-sanguine data and consumption indicator releases. Chinese GDP growth fell to its lowest level in three years in the second quarter, of 7.6%, whilst Chinese industrial production growth eased to 9.5% in June (from 11.9% in March). The growth in fixed asset investment also eased. Copper prices then embarked on an upward trend, driven by a series of announcements on fresh monetary loosening by major central banks which, combined with a weaker dollar, re-stimulated investor interest in the commodities sector. Thereafter, prices dipped back below $8,000/tonne in mid-to-late October 2012, and subsequently traded within a range of $7,500-$8,100/tonne until the end of the year.

However, copper prices did rally over the second half of Q4 2012, generating a quarterly average price of $7,909/tonne, up 3% from the prior three month period. The perceived recovery in the Chinese economy was one catalyst behind the move higher, whilst the announcement of further quantitative easing in the US also lent support. Concerns over the US fiscal cliff did, though, limit the upside, with lawmakers not reaching a deal to prevent the introduction of potentially catastrophic tax increases and spending cuts until early in the 2013 New Year; key decisions on spending cuts were delayed until later in the quarter. The debt ceiling will also need to be addressed (the current budget runs out on 27th March).

Additionally, the copper market has faced a number of fundamental headwinds. Notably, although there have been signs that the Chinese economy bottomed out in the third quarter of 2012, the improvement in fourth quarter conditions were slow to filter through to the Chinese copper market, which remains burdened by high stock levels. Meanwhile, on the supply side, a well-flagged acceleration in mine supply has begun to materialise.

These factors were also important in restricting the extent of any price rallies during late 2012 and into 2013. Indeed, while copper prices gained 3% by the close of 2012, from end-2011, to $7,915/tonne, this gain lagged significantly behind the increases seen in those metals boasting superior fundamental outlooks, such as lead (+18%) and tin (+24%). On an average annual basis, copper prices slid 10% in 2012 to $7,950/tonne, weighed down by ongoing concerns over the health of the global economy. Nevertheless, using this method of calculation, copper was the best performing LME metal; the average zinc price fell 11%; lead was 14% lower; aluminium declined 16%, tin 19% and nickel 23%.

CASH-3M PRICE SPREAD

MONTHLY COPPER PRICE

100

150

200

250

300

350

400

US$

/ton

ne


Thomson Reuters GFMS Base Metals Index

Copper

2000

4000

6000

8000

10000


Thomson R

euters GFM

S Index

-100

0

100

200

300

LME

3M P

rices

(US$

/ton

ne)


Cash-3M

3M Prices

Contango

Backwardation

1000

3000

5000

7000

9000

11000

Jan-13Jan-12Jan-11Jan-10Jan-09Jan-08

Cash

-3M P

rices (US

$/ton

ne)

BASE METAL PRICE COMPARISONS

-40

-30

-20

-10

0

10

20

30

40

50

ZincAluminiumCopper

Year

-on-

year

Cha

nge

%

Source: Thomson Reuters GFMSSource: Thomson Reuters GFMS, LME

2009 2010

2011 2012

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Cash prices for the first quarter of 2013, up to 20th March, averaged $7,967/tonne. Prices peaked in the quarter at $8,243/tonne on 5th February as optimism grew, fuelled in part by positive US manufacturing data and falling unemployment. However, as the Cypriot debt and banking crisis erupted, and threatened a wider Eurozone predicament, the cash copper price hit a low of $7,539/tonne on 19th March.

COPPER’S RELATIVE PRICE PERFORMANCE

The annual average copper price fell almost 10% in 2012, following a 17% rise the year before. Continued weakness in the global macroeconomic situation provided the backdrop for very soft demand growth and a build up in exchange stocks, which helped to dampen sentiment. However, when viewed over the course of the year, from beginning to end, the copper price actually gained 3%. This in itself indicates that although the demand environment weakened, the copper market remained relatively tight. Copper’s annual average performance was still slightly better than the broader LME metals complex; the average LMEX Index fell almost 13% in 2012, although it gained 4.5% intra-year.

We consider the performance of copper relative to aluminium (which may be substituted in a number of applications) in more detail in the focus box in Chapter 6. Since the post-Lehman market sell-off, when copper prices slid significantly more than those for aluminium, the light metal has underperformed, hampered by ballooning stocks and robust production growth. From a ratio of 1.9:1 in December 2008, the copper to aluminium price ratio ended 2012 at 3.9:1. The ratio averaged 3.9:1 in 2012, compared to 3.7:1 in the previous year, and has increased steadily since an average of 2.7:1 in 2008.

Looking at the wider commodities universe, the average 2012 Thomson Reuters Jeffries/CRB commodity index declined by almost 10% compared to the previous year, in line with the performance of copper. Even the average S&P GSCI, which is heavily energy-weighted, fell by over 2% in 2012, compared to a 25% average increase in 2011.

PRICES IN OTHER CURRENCIES

The performance of average copper prices denominated in US dollars was replicated, in varying degrees, in terms of many of the other major currencies considered here. In average terms, copper prices in Euros fell by just over 2%, as European economic and sovereign debt travails weighed on the currency, making dollar-denominated items relatively more expensive. The stronger Yuan, on average, meant that in local currency terms LME copper prices were lower by 12% year-on-year. This would, no doubt, have benefitted arbitrage traders and those market participants within China using imported copper for collateral and/or financing purposes. In Yen terms, average copper prices were similar to those in US dollars.

COPPER PRICES IN CHILEAN PESOS AND YUANCOPPER PRICES IN EURO AND YEN

200

400

600

800

1000

Euro

/ton

ne


Yen

Euro

1000

2000

3000

4000

5000

6000

7000

8000


Yen/kg

500

1000

1500

2000

2500

3000

Yuan

/ton

ne


Yuan

Peso

10000

20000

30000

40000

50000

60000

70000


Peso/lb

SHFE-LME PRICE SPREAD

-8000

-6000

-4000

-2000

0

2000

4000

6000

8000


Yuan

/ton

ne

Note: Adjusted for VAT, excluding freightSource: Thomson Reuters GFMS

SHFE in Discount

SHFE in Premium

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ANNUAL HIGHS/LOWS IN VARIOUS CURRENCIES

Average 6,952 4,665 48,398 727 1,591 20,116

High 8,985 5,782 63,095 959 2,087 26,044

Low 2,770 1,980 18,934 251 787 8,633

Range 89.4% 81.5% 91.2% 97.4% 81.7% 86.6%

Average 5,164 3,669 35,267 481 1,289 15,388

High 7,346 5,120 50,143 684 1,690 21,215

Low 3,051 2,204 20,863 273 852 9,502

Range 83.2% 79.5% 83.0% 85.4% 65.0% 76.1%

Average 7,539 5,682 50,979 659 1,736 21,279

High 9,740 7,260 64,183 790 2,066 27,319

Low 6,091 4,566 41,598 553 1,514 17,341

Range 48.4% 47.4% 44.3% 35.9% 31.8% 46.9%

Average 8,811 6,329 56,999 704 1,926 24,267

High 10,148 7,539 66,941 847 2,204 28,080

Low 6,785 5,050 43,251 520 1,622 18,842

Range 38.2% 39.3% 41.6% 46.4% 30.2% 38.1%

Average 7,950 6,182 50,148 634 1,751 20,957

High 8,658 6,557 54,536 718 1,891 23,186

Low 7,252 5,817 46,192 575 1,597 19,226

Range 17.7% 12.0% 16.6% 22.6% 16.8% 18.9%


Notably, however, when viewed in intra-year terms, the significant depreciation of the Yen over the course of 2012 meant that by the end of last year, copper prices had jumped by 16% from the end of 2011. This was reflected in lower quarter-on-quarter Japanese demand in Q3 and Q4 of last year.

PRICE OUTLOOK

Elsewhere in this report, we detail the underlying fundamentals that are shaping the copper industry. One of the most obvious factors that has impacted these over the last few years has been the structural shortage of concentrate supply that has limited the gains to mine output. Indeed, mine output, in the ten years to 2011, recorded an average growth rate of just 1.6% per annum. This has been despite the record price environment seen in recent years.

It has been this tightness of supply, rather than strong demand, which has been the key driver of the fundamentals of the copper market. Long-term consumption growth rates have been static despite the rapid growth seen in China and the other emerging markets, as expansion from this source has in some respects been at the expense of consumption in the mature economies. Growth has also been restricted by ongoing substitution and miniaturisation pressures.

Despite the concerns about the demand environment, average annual prices reached a record high of $8,811/tonne in 2011. However, the intensification of the Eurozone debt crisis and uncertainty over Chinese growth prospects did push prices lower and they have traded in a broadly sideways range since, averaging $7,950/tonne in 2012.

Having previously struggled, producers broke free of the lacklustre production growth trend seen over the previous decade, as mine production grew 4% year-on-year in 2012 to 16.669 million tonnes, according to Thomson Reuters GFMS estimates. We expect a stronger rate of output to continue over the next few years, at least, although the threat of disruptions and underperformance versus targets remains. The relative shortage of copper has been at the concentrate, rather than at the smelting and refining, stage. Global refining capacity utilisation fell below 80% in both 2009 and 2010, but picked up to just above that level in 2011. In addition, the Chinese copper industry continues to add to its smelting and refining capability, with a further 571,000 tonnes commissioned last year; the average added in each of the previous three years was 467,000 tonnes. This helped push the utilisation rate down to 79% in 2012, despite the recovery in mine production growth.

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REAL COPPER PRICES

The bull market which began to emerge in the mid 2000s led

to a “sea change” in copper pricing, by reversing what had

been a well established decline in real prices (see Appendices

6 & 7 for details of nominal and real prices). This phenomenon

was, of course, by no means restricted to copper. Earlier in the

decade, the increase to both nominal and real copper prices

reflected the cyclical bounce after the weakness in prices in the

aftermath of the collapse of the dot com boom. As highlighted

in the accompanying chart, average real copper prices in 2005

returned towards levels typically associated with previous

cyclical peaks, exceeding $4,000/tonne. From 2006, real

annual prices have exceeded $7,000/tonne (except for 2009

which was affected by the global financial crisis), setting

a number of new highs in the process. Even the average

annual copper price in the post-Lehman downturn in 2009, at

$5,526/tonne, was (excluding the years 2006-08) the highest

price seen since 1980.

There are a number of key drivers behind the downtrend in

real prices over the 1975 to 2005 period, many of which have

been reversed in recent years. On the supply side, there was

a general decline in production costs reflecting productivity

gains in mining methods. For much of the period, the prices

of key inputs were trending lower, such as reagents, grinding

material and other raw materials. Power costs, which account

for anything between 5-20% of mine site costs, were also

falling in real terms. The generally depressed conditions

within the base metals sector also helped to keep a cap on

labour costs. In addition, there was the development of

massive low-cost mining operations such as Grasberg and

Escondida, which had the effect of shifting the cost curve

downwards.

Another contributory factor to the decline in real prices was

the price inelastic nature of supply, which in turn, reflected low

levels of industry consolidation and integration and relatively

high levels of state ownership. In addition, there appeared to

be an “industry mindset” that the high cost producers (then

often state-owned) should be the swing producer, which did

not in reality come about. As such, the industry response

to cyclical downturns in demand was sluggish and massive

inventories were accumulated, which were only slowly drawn

down. Therefore, the price recovery was slow, with the

“peak-to-peak” price gap around 5 to 7 years. Also, there was

structural oversupply that led to a swift supply response to

higher prices, which tended to limit price rallies. The average

price in real terms between 1975 and 2005 was $3,821/tonne.

The recent period of elevated prices has raised the average

real price over 1975 to 2012 to $4,522/tonne. Since 2005, real

prices have averaged $7,625/tonne.

As discussed in detail in Chapter 4, production costs continue

to rise. For example, Thomson Reuters GFMS estimates

average production costs for copper at $3,527/tonne in 2012,

compared to $2,205/tonne in 2009. The emergence of strong

growth from the emerging markets, against a background of

structural supply shortages, has limited the inventory build

during cyclical dips in demand. As a result, the copper market

returns towards balance and then to deficit more quickly than

in previous cycles, which helps to support period average

prices. Moreover, the increased presence of investment

funds tends to bring forward turning points in the price cycle

and the duration between peak prices has narrowed, again

contributing to the higher price environment. Reflecting these

factors, the period of high real prices looks set to be extended,

even though the current backdrop of relatively weak demand,

and relatively stronger production, growth will make it difficult

for prices to exceed the peak seen in 2011.

REAL VERSUS NOMINAL COPPER PRICES

We highlighted in last year’s Copper Survey that there were a number of large projects under development, but our assessment was that these were likely to have a greater impact on supply in 2013 than in 2012. However, as our growth in mine output shows, there was an improvement in concentrate availability as the year progressed. Reflecting the increase in global mine production and concentrate availability was the rise in Chinese spot copper treatment and refining charges (TC/

RCs) from around the middle of last year. Spot charges for clean, standard concentrates in China doubled from around $40-45/tonne and 4.0-4.5¢/lb in June to around $70-80/tonne and 7.0-8.0¢/lb towards the end of last year. Further confirmation of the easing in concentrate supply has been the setting of benchmark 2013 term TC/RCs around 10% higher than for 2012, at $70/tonne and 7.0¢/lb.

0

2000

4000

6000

8000

10000

2005199519851975

US$

/ton

ne

Note: Real prices are based on constant 2012 US dollar termsSource: LME, Thomson Reuters GFMS

Real Prices

Nominal Prices

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COPPER PRICE CORRELATIONS

Given the growth of commodities as an asset class, copper’s

pricing trends and fundamentals are now increasingly

compared with other commodities and indices comprising a

basket of goods. As an asset class, copper tends to be viewed

in a number of different ways – a play on global economic

growth, an investment vehicle for Chinese and emerging

market growth, and an investment based on the perception

of copper’s individual fundamentals. Although short term

movements in the copper price are often dictated by changes

in the dollar against the other major currencies, copper has a

closer correlation with other indicators.

Unsurprisingly, copper tends to have the consistently highest

correlation with the LMEX, given that it accounts for a

high proportion of this index (approximately 33%). Silver’s

industrial metal credentials are reflected in its correlation

to copper of close to or above 0.5 on a regular basis. Gold’s

relationship meanwhile is not as correlated and illustrates

how investors can view gold separately from commodities

and other asset classes, especially as a “safe haven” and a

flight from risk in times of market turmoil. This can be seen

in various periods from the quarterly data in the table below

and also in 2009 as a whole. It is notable, however, that the

correlation between copper and gold surged in 2012, to 0.52,

the highest level since 2006. This was particularly driven by

both metals rising in tandem in Q3, just before gold hit an

annual high of $1,796/oz and during which copper achieved

an interim peak of just over $8,400/tonne. The increased

correlation with gold, in general, is also a reflection of how

investors have been more reluctant to invest in gold as a risk

aversion trade over the last year as the precious metal has

been unable to challenge its 2011 all-time high.

Copper’s correlation with other broader commodity indices,

such as the S&PGSCI and the Thomson Reuters/Jefferies CRB,

has edged lower over the last couple of years. A major reason

for this is the weaker relationship with the price of crude oil,

which is a major component of both indices, especially the

S&PGSCI. Nevertheless, the correlation has remained at

considerably higher levels than those in 2007 and before.

In terms of the price relationship with equities, copper’s

correlation with the S&P 500 was slightly higher in 2012,

whilst that with the FTSE China index fell sharply, although it

remained much higher with the latter.

US$/Euro Rate 0.09 -0.06 -0.10 0.17 0.17 0.20 0.16 0.36 0.37 0.38 0.34 0.46

LMEX 0.41 0.34 0.27 0.51 0.45 0.46 0.47 0.58 0.53 0.55 0.61 0.63

S&P GSCI 0.01 0.18 0.13 0.09 0.00 0.27 0.11 0.46 0.29 0.43 0.40 0.39

CRB1 0.16 0.16 0.14 0.16 0.16 0.37 0.36 0.47 0.48 0.44 0.40 0.36

Oil (WTI) -0.02 0.15 0.05 0.05 0.01 0.17 0.03 0.41 0.25 0.39 0.35 0.31

Gold 0.18 0.06 0.07 0.31 0.29 0.52 0.30 0.40 0.17 0.36 0.37 0.52

Silver 0.26 0.08 0.16 0.38 0.30 0.46 0.49 0.46 0.49 0.64 0.49 0.62

S&P500 0.00 0.10 0.02 0.07 -0.16 -0.10 0.06 0.20 0.19 0.29 0.22 0.25

FTSE China -0.02 0.08 0.18 0.22 0.05 0.19 0.39 0.29 0.43 0.42 0.48 0.3

US$/Euro Rate 0.36 0.51 0.23 0.39 0.18 0.34 0.19 0.56 0.33 0.65 0.50 0.34

LMEX 0.57 0.55 0.61 0.45 0.46 0.63 0.58 0.69 0.46 0.69 0.76 0.62

S&P GSCI 0.50 0.44 0.41 0.34 0.32 0.44 0.43 0.40 0.30 0.47 0.41 0.35

CRB1 0.32 0.51 0.41 0.51 0.31 0.50 0.50 0.38 0.28 0.50 0.32 0.38

Oil (WTI) 0.48 0.38 0.36 0.32 0.13 0.42 0.40 0.40 0.17 0.40 0.35 0.30

Gold 0.65 0.16 0.09 0.50 0.39 0.37 0.30 0.48 0.52 0.45 0.67 0.41

Silver 0.81 0.66 0.40 0.63 0.44 0.55 0.47 0.58 0.52 0.64 0.73 0.61

S&P500 0.39 0.25 0.17 0.38 0.09 0.21 0.16 0.33 0.15 0.35 0.26 0.18

FTSE China 0.29 0.50 0.28 0.57 0.26 0.28 0.53 0.59 0.34 0.33 0.45 0.21

NB: Correlations calculated in log-returns in daily prices, 1CRB refers to the Thomson Reuters/Jefferies CRB Index


CORRELATIONS OF THE COPPER PRICE

COPPER AND OTHER COMMODITY PRICES

50

100

150

200

250

Jan-13Jan-12Jan-11Jan-10Jan-09Jan-08Jan-07Jan-06

Inde

x, 3

rd Ja

nuar

y 20

06 =

100


Copper

S&P GSCI

Thomson Reuters/Jefferies CRB

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The other factor that has become increasingly relevant to supply is what is generally termed the disruption allowance, which is the amount of copper that is lost due to technical and weather-related problems and labour disputes. Despite our forecast for stronger growth in mine output than in previous years, potential production is still likely to be hampered by such issues, and these have been factored into our outlook. So far in 2013, we have already seen workers at Southern Copper Corp.’s Peruvian operations and workers at Codelco threaten strike action.

Thomson Reuters GFMS estimates that global demand barely grew last year, registering an increase of less than 1% on 2011 to 19.845 million tonnes. The Chinese growth rate virtually halved, to 4.3%, while the United States, India, Brazil and ASEAN nations also exhibited growth,

amongst the major consumers. However, Japanese consumption is estimated to have fallen by 2.5% in 2012, following a 5.3% drop in 2011. In Europe, which has been dogged by the ongoing debt crisis, copper consumption fell 3.7% in 2011 and slumped a further 8.1% last year. We do see prospects for more robust growth in China and the United States (driven by a recovery in the residential housing sector) in 2013. Although demand in Japan is also forecast to improve, EU-27 consumption is expected to remain under pressure.

Although one of the key factors to the demand side going forward lies with China (and, to a lesser extent, with the other emerging economies), slowing economic growth is likely to feed through into lower copper consumption growth rates, albeit on an increasing base. The demand and macroeconomic environment will filter through to

COPPER PHYSICAL PREMIUMS

Physical premiums represent the additional cost paid by

consumers for the delivery of copper cathode to their plant.

The premiums are normally based on key distribution hubs

such as Rotterdam, Shanghai, Singapore and New Orleans,

with the premium based on the spot or cash prices quoted by

the various exchanges, normally the London Metal Exchange,

but also utilising the official prices from COMEX and the

Shanghai Futures Exchange.

The level of premiums is a function of market conditions

within a local region, as well as factors such as transport and

shipping costs. A recent factor that has affected premiums

is the long term financing of metal inventories on the LME,

which has restricted their availability to the market. This

trend is particularly visible in the aluminium market, which

has a massive inventory overhang. The combination of low

interest rates, attractive (low rent) warehousing deals and the

contango has attracted many financial players to this market.

Linked with this has been the acquisition of most leading

warehousing companies by financial and trading companies.

This feature of inventory financing has been less prevalent in

the copper market than elsewhere in the base metals sector.

However, with the forward curve for copper and many other

metals also now in contango, financing activity is increasing

outside of aluminium.

Although the demand environment last year remained

subdued in North America, and especially in Europe, physical

premiums increased in both regions. This was supported in

the United States as there was positive consumption growth

estimated at 3% in 2012, and exchange inventories were drawn

down both on the LME (by 166,000 tonnes) and on COMEX (by

17,000 tonnes). The premium for high-grade, western copper,

delivered in the US increased from 4.25-5.5¢/lb at the end

of 2011 to 5-6¢/lb at the end of 2012. In Europe, meanwhile,

total copper demand is estimated to have dropped 8% in

2012, which was reflected in the rise in LME inventories, of

24,000 tonnes. Despite this, the premium for grade A copper,

in-warehouse Rotterdam, rose to $80-85/tonne at the end of

2012 from $40-60/tonne a year earlier.

Premiums in Asia, however, came under pressure through

2012. Although demand in the region was relatively good (up

3%), driven by China, exchange stocks in the area rose by a net

90,000 tonnes, while Shanghai exchange inventories added

113,000 tonnes last year. As discussed in Chapter 5, bonded

warehouse stocks in China are also reported to have increased.

The Shanghai high grade copper premium, which was around

$125-135/tonne at the end of 2011, fell to $45-50/tonne at

the end of 2012. The stock build confirmed slower Chinese

economic growth and the lack of nearby demand from semi-

fabricators and end-users of copper.

COPPER PHYSICAL PREMIUMS

0

50

100

150

200

250

300

350

201320122011201020092008200720062005

US$

/ton

ne


European Grade A

US High Grade Cathode

Shanghai Grade A

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A REVIEW OF PRICE VOLATILITY IN 2012

Ever since the spike in price volatility following the Lehman

Brothers collapse, which peaked in October/November 2008,

levels subsequently subsided to settle within a pre-crisis

range. On a quarterly basis, copper price volatility (20-day

historical volatility) was recorded at almost 74% in Q4 2008

and around 50% in Q1 2009. There was another peak in Q4

2011, when average volatility rose to around 36%. In 2007,

before the financial crisis, quarterly average copper volatility

ranged between 26-34%. In 2011, the range was 24-36%.

Notably, in 2012, there was a downward shift in volatility, with

a range of 14-22%, and volatility declined through the year.

Q1 of 2013 looks like continuing this softer trend, with copper

volatility averaging around 14% through mid-March.

The discussion above refers to historical, or realised, volatility.

This is calculated as the annualised standard deviation of past

price movements, so measures actual historical volatility. Also

of interest is implied volatility, which derives from options

pricing. While realised volatility is backward looking, implied

volatility is forward looking, but is a subjective measure. It is

what the market is implying volatility of a financial instrument

will be in the future, based on the value required to achieve

the actual current market price of an option rather than the

theoretical price using historical volatility. Therefore, implied

“vol” is a good gauge for the risk sentiment and/or appetite of

the market at any given time.

As the accompanying chart illustrates, the implied volatility

of copper (based on “at-the-money” – ATM - options prices)

broadly followed a similar pattern to historical volatility, there

are times when the two diverge, as the market expects future

volatility to act differently from recent behaviour. Also, in

general, volatility tends to increase when prices fall, as the

perception of risk tends to be greater in bear(ish) markets.

Implied volatility in the copper market has also tended to

exceed realised volatility most of the time in the last few years,

illustrating market uncertainty. Nevertheless, since peaking

most recently in Q4 2011, when the copper price was under

pressure and closed at a low of $6,735/tonne (on a three-

month basis), both realised and implied volatility have been

on a downward trend. Recent values for both, of around 14%,

are at multi-year lows, and reflect a sideways trend in the price

over the last twelve months or so.

Another factor that could explain the ongoing decline in

volatility is a reduction in risk appetite in the market. Actual,

or forthcoming, market regulation, a clamp-down on (and

closer scrutiny of) investment banks’ proprietary trading

activities, plus poor performance by a number of commodity-

focused funds may have both reduced the willingness to take

large-scale directional market positions. Although copper

is also used by many funds in order to express a macro,

rather than copper-specific, view, heightened uncertainty

over potential monetary policy and developments in Europe

particularly, may have also driven volatility lower as investors

have reduced exposure to “risky assets”.

The other chart on Page 18 tracks the copper price and the

volatility “skew” of “out-of-the-money” - OTM - options. This

shows the difference in volatility between ATM options and

those options at the “wings”, i.e. representative of potential

moves significantly away from prevailing price/option values.

This skew reflects how the market views the likelihood of price

moves higher or lower and relative to the current forward

curve. Shown in the chart are the differences from at-the-

money volatilities of OTM call (giving the right, but not the

obligation, to buy copper at a given price within a specified

period of time) and OTM put (giving the right, but not the

obligation, to sell...) options. So, buying an OTM call would be

an expression of an expectation that copper prices would rise

significantly from current values implied by the forward curve,

and vice versa for puts. Since 2010, when the LME started

providing such data, OTM put implied volatility has generally

commanded a premium of 4-9% over ATM, whilst OTM calls

have largely traded between a premium of 1.5% and a discount

of 1.5%. The skew continues to tend firmly towards puts,

reflecting a bias towards purchasing downward protection

against price falls and/or taking bearish directional views on

the copper price. The skews for both OTM puts and calls have

2008 34.9% 23.4% 31.0% 73.9%

2009 50.3% 40.4% 37.5% 26.0%

2010 29.9% 34.1% 20.1% 23.2%

2011 26.1% 23.7% 29.2% 35.8%

2012 22.0% 18.5% 20.3% 14.4%


QUARTERLY COPPER PRICE VOLATILITY

HISTORICAL AND IMPLIED VOLATILITY

LME

3M P

rice

(US$

/ton

ne)

Source: LME, Thomson Reuters

20-Day

Copper Price

0

20

40

60

80

100

12060-Day Implied ATM

2000

4000

6000

8000

10000

12000


Volatility (%)

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CO

PP

ER

PR

ICE

S

COPPER SURVEY 2013

reduced since “blowing out” in late 2011 and early 2012. The

put skew has more than halved from its highs, whilst OTM call

volatilities are currently close to those for ATM calls.

Given that copper prices remain comfortably in excess of

the marginal cost of production, and that there is growing

consensus that the copper market will move into surplus

this year, it is likely that the market will generally perceive

a heightened risk to the downside. Given the historical

relationship referred to earlier, a sharp fall in prices is likely

to boost volatility, but if this is in the context of more muted

investment activity, whilst put options will continue to trade

above calls, there may be more limited scope for upside to

underlying volatility.

IMPLIED VOLATILITY SKEWS

EXCHANGE STOCKS AND COPPER PRICEGLOBAL STOCKS AND COPPER PRICE

LME

3M P

rice

(US$

/ton

ne)

Note: Differences are between ATM (50 delta) options and OTM (10 delta) puts and calls. Source: LME, Thomson Reuters

Copper Price

Put

-4

0

4

8

12

6000

7000

8000

9000

10000

11000

Jan-13Jul-12Jan-12Jul-11Jan-11Jul-10Jan-10

Volatility Differential to ATM

Options (%

)

Call

0

500

1000

1500

2000

2500

2012201020082006200420022000

Tonn

es (t

hous

ands

)

Source: Thomson Reuters GFMSSource: Thomson Reuters GFMS, LME, ICSG, WBMS

Average Annual Price U

S$/tonne

0

2000

4000

6000

8000

10000

Copper Price

COMEX

SHFE

LME

Consumer

Merchant

Producer

0

100

200

300

400

500

600

700

800

201220112010200920082007

Tonn

es (t

hous

ands

)


LME D


2000

4000

6000

8000

10000

12000

Copper Price

COMEX SHFELME

investment activity. We have already seen indications of a reduction in risk exposure and, given continued global macro uncertainty and a less compelling fundamental picture for copper than that seen in recent years, we expect that the influence of the investment community will broadly reflect overarching macro, rather than copper-specific, themes over the course of the year ahead. With the eruption of the Cypriot debt and banking crisis, problems in the Eurozone look like being protracted, and will continue to be one of the major drivers of investment activity in “risky asset” markets, including commodities and equities.

Under the aforementioned scenario, although there is scope for some sharp movement in prices, as shown on page 17, we have seen declining price volatility since late 2011, with prevailing levels the lowest for 7-8 years. Whilst we estimate the copper market moved into surplus last year, and we see this increasing slightly in 2013, we would still see it potentially only representing just over 1% of global consumption and therefore be vulnerable to any supply-side disruptions. This should afford some protection to downside risk. In terms of production costs

for the copper industry, we discuss these in more detail in Chapter 4. We estimate that in 2012, the average production cost was $3,527/tonne and the marginal cost was $5,512/tonne, which represents inflation from 2011 of around 14%. However, given that the average copper price last year was $7,950/tonne and continues to trade well above marginal cost, this does suggest that the scope for a significant sell-off exists if market conditions turn very bearish.

World demand growth, however, is currently expected to be in the region of 3-4% this year, and whilst prospects do look better in China and the United States, forecast improvements are far from guaranteed. Also, European growth potential will remain susceptible to further turmoil in its sovereign debt markets and recessionary threats. Given the factors that appear set to cap both the upside and downside for copper price prospects in the near future, we anticipate the red metal continuing to trade in a broad range of $7,500-$8,500/tonne this year, with risk weighted to the downside (to around $6,500/tonne).

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3. INVESTMENT

During the course of 2012, the tightness in the copper

concentrate market began to ease and the prospects for

output growth improved. At the same time, Eurozone debt

and economic growth concerns intensified, capping the

upside for copper prices and leading to a sideways trading

range.

Copper investment activity largely reflected

macroeconomic sentiment and any announced or

prospective monetary stimulus measures. This tended

to overshadow any shifts in fundamental views, which

nevertheless provided a weakening market background as

the year progressed.

Market optimism pushed prices up to their annual high

in February of $8,658/tonne. However, by mid-June, as

Chinese GDP fell and Eurozone fears resurfaced, investors

had liquidated their net long and gone short, pushing

the copper price to its 2012 low of $7,252/tonne. Investor

confidence returned through much of the fourth quarter, as

they again went net long, and prices traded within a broad

$7,500-$8,500/tonne range.

Market open interest in copper futures listed on the

London Metal Exchange (LME) and Shanghai Futures

Exchange (SHFE) each fell by 12% over the year to end-2012.

COMEX open interest, meanwhile, gained 27% as investors

built long positions into the year-end.

Our supply/demand balance implies a continued

build-up in off-exchange stocks last year, and we estimate

that the majority of this occurred in China, particularly

in bonded warehouses. It is also possible that metal

stocks were built, or maintained, off-warrant to service

the pending physical ETFs, both of which have now been

approved, and could account for an initial amount in excess

of 180,000 tonnes. Another factor supportive of stock

financing is the emergence of a contango forward curve for

LME.

INTRODUCTION

Macroeconomic forces have continued to drive short term price movements. Through 2011 and early 2012, this was against a backdrop of still-tight supply-side fundamentals. However, during the course of last year, the tightness in the copper concentrate market began to ease and the prospects for output growth improved. At the same time, Eurozone debt and economic growth concerns intensified, capping the upside for copper prices and leading to a sideways trading range. Due to the dynamic nature of the economic outlook, and the changing prospects for monetary policy responses, investment activity in copper did not follow any discernible trend, with alternating periods of buying and long position building, and selling and short positioning.

Chinese economic growth and raw material demand has continued to drive commodity markets in general, and the copper market specifically. During the early part of 2011, the physical copper market appeared particularly tight. This was supported by reports of Chinese destocking as imports fell significantly on a year-on-year basis during the first half, within the context of a generally negative arbitrage for LME versus Shanghai metal. Over that six-month period in 2011, net refined copper imports into China, at 962,000 tonnes, were 37% lower than the same period in 2010. Thomson

COPPER AND OTHER COMMODITIESCOPPER AND THE US$/EURO

1.0

1.2

1.4

1.6

1.8

LME

Spot

Pric

e (U

S$/t

onne

)


Copper

US$/Euro

2000

4000

6000

8000

10000

12000


US$/Euro

2.0

0

200

400

600

800


Inde

x, 2

nd Ja

nuar

y 20

01 =

100


Copper

Brent

Thomson Reuters/Jefferies CRB

Gold

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Reuters GFMS estimates that the global refined copper deficit in the first half of 2011 was 274,000 tonnes, which accounted for the lion’s share of the entire annual market deficit.

Copper investment activity largely reflected macroeconomic sentiment and any announced or prospective monetary stimulus measures. This tended to overshadow any shifts in fundamental views, which nevertheless provided a weakening market background as the year progressed. Market optimism pushed prices up to their annual high in February of $8,658/tonne (on an official LME cash basis), at a time when the concentrate market still appeared tight and reported inventories were falling. Investors were net long (based on the CFTC “managed money” category) over that period, driven by an improvement in broad economic sentiment. However, by mid-June, as Chinese GDP fell and Eurozone fears resurfaced, investors had liquidated their net long and gone short, pushing the copper price to its 2012 low of $7,252/tonne. Investor confidence returned through much of the fourth quarter, as they again went net long, and prices traded within a broad $7,500-$8,500/tonne range. However, the fundamental backdrop had weakened by this time as concentrate availability had improved and the outlook for output growth was looking more positive through the end of the year and into 2013. At the same time, demand remained weak, especially in Europe, and Chinese consumption for 2012 was also revised lower from earlier estimates.

The low interest rate environment in the United States and Europe, and an ongoing tendency for keeping monetary policy loose, has continued to underpin macro-sentiment for industrial commodities in general. So, prices, whilst off their highs, still remain within a longer-term secular bull market trend. We do expect some improvement in demand growth from the levels seen

in 2012, and the Chinese economy looks to have turned the corner since it bottomed out in the second quarter of last year. However, broader sentiment and short term price moves will still be at the mercy of market sentiment arising from economic developments in the Eurozone, the United States and China, in particular. The eruption of the debt and banking crisis in Cyprus in early 2013 has been a recent example of this, as equity and commodity markets sold off.

ACTIVITY ON COMMODITY EXCHANGES

Market open interest in copper futures listed on the

London Metal Exchange (LME) and Shanghai Futures

Exchange (SHFE) each fell by 12% over the year to end-2012.

COMEX open interest, meanwhile, gained 27% over the year

as investors built long positions into the year-end.

The LME lost more market share in terms of traded

volume last year as total turnover increased by only 3.9%.

On COMEX, however, volumes surged by 31% and the SHFE

reversed the decline of the previous two years, gaining 17%,

although remaining below its 2009 peak.

Investors (money managers) were net long in COMEX

copper futures during mid-January to mid-May 2012, but a

market sell-off from May saw net short positioning until late

August. A return of investor confidence through most of Q4

saw a maximum net long recorded in mid-December.

LONDON METAL EXCHANGE

The London Metals Exchange remains the premier exchange, in terms of liquidity and volume, for trading base metals. However, with copper there is significant and growing competition, especially from the Shanghai Futures Exchange (SHFE) and from COMEX. In 2008, the LME accounted for 72% of the total copper

COPPER AND US GOVERNMENT BOND YIELDSCOPPER AND VIX INDEX

0

20

40

60

80

LME

Spot

Pric

e (U

S$/t

onne

)


VIX

Copper

2000

4000

6000

8000

10000

12000


VIX Index

LME

Spot

Pric

e (U

S$/t

onne

)


30-Year

Copper

0

1

2

3

4

5

6

10-Year

2000

4000

6000

8000

10000

12000


Yield (%)

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INVESTMENT IN COMMODITIES

Commodity investment, as illustrated by Commodity Futures

and Trading Commission (CFTC) data, slumped in Q2 2011,

as investors withdrew from the markets on a large scale. The

value of net long positions fell from a record $119 billion in

Q4 2010 to $70 billion in Q2 of the following year, and by

the fourth quarter had dropped to under $45 billion. Copper

was the only main commodity where investors were net short

at that time, and it was only in energy that there was any

significant increase in interest seen at the end of 2011, as oil

prices bounced back from their lows in early October (during

the wider market sell-off) of around $75/bbl, basis spot

WTI crude. However, there was a sharp pick-up in investor

positioning in Q1 2012, as the commodity net long rose over

$50 billion quarter-on-quarter to $95 billion. A surge in

agricultural and soft commodity buying was one of the main

drivers behind this, especially in soybeans and soybean

products (meal and oil), plus sugar and corn. Crude oil and

gold and silver also drew–in considerable investor funds at the

start of last year.

However, unlike most recent years, 2012 did not see any

discernible trend in investment activity as macro uncertainty

prompted vacillations in sentiment and positioning. The

crisis in Greece, tepid growth numbers from China, not so

encouraging job numbers from United States and the Fed’s

lack of commitment to a third round of quantitative easing

shifted focus to the dollar’s role and demand-side economics

in Q2. This led to sharp liquidations in net long commodity

positions, which fell by a total of 39% or $37.6 billion. Crude

oil, gold and copper were the largest losers. The net long fell

in crude oil by almost $19 billion, while easing inflationary

concerns saw gold post losses, leading to liquidations of $8.5

billion in the second quarter. Copper was a notable casualty

too, as the value of net short positions was the highest ever in

a quarter. Although the number of net short contracts held by

investors was larger during the 2008/09 sell-off, the higher

prevailing copper price in Q2 2012 ($7,869/tonne quarterly

average) meant that the value of the net short was greater

than in Q4 2008 ($3,940/tonne) and Q1 2009 ($3,435/tonne).

Looking at key macro-economic and geopolitical events that

shaped the erratic moves in each of the quarters in 2012,

the initial trigger was the dovish comments from the FOMC

meeting in January where they had decided to maintain rates

near zero through to 2014, thus keeping the dollar trending

lower. Alongside this, escalating tension between the West

and Iran over the latter’s nuclear programme and with the

EU planning to push for an embargo from mid-2012, fears

of supply tightness in the crude oil market were heightened.

These factors helped the oil price rally to a post-2008 peak

of $128/bbl for Brent crude, although WTI crude (which is

represented in the CFTC data) peaked in Q2 at just over $110/

bbl, still below its post-2008 high of almost $115/bbl in May

2011 (highlighting the progressive shift in investment activity

between the two oil benchmarks). Nevertheless, the overall

rally in oil prices helped to increase net long positions in the

sector nearly two-fold in the first quarter.

That was followed in Q3 by a new round of easy monetary

policy action from major central banks. This also coincided

with a weaker tone in the dollar, resulting in a rebound in

net long positions: in gold of around $24 billion, in crude oil

of almost $13 billion, in silver and corn of around $7 billion

each and in copper of almost $4 billion. This returned copper

positioning into positive territory and platinum registered a

huge (for the metal) net addition of $2.1 billion in investment

to a record quarter of $3.6 billion as supply-side issues for the

metal came to the fore. However, as fiscal talks in the United

States started to weigh on investor sentiment in the fourth

quarter, funds turned cautious on commodities, trimming bets

by the end of December. Most affected were agricultural and

soft commodities whose positions declined from $35 billion as

of end-September 2012 (the highest in six quarters) to $17.5

billion. Most notable was the drop in net investment in

CFTC REPORTS ON INDEX INVESTMENTSNET POSITIONS* IN 22 COMMODITY FUTURES

-20

0

20

40

60

80

100

120

Q1-11Q1-09Q1-07Q1-05Q1-03

Gold

Silver

Palladium

Platinum

Copper

-20

0

20

40

60

80

100

120

Q1-11Q1-09Q1-07

US$

Bill

ions

Source: CFTC

Energy

Other

Livestock

*non-commercial & non-reportable

0

50

100

150

200

250

Q1-12Q1-11Q1-10Q1-09Q1-08

US$

Bill

ions

Source: CFTC

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volume traded at the three exchanges. In 2012, the LME represented just 54% of turnover, with the SHFE accounting for 35% (up from 23% in 2008) and COMEX 11% (up from 5%).

At the beginning of 2012, total market open interest on the LME amounted to more than three times the combined Comex and SHFE open interest. Specifically, the figure totalled to 451,291 contracts, equivalent to 11.28 million tonnes, but this was, nevertheless 3% less than a year earlier. End-2011 open interest was around 13% lower than the end-2010 number, but still 12% above the end-2008 level, when prices were near their post-crisis lows. Through 2010 and 2011, LME copper futures’ open interest maintained a higher level than that seen historically. By the end of 2012, though, LME open interest, as a proportion, fell to just under three times the aggregate of the other two exchanges. By end-December of last year, LME market open interest was 12% lower than at the start of the year, at 396,808 contracts, or 9.92 million tonnes equivalent.

As illustrated in the table below, total volume on the LME in 2012 rose by 3.9% (or the equivalent of 33 million tonnes) to 35.9 million contracts, or 897 million tonnes. Whilst this kept the LME firmly at the front of the exchange pack, this compared to a 15% rise in turnover the previous year. Although it is not possible to use published data on activity in LME futures to make firm observations about investor activity on the exchange, the slower growth in traded volume last year was also accompanied by a decline in average open interest, which fell on the LME by 10% compared to 2011, and was less than 2% above the recent trough in 2009 when there was a flight by investors from risk, post the Lehman Brothers collapse and the ensuing financial crisis.

soybeans which, having reached record levels of almost

$17 billion in Q3 and Q4, more than halved to end 2012 at

under $8 billion, as reports for better-than-expected harvest

prospects circulated the market.

Rising investor interest in agricultural and soft commodities

last year deserves a little more comment. 2011 ended with the

share of agricultural commodities in total net investment at

a meagre one percent (and only around $0.5 billion dollars).

Later from mid-January 2012, the focus shifted to the growing

drought situation in North America and more specifically the

yields of corn and soybean crops. As the drought situation

worsened, the allocation to agricultural commodities rose

to 41% by end-June, with the soybean and corn complexes

together accounting for 31% of all investment in the second

quarter. After supply concerns eased a little, the share of

agricultural investment dropped to around 21% by end-

December.

The resurgence in commodity positioning in Q3 had driven

the net long investment total to a new record of just shy of

$121 billion by end-September, propelled by both an increase

in buying and the run-up in general commodity prices. The

re-emergence of Eurozone worries and concerns over China

prompted another divestment of speculative long positions

and net investment slumped to $82 billion at the end of 2012.

A look at the first quarter of 2013 shows that combined net

investor long positions on 5th March 2013 were $67 billion,

down 19% from the fourth quarter of 2012, primarily led by

liquidations in gold which shed nearly $10 billion in holdings.

Interest in gold has been waning since the beginning of 2013,

on increasing hopes for a recovery in the US economy and on

expectations that, as inflation fails to materialise as a threat,

demand for gold as a natural hedge would decline. Also fears

of a demand slowdown from India, the largest consumer of

gold, continued to bear heavily on the price. Copper sentiment

has also turned negative, as investors have moved to a

significant net short.

The CFTC also release data on index investment activity in

commodity markets. Commodity index investment is activity

typically characterised by a passive strategy designed to

gain exposure to commodity price movements as part of a

portfolio diversification strategy. Exposure to commodity price

movements can be based on investment in a broad index of

commodities, a sub-index of related commodities, or a single-

commodity index. The CFTC index investment data detail the

notional values and equivalent number of futures contracts

for all US markets with more than $0.5 billion of reported net

notional value in any one month. As the second chart shows,

positioning in commodity indices rose 10% ($19.3 billion) in

2012, to $210.1 billion by year-end. Quarterly investments

peaked last year at $214.1 billion at end-September. In terms

of the notional value of copper futures in the index investment

data, this rose from a net long of $5.4 billion at the end of

2011 to $8.0 billion at end 2012. Index investment increased

further in January 2013, rising to $217.3 billion, of which copper

accounted for $8.3 billion.

million tonnes

LME 623 749 863 897

SHFE 812 508 490 573

COMEX 70 117 142 186

Source: LME, SHFE, COMEX

ANNUAL TURNOVER IN DIFFERENT EXCHANGES

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So far in 2013, average LME open interest has remained at similar levels to that in 2012, suggesting that investors and broader market participants remain relatively reluctant to assume risk in the prevailing uncertain macro environment. However, the same is not true of the other two main exchanges. Most investors looking to express a macro view in commodities have a limited choice when it comes to the size, liquidity and volatility of futures contracts that have a strong relationship with global GDP and IP. Crude oil and copper stand out in this respect, and the LME copper contract remains the first choice for most investors looking to gain exposure to copper through futures. However, despite average open interest declining sharply on the LME in 2012, average levels on the SHFE and COMEX increased by 38% and 11%, respectively, year-on-year.

COMEX

Volumes of futures listed on the COMEX division of the CME Group have posted substantial percentage increases over the last few years. In 2012, turnover increased by 31% to around 16.4 million contracts, equivalent to 186

million tonnes. A large proportion of daily activity, in terms of market volume, was in the range of 40-80,000 contracts per day. However, the most notable peaks were seen during market selloffs, in February, April, June, August and November. Ongoing worries over the Eurozone crisis combined at times with broader global macro fears, including concern about the health of the Chinese economy, prompting market sell-offs. By the end of December though, investors had committed more resources to taking a copper view, and open interest reached the equivalent of 1.69 million tonnes, 27% higher than at end-2011.

The advantage that COMEX offers when assessing investor activity in copper futures is the availability of weekly CFTC reports that provide a breakdown of the open interest on the exchange by the different categories of institutions and individuals that hold positions. Using these, one can generate a proxy for investor positions on the exchange. For this purpose, we focus on the managed money classification. According to the CFTC, a “money manager” is: a registered commodity trading advisor (CTA); a registered commodity pool operator

EXCHANGE SHARE OF COPPER TURNOVER 2008 EXCHANGE SHARE OF COPPER TURNOVER 2012

INVESTOR POSITIONS IN COMEX FUTURESLME COPPER EXCHANGE OPEN INTEREST & PRICE

Source: Thomson Reuters GFMS, LME, COMEX, SHFE

SHFE 23%

COMEX 5%

LME 72%


SHFE 35%

COMEX 11%

LME 54%

100

150

200

250

300

350

Jan-13Jan-12Jan-11Jan-10Jan-09Jan-08Source: Thomson Reuters GFMS, LME

US$/tonne

2000

4000

6000

8000

10000

12000

Num

ber o

f Con

trac

ts (t

hous

ands

)

Copper Price

-30000

-20000

-10000

0

10000

20000

30000

40000

Jan-13Jan-12Jan-11Jan-10Jan-09Jan-08Source: CFTC, Thomson Reuters GFMS

US¢/lb

InvestorPositions

Price

0

100

200

300

400

500

600

700

Num

ber o

f Con

trac

ts

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SHFE COPPER FUTURES – OPEN INTEREST & PRICECOMEX COPPER FUTURES – OPEN INTEREST & PRICE

0

50

100

150

200


Source: COMEX

US¢/lb

COMEX price

100

200

300

400

500N

umbe

r of C

ontr

acts

(tho

usan

ds)

0

200

400

600

800

Jan-13Jan-12Jan-11Jan-10Jan-09Jan-08Jan-07Jan-06Source: SHFE

RM

B/tonne

20000

40000

60000

80000

100000

Ope

n In

tere

st (t

hous

and

tonn

es)

SHFE Price

(CPO); or an unregistered fund identified by CFTC (such funds may have a Part 4 exclusion from CTA/CPO registration, or be a non-U.S. entity that is unregistered. So called “hedge funds” are included in this category, regardless of whether they are registered). These traders are engaged in managing and conducting organised futures trading on behalf of clients.

Looking at the managed money data in more detail, 2010 ended with a record copper net long managed money position of 39,105 contracts (or 443,444 tonnes). However, as fears over the European sovereign debt crisis began to intensify during 2011, money managers liquidated the net long position they had which peaked in July, by late August, and investors were generally neutral through mid-September. As the negative tone continued, further selling saw prices fall to their annual lows in October, as investors went net short, to a maximum -9,489 contracts in mid-October. Money managers remained net short through the rest of the year, only going net long again from mid-January 2012.

Uncertainty over the outlooks for the economies of Europe, the US and China, and reaction to actual or predicted monetary policy responses, led to investors vacillating between periods of net long and net short positioning throughout last year. Mid-January to mid-May saw investors net long, and again from late August through the rest of the year (bar November, when investors briefly went net short). The market sell-off from May was characterised by investors going net short until late August, with maximum positioning of -13,770 contracts (156,149 tonnes). As investor confidence returned through most of Q4, a maximum net long position of 24,531 contracts (278,177 tonnes) was recorded in mid-December. Money managers remained net long through most of February 2013, but a renewal of Eurozone fears led to rapid long liquidation and a net

short built quickly, which most recently reached -16,674 contracts (189,080 tonnes). This represents the largest net short since the beginning of March 2009.

SHANGHAI FUTURES EXCHANGE

Copper turnover on the SHFE declined in both 2010 and again in 2011, even as volumes were increasing on the other two major exchanges. In 2011, at 489.6 million tonnes; volumes were almost 40% below the 2009 total. As had been seen the previous year, the lower total volume figure was in line with the relative lack of strong arbitrage opportunities that the SHFE-LME price difference gave investors that had access to both markets. A link between volumes and the SHFE-LME difference had previously been noted, with volumes peaking when this was positive and collapsing when the local market went to a discount. Despite the lack of arbitrage opportunities for most of 2012, SHFE turnover jumped 17%, to 572.8 million tonnes, higher than the previous two years but still below the 2009 peak. Although market open interest fell 12% to 1.90 million tonnes from the start of 2012, the surge in turnover was reflected in the average daily open interest last year, which increased 38% from 2011 levels.

Since the beginning of 2013, there has been a huge spike in open interest on the SHFE. In January, open interest rose to the equivalent of 2.21 million tonnes and to 2.52 million tonnes in February. On 19th March 2013, open interest hit an all-time record high of 3.41 million tonnes, an 80% increase on end-2011. Much of this increase in open interest has been attributed to massive shorting of nearby futures contracts which has helped to erode the arbitrage, which has now moved positive. Open interest did subsequently drop from its high as some short covering began to take place.

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PHYSICALLY-BACKED COPPER ETFS

The final quarter of 2010 saw the announcement of three

prospective physically-backed copper ETFs and the launch

of one of these. JP Morgan, BlackRock iShares and ETF

Securities (ETFS) all announced plans to launch physically-

backed copper ETFs with the latter launching one on the

London Stock Exchange in December 2010. The proposed

products of JP Morgan and BlackRock iShares, being US-

listed, were still subject to approval from the country’s

Securities and Exchange Commission (SEC), and have been

the subject of appeals by a group of consumers. Nevertheless,

the SEC finally approved the JP Morgan ETF in December 2012

and BlackRock’s ETF in February 2013.

The actual impact of the physically-backed ETF on the copper

market is arguable, but certainly has not been as significant

as some market participants originally thought. As can be

seen in the accompanying chart, until the end of 2011, inflows

into the fund had been limited both in absolute terms and in

relation to the LME stockpile. At the end of that year, holdings

stood at just 1,947 tonnes, which represented just 0.5% of

total LME copper stocks. Interest in the ETFS copper product

did, however, pick up during early 2012, and especially at the

end of February and early March 2012. As overall LME copper

stocks had been on a declining trend since October 2011,

the ETF inventory represented a growing proportion of the

total, and was even more significant in the context of rising

cancelled warrants.

As of 15th March 2012, ETFS holdings amounted to 6,883

tonnes, which represented 2.6% of total LME inventories and

3.9% of all non-cancelled stocks. From mid-April, however,

holdings began to diminish, and by 11th June had dwindled to

1,754 tonnes (0.7% of total and 0.8% of non-cancelled LME

stocks). Holdings remained static until early November, when

they began to gradually pick up, ending the year at 2,025

tonnes. This began to gather pace in late January and by 12th

March 2013 the total was just shy of the all-time high, at 6,872

tonnes. Net deliveries of copper onto the LME accelerated

through the first quarter of this year, so the ETFS position still

only accounted for 1.3% and 1.4% of total and non-cancelled

LME inventory, respectively. The build in both on warrant

stocks and in interest in the copper ETF have also coincided

with a move of the copper curve into a contango structure,

which has meant that holding long futures positions no longer

provides a positive roll yield and so physical holdings and/or

stock financing has become more conducive.

We have noted in previous versions of the Copper Survey

the “per dollar” cost disadvantage that copper has against

precious metals, given that management and other costs of a

physically-backed listed industrial metals fund are higher and

thus more of potential deterrent to investors. As shown in the

table above, the total fee for ETFS Physical Copper is between

5 and 7 times higher than those of precious metal ETFs. This

differential has increased, as even though the total fee above

is calculated on the basis of a lower (by $740/tonne) copper

price than last year, the rental fee has increased from 36 to 41

US cents/day.

Although the JP Morgan and BlackRock ETFs have been

granted regulatory approval, they are still subject to appeal

and have not yet been launched. Therefore, many details

regarding management and rental fees, etc are not currently

available. However, certain details are presented in the

relevant prospectuses, which also highlight differences

between the operation of the two products.

The JPM XF Physical Copper Trust has registered 6,180,000

shares, roughly equivalent to 61,800 tonnes, but there is

no limit on the amount of copper that may be held. Copper

delivered must be an acceptable brand under LME rules,

but will not be registered with the LME (i.e. will not hold

LME warrants) or any other exchange and must be delivered

from the physical market. Also, the metal will not be subject

to mandatory LME inspection nor the LME maximum daily

rent charges and rental schedule, and it may be held in both

LME-approved and non-LME-approved warehouses. Initial

warehouse locations will be in any of the following: Shanghai,

PHYSICALLY BACKED ETFS ANNUAL FEES

SPDR® Gold Shares 0.40%

iShares Silver Trust 0.50%

ETFS Physical Platinum 0.49%/0.60%1

ETFS Physical Palladium 0.49%/0.60%1

ETFS Physical Copper 2.78%2

1 Respectively refers to the London and New York Stock Exchange listed products’ fees

2 Comprising a 0.69% management fee, 0.12% insurance allowance and 41 US cents

per day per tonne rental fee and based on the 21st March official LME spot copper price

of $7,580/tonne

ETFS PHYSICAL COPPER HOLDINGS

0

2000

4000

6000

8000

Dec-12Jun-12Dec-11Jun-11Dec-12Source: ETF Securities, LME

US$/tonne

6000

7000

8000

9000

10000

11000

ETF

Posi

tions

(tho

usan

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Rotterdam, Singapore, Busan & Gwangyang, and Chicago

& New Orleans. The JPM ETF valuation also includes a

locational premium for each warehouse location and the fund

will also regularly determine the cheapest-to-deliver location.

On redemption of shares, copper would generally be received

from the cheapest-to-deliver location. However, if this location

changes, the warehouse-keeper for the fund (Henry Bath

Group) will reallocate all the copper owned by the trust and

all the copper owned in accounts of participants to the new

cheapest-to-deliver location, in order to prevent arbitraging.

The BlackRock iShares Copper Trust has registered 12,120,000

shares, equating to 121,200 tonnes. The fund will value copper

held by it at each day’s LME Official Cash Bid price. If there is

no announced price on a given day, the trust may use the most

recently announced LME Bid price, or if that is not deemed

appropriate an alternative basis for evaluation. This could be

the price announced on that date by any other internationally

recognised exchange such as COMEX or the SHFE. The trust’s

copper will not be subject to regulation by the LME, but in the

event that any metal is held on warrant then it would be liable

to the maximum rental fee determined by the LME. Otherwise,

rates applied by the custodian (Metro International Trade

Services LLC) are yet to be confirmed. The custodian will not

be required to assay any copper delivered but must undertake

careful visual inspection of the metal and supporting

documentation. The initial authorised locations for holding

copper are in East Chicago (Indiana), Mobile, New Orleans and

St Louis; Hull & Liverpool, Rotterdam and Antwerp. Unlike the

JPM ETF, BlackRock’s prospectus does not indicate that there

will be any inclusion of locational premiums in valuations, nor

any explicit determination of cheapest-to-deliver locations.

PHYSICAL INVESTMENT

After all but disappearing in late 2009, speculative stockpiling of physical copper in China resumed during parts of the first half of 2010, particularly on price dips. The volumes accumulated are understood to have been far more limited than the 2009 additions. During the first half of 2011, anecdotal reports suggest that there was speculative destocking (of inventory held in bonded warehouses), at a time when, globally, Thomson Reuters GFMS estimates indicated a market in deficit. Coupled with strong demand (both by investors and the industry) elsewhere, this resulted in Chinese prices being at a discount to the international price. During the fourth quarter, however, indications are that stocks built up in Chinese bonded warehouses, continuing through the early part of 2012.

Our supply/demand balance implies a continued build-up in off-exchange stocks last year, and we estimate that the majority of this occurred in China, particularly in bonded warehouses. Our sources indicate that as in 2008, importing copper to circumvent restricted credit availability resurfaced in a large way in 2012. Reflecting this is an estimated increase in bonded warehouse inventories (in Shanghai and Guangdong) of 500-600,000 tonnes over the course of the year.

Outside China, it is unlikely that there was any significant investment in physical metal. In the United States, there was a drawdown in on-warrant stocks, which reflected demand growth and increased metal exports. In Europe, meanwhile, LME stocks saw a build, which was in line with the weaker consumption of copper. It

is possible, however, that metal stocks were built, or maintained, off-warrant to service the two new pending physical ETFs, both of which have now been approved, and could account for an initial amount in excess of 180,000 tonnes. Since the copper for these ETFs is unable, or unlikely, to be held on-warrant, it would need to be stored off exchange. Another factor that will be supportive of stock financing is the emergence of a contango forward curve for LME copper, whereas it had previously mainly been in backwardation, which was more conducive to long futures positions due to the positive roll yield.

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4. MINE AND REFINED PRODUCTION

Global copper mine production increased by 4%

in 2012, the highest annual increase since 2004 and

continuing a decade long period of year-on-year growth.

Africa and Asia recorded the most gains, with output

up 9% and 7% respectively. New projects in the African

Copperbelt and notably the Democratic Republic of Congo

continued to deliver new supply, while in Asia, mine

production from China increased by 26%.

Australia and Indonesia were two of the few major

producing countries reporting lower output, driven by

falling grades and disruptions.

The mining industry mindset is evolving from one of

growth and capital expenditure to one of constraint and

cost control. The project pipeline could be at risk from

deferrals as companies take a more disciplined approach to

mine development.

The global average cash operating cost continued

to trend higher in 2012, rising 14% to $3,527/t (160c/lb).

“Marginal cost” (as defined by the 90th percentile) is now

at $5,512/t (250 ¢/lb).

Global refined copper supply increased by 2% and, in

contrast to mine supply, represents a decline in the rate of

growth when compared to the previous two years.

MINE PRODUCTION

LATIN AMERICA

In 2012, copper mine supply from Chile increased quarter-on-quarter as the year progressed with production growth accelerating most in the final quarter, mirroring the overall global trend. Year-on-year growth was 3%, but production in the second half of 2012 was 7% higher than the first half. Most notable was the improvement at Escondida, where mined copper production in 2012 was 38% higher than 2011. As expected, ore grades recovered from previous lows and ore throughput to the concentrator also increased as improvements to the processing circuit take effect.

In addition to the significant improvement at Escondida, the expansion projects at Los Bronces and El Abra plus the continued ramp-up of Antofagasta’s Esperanza contributed an additional 250,000 tonnes combined. Together with strong second half performances from Codelco’s El Teniente and Andina mines, this more than offset a considerable decline in output from the company’s Chuquicamata and Radomiro Tomic operations. Chuquicamata is expected to see further declines as the open pit reaches the end of its life and the operation makes the transition to underground.

The most significant single fall in production was at Collahuasi, where lower grades and recoveries, adverse weather conditions, safety stoppages and an extended ball mill outage all resulted in a decrease of 38% when compared to the previous year. Recent performance from the operation has triggered a comprehensive business

North America 1,766 1,935 1,694 1,651 1,716 1,747

Latin America 7,414 7,171 7,221 7,232 7,234 7,540

of which Chile 5,555 5,319 5,393 5,419 5,259 5,433

Europe 1,477 1,472 1,482 1,510 1,578 1,599

of which EU-27 739 707 720 756 785 812

Asia 2,881 2,868 3,296 3,294 3,108 3,324

of which China 946 1,023 1,041 1,155 1,299 1,642

Africa 828 966 1,130 1,218 1,295 1,415

Other 1,042 1,039 1,008 1,024 1,080 1,045

Year-on-year % chg. 2.8% 0.3% 2.5% 0.6% 0.5% 4.1%


MINE PRODUCTION BY REGION (000 TONNES)

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improvement plan which was completed at the end of the year.

In Peru, the two expansion projects at Antamina and Cuajone provided the foundation for an increase in mine production by 5% to 1.26 million tonnes, representing an historical high for the country. At Antamina, the anticipated boost in output from the expansion, coupled with high copper grades, lifted production to a peak of 446,800 tonnes, nearly 34% higher than 2011. Southern Copper’s adjustments to mining methods at Cuajone

began to pay-off during the year and enhancements to the mill are expected to boost output yet further by the second half of 2013. When finished, the projects will increase average copper production by 22,000 tonnes a year.

Although Peru’s second largest mine Cerro Verde, is now undergoing a $4.4 billion expansion that will eventually raise production by around 270,000 tonnes a year, actual reported production for 2012 declined by 8% year-on-year. This was largely due to performance in the first

WORLD MINE PRODUCTION TOP-10 COPPER PRODUCING COUNTRIES

1 1 Chile 5,259 5,433

2 2 China 1,299 1,642

3 3 Peru 1,201 1,260

4 4 USA 1,140 1,159

5 5 Australia 950 919

6 6 Russia 714 702

7 7 Zambia 674 693

8 8 Canada 576 588

10 9 DR Congo 435 546

13 10 Mexico 424 470


MINE PRODUCTION: 2012 VERSUS 2011

Thomson Reuters GFMS has divided out the total year-on-

year variance in global mine production into categories. The

estimated shortfall due to unexpected events, including

strikes, technical problems or stoppages due to weather was

around 267,000 tonnes in 2012. The remaining declines

in mine production were caused by mine closures or a fall

in grade, recovery or planned change in ore volumes (as

represented by the “Yield” category). The amount of losses

due to disruptions is below half that estimated in our 2011

analysis, a year plagued by strikes, notably at some major

operations including Escondida and Grasberg.

In 2012, declines were more characterised by the net fall in

grades and recoveries, rather than unexpected events. This

is perhaps more representative of a longer-term structural

change in the industry, in part driven by an extended period

of higher copper prices. With a 4% rise in overall global

mine production, gains obviously offset the shortfalls; new

supply from mines moving through expansion was the major

contributor during the year, adding nearly 700,000 tonnes.

MINE PRODUCTION: VARIANCE ANALYSIS

Tonn

es (t

hous

ands

)


15000

15500

16000

16500

17000

17500

18000


Ram

p-up

Hig

her Y

ield

s Expa

nsio

ns

Min

e Cl

osur

es

New

Min

es

Re-

star

ts

Low

er Y

ield

s

Labo

ur R

elat

ed

Tech

nica

l/W

eath

er

16011 16669

+480

+280

+698

+108

-243

-24

-670-182+211

0

3000

6000

9000

12000

15000

18000

2012201020082006200420022000

Tonn

es (t

hous

ands

)

Source: Thomson Reuters GFMS, ICSG

SX-EW

Copper-in-concentrate

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CORPORATE ACTIVITY

Merger and acquisition activity across the metals and mining

sector last year was at its lowest since 2009, the end of the

global recession, with slowing economic growth in China and

India, the Euro zone crisis and a weak U.S. economy conspiring

to discourage major deals.

A considerable part of 2012, of course, was taken up with the

“will they, won’t they” potential marriage of heavyweights

Glencore and Xstrata. Glencore most recently expected the

record $35 billion deal to complete in mid-April 2013. It

would boost the combined firm’s influence across a number

of metals, and in copper would see the combined company

leapfrog BHP Billiton to become the world’s third biggest

copper miner.

However, copper-specific activity in terms of concluded

deals with global reach was relatively subdued, compared

with 2011 levels. One of the most significant was KGHM’s

purchase in early March of Quadra FNX, now known as KGHM

International, for $3 billion.

Minmetals Resources also bought Anvil Mining for around

$1.3 billion with a view to using the purchase as a platform to

acquire more copper assets in central and southern Africa.

For comparative purposes, the largest copper acquisition in

2011 was Barrick’s $7.3 billion takeover of Equinox Minerals

and its main asset the Lumwana mine in Zambia. That

purchase has not run smoothly, with Barrick recently taking

a $3.0 billion writedown on the mine and shelving expansion

plans that were to double its output.

KGHM has also made it clear that it has further ambitions and

aims to transform itself from a local into a global company,

doubling its market value by the end of the decade. As part

of this strategy it plans to spend $6.5 billion on its overseas

assets by 2018.

While outright buys were generally few and far between, there

have been some interesting twists and turns in ownership

changes and measures taken by companies to enhance, or

at least bolster, their influence on the copper supply chain.

Private equity firms and sovereign investors were also active

at times last year. Singapore state investor, Temasek, for

example, took a 5.5% stake in Ivanhoe Mines, now known as

Turquoise Hill, which owns the Oyu Tolgoi mine in Mongolia

and is controlled by Rio Tinto.

Q4 pick-upWhile 2012 as a whole was slow, the pace of deals across the

metals and mining sector picked up momentum in the final

quarter of 2012. One such was Roman Abramovich’s purchase,

through investment vehicle Millhouse, of a 5.86% stake in

Norilsk for $1.5 billion as part of a peace deal to resolve a long-

standing shareholder conflict.

As if to put down a marker for copper too, First Quantum

made an unsolicited $5.0 billion takeover bid for Inmet and

its coveted Cobre de Panama project towards the end of last

year. Chinese private equity firm Cathay Fortune and China-

Africa Development Fund also made an $856 million offer for

Australia’s Discovery Metals, which owns the recently opened

Boseto copper mine in Botswana. However, Discovery said

the bid should be rejected and in February 2013 Cathay said it

would let it lapse.

At the time of writing this dance between Inmet and First

Quantum is nearing conclusion, with the latter announcing

that it had secured enough shareholder support for the

takeover. The combined company will create one of the world’s

largest and fastest growing copper producers.

The step change in corporate activity in the fourth quarter

is expected to carry over into 2013. An anticipated return

TOP-10 COPPER MINE PRODUCERS

1 1 Codelco 1,796 1,748

2 2 Freeport McMoran 1,416 1,420

3 3 BHP Billiton 1,058 1,183

4 4 Xstrata 899 756

6 5 Southern Copper 589 638

5 6 Anglo American 599 632

7 7 Rio Tinto 536 558

8 8 KGHM* 427 538

9 9 Antofagasta 420 470

10 10 Norilsk 374 364

* Includes KGHM Polska Miedz and KGHM International


PERFORMANCE OF MINING EQUITIES IN 2012

70

80

90

100

110

120

130

Jan-13Oct-12Jul-12Apr-12Jan-12

Inde

x, 4

th Ja

nuar

y 20

12 =

100

Source: Thomson Reuters

ISE Copper Index

S&P TSX Metals and Mining

FTSE All Share Mining

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quarter which was reportedly affected by heavy rains; output steadily increased in successive quarters last year.

Production was also impacted by the closure of Tintaya, where copper output decreased by 51% to 46,800 tonnes in 2012 due to lower grades and pit depletion as the mine

reached the end of its life. The neighbouring Antapaccay project, which is scheduled to reach 160,000 tonnes a year and replace output from Tintaya, only began concentrate shipments in November and was unable to offset losses from the closure.

CHILEAN MINE PRODUCTION

to stronger growth in China, for instance, is likely to be key,

reviving interest from companies there in overseas mines and

miners to feed their raw material needs. Even so, it is unlikely

to be a bumper year for mergers and acquisitions across the

metals and mining sector.

The CEOs recently installed, or soon to be installed, at the

helm of some of the world’s mining majors would seem to

herald a period of greater restraint, where cost-cutting and

tactical measures will be the main focus rather than mega-

deals.

Against this backdrop some of the mid-tier companies may

be the more active. HudBay Minerals, for instance, recently

said that it is keeping an eye out for new prospects, probably

at the pre-feasibility or scoping stage, which it can bring

into construction once its Lalor and Constancia projects are

complete.

Taking controlIn early 2012, Rio Tinto was given the all clear to take a

controlling stake in the Oyu-Tolgoi copper-gold project in

Mongolia, boosting its stake to 51% from 49%, a move which

previously had been under threat of a poison pill from Ivanhoe

Mines (Turquoise Hill). In July, Rio retained its controlling

interest in the firm by spending about $935 million to take part

in a shareholder rights offering.

Anglo American, meanwhile, had to do some backtracking to

salvage its future prospects in Chile. Its 10-month long bitter

battle with Chile’s state-owned Codelco ended last August

after it agreed to the $2.8 billion sale of a stake that reduced

its ownership of the Anglo American Sur (AAS) properties in

Chile to 50.1%, but still left it in control. The settlement was

deemed to be a reasonable compromise and the two parties

will now work together on plans for its Los Bronces mine.

A long-running dispute between First Quantum and ENRC

over the latter’s controversial acquisition of the expropriated

Kolwezi project in the DRC in 2010 also reached a conclusion

in early 2012 when ENRC agreed to pay $1.25 billion to First

Quantum.

Freeport no longer a pure copper playExpanding out of copper, Freeport-McMoRan has drawn

considerable criticism for its $9 billion deal to buy energy

exploration firms McMoRan Exploration and Plains Exploration

& Production. The move reverses the mid-1990s spin-offs of

Freeport and McMoRan Exploration from Freeport-McMoRan

Inc.

Freeport has long been touted as a pure copper play and

as such has benefitted from high prices for the metal since

around the middle of the last decade. It is too soon to say, but,

despite shareholder dissatisfaction, perhaps ultimately the

move will be viewed as a wise one, as margins in the copper

industry are squeezed and the number of accessible high

grade mines to exploit dwindle.

PERUVIAN MINE PRODUCTION

0

1000

2000

3000

4000

5000

6000

2012201020082006200420022000

Tonn

es (t

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ands

)


SX-EW


0

300

600

900

1200

1500

2012201020082006200420022000

Tonn

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Few operations in reported any significant declines in production during 2012. Rather, the recent trend of annual growth continued with another rise in production to nearly 470,000 tonnes and like Peru, representing an all time high. La Caridad and Buenavista, both operated by Grupo Mexico subsidiary Southern Copper, provided 37,500 tonnes of additional production combined, partly due to higher grades.

Full year mine output from Brazil was only 2% higher, but second half production climbed 21% when compared to the first half with the start of operations at Vale’s Salobo project. The first phase is expected to reach 100,000 tonnes at full capability. Sossego remained below capacity but output was flat on the previous year due to a scheduled maintenance shutdown at the mill in the fourth quarter. Meanwhile, production from , solely from Alumbrera, experienced a rebound by 16% to 135,700 tonnes due to higher throughput and ore grades after geotechnical issues in 2011 restricted access to the open pit.

NORTH AMERICA

The recorded a second successive year of growth in output as Freeport McMoRan’s projects gather momentum and the company reported an 8% increase on 2011. The ramp-up of operations at Chino plus Morenci’s $1.4 billion brownfield expansion are likely to see further increases over the coming years. As expected, Bingham Canyon continues to perform significantly below historic highs and in 2012 produced 163,200 tonnes, only half the amount of copper when compared to three years previous. However, the outlook is more positive with Rio Tinto reporting a strong final quarter as a period of mining particularly lower grade ore comes to an end.

The contribution of two new projects allowed for a steady 2% increase in mine production from to nearly 588,000 tonnes, offsetting the year-on year declines reported at some more established operations due to lower throughput and grade. With more new projects in the pipeline and assuming steady output from current mines, the overall outlook for Canada is one of growth above and beyond recent historic averages.

Copper Mountain Mining, which started production in 2011, continued to ramp up and contributed nearly 26,000 tonnes. Production is expected to grow by a third this year until the average annual rate of 45,000 tonnes is achieved. New Afton, operated by New Gold, continued its successful transition to full production; after starting up in June 2012, the mill achieved design

capacity ahead of schedule in September. The operation is expected to reach an average of just under 35,000 tonnes a year over a 12 year mine life.

Elsewhere, Teck’s Highland Valley benefitted from higher grades while higher output at Xstrata’s Sudbury operations reflected a peak period of increased copper volume from Nickel Rim South and production from the extension of Fraser mine’s copper zone in partnership with Vale. These gains were offset by nearly 60,000 tonnes of reported year-on-year declines in output. Vale experienced a stoppage at Sudbury in the first quarter due to an accident at the underground mine. Meanwhile, production from Xstrata’s Kidd Creek failed to recover with a further fall in ore grades resulting in production decreasing by 19%.

AFRICA

Following a decline in copper production from in 2011 that interrupted a decade-long trend of rising annual supply, the country returned to positive growth last year, up 3%. First Quantum reported an increase of nearly 30,500 tonnes at Kansanshi as a result of improved grades, coupled with higher throughput and recovery. Ore throughput has increased as a result of the plant expansions completed as part of the mine’s staged upgrade of capacity to 400,000 tonnes a year. Meanwhile, Vedanta Resources reported that production was up 15% year-on-year at its Zambian operations as the Konkola mine development ramps up and higher volumes were processed at Nchanga.

Growth was partially offset by Barrick’s troubled Lumwana mine which reported a further year-on-year decline in copper production. Following a review of the mine plan, which was completed in the final quarter, the company reduced future expected copper production and

UNITED STATES MINE PRODUCTION

0

400

800

1200

1600

2012201020082006200420022000

Tonn

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ands

)


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COPPER PROJECTS’ PIPELINE

We are now entering into a period of strong supply growth in

the copper market with an estimated four million tonnes of

production capability mooted for the next three years. The top

ten largest of these projects are highlighted in the table below.

The “more and faster” approach that epitomized industry

strategy over the last decade was driven by a prolonged period

of higher prices and expectations of sustained demand growth

from the developing world. But 2012 was noteworthy for a

clear shift in this mindset to one of constraint and there are a

number of factors that have played a part in this change.

A shift to capital discipline and higher returnsThere is no doubt that institutions are increasingly looking

for a return on investment from the mining boom and will

not be content with re-directing bumper cash flow back in

to increasingly expensive and less attractive looking growth

projects. Nor are investors keen to continue financing

expensive strategic acquisitions, many of which have ended in

hefty write-downs. Now faced by inflated capital costs, easing

prices and uncertainty over the long-term outlook, the market

is looking at whether the future will be quite as profitable. It

is therefore not difficult to see why there have been calls from

shareholders to begin providing some of the returns on capital

already invested during the good times. Recent messaging

from mining companies implies they have listened to these

calls, with management teams well aware that investors will

punish a lack of capital discipline. We believe that this is likely

to have a profound effect on the project approval decision

making process and we expect further deferrals going forward.

Industry’s change in strategy under new management Projects at risk of deferral or cancellation are largely those

planned beyond the next three year timeframe; Olympic Dam,

Tampakan, Tia Maria and Frieda River to name but a few.

With capital already committed to near-term projects and

closer to construction, any decision to cancel becomes more

difficult, although there have been exceptions. For example,

in December Antofagasta announced that development of the

Antucoya project would be suspended due to escalating costs.

If we are to take the largest diversified mining companies as

a benchmark, all the major producers have recently hinted

at supply-side discipline. In a presentation to the market

in May last year, BHP Billiton talked through a revision to

capital expenditure plans. More recently Rio Tinto announced

a program to reduce costs by billions of dollars. For both

companies, this change in approach has coincided with a

replacement of senior management; Tom Albanese will step

down as CEO of Rio Tinto and Andrew Mackenzie will take

over from Marius Kloppers at BHP Billiton. Anglo American

also announced in January that Mark Cutifani is to replace

Cynthia Carroll as CEO and we also believe the resolution of

Xstrata-Glencore could see an eventual rationalisation of the

combined group’s project portfolio, with non-core projects

likely to lose capital investment.

New project economicsAside from the decision making around capital allocation

discussed above, the move toward project re-appraisal has

also been driven by simple project economics. For a number

of years now, the fundamentals for building or acquiring

new mines have been attractive, with marginal cost sitting

comfortably below average copper prices. We are now seeing

a compression of margins, partly due to an easing of prices,

but predominantly from cost inflation. We estimate that the

capital costs per annual tonne of equivalent copper production

is now $13,400/tonne, an 18% increase on the same metric

last year. As an approximation, a new project with a 20 year

mine life and a required rate of return of 15% would now

require a long-term copper price, or “incentive price” of $7,101/

tonne (322c/lb). This assumes a project with the global

average cash operating cost of $3,527/tonne (160c/lb) plus

additional indirect costs and sustaining capital requirements

of $881/tonne (40c/lb).

Oyu Tolgoi Turquoise Hill Resources Mongolia Concentrate New Project 450 13,200 2013

Las Bambas Xstrata Peru Concentrate New Project 400 5,200 2014

Escondida OGP 1/Oxide BHP Billiton Chile Concentrate Expansion 325 2,621 2015

Sentinel First Quantum Zambia Concentrate New Project 290 1,700 2015

Toromocho Chinalco Peru Concentrate New Project 250 2,200 2013

Sierra Gorda KGHM Chile Concentrate New Project 220 3,980 2015

Caserones JX Nippon Mining Chile Concentrate New Project 180 3,000 2013

Buenavista Southern Copper Mexico Concentrate Expansion 170 1,400 2015

Mina Ministro Hales Codelco Chile Concentrate New Project 160 2,433 2013

Mina Justa Minsur Peru Concentrate New Project 110 745 2015

* Measured in "thousand tonnes per year"


MAJOR COPPER PROJECTS

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TREATMENT AND REFINING CHARGES

The proliferation of non-integrated small- and mid-size

miners, coupled with the rapid rise of largely non-integrated

smelting capacity, mainly in China and India, has increased the

importance of the custom copper smelting industry. According

to our estimates well over half of the copper concentrates

produced globally are non-integrated and sold to third parties

for processing.

TC/RC CONTRACTSCopper concentrates destined for custom smelting are sold

mainly under long term treatment and refining charge (TC/RC)

contracts. The rest are sold on the spot market throughout the

year.

Germany’s Aurubis is the world’s top custom smelter, last year

processing custom concentrates containing close to 600,000

tonnes of copper.

Annual deals reached between major smelters such as

Aurubis, PanPacific in Japan and China’s Jiangxi and major

miners like BHP Billiton and Freeport-McMoRan are normally

used as benchmarks for agreements between other parties.

Contracts can also be settled with a provision for negotiations

at mid-year.

Annual benchmark terms are not necessarily entirely fixed

and contracts are commonly subject to a myriad of clauses.

Price participation clauses, whereby the buyer and seller seek

to protect their margins from copper price volatility, have not

been used in long term contracts since mid-2006.

Contracts also take into account copper grade, presence of

unwanted or “deleterious” elements and variability of the

concentrate. Miners can be penalised for the presence of

impurities such as arsenic, or high moisture content and may

also face deductions for lower grades of copper and precious

metals. Contracts also factor in concentrate freight cost

differentials between European and Asian delivery.

The spot market for TC/RCs has become increasingly

important in recent years with the aforementioned emergence

of China as a major consumer of custom copper concentrate.

The rapid expansion of Chinese processing capacity is

expected to continue into 2013 with the addition of more than

600,000 tonnes per year of new smelter capacity.

Illiquidity in the spot market can lead to significant volatility in

charges from month-to-month and deal-to deal. Nevertheless,

spot TC/RCs serve as a useful indicator of the state of the

concentrate market and provide a starting point for long-term

negotiations.

THE UPS AND DOWNS TC/RCs are the main source of revenue for smelters and

refiners with the dynamic between these charges and copper

prices highly cyclical.

Benchmark terms have had their ups and downs over the

years. But in general, since peaking at $112.5/tonne and 11.25

¢/lb in 2005, on surging demand from a rapidly industrialising

China, miners have tended to hold the upper hand in

negotiations, even though the balance began to shift slightly

more in favour of smelters in the latter part of 2012.

Since 2005 miners, despite the occasional uptick in terms

for specific temporary reasons, generally have been in the

ascendancy due to an overall excess of smelter capacity and

disappointing mine output growth. Mine supply has been

blighted by a combination of labour and technical problems

at some major operations, lower ore grades and a lack of new

projects coming through due to an earlier lack of investment.

By 2008, long term charges had fallen to $45/tonne and 4.5

¢/lb, with even lower terms seen in the spot market. Charges

tended to bump along around, or not far off, those lower levels

until the Japanese earthquake in early 2011. Consequent lower

smelter capacity availability saw mid-year terms that year

settled higher at $85/tonne and 8.5 ¢/lb.

Mine disruptions, such as the lengthy strike at Grasberg,

tightened the concentrate market again in the latter part of

2011 and benchmark 2012 deals settled lower, in the region

of $60-63.5/tonne and 6.0-6.35 ¢/lb; this was unchanged at

mid-year.

2013 DEALSHowever, the easing concentrate supply picture from the

second half of last year, coupled with the prospect of some

significant smelter closures for planned maintenance work,

has improved the smelters’ hand going into this year, leading

TC/RCS AND THE COPPER PRICE

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N.B. TC/RCs are expressed on a combined basis not including price participationSource: Thomson Reuters GFMS, LME

Benchmark TC/RC

Copper

0

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Spot Price (c/lb)

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recorded an impairment charge of $3.0 billion for the asset.

The has seen a number of new projects commissioned in recent years and this is reflected in another year of more than 25% growth as these operations ramp-up to full capability. Tenke Fungurume continues to expand mining and processing capacity and the operation produced 157,900 tonnes in 2012, an increase of 24%. This is expected to increase yet further over the coming years as the project reaches nearly 200,000 tonnes at full capacity. Other projects in the ramp-up phase and contributing to incremental increases include Kinsevere, Kipoi and Mutanda SX-EW, which all started production in 2011.

Other notable additions to production in Africa during the year include Discovery Metals’ Boseto project in

. The operation is now in the commissioning phase after start-up in 2012 and is expected to average 35,000 tonnes a year of copper-in-concentrate.

In production was hit by strike action in 2012, both at the country’s largest primary copper mine Palabora, but also at the platinum mines where copper is a by-product. At Palabora, problems were compounded by technical issues with the ore-hoisting shaft and forced safety stoppages during the year. In total, copper output from South Africa was 22% less than 2011 at 74,700 tonnes.

ASIA

registered significant growth in copper mine production in 2012, with output rising 26% to 1.64 million tonnes. Furthermore, official statistics indicate production gained momentum through the second half of the year with major contributions to growth from Jiangxi Mining’s projects, including Dexing, and the Duobaoshan mine owned by Zijin Mining. From a regional perspective, major areas of growth included Inner Mongolia, Anhui and Hubei provinces.

Supply from , specifically the Grasberg and Batu Hijau mines, continued on a downward trajectory in 2012. At just under 400,000 tonnes the country is now producing at only 40% of recent peak output achieved three years ago. At Grasberg, average ore grades were 22% lower than in 2011 as mining transitions to the open pit; the expectations are that 2013 will be a turning point and output will recover significantly followed by steady growth for the next three years at least. At Batu Hijau, operations experienced temporary work stoppages, but the mine is also continuing with the planned Phase 6 push back at the open pit, requiring significant movement of waste rock.

In , mine production increased by just over 1% to 420,300 tonnes. Production from leading producer Kazakhmys remained flat year-on-year as slightly lower ore grades were offset by higher ore throughput. Meanwhile, Frontier Mining and Central Asia Metals both

to a reported increase in 2013 benchmark TC/RCs to $70/

tonne and 7.0 ¢/lb.

Deals have only been agreed for six months, according to

recent reports, which also suggest that some are being

concluded above that level. A number of smelters reportedly

had been looking for $75/tonne and 7.5 ¢/lb over 12 months.

Miners refuse to cede too much ground though, arguing

that smelter capacity is still on the rise with the expansions

scheduled in China.

ASIAN MINE PRODUCTIONAFRICAN MINE PRODUCTION

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Democratic Republic of Congo

Zambia

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2012201020082006200420022000

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Kazakhstan

IndonesiaChina

Other

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commissioned new projects during the year, Benkala and Kounrad. At full capability they will contribute 17,000 tonnes of new production combined.

Other countries in Asia reporting notable growth in supply during 2012 include the , now producing at peak levels when compared to recent historic levels due to the mill expansion at Toeldo and also in as the potential for higher production capability at Sepon’s copper plant was realised.

OCEANIA

As can be seen in the accompanying map, was one of the few major producing countries that recorded a year-on-year decline in production for 2012, down 3% on 2011. This is despite the successful commissioning of Sandfire Resources’ DeGrussa project, which contributed an additional 42,100 tonnes, Hillgrove Resources’ Kanmantoo mine, 13,700 tonnes and the restart of Osborne by new owners Ivanhoe Mines.

Planned lower production at the Ernest Henry mine meant copper-in-concentrate output reduced by 66% compared to 2011, as the operation transitioned to underground mining. Looking forward, Ernest Henry

will produce an average of 70,000 tonnes a year from the combined underground mining and Mount Margaret open pit operations. Meanwhile, Olympic Dam experienced a 14.5% fall in output reflecting the impact of a planned smelter outage in the second half of the year; the smelter is expected to return to full capacity in the first quarter of 2013. Finally, operations at Mount Garnet were placed on care and maintenance as Kagara Zinc went into administration in April 2012 and accounted for the 17,600 tonne fall in production year-on-year.

MINE PRODUCTION WINNERS AND LOSERS, 2012 VERSUS 2011

OCEANIAN MINE PRODUCTION


-45 t -30 t -15 t -1 t +1 t +15 t +30 t +45t

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PNG Australia

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At Ok Tedi in , total copper production crept lower for a third consecutive year. Although mill throughput was higher, grades fell by 15% and resulted in a 4% decrease in copper production overall.

EUROPE

In Europe, copper output increased for a fourth consecutive year reaching nearly 1.6 million tonnes. In

, the Kevitsa and Outokumpu projects were both brought into production during the year, contributing 12,800 tonnes combined and nearly doubling the country’s annual output. Other notable additions to production capability include where output increased by 44% to 92,700 tonnes, largely due to the expansion of production at Las Cruces SX-EW, but also in small part to the ramp-up of Aguablanca.

These increases were offset by an expected decline in throughput and grade at the Neves Corvo mine in Portugal, with copper-in-concentrate falling by 15,600 tonnes year-on-year. Europe’s largest producer Norilsk in reported a marginal decline in output for the fifth year in succession, while mined copper at KGHM’s operations in remained flat year-on-year.

PRODUCTION COSTS

REGIONAL OVERVIEW

The global average cash operating cost continued to trend higher in 2012, rising 14% to 160 ¢/lb. “Marginal cost” (as defined by the 90th percentile) is now at 250 ¢/lb, but although this implies an operating margin of 31% from the 2012 copper price of 361 ¢/lb, the gap appears to be closing. In the 2012 Copper Survey, we mentioned that the likely near-term trend would be for unit costs to continue to rise above inflation and this scenario seems to be playing out. This movement, together with the related increase in capital costs, has shifted the barriers to entry higher such that the economics of the industry do not look quite as attractive as perhaps they did only two years ago. This is already apparent from the decisions taken by some major producers this year in revising plans for new development projects.

The upward shift in the cost curve in 2012 was more a function of steady increases across all drivers of cost, rather than a seismic shift in any given variable. Local currency exchange rates were generally slightly weaker across producer countries, although not exclusively.

WORLD CASH OPERATING COSTS

EUROPEAN MINE PRODUCTION

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OtherRussiaPoland

(US cents/pound)

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(US

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Source: Thomson Reuters GFMS0 10 20 30 40 50 60 70 80 90 100

0

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400

450

2011 Average Copper Price (US 400 cents)

2012 Average Copper Price (US 361 cents)

Cumulative Production %

2012

2011

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Unions lobbied for above inflation wage increases and in many cases were successful. The performance of by-product metal prices was mixed while the cost of key inputs such as fuel, acid and consumables was generally higher across the board. Perhaps the most notable overall impact on costs last year was from the net decline in grade and recoveries experienced by the industry; this partly reflects a long-term structural trend in declining mining yields, but with over 1.2 million tonnes of copper coming into the market from new projects, expansions and re-starts during the year, it also reflects a number of mines that have still yet to reach optimal capability.

The Thomson Reuters GFMS copper industry cost curve captures approximately 75% of total world copper production and 85% of western world production. The “cash operating cost” is a direct cash cost measure, expressed in US cents per pound of paid metal produced. It includes mine-site mining, processing and general administration costs, plus concentrate freight costs, smelting and refining charges (TC/RCs) and marketing costs where applicable.

The cost curve presented here is a composite of both by-product and co-product costing methods. For primary copper mines (those generating most of their revenue from copper), cash operating cost is expressed net of by-product credits. For by-product copper mines (where copper is not the primary source of revenue), copper is treated as a co-product and cash operating costs are reported on a copper equivalent basis. Depreciation costs and royalties are not included in the cash operating cost.

Costs in increased in line with the global average increase, up 15% on 2011. There was little to alleviate general mining cost inflation during 2011 with no substantial change in the strength of local currencies relative to the US dollar. Although gold prices continued

to trend higher to boost by-product revenues at some mines, credits from molybdenum declined on lower overall volumes produced and lower prices.

A key driver of unit cost increases this year was the impact of lower grades mined at some major operations, notably by Codelco in Chile. Most recent available numbers imply ore grades fell by between 5-10% on average, with grades at the group’s largest asset Chuquicamata falling by over 15%. The net result was an increase in group level unit costs by over a third. Grades at Escondida increased 26% on 2011, yet the mine’s operating margin remained relatively flat year-on-year due to lower prices.

In , cash operating costs continued to rise, up 11% to 177 c/lb. There was no significant relative movement between the Canadian and US dollar and the rate of inflation was similar between the two countries. In Canada, the New Afton project went into commercial production in the second half and reported unit cash operating costs well below the global average at 140c/lb. Teck’s Highland Valley operation was one of the few mines to report lower costs year-on-year, benefitting from the volume impact of higher grades.

Africa 167 199 19.0%

Latin America 127 145 14.7%

North America 159 177 11.1%

Oceania 188 205 8.9%

Asia 124 178 43.1%

Europe 140 138 -1.7%

Unit costs are based on US cents per pound of paid production


COPPER CASH COSTS

PERFORMANCE OF PRODUCER CURRENCIES AGAINST US$RELATIVE PERFORMANCE OF COPPER BY-PRODUCTS

50

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Inde

x, 4

th Ja

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10 =

100

Source: LBMA, LME, Thomson Reuters

Nickel

Gold

Zinc

Silver

80

90

100

110

120


Inde

x, 4

th Ja

nuar

y 20

10 =

100


Australian DollarCanadian Dollar

Chilean Peso Peruvian Nuevo sol

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In the United States, Freeport-McMoran reported higher unit costs for the third consecutive year, albeit at a lower rate of inflation. Site and delivery costs before credits increased 7% compared to a 19% rise the year before. A number of mines are going through ramp-up, including Chino and Morenci and as mining and milling activities reach optimal levels we would expect the rise in unit costs to plateau. After adjusting for by-product credits, total cash operating costs increased further compared to 2011 as lower molybdenum prices offset slightly higher volumes produced.

A substantial increase in unit cost in the region was largely a consequence of Grasberg and Batu Hijau. On a co-product basis, Grasberg unit costs have moved up two quartiles on the global cost curve in the last three years and this is despite the average annual gold price increasing by over 70% in the same period. Gold and silver now contribute nearly 40% of total revenues from the mine. At Batu Hijau, unit costs nearly doubled year-on-year as the mine continues mining low-grade stockpiles, while the pushback phase at the open pit continues. We would expect cash operating costs to reduce significantly when complete, although ore from this project is not expected to become primary mill feed until 2014.

Elsewhere in Asia, Kazakhmys reported costs rising by over 50% with causes from a variety of sources, including haulage costs and cost of support services, although the company stated that the rate of inflation is now reducing.

continues to avoid some of the inflationary pressures being felt elsewhere around the world. Although the euro was stronger relative to the US dollar year-on-year, the Polish zloty, Swedish krona, Turkish lira and Russian rouble were all weaker. Many of the European mines also benefit from a polymetallic mix of base metal and precious metal revenues to net-off costs; Chelopech in Bulgaria for example, benefitted from a significant gold component and reported a fall in unit costs of 15%.

Average cash operating costs in increased by 19%, just above the global average increase. Not all mines reported significantly higher costs year-on-year; Konkola Copper Mines (KCM) managed to contain costs on the back of a growth in volumes and this was despite reporting inflationary pressures from increased wages and a rise in input prices. First Quantum’s Kanshanhi mine contained cost increases to 6% and Guelb Moghrein in Mauritania recorded a marginal 1% increase in costs, where a larger gold credit was offset by an increase

in mining costs specifically for explosives, contractors and equipment hire. We have also included the new project Kipoi in our cost universe as it ramps-up to full production following commissioning in 2011. Owners, Tiger Resources, reported a unit cost of only 76 ¢/lb for 2012. Despite these positive performances, the operating difficulties at key mines such as Lumwana and Palabora and the subsequent fall in volumes had a large negative impact on cash operating costs overall.

remains the highest cost region for copper mining and unit costs increased a further 9% in 2012, now at 205 ¢/lb. Despite only re-starting during 2011, the Mount Gordon mine owned by Aditya Birla Minerals was unable to control costs in its first full year back to production, averaging 366 ¢/lb. Unable to reduce cost through early 2013, the mine has now been placed on care and maintenance. In contrast, new start-up DeGrussa achieved first year costs of only 70 ¢/lb and Australia’s third largest copper mine, Northparkes, managed to contain costs, reflecting the recovery in copper ore grade.

At Olympic Dam, costs remain higher than longer-term expectations; the operation only achieved 15% margin in 2012 as there saw significant movement of waste material as the operation moves through the expansion phase and unit costs remain relatively high compared to longer-term expectations.

COST DRIVERS

Precious metals remain a key “sweetener” for many copper producers, helping to alleviate the rampant cost inflation that has been prevalent in the industry over recent years. Gold continued its year-on-year rise, averaging $1,669/oz in 2012; silver was slightly off the peak of 2011 but still at historic highs, averaging $31.15/oz. The base metals complex was down across the board in 2012; zinc, lead and nickel all averaged lower when compared to the previous year. Average molybdenum prices decreased by 17% on 2011 and similarly, cobalt tracked lower reflecting wider market conditions. Operators in the African Copperbelt are most leveraged to the cobalt price; we estimate, for example, Katanga Mining’s average unit cost would have been some 5% lower at 2011 cobalt prices.

Once again, year-on year changes negatively impacted total average unit costs. Our variation analysis of global production indicates that overall grades and recoveries showed a net decline in 2012. Likewise, an estimated 280,000 tonnes was added

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THE MINING WORKFORCE IN 2012

2012 was a much quieter year for strikes and labour-related

disruptions than the previous one, when there were lengthy

walk-outs at the world’s two biggest copper mines - Escondida

in Chile and Grasberg in Indonesia.

Instead, last year was punctuated by a series of early new deals

reached at a number of major operations. These settlements

have removed a great deal of the supply uncertainty that had

surrounded the outlook for 2013.

According to Thomson Reuters GFMS estimates, only 25,000

tonnes of contained copper production was lost to labour-

related disruptions last year, compared with over 300,000

tonnes in 2011.

The potential threat of substantial disruptions this year

loomed over the copper industry until the final quarter of 2012

when we saw a flurry of early talks and subsequent new labour

deals. Among the more significant was the new agreement

reached at Codelco’s Chuquicamata complex in Chile in

December, ahead of the end-February 2013 expiry date.

Codelco was evidently keen to sew up an early deal and

keep workers onside as it tackles a transition from open pit

to underground mining at the site. Similar motives were

also likely behind early deals at the BHP Billiton-controlled

Escondida mine and Anglo American’s Los Bronces mine, both

also in Chile, and where major works are underway.

Talks at Escondida, where the previous deal was not due to

expire until around mid-2013, began extremely prematurely

in December and a new contract was ratified in January. The

new four-year deal, entailing a 5% salary increase, along

with bonuses and benefits estimated at around $48,665 per

worker, is clearly generous and indicative of the continued

upward pressure on production costs.

Minimum disruption in 2012Labour-related output disruptions that had a material impact

on output were few and far between in 2012. Activity for the

most part was centred in Africa, with little cause for concern

generally in other regions, such as North America, where flare-

ups have been seen in the past.

Sporadic industrial action in Africa was accompanied by big

pay demands, which generally resulted in double-digit wage

rises. In March, around 2,000 workers went on strike at

First Quantum’s flagship Kansanshi copper mine in Zambia.

In July, the company also suspended output briefly at its

Guelb Moghrein mine in Mauritania. Output was, however,

unaffected and ended 2012 higher than the previous year.

In November, mine unions in Zambia at Glencore’s Mopani

Copper Mines, Vedanta’s Konkola Copper Mines and Jinchuan’s

Chibuluma mine demanded 50% pay rises. In the end they

settled for increases of about 10%.

In North America, there was little threat of disruption last year.

A new deal was reached without incident at Xstrata’s Horne

smelter in Canada in March. Meanwhile, despite the threat

of a strike in December, a new long-term deal was reached at

Taseko Mines Gibraltar operations at the end of that month.

The contract at Imperial Metals small Mount Polley mine in

Canada was also due to expire at the end of December. At the

time of writing, the two sides were still in talks with sources

anticipating a new five-year deal by end-March.

Long term contracts ease uncertaintyAn increasing tendency towards agreeing deals of four to

five years at some major operations, such as Escondida and

Chuquicamata, rather than the more traditional three years,

was also in evidence. This should help to remove a degree of

supply uncertainty over a lengthier period.

The recent settlements outlined in the table below, using

2012 figures as a guide, give an indication of the amount of

production which should, in theory, be free of strikes for at

least the next two and a half years. Of course history has

shown it is not quite so straightforward; the 2011 Escondida

strike, which lasted about two weeks, occurred even though

union members were working under an existing contract.

Indeed, unionised workers at Codelco recently threatened to

stage a 24-hour work stoppage at all the company’s units

within 30 days to demand greater job security and pensions.

Equally, a contented sub-contractor workforce at Codelco is

not necessarily a given. Last year they blocked roads at the

company’s major mines and had a material impact on output

in 2007 and 2008. Contract workers at Escondida also staged

protests in early March. It remains to be seen whether further

flare-ups are on the cards.

Antamina BHP/Xstrata/Teck 446 24 Jul 2015

Cuajone Southern Copper 159 31 Dec 2015

Toquepala Southern Copper 152 31 Dec 2015

Andina Codelco 250 1 Apr 2016

Gibraltar Taseko 41 31 May 2016

Escondida BHP Billiton 1,077 31 May 2017

Chuquicamata Codelco 365 28 Feb 2017

Los Bronces Anglo 365 30 Nov 2016

Total

*thousand tonnes


RECENT NEW LABOUR DEALS AT MAJOR COPPER MINES

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COPPER PRODUCTION PROCESSES

Copper can be produced as either a primary product or as a

co-product of other metals, including gold, lead, zinc, nickel

or silver. Copper mining usually takes place in very large scale

open pit mines; global average copper ore grades are relatively

low, at less than 1%, so economies of scale are important. The

rock is drilled and blasted with explosives, then scooped up

into large dump trucks that haul it to a crusher. Waste rock, or

overburden, is dumped.

COPPER EXTRACTION

The extraction process starts by reducing the size of the ore

by crushing. Once crushed, the ore is dumped into a rotating

mill, along with water and steel balls. The mill further grinds

the rock to create a slurry. Separation and concentration of

the copper minerals is then carried out by froth flotation. The

finely ground ore is mixed with water and reagents, creating

a slurry. When agitated and injected with air in flotation

cells, the copper sulphide minerals in this slurry form a

froth, which is skimmed off, filtered and dried. The product,

copper concentrate, typically contains about 30% copper.

The remainder of the ground-up ore slurry (tailings), which

contains little copper, is sent to a dam for storage.

SMELTING & ELECTROLYTIC REFINING

Copper concentrates are smelted to recover copper metal.

This involves smelting the concentrate in a furnace of some

description (reverberatory and flash are two common types)

followed by various purification steps, in which oxygen is

blown into the molten metal (converting). The product of

the smelting process is blister copper (of around 99% purity),

which is further upgraded and cast into anodes, which are

then electrolytically refined to produce a 99.99% pure copper

cathode. The concentrating/smelting process is usually

referred to as pyrometallurgical extraction. Increasingly,

alternative proprietary hydrometallurgical technologies are

being developed to by-pass the conventional pyrometallurgical

process route, such as Teck’s CESL and Outotec’s Hydrocopper

processes.

LEACHING & ELECTROWINNING (SX-EW)

Alternatively, low grade oxide or secondary sulphide copper

ores can be treated by a hydrometallurgical process. This

usually comprises the leaching of heaps of ore with a sulphuric

acid solution, solvent extraction of copper from the leach

solutions, then electrowinning to produce a saleable-quality

copper cathode. This process is usually referred to as SX-EW

leaching, and currently accounts for around 20% of global

refined copper production.

PURE COPPER CATHODE

Cathodes of 99.99% purity may be shipped as melting stock

to mills or foundries. Cathodes may also be cast into wire, rod,

billets, cakes or ingots, as pure copper or alloyed with other

metals.

Copper RawMaterial

CopperSulphide Ore

PartialRoasting

FireRefining

GasCleaning

SulphuricAcid Plant

EffluentTreatment

Copper Oxideor SecondarySulphide Ore

Hydrometallurgical Processes

CopperConcentrate

ElectricFurnaceSmelting

SolutionPurification &

Metals Recovery

SulphuricAcid

Flash Smelting &Flash Converting

Direct to BlisterFlash Smelting

Slag CleaningFurnace

SlagConcentration

AnodeCasting

ElectrolyticRefining

RefinedCopper

PreciousMetals Plant

Sulphuric AcidLeaching

SolventExtraction

Slag

Electrowinning

Dust

Pyrometallurgical Processes

Source: Outotec, Thomson Reuters GFMS

COPPER PRODUCTION PROCESSES

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to the market from mines in ramp-up, many of which will not have achieved optimum economies of scale and as a result negatively impacting unit costs.

The cost of is most exposed to local currency movements, with other cost inputs effectively denominated in US dollars in many countries. Unlike by-products and raw materials, labour costs have been traditionally fixed, with salaries difficult to reverse. Wages are therefore seen as a key risk to margins in such a cyclical market and as such companies are increasingly looking to lock-in bonus and benefit agreements which are more linked to the copper price, sharing on the upside but flexible when margins are tight. Escondida’s recent agreement with its workforce for a 5% hike (highlighted in the accompanying focus box) is a perfect example. Worst hit have been the diversified mining nations such as Australia, Canada and Chile that have raced to develop mineral resources to meet global demand, but are now struggling with a shortage of skilled labour.

Alongside the requirements for labour, adequate supply of is going to be critical if growth in mine production is to be achieved and is one of the key issues facing the industry. In Africa, the Copperbelt in particular is already seeing electricity supply becoming a limiting factor in project development; the Kinsevere project in the DRC, now owned by Jinchuan, has seen ramp-up of copper cathode production impacted by power supply issues, meanwhile Katanga Mining experienced disruptions to supply last year, despite which it managed to ramp-up production. In Zambia, producers such as First Quantum and Barrick have both looked to investing in hydro-electric power projects to secure sufficient supply to the Kansanshi and Lumwana mines, respectively. However, lead times for these kinds of projects can be lengthy.

Other input costs such as and key also underpinned rising costs during the year; leading producer Codelco cited “materials, fuel and energy” as the largest contributor to higher average costs. Sulphuric acid prices continued to rise for a second year; the value of acid imports to Chile averaged $130/t, up 10% on 2011, although the oil price remained relatively flat year-on-year, with the average WTI price falling just one dollar to US$94/barrel in 2012.

Unlike those integrated operations, copper concentrate producers without in-house smelting and refining capability are exposed to the supply-demand fundamentals of the concentrate market and associated

, plus freight costs. With 2013 benchmark charges settling in the region of $70/tonne and 7.0 ¢/lb, the cost of third party smelting and refining continues to remain relatively low when compared to historic levels.

REFINED PRODUCTION

LATIN AMERICA

In Chile, output of refined metal fell by 6% in 2012. The decline in production sourced from primary concentrate was over 18%, despite growth in concentrate produced from domestic mines, and this coincided with a 27% increase in exports of concentrate to China. Production of SX-EW remained flat year-on-year and the development of the El Abra expansion, which should support higher cathode going forward, was offset by a decline of nearly 35,400 tonnes from BHP Billiton’s Pampa Norte operations, Cerro Colorado and Spence, due to the processing of much lower grades.

North America 1,764 1,722 1,497 1,413 1,306 1,270

Latin America 3,953 4,070 4,195 4,144 4,117 3,805

of which Chile 2,936 3,058 3,272 3,244 3,092 2,902

Europe 3,460 3,532 3,427 3,601 3,710 3,712

of which EU-27 2,425 2,564 2,492 2,628 2,720 2,748

Asia 7,726 7,809 8,042 8,547 9,078 9,737

of which China 3,499 3,795 4,051 4,540 5,197 5,715

of which Japan 1,577 1,540 1,491 1,549 1,328 1,510

Africa 589 603 709 874 961 1,060

Oceania 442 502 446 424 477 475

Year-on-year % chg. 3.7% 1.7% 0.4% 3.8% 3.4% 2.1%


REFINED PRODUCTION BY REGION (000 TONNES)

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Refined output from Peru has now declined for four consecutive years to 308,000 tonnes. A key contributor to the fall in production during 2011 was the closure of Doe Run’s La Oroya smelter. In 2012, the closure of Xstrata’s Tintaya SX-EW operation also impacted refined output; the mine had historically supplied around 25,000 tonnes of cathode per year. Meanwhile, Cerro Verde also reported lower production numbers due to a disappointing performance in the first quarter, reportedly caused by heavy rains.

Production from was slightly down on 2011, by 2.5%. While production from SX-EW operations, which contribute just under a third of total cathode from the country, was marginally up on the previous year, refined production from primary concentrate fell by 6% due to the closure of the Cobre de Mexico plant in the second quarter. These losses were offset slightly by a 14% increase at Southern Copper’s La Caridad refinery. Looking forward, the continued expansion at La Caridad followed by the start up of new SX-EW capacity at Buenavista as well as Baja Mining Corp’s Boleo project imply significant growth to come.

Finally, in Brazil, production at the country’s only smelter and electrolytic refinery, Camacari, stopped for 70 days from end of May for maintenance and modernisation work, removing around 60,000 tonnes from 2012 production.

NORTH AMERICA

Refined production in North America declined for a fifth consecutive year in 2012, with a 3% decline taking output to 1.27 million tonnes. In the , second quarter output was impacted by a 24-day shutdown at Rio Tinto’s Kennecott smelter in April, although results picked up through the year, with 37% of total annual

production coming in the final quarter. Looking forward, improvements in mine production at Bingham Canyon and the availability of concentrate should see a rebound in output through 2013. Freeport McMoran’s SX-EW operations, notably the Chino re-start and Morenci expansion, helped to keep the overall decline in refined production to only 3% overall.

In , the closure of the 135,000 tonne per year Kidd Creek Metallurgical Plant in 2010 has ensured that output in that country remains below previous peaks. In 2012, refined production remained flat year-on-year.

OCEANIA

Despite lower production at Olympic Dam due to planned maintenance to the smelter, refined output in remained relatively flat in 2012 at 475,000 tonnes. This was partly due to an increase from SX-EW mines, notably the restart of CST Mining’s Lady Annie Operation, but also increased refined production at Xstrata’s Townsville refinery.

TOP-10 REFINED COPPER PRODUCERS

AMERICAS REFINED PRODUCTIONWORLD REFINED PRODUCTION

1 1 Codelco 1,771 1,599

2 2 Aurubis 1,148 1,147

3 3 Freeport McMoRan 1,003 1,055

4 4 Jiangxi Guixi 940 1,040

5 5 Tongling 854 1,000

6 6 Xstrata 687 667

8 7 Nippon 593 610

− 8 Jinchuan 500 600

7 9 BHP Billiton 641 592

9 10 KGHM* 571 587

* Includes KGHM Polska Miedz and KGHM International


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EUROPE

European refined production also remained flat on 2012 at 3.71 million tonnes, with growth in production from offset by year-on-year declines elsewhere. The most significant additions were at Inmet’s Las Cruces SX-EW operation where the company reported production of an additional 25,000 tonnes as the expansion approached full capacity. This was matched by a recovery in output from the Atlantic Copper Huelva refinery, bringing the country’s total increase in output to over 14% or 403,000 tonnes.

reported a decline of around 24,000 tonnes in 2012, more than half of which was due to less secondary processed at Osnabrueck and Lunen. Production in

was relatively flat year-on-year, although output from secondary sources increased by some 9%, compared to a 4% fall in production from primary.

Meanwhile in , refined copper production was 3.5% lower than the previous year, partly reflecting lower output from Norilsk’s integrated operations. Of the other major producers, Boliden reported a marginal increase in refined production of less than 1% from its operations in

(Rönnskär) and (Harjavalta). Integrated producer KGHM in reported a small 1% decline in output, where lower throughput from its own mining operations was offset by increased secondary and third party materials. The company continues to focus capital on its new international mining portfolio, rather than expanding downstream processing capacity.

Looking forward, a number of smelter closures are scheduled in Europe next year; Aurubis is planning a longer maintenance stoppage in the third quarter of 2013; Poland’s KGHM has said it will close its largest smelter in Glogow for three months in the middle of

the year; while Boliden is also planning a maintenance closure at its Rönnskär plant in Sweden.

AFRICA

Refined copper production from Africa hit one million tonnes in 2012, doubling output in just over eight years as the Copperbelt revival continues.

As expected, the posted strong gains in 2012 with production rising 28% year-on-year. Higher output has predominantly been driven by SX-EW expansions and new capacity, underpinning a compound annual growth rate of 9% over the last decade. The most significant increases to capacity during 2012 came at Glencore’s Mutanda and Kinsevere mine, now owned by MMG Ltd after the acquisition of Anvil Mining. The continued ramp-up of Freeport’s Tenke Fungurume and Tiger Resources’ Kipoi, which was commissioned in 2011, has also contributed to growth.

Similarly, also experienced growth year-on-year, albeit at a more moderate 3.8%. Incremental expansions at KCM’s Nkana, First Quantum’s Kansanshi and the start-up of Luanshya Copper Mines’ Muliashi SX-EW plant all contributed. This was despite a reduction in total finished copper production that was primarily a result of a planned smelter shutdown at Glencore’s subsidiary Mopani, coupled with a reduction in copper production from Mopani’s own mine, Mufulira. This was due to the temporary suspension of the heap leach process earlier in the year, following environmental concerns and government intervention.

In , copper output was impacted by social unrest and strikes. Palabora’s refined production was down 10,400 tonnes on 2011 due to the impact of industrial action in the fourth quarter. For similar

ASIAN REFINED PRODUCTIONAFRICAN COPPERBELT REFINED PRODUCTION

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COPPER SCRAP RECOVERY

Copper is one of the few materials that do not degrade, or

lose their chemical and physical properties in the recycling

process. Refined secondary material represents scrap that has

been fire-refined or converted at the smelter level, and then

electrolytically refined. Direct, or remelt scrap, is secondary

material that can be used directly in a furnace. Most remelt

is sourced from “new” or “manufacturing return” scrap,

while refined secondary material is primarily based on “old”

scrap, i.e. the recovery of copper used from previous levels of

consumption. The recovery of copper is essentially recovered

in two forms, new and old scrap.

New scrap is generated during the manufacturing process

and consists of items such as clippings, stampings and

turnings. Some new scrap may enter the open market, but the

majority is sent to primary and secondary mills via buyback

arrangements. Old scrap originates from the recycling of

copper containing goods and manufactures. This comes

mainly from the following sources – electrical and electronic

products, industrial machinery, transportation equipment,

consumer products and building and construction. The supply

of old scrap is a factor of copper prices, the underlying level

of industrial activity, and the average life of copper fabricated

products estimated at around 20 years. However, this varies

considerably depending on the sector, with consumer and

electronic products increasingly having much shorter life spans

prior to recycling, than other sectors.

Refined copper production from secondary sources increased

for the ninth consecutive year in 2012, albeit at a slower rate

than 2011. Total production of 3.6 million tonnes was 3%

higher than last year and now contributes an 18% share of

total output. This compares to only 12% a decade ago. Given

the price performance of copper over that period, the pattern

of demand growth and the inability of mine supply to meet it,

this trend is hardly surprising.

From a regional perspective production from scrap is

predominantly driven by Asia and Europe, contributing 63%

and 31% respectively. China is by far the largest producer, with

secondary output increasing to 1.88 million tonnes in 2012,

52% of the total global market and an increase of just under

4% year-on-year. Of the one million tonnes plus of additional

smelting and refining capacity expected to be commissioned in

China during the next year or so, we estimate there are at least

four new projects with around 700,000 tonnes of secondary

smelting capacity, with domestic scrap supply most likely to be

the source to feed this capability.

WORLD SECONDARY PRODUCTION VERSUS PRICE

reasons, the refineries at the Bushveld platinum mines also had to contend with labour unrest, with copper output falling by some 10,000 tonnes as a result.

ASIA

Asia has accounted for the bulk of the growth in global refined copper output over recent years and this trend continued in 2012, with output in the region increasing by 7% to 9.7 million tonnes and corresponding to 48.5% of global production.

Production from continued to grow at a strong rate through the course of 2012. National statistics indicate an increase of 10% on 2011 to 5.7 million tonnes. Growth was predominantly from primary concentrate sources, with the rate of growth in supply from recycling and secondary sources slowing in 2012 to approximately 3.5%. The major producers provided much of the expanded capacity and support to growth; Tongling Nonferrous Metals reported production increased by 19% to just over one million tonnes. Meanwhile, output rose at Jiangxi Copper, the largest producer in China, and

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SECONDARY PRODUCTION BY REGION

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Jinchuan Group also increased output by over 20% to 600,000 tonnes. There remain a number of scheduled additions to smelting and refining capacity, with several projects adding a combined 1 million tonnes to the country’s total production capacity through 2012 and 2013. It is therefore expected that China will remain a dominant growth area into 2013.

Output from has risen back to near 2010 levels, following the significant impact of the earthquake and tsunami on 2011 supply. A rise in production of 14% to 1.51 million tonnes includes an increase of just over 5% from secondary sources. Based on current capacity and utilisation rates, which are currently around 85%, there is still some room for growth from Japan, although there are no plans for significant new capability. In contrast, in

, with refined production up 5% on 2011 and at just over 620,000 tonnes, Onsan is producing at full capacity.

Refineries reporting a year-on-year decline in output included Gresik in , down 20%, partly due to a scheduled 30-day maintenance shutdown in May 2012. Meanwhile, in the , a fire at Glencore’s Pasar refinery stopped production for six months, resulting in a 55% fall in annual output.

Elsewhere in Asia, growth of output from was steady at just over 3%. Sterlite Industries’ Tuticorin expansion project in India is scheduled to ramp-up over the next couple of years and will boost Indian production to over 1 million tonnes. In , the ramp up of Kazzinc’s 70,000 tonne per year facility at Ust-Kamenogorsk and the ramp-up of the commissioning of the SX-EW Kounrad plant generated a solid increase of 14% year-on-year.

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5. TRADE FLOWS AND STOCKS

Global concentrate trade flows rose by 8% last year

to an estimated 5.8 million tonnes on a contained copper

basis. Exports from top producer Chile rose sharply, helped

by improving production at some of the country’s bigger

mines and strong demand from China.

China easily retained its position as the world’s largest

importer of concentrates, with inflows up almost 23% to

over 2.3 million tonnes. Domestic mine output continued

to grow strongly in 2012, but still fell short of demand from

expanding processing capacity. Higher global mine output

and the resultant improvement in TC/RCs from around mid-

year also encouraged imports.

Chile remained the largest exporter of concentrates,

with levels rising sharply by over 27% to 2.3 million tonnes,

helped by higher output at the Escondida mine and the

ramp-up of Antofagasta’s Esperanza mine.

Concentrate exports from Indonesia registered a further

substantial 25% decline last year as operations at the

Grasberg mine took several months to return to normal after

the lengthy strike in 2011, while production fell further at

Batu Hijau.

China continued to dominate trade flows for refined

metal, with imports rising sharply despite high inventory

levels and the fact that the gap between domestic supply

and demand is narrowing. They reached a record 3.4

million tonnes in 2012, despite disappointing domestic

demand growth, with imports for financing purposes

helping to boost metal inflows.

EU imports failed to recover in 2012 and recorded a

further big decline as demand in the region fell for the

second consecutive year. Chilean exports to the region fell

by almost one-quarter.

Refined copper inventories held at exchange-registered

warehouses, including the London Metals Exchange (LME),

COMEX and Shanghai Futures Exchange (SHFE), increased

by 43,208 tonnes over the course of 2012, with the losses at

LME and COMEX sheds outweighed by gains at the SHFE.

Off-exchange stocks, according to our estimation,

increased by approximately 171,000 tonnes last year. This

was mainly due to the significant stock-build in China,

notably in bonded warehouses, which was only partly offset

by the drawdown in off-exchange stocks elsewhere across

the globe.

INTRODUCTION

Limited production of copper concentrate has helped to support the copper market in recent years, but the tide appears to be turning. Mine production began to pick up pace during the course of 2012 and this was reflected in concentrate trade last year, which rose by 8%, after a 3% decline in 2011. The increase was due mainly to higher exports from Chile, where some of the country’s major mines, including Escondida, Los Bronces and the relatively new Esperanza mine managed to substantially boost their output. The increase in flows of concentrates out of Chile was more than enough to offset declines from some other major exporters, such as Indonesia.

In coming years, the widespread expectation is that the continued expansion of Chinese smelter-refinery capacity will increase the country’s reliance on raw materials and lower dependence on refined metal imports. Nevertheless, Chinese metal imports achieved record levels in 2012, even though demand fell short of initial expectations. Arbitrage opportunities between the SHFE and the LME played their role at times, as did the imports of refined copper to serve the Chinese as a financing tool. Meanwhile, the same cannot be said of EU member countries, with lower metal imports a clear reflection of the state of macro conditions in the region.

Partly reflecting the trade flow features, the geographical distribution of exchange stocks changed notably last year, with inventories at LME Asian and SHFE warehouses rising, in contrast to the significant decline in stocks held in COMEX and LME warehouses outside of Asia.

EXCHANGE STOCKS AND COPPER PRICE

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TRADE IN CONCENTRATES

Copper mining and refining capacity are often not integrated. There may be a number of reasons for this, for instance it may not be suitable to build a smelter-refinery complex near certain mines, or there may be other considerations, such as high labour or power costs which can make local processing uneconomical.

Active trade in the copper concentrates market is a direct consequence of this, and Thomson Reuters GFMS estimate that global trade flows amounted to around 5.8 million tonnes of copper-in-concentrate last year. This was equivalent to just over one-third of global production and represented an 8% increase on the 5.4 million tonnes traded in 2011.

AMERICAS

Chilean exports of concentrates rose sharply, by more than 27%, last year to 2.3 million tonnes, driven by higher output at some of the country’s key mines including Escondida, which has been beset by problems in recent years and surging demand from China. This increase in exports followed a 5% decline in 2011. Chile retained its position as by far the biggest exporter of concentrates, accounting for around 39% of total volume and more than double the levels of second largest exporter Peru.

A more detailed breakdown shows that Japan remained the biggest export destination for Chilean concentrates, taking around 710,000 tonnes of contained copper, or almost one-third of the total shipped by the world’s top mining nation. This more than reversed the decline seen in 2011 when the major earthquake early that year had a negative impact on Japanese metal production.

China was the second biggest destination for Chilean concentrates last year, with imports jumping by almost 39% to just over 600,000 tonnes. Meanwhile, Brazilian imports of Chilean material fell almost 10% last year to around 95,000 tonnes of contained copper, which is likely to have been the result of lower Brazilian smelter demand due to a fairly lengthy closure at the Caraiba facility.

Exports of Chilean concentrate to European Union member states rose by an estimated 22% (or 102,000 tonnes) last year, with Spain and Germany combining to take almost two thirds of the total. Meanwhile, exports to South Korea and India both jumped by more than 40% last year to 226,000 tonnes and 342,000 tonnes, respectively.

Peru, which is the second largest exporter of copper-in-concentrate, saw its exports rise 18% in 2012 to just over 1.1 million tonnes. China, which accounted for 43% of Peruvian exports last year, took 480,000 tonnes, up

MAJOR TRADE FLOWS IN COPPER CONCENTRATES IN 2012 – AMERICAS EXPORTS

Figures provided refer to “thousand tonnes of copper-in-concentrate” and were calculated using gross concentrates trade flow data, adjusted with exporting country’s average concentrate grades.

United States

Germany

Spain

China

India

Chile

Argentina

JapanS. Korea

Peru

Brazil

Canada

710

602

342

22695

109

70

480

236 111

55

60

48

45

39

33

31

51

41

29

Bulgaria

31

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almost 53% from 2011 levels. Japanese imports from there jumped more than one-fifth to around 236,000 tonnes, helping to more than offset declines in imports by other lower ranking destinations, including Bulgaria, Chile, Sweden and the Philippines, where the PASAR facility was closed from January to August last year following a fire.

Elsewhere in the region, Brazilian exports rose by 7% from 2011 levels to just over 200,000 tonnes, while those from Argentina rose 15% to around 157,000 tonnes, more or less reversing the previous year’s decline as South Korea, Japan and Spain raised imports. Mexican exports rose 31%, while the exported just under 100,000 tonnes of copper-in-concentrate, up around 16% year-on-year, with China taking more than 40% of that total.

ASIA-PACIFIC

Exports from , which had already fallen by 44% the previous year due to the lengthy strike at Freeport’s huge Grasberg mine and production problems at Batu Hijau, recorded a further substantial near-25% decline last year, to an estimate of just under 335,000 tonnes. The impact of the action at Grasberg continued to be felt into 2012 despite the end of the strike, with operations taking time to return to normal, while output at Batu Hijau also fell further.

Indonesian exports to Japan, which plummeted by about 70% in 2011, managed to pick up by 18% in 2012, while among other major destinations there were sharp declines in imports by South Korea and China, of 37% and 43%, respectively, and an even larger 56% fall in Indian imports of Indonesian material. Meanwhile, exports to Spain, presumably to Freeport’s own Huelva smelter, continued to suffer and fell to 22,000 tonnes last year from just over 60,000 tonnes in 2011.

exports, which fell by 4% in 2011, rose by 9% last year, with flows up to the top three destinations, China, India and Japan, all increasing to help offset a 31% fall in exports to South Korea.

China retained its position as by far the largest importer of copper-in-concentrate last year, with inflows more than 50% higher than those from second-ranking Japan. Imports surged in the second half of the year in particular, helped in part by the pick-up in global mine supply. Chinese imports rose by almost 23% in 2012 to over 2.3 million tonnes, having dipped by just over 1% the previous year. This followed 5% and 18% rises in 2010 and 2009 respectively. Aside from the flows mentioned above, Chinese imports also rose from other sizeable sources, including Mexico (+28%), Mongolia (+5%), Canada (+25%) and the United States (+28%). Exports to China from Kazakhstan and Laos fell by a respective 20% and 12% on a year-on-year basis.

MAJOR TRADE FLOWS IN COPPER CONCENTRATES IN 2012 – ASIA-PACIFIC EXPORTS

Figures provided refer to “thousand tonnes of copper-in-concentrate” and were calculated using gross concentrates trade flow data, adjusted with exporting country’s average concentrate grades.Source: National Statistics, Thomson Reuters GFMS

Philippines

Mongolia

Australia

Indonesia

China

JapanSpain

Papua New Guinea

India

S. Korea

43

53

128

30

22

198

175

132 41

23

161

11

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As noted above, Chinese imports far outweigh those of second largest importer Japan. Last year, flows of copper-in-concentrate into Japan rose 17% from 2011 levels to 1.5 million tonnes. Imports in 2011 fell by 18%, affected by lower smelter output in the face of weak end-use demand, which was exacerbated by curtailments due to the major earthquake. Meanwhile, imports fell slightly last year to 505,000 tonnes.

OTHER

Elsewhere, exports of copper-in-concentrates from reversed the declines seen from 2010, and

almost returned to levels seen in 2009. They reached just over 150,000 tonnes last year, rising by more than 50%, likely helped in part by stabilising mine output. Almost all of the country’s exports were shipped to China last year. Meanwhile, exports, which fell almost 40% in 2011 to end an earlier uptrend, staged a 34% pick-up last year to just over 100,000 tonnes on a contained basis, almost two-thirds of which went to China.

Imports of copper-in-concentrates into the rose about 7% last year to an estimated 1.1 million

tonnes. was by far the biggest importer within the region, taking an estimated 455,000 tonnes, up slightly from the previous year. This was followed by Germany, which took about 365,000 tonnes last year, up from 341,000 tonnes in 2011.

TRADE IN REFINED METAL

CHINA

Despite rapid domestic copper mine supply growth in recent years, continued voracious appetite for the metal has ensured that it has remained a large importer of refined copper. Indeed, imports of refined copper reached record levels of 3.4 million tonnes in 2012, surpassing the previous record of around 3.2 million reached in 2009 and exceeding 2011 levels by almost 20%, or well over half a million tonnes.

Imports averaged over 380,000 tonnes per month over the full year and were up 47% in the first half of the year on expectations of stronger demand than actually materialised. Importers of metal for financing purposes also boosted their term bookings last year (see the focus box later in the chapter for a detailed analysis of this trend).

Importers cancelled or pushed back some term shipments last year as it became clear that Chinese copper demand growth was not going to pick up to any great extent. Even so, the majority of shipments still made their way to China, inflating bonded warehouse inventories.

MAJOR REFINED COPPER IMPORTS INTO CHINA IN 2012

Figures provided in thousand tonnes.Source: National Statistics, Thomson Reuters GFMS

United States

Philippines

China

Zambia

EU-27

S. Korea

Peru

154

271

Australia

India

Japan

Kazakhstan

Chile

1310148

138

235

182

Congo

152

457

52

100

90

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COPPER SURVEY 2013

It is also worth noting that Chinese exports of refined copper jumped by 75% last year to a record 274,014 tonnes. Some 58%, or 159,000 tonnes, of that total were shipped to South Korea, up 152% from 2011. Chinese exports reached a monthly record of just over 100,000 tonnes in May 2012, encouraged by high prices on the London Metal Exchange compared with domestic levels. A tax adjustment around the middle of last year, which effectively reduced the cost to toll smelters of exporting material, was also expected to boost shipments.

Taking a closer look at the breakdown of imports, the chart on the previous page highlights the largest trade flows into China last year. Chile was the largest exporter of refined metal to the country. In volume terms, Chilean

exports were up 3% from 2011 at 1.310 million tonnes. However, its share of total Chinese imports fell to 38% from 45% in 2011.

In the light of this, it was interesting to hear comments by Codelco in March 2013 that it was gradually scaling back its exposure to China as the country becomes more self-sufficient in the metal. An official recently said the company was selling about 30% of its copper cathode, down from about 32% a year earlier. Instead, the firm aims to ship more to Europe and the United States.

Behind Chile, retained its position as the second largest exporter to China, with shipments up 13% on 2011 levels, to 271,000 tonnes or around 8% of total Chinese imports. and exports to China kept those countries in third and fourth place, respectively. They rose by 15% and 7%, respectively, last year, after falling quite sharply in 2011.

Exports from were barely changed from 2011 levels at 148,000 tonnes, and it was leapfrogged by

, the and Belgium, which all shipped around 150,000 tonnes to China last year. also slipped to 9th position from 6th, even though its exports rose by 4.5% to 138,000 tonnes, followed by Peru with around 100,000 tonnes as and the dropped out of the list of top ten exporters to China.

MAJOR TRADE FLOWS IN REFINED COPPER IN 2012 EXCLUDING CHINA

Figures provided in thousand tonnes.Source: National Statistics, Thomson Reuters GFMS

Chile 1,451 1,349 1,271 1,310 -7% -6% 3%

India 61 106 240 271 73% 126% 13%

Japan 364 251 204 235 -31% -19% 15%

Kazakhstan 163 188 170 182 16% -10% 7%

Korea South 84 88 118 154 5% 34% 31%

DR Congo 26 106 92 152 314% -13% 64%

Belgium 115 95 50 149 -17% -47% 197%

Australia 145 124 147 148 -14% 19% 1%

Zambia 123 148 132 138 21% -11% 4%

Peru 73 75 79 100 2% 5% 28%

Source: National Statistics, Thomson Reuters GFMS

TOP-10 REFINED COPPER EXPORTS TO CHINA

Mexico

58

S. Korea

Taiwan

Turkey United States

EU-27

Japan

Peru

Canada

Brazil

Chile

Kazakhstan

477

115

148

Russia

66416

186

128

197

90

203

29

47

48

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EUROPEAN UNION (EU-27)

Unlike China, imports in the did not recover in 2012 and, having fallen by 4% to 1.128 million tonnes in 2011, dropped by an even larger 13% to 982,000 tonnes last year, as demand fell for the second year running.

The region’s imports from top exporter Chile, which accounted for almost half of the total, recorded the largest decline in volume terms of 136,000 tonnes, for a 22% year-on-year fall.

The sharp drop in exports to the region, by almost one-third or around 65,000 tonnes, last year came on top of an already sharp 35%, or 116,000 tonne, decline in 2011. Even so, Russia easily retained its position as the second biggest exporter.

Looking on an individual country basis, Germany, the region’s largest consumer, imported around 701,000 tonnes of refined copper in 2012, which represents a 5% decline from 2011 levels. Meanwhile, Italy, the second largest consumer also saw a decline of almost 5% to an estimated 582,000 tonnes.

Elsewhere in the region, exports to France fell by 3% to 218,000 tonnes and to the by 15% to 182,000 tonnes. Belgium was one of the brighter spots, with imports more than reversing the 44% decline in 2011 to more than double, to just over 70,000 tonnes. Germany was by far the biggest exporter to Belgium, accounting for around three-quarters of the total. In 2011, it exported only 18,500 tonnes to the country and accounted for just over half of its total imports.

OTHER

Inflows into the dipped slightly in 2012, by 3% to 628,000 tonnes. Chile’s share of exports rose to 64% or just below 400,000 tonnes, which may be a reflection of Codelco’s aforementioned intention to boost exports to the United States and Europe. In 2011, Chile accounted for 55% of total imports into the United States.

imports dropped 72% to 36,000 tonnes last year, with imports likely inflated in 2011 by the impact of the major earthquake on domestic metal production.

Also notable is the fact that imports recorded a further 13% drop last year to 302,000 tonnes,

while Egyptian imports fell by around 40%. In contrast, Brazilian imports rose almost 16% in 2012, with imports from Chile, which accounted for almost 80% of the total, up around one-fifth from 2011 levels.

TRADE IN COPPER PRODUCTS

The analysis of trade flows in copper fabricated products can be useful in understanding trends in regional copper consumption, given that fabricated metal in a number of countries is destined for export markets.

The relatively low mark-up nature of most copper semis and finished wire means that comparative advantages between different markets are limited. As a consequence, trade in these products tends to be contained within regions, as the cost of transporting them further afield would more than offset any labour, energy and other local cost advantages.

In this section, we give an overview of the principal trade flows identified in three main copper semis categories, wire-rod and bare wire, plate and strip (of a thickness above 0.15 mm) and copper tubes and pipes.

In all cases, we look at trade flows from the point of view of exporting countries, giving some additional insight into the sources of copper consumption growth in these.

MAJOR INTRA-EU-27 COPPER TRADE FLOWS IN 2012

Figures provided in thousand tonnes and refer to refined copper flowsSource: National Statistics, Thomson Reuters GFMS

SpainItaly

Netherlands

Bulgaria

GermanyBelgium

Austria

29

Sweden

Poland

143

102

76

27

81

43

35

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TRADE IN COPPER WIRE-ROD AND BARE WIRE

2012 saw a mixed picture for exports of copper wire-rod and bare wire, with several of the top exporting nations in showing further declines as demand across the region shrank.

exports grew slightly over the period, building on the 2011 surge which followed the reinstatement of a 10% export duty on copper cathodes, and this was enough to topple Germany as the No. 1 exporter of these products.

shipments, in contrast, fell by 14%, with those to Italy, Poland, the Netherlands and Saudi Arabia showing sizeable declines. Italian exports, meanwhile, rose by almost one-fifth, erasing most of the sharp losses recorded in 2011 and bringing it into the top 10 list.

Perhaps one of the most notable features last year though was the continued decline in exports, pushing it out of the top 10 exporters. Shipments from the country fell by 36% year-on-year to around 54,000 tonnes, having already slumped by 42% in the prior year. Offtake from emerging nations was largely responsible for the drop. In 2012, South Korean exports to second biggest destination, China, virtually halved to around 14,000 tonnes as the pace of demand growth there slowed and as Chinese fabricating capacity continued to expand. Meanwhile, Indian imports from South Korea plunged by almost 80% to meagre levels below 2,400 tonnes.

Among the top 10 exporters, declines were confined to European nations – Belgium, and France in

addition to Germany. Meanwhile shipments from the rose 4% following the 9% fall in 2011.

Exports from many Asian countries remained depressed, but managed to maintain its position among the top echelon. Its shipments rose by around 17% in 2012, with a sharp rise in exports to Malaysia and other smaller destinations more than offsetting a decline in shipments to China.

TRADE IN COPPER PLATES, SHEETS AND STRIPS

Despite a 6% decline from 2011, Germany retained its position as the world’s biggest exporter of copper plates, sheets and strips last year, with flows out of the country totalling 271,000 tonnes. The bulk of this headed to other European countries, with France and Italy, despite sizeable falls, the main recipients, accounting for just under a quarter of the total. The United States was the largest single destination however, with exports there almost recording double digit growth.

Exports from most Asian countries fell over the period, with declines ranging from around 7% in China to almost 20% for Taiwan. Demand fell from China and Hong Kong, Taiwan’s two main destinations.

was the only Asian nation to avoid a decline among the major exporters, but even here shipments were essentially flat year-on-year. meanwhile, lost its place in the top 10 after exports fell by around 44% from 2011 levels and was replaced by Bulgaria. Italy was the primary destination for Bulgaria’s products in this category.

TOP-10 COPPER WIRE-ROD AND BARE WIRE EXPORTS

Russia 189 187 353 363 -1% 89% 3%

Germany 333 350 354 303 5% 1% -14%

Belgium 172 224 194 167 30% -14% -14%

United States 127 161 147 152 27% -9% 4%

Poland 100 126 129 142 26% 2% 10%

Spain 118 143 144 136 22% 1% -6%

Canada 96 106 112 129 10% 6% 15%

Indonesia* 74 99 96 112 34% -3% 17%

France 163 111 103 94 -32% -7% -8%

Italy 102 94 74 87 -8% -21% 19%

*Annualised January-November total shown for 2012 as December data was not available at the time of writing.


Germany 227 296 288 271 30% -3% -6%

Japan 75 115 96 89 53% -17% -8%

South Korea 57 70 67 67 23% -5% 0%

Egypt* 101 101 66 60 0% -35% -8%

Italy 48 58 55 47 21% -6% -13%

Hong Kong 52 66 51 46 26% -21% -11%

United States 34 39 38 40 15% -3% 5%

Taiwan 50 64 43 35 27% -33% -20%

China 23 33 29 27 46% -12% -7%

Bulgaria 17 25 24 27 41% -3% 12%



TOP-10 COPPER PLATE, SHEET AND STRIP EXPORTS

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TRADE IN COPPER PIPES AND TUBES

Flows of copper tubes and pipes from top exporter China fell just over 7% last year to 129,000 tonnes. The established decline in Chinese exports to the United States, one of the main destinations, slowed in pace from the previous year to a 4% drop.

Sharp falls were seen in Chinese exports to other countries such as India and Brazil and South Korea although export volumes were generally well spread and these declines were more or less offset by increases to other nations, including Thailand, Malaysia and Indonesia.

Among other major exporters, Japan recorded the biggest decline in percentage terms. Flows out of Japan dropped almost 22% to below 19,000 tonnes, with exports to China, Thailand and Taiwan showing the largest falls of between 30-45%. replaced

in the list of top 10 exporters.

EXCHANGE STOCKS

Refined copper inventories held at all exchange-registered warehouses (including the LME, COMEX and SHFE) increased by 43,200 tonnes over 2012 as a whole, standing at just under 600,000 tonnes at the end of the year. Although the LME continued to be the largest pool of copper liquidity, its end-year share of the total, equating to 54%, was the lowest since 2006. In the meantime, the rise in stocks at SHFE warehouses in China led its share to 35%. The remaining 12% of inventories held on-exchange were stored at COMEX-approved warehouses in the United States.

Looking by location, interestingly, exchange stocks went through a geographical re-distribution process over the course of 2012, with inventories higher in Asia than the other side of the Pacific for the first time since 2006. By the end of last year, total stocks held in Asia (SHFE plus Asian-based LME warehouses) surpassed the sum of those in the United States and Europe (COMEX plus European and US-based LME warehouses), standing at 320,208 tonnes and 263,612 tonnes respectively.

LME stocks were generally in a downtrend over the first three quarters of last year, with a low of 210,725 tonnes seen in mid-October, from 370,000 tonnes at the start of 2012. Later in the year, reflecting the gains in LME copper prices and improved supply, stocks gradually returned to the exchange, ending the year at 320,500 tonnes, although this remained 14% lower than the level seen in the corresponding period of the previous year.

The main source for the decline was the LME-registered warehouses in the United States, where stocks fell by 165,825 tonnes over the course of 2012, to close the year at 119,675 tonnes. Whilst in part, this may be reflective of an uptick in consumption, we believe that the bulk of this stock was destined for the export market and, in particular, for China. The rise in SHFE stocks, as well as the fact that refined copper exports from the United States surged by more than three times to 160,312 tonnes over 2012, and over half of those were shipped to China, certainly serves to support this assumption. Such exports were concentrated in the first half of the year. This was

Belgium 2.0 2.3 0.8 0.4 44.9

France 0.0 0.0 0.0 0.0 0.0

Germany 16.0 12.0 10.0 7.8 0.0

Italy 27.1 5.1 3.6 8.4 0.8

Korean Republic 61.4 110.9 49.5 25.0 92.2

Malaysia 0.0 3.6 1.9 2.3 21.6

Netherlands 90.7 35.0 14.5 31.3 26.8

Singapore 11.4 25.4 11.2 9.9 13.9

Spain 23.5 13.2 1.5 1.0 0.0

Sweden 0.0 0.0 0.0 0.0 0.0

United Arab Emirates 0.0 0.5 0.0 0.0 0.0

United Kingdom 2.5 10.9 0.3 0.1 0.7

United States 105.9 283.4 284.5 285.5 119.7

Source: Various

China 137 136 139 129 -1% 2% -7%

Germany 79 91 79 74 16% -14% -7%

Greece 33 45 47 48 36% 7% 3%

South Korea 28 38 43 44 35% 13% 2%

Italy 35 42 41 38 19% -2% -9%

Malaysia* 29 38 36 38 31% -5% 5%

United States 23 18 22 20 -21% 19% -7%

Japan 24 32 24 19 31% -24% -22%

Austria 18 21 21 18 18% 0% -15%

Thailand 11 15 16 17 29% 8% 7%



TOP-10 COPPER PIPE AND TUBE EXPORTS REFINED COPPER STOCKS AT METAL EXCHANGES

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TOTAL EXCHANGE STOCKS (000 TONNES) LME STOCKS BY LOCATION (000 TONNES)

mainly because of the low inventories at other LME warehouses in Asia and Europe (see the chart above) in early 2012, which led the metal-hungry Chinese to seek copper from other areas, such as the United States. During that period, premiums for United States delivery were reported to have trended slightly higher.

At the other side of the “re-distribution”, exchange stocks stored at LME-registered Asian warehouses, as well as at SHFE-approved warehouses in China, surged in 2012, increasing by 90,450 tonnes and 113,239 tonnes over the year, respectively. It could be argued that this geographical move is certainly intuitive from a fundamental point of view, given the ever-increasing importance of Chinese demand to the global total (see Chapter 6).

Another interesting point to note is the close relation between stock fluctuations at SHFE and Asian-based LME warehouses, which reflects the arbitrage opportunities between different exchanges. For instance, over March-May last year, copper inventories at the SHFE fell by approximately 74,000 tonnes, accompanied by a surge of about 50,000 tonnes in LME-registered warehouses in Asia (mostly in South Korea).

OFF-EXCHANGE STOCKS

In addition to inventories stored at the various exchanges listed above, there is also a large proportion of stocks held off-exchange, such as at consumers, producers and traders. Changes in such stocks can periodically have a significant impact on the market, although by definition are difficult to accurately quantify.

Our supply/demand balance shows that the global copper market was in a surplus of 214,000 tonnes over 2012 which, factoring in the 43,000 tonne addition to exchange stocks, implies a 171,000 tonne net addition to such off-exchange inventories last year. The majority of this stock build, according to our estimates, occurred in China and, in particular, in bonded warehouses within the country (see the focus box for a detailed analysis of Chinese bonded warehouse stocks), with large net additions being logged over the first quarter of the year in particular. We note that such assessments are based on a comparison between apparent consumption statistics and our assessment of underlying demand trends, as well as, crucially, the findings from our extensive field research undertaken within the country.

The stock build accumulated in China was estimated to have been only partly offset by a drawdown in off-exchange inventories in the rest of the world. This drawdown took place primarily in the mature economies, where fabricators and end users, for example, are continuing to reduce the level of stock, given the weakness in underlying demand and efforts to reduce unnecessary costs.

Tonn

es (t

hous

ands

)


0

200

400

600

800

1000

Jan-13Oct-12Jul-12Apr-12Jan-12

LME COMEX SHFE

Tonn

es (t

hous

ands

)


0

100

200

300

400

500

600

Jan-13Jul-12Jan-12Jul-11Jan-11

Europe United States Asia

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CHINESE BONDED WAREHOUSE STOCKS AND

COPPER IMPORTS FOR FINANCING

Chinese refined copper imports had previously served as an

important indicator to help gauge the country’s economic

development, due to the country’s structural shortage in the

red metal that is widely used in infrastructure construction and

industrial production. The correlation has, however, weakened

over recent years. In 2012, for instance, the country’s economic

growth slowed down to the lowest rate since 2000, while

annual copper imports soared by 20% year-on-year to an all-

time high of 3.402 million tonnes.

Rather than being delivered into the domestic market to

feed the needs of the real economy, some of the imported

copper found its way to China primarily for financing and, as a

consequence, significant volumes of refined metal are reported

to have been accumulated at so-called “bonded warehouses”

within the country. We examine below the economic incentives

behind “imports for financing”, as well as the trends in bonded

warehouse stocks over the year.

Imports for financing in ChinaImporting commodities to secure financing has been adopted

by some Chinese companies for almost a decade. The

strategy is not exclusive to copper and involves many other

commodities, such as corn and soybeans, although copper

is one of the favourite assets, given its relatively high unit

value, easy storage and good liquidity. The practice had

been popular in 2008, when monetary policy was relatively

tight, and then it became less necessary later, in the looser

credit environment, as a result of China’s stimulus package

to combat the financial crisis. In the second half of 2011, as

the Chinese government took a restrictive monetary approach

to fighting inflation issues, importing copper to avoid curbs

in credit has emerged again, and continued into 2012, with a

greater capital deployed than had been previously seen.

Chinese companies employing this strategy hold different

business backgrounds, and some of them were actually

established as a trading arm to finance their parent company

or large stakeholders’ other business. Accordingly, the uses of

the capital generated vary to a large extent. It is reported that

some funds flowed into the real estate business or high-yield

investment projects.

As shown in the flow chart below, the common practice that

the Chinese trading companies undertake is to make a copper

purchase agreement with a foreign supplier or take long

positions at the LME, and then apply for a letter of credit (L/C)

denominated in US dollars from a bank, based on its import

contract and a pre-paid security deposit (normally 15-30% of

the face value). Banks that issue L/C could be either Chinese

or foreign banks. Advance payment for copper imports will

be made by the issuing banks’ foreign branches to copper

suppliers after the credit is issued, and the holding companies

will not have to pay the issuing banks until the due date of the

L/C. Effectively, the participating companies have secured

short-term loans from the issuing banks.

Letters of credit vary in terms of validity period, credit limit,

security deposits required and interest rates, depending on

the negotiation between companies and banks. According to

our industry sources, many banks now tend to issue 90-day

L/Cs, while before last November, 180-day terms were more

common. The interest rate is based on US dollar LIBOR

(London Inter-bank Offered Rate) plus a spread (currently

around 2% in many cases). This is generally viewed as a

IMPORTS FOR FINANCING PROCESS

Source: Thomson Reuters GFMSNote: red arrows denote flow of copper, grey arrows denote transfer of cash

Delivery of contract

Bonded Warehouses

Copper Suppliers

L/Cs Issuing Banks

Chinese TradingCompanies

Global MarketDomestic Market

Payment in 3-6 months

Advance payment

Banks

Collateral for loan (RMB)

In exchange for warrant

Sell copper for US$Sell copper for RMB

High-Yield Investment Projects

Earnings

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COPPER SURVEY 2013

“cheap loan” by the Chinese, given the higher costs of

capital via alternative financing methods, such as short-term

loans from banks or private entities. For small and medium-

sized private enterprises, borrowing from banks can be very

difficult in China, particularly in times when credit controls are

tightened; while private loans could cost as much as 30-40%

when the monetary environment is tight.

After copper shipments arrive in China (it usually takes from

one week to one month), trading companies have a few

options to “cash in” the metal. One is to store the metal

in bonded warehouses in return for a warrant, which will

allow traders to pledge the copper as collateral for a loan

(denominated in China Yuan) from a bank (normally different

from the issuing bank of the company’s L/C), in order to satisfy

the company’s own financing requirements.

The second approach is to leave the copper in the bonded

warehouse (to avoid paying VAT) and then sell it back into the

global market before the due date of the L/C, in order to get

hold of quick cash (all in US dollars). Sometimes companies

may generate additional earnings from an LME price increase

during the buy-sell cycle. However, this approach has limited

appeal as importers prefer payments in Yuan to fund their

domestic business (due to the Chinese government’s foreign

exchange controls) rather than in US dollars.

Alternatively, traders can sell the imported copper into China’s

spot market, in exchange for cash in domestic currency. This is

certainly profitable when SHFE prices are at a premium to LME

prices. Last year, however, the SHFE-LME arbitrage window

was closed for a substantial period, meaning that trading

companies were likely to incur losses in such transactions. A

simplified formula to work out the cost for imports is (LME spot

prices + premium (including freight and insurance))*exchange

rate CNY/USD*(1+17%VAT)+other expenses (such as customs

declaration fees and currency exchange transaction fees,

which are minimal relative to the transaction size). For

example, applying the quotes at the time of writing, the import

cost per tonne is around ($7,621+$50)*6.21*(1+17%)=55,735

Yuan, plus a small amount of other expenses.

It should also be born in mind that transactions within

the domestic copper industry tend to be conducted with

promissory notes, the discount rate of which soared to

above 14% in late 2011 (annualised rate, based on standard

promissory note discount rates in the Yangtze River Delta

region in China). This could provide traders with some interest

income by selling copper, as long as the discount rate is

higher than the interest rate required in the L/C. During 2012,

discount rates for promissory note almost halved from end

2011, and the current level is about 4-5%.

When a L/C is due, traders can pay the issuing bank with the

return from investment (in US dollars). They can also apply

for another L/C (by making another copper import deal)

before the due date of the current one (subject to company’s

credit limit), and repeat the aforementioned procedures and

the financing cycle. The overall cost of financing, via any of

the routes mentioned above, is estimated to be lower than

borrowing directly from banks or financial societies. This also

combines with the potential high returns from investment

projects, the currency earnings in an appreciating RMB

environment, and the possibility to benefit from copper price

changes (some traders hedge on the SHFE at the same time

when purchasing from abroad).

Bonded warehouse stocks in 2012 and 2013All the mechanisms described above make this practice

very attractive in China, which was the major reason for the

escalation in stocks seen in Chinese bonded warehouses last

year. Due to a lack of transparency in bonded warehouse

stocks, Thomson Reuters GFMS’ estimates below are mainly

3M LIBOR (US$) VS 3M SHIBOR (RMB)

6M or less 6M - 1 Yr (incl.)

06/07/2012-current 5.60 6.00

08/06/2012-05/07/2012 5.85 6.31

07/07/2011-07/06/2012 6.10 6.56

06/04/2011-06/07/2011 5.85 6.31

09/02/2011-05/04/2011 5.60 6.06

26/12/2010-08/02/2011 5.35 5.81

20/10/2010-25/12/2010 5.10 5.56

23/12/2008-19/10/2010 4.86 5.31

27/11/2008-22/12/2008 5.04 5.58

30/10/2008-26/11/2008 6.03 6.66

09/10/2008-29/10/2008 6.12 6.93

16/09/2008-08/10/2008 6.21 7.20

21/12/2007-15/09/2008 6.57 7.47

Source: The People’s Bank of China, Thomson Reuters GFMS

RMB BENCHMARK SHORT-TERM LOAN INTEREST RATES (ANNUAL PERCENTAGE RATE)

Perc

enta

ge


Libor (US$)

0

1

2

3

4

5

6

7

8


Shibor (RMB)

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based on our research trips to the country, which may vary

from other reported figures.

Over 2012 as a whole, total bonded warehouse stocks held

in both Shanghai and Guangdong grew by about 500,000 –

600,000 tonnes, to 1.0 – 1.2 million tonnes, with the majority

stored in Shanghai. Inflows were particularly high over the

opening quarter of 2012 and, with only a few periods of

exception, inventories generally continued to trend higher

over the remainder of the year. Over the first two months of

2013, it is reported that bonded warehouse inventories have

not changed much from end-2012 level, with 800,000 – 1.0

million tonnes in Shanghai and 200,000 – 300,000 tonnes in

Guangdong, in early March 2013.

A key question for the copper market going forward is whether

this bonded warehouse stock will find its way into the market.

Below, we analyse a few possible channels from which

outflows could occur.

Firstly, one possibility is for metal to be absorbed by the

domestic market, should there be an acceleration in Chinese

economic growth. It is more cost-economic and time-

efficient for end-use consumers to buy copper from bonded

warehouses than to import from the global market (excluding

that material that is imported under long-term contracts

with foreign producers). For example, copper delivered

from Shanghai bonded warehouses to Zhejiang and Jiangsu

provinces, where domestic copper semis manufacturers are

concentrated, only takes several days, including the Customs

declaration process, which is usually finished within one to

two days. Another driving force for copper to flow into the

domestic market is the presence of a large price gap between

Chinese and LME markets, so traders could profit from the

arbitrage. Nevertheless, if the price strength is not supported

by improvements in real consumption, a flood of copper from

bonded warehouses could seriously impact the domestic

market.

The other possibility is to release copper stocks from bonded

warehouses back on to the LME, which would be encouraged

by higher LME prices relative to Chinese prices, similar to

what was observed over March-May 2012. During this time,

a surge in Chinese refined copper exports was seen, with over

128,000 tonnes being shipped to South Korea, Singapore and

Malaysia (i.e. countries close to China with LME-registered

warehouses). In the meantime, the decline on the SHFE was

only around 74,000 tonnes, indicating that roughly 50,000

tonnes of copper had been removed from elsewhere in China.

The majority of this, in our view, was sourced from the bonded

warehouses. However, arbitrage opportunities seem more

difficult to appear on any sustained basis now than in previous

years, as Chinese copper prices have been closely following

the LME quotes for a number of months. During early 2013,

however, the SHFE-LME arbitrage has opened up once more.

In the near future, bonded warehouse stock levels may also

be subject to any relevant changes in China’s monetary and

regulatory policies, which adds more uncertainties to forecasts

of potential bonded warehouse stock changes. For instance,

factors like a reduction in interest rates and an increase in

lending by the central bank; or an easing of controls over

foreign currency inflows, would likely see a decline in bonded

warehouse stocks. In contrast, the opposite scenarios would

likely result in bonded warehouse inventories remaining at

elevated levels this year.

CHINESE MONTHLY IMPORTS AND EXPORTS OF REFINED COPPER (000 TONNES)

0

100

200

300

400

500

Jul-12Jan-12Jul-11Jan-11

Tonn

es (t

hous

ands

)

Source: China’s Customs

Exports Imports

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6. CONSUMPTION

Global copper demand rose by just 1% in 2012. Chinese

consumption growth slowed significantly, to 4% year-

on-year, although it nevertheless remained the key driver

behind global performance. Demand outside of China

contracted by 2%.

Copper consumption within the building construction

sector fell 1% last year. Growth in Chinese demand slowed

sharply, whilst EU-27 construction activity continued to

contract at a considerable pace.

The electrical and electronic products sector, which is

the largest end-use segment, saw a 2% increase. Robust

growth in demand from the power utilities sector in the

emerging economies, and in particular China, remained the

key contributor to gains.

The largest rise in percentage terms was seen in the

transportation equipment segment, where offtake increased

4%. This was driven by strong growth in the light vehicle

sector, with the North American and Japanese markets the

standout performers.

The consumer and general products sector was the

worst performing end-use segment last year, with demand

sliding 3%. Weak demand and high inventories in the

appliance market were key factors behind the decline,

although robust performance in the tablet and smartphone

sectors helped to restrict further weakness.

Demand also fell in the industrial machinery and

equipment market, by 1% on a year-on-year basis. The

weakness in the construction market weighed on demand

for construction-related machinery, whilst tight credit

conditions and uncertainty over the global outlook

restricted capital investment.

INTRODUCTION

Global copper consumption totalled 19.845 million tonnes in 2012, rising just over 100,000 tonnes, or 1%, on a year-on-year basis. The rate of increase slowed notably from the 3% growth seen in the previous year and represented the weakest performance since 2009, as the wider slowdown in global economic growth impacted demand for copper and other industrial metals.

The growth in refined copper consumption was particularly weak over the first half of 2012, with our estimates showing global usage down 1% on a year-on-year basis over the opening six months. During this period, ongoing concerns over the Eurozone debt crisis not only continued to weigh on activity there, but also continued to breed uncertainty and dent economic activity elsewhere across the globe. A sharper-than-expected slowdown in the rate of expansion in Chinese copper consumption was, in part, a function of the weakness in external demand. However, it also reflected an engineered slowdown of growth in some key end-use sectors, in addition to weakness in a host of other major consuming countries, which also served to restrain the global demand total over this period.

Consumption growth did return to positive territory over the second half of 2012, growing by 2% year-on-year. This improvement was, in part, a function of the low base of the previous year, although it also reflected genuine improvement in some key markets. The notable bright spot was the United States, where an ongoing recovery in the housing and auto sectors continued to buoy consumption, despite rising concerns over the protracted nature of the “fiscal cliff” negotiations during the latter part of last year. A slight improvement in Chinese demand growth, in line with the wider improvement in economic activity over the final months of the year, also served to boost the global total.

Building Construction 5,923 5,507 6,015 6,182 6,115 33% 32% 31% 31% 31%

Electrical & Electronic Products 6,201 6,545 7,077 7,404 7,583 35% 38% 37% 38% 38%

Transportation Equipment 2,014 1,833 2,128 2,186 2,265 11% 11% 11% 11% 11%

Consumer & General Products 1,814 1,749 2,010 2,010 1,951 10% 10% 11% 10% 10%

Industrial Machinery & Equipment 1,887 1,682 1,897 1,959 1,931 11% 10% 10% 10% 10%

Source: Thomson Reuters GFMS, CDA

GLOBAL COPPER CONSUMPTION BY END USE

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As can be concluded from the above, it has been another difficult year for copper semi-fabricators and some downstream users, who are increasingly focusing on financial prudence and attempts to minimise margin pressure in a bid to keep afloat. One effect of this shift in focus is that there are increasing pressures to substitute to cheaper materials, which has become an area of focus given the elevated and volatile nature of copper prices over recent years (see the focus box later in the chapter for more details). In addition, fabricators and end users have continued to reduce stock levels, largely in a bid to reduce the costs involved with storing excess inventory. Both of these trends continued to exacerbate the slowdown in demand growth for refined copper units last year and, although destocking is in nature a finite process, substitution is set to continue to exert downward pressure on copper consumption over the coming years.

Looking ahead, whilst we expect a recovery in global copper demand growth in 2013, in part driven by an improvement in Chinese economic growth, notable downside risks remain and the outlook continues to be clouded by uncertainty. Ongoing disputes in the United States regarding the best method to deal with its rising budget deficits, combined with the potential for a further escalation of EU-27 debt concerns, for example, are amongst the factors that could derail any recovery.

We begin this chapter by detailing the regional trends in copper consumption and providing a broad overview of conditions in the major consuming countries, before providing a detailed analysis of 2012 trends in key end-use markets.

GLOBAL COPPER CONSUMPTION BY END USE (YEAR-ON-YEAR CHANGE IN VOLUME, 2011 AND 2012)

of which Mature 6,159 5,915 -244 -4% 31% 30%

of which BRICs 9,459 9,765 306 3% 48% 49%

China 7,725 8,058 333 4% 39% 41%

United States 1,645 1,687 42 3% 8% 9%

Germany 1,260 1,114 -145 -12% 6% 6%

Japan 1,003 978 -25 -3% 5% 5%

South Korea 830 780 -50 -6% 4% 4%

Russia 712 651 -62 -9% 4% 3%

India 616 638 22 4% 3% 3%

Italy 588 563 -25 -4% 3% 3%

Taiwan 481 445 -36 -7% 2% 2%

Brazil 406 419 13 3% 2% 2%


WINNERS AND LOSERS IN 2012, BY GROUPING AND MAJOR CONSUMING COUNTRY

-100

-50

0

50

100

150

200

250

300

350

IndustrialConsumerTransportElectricalBuilding

Tonn

es (t

hous

ands

)


2011

2012

GLOBAL COPPER DEMAND VS GLOBAL GDP GROWTH

8

12

16

20

24

20122011201020092008

Mill

ion

tonn

es

Source: Thomson Reuters GFMS, ICSG, IMF, World Economic Outlook

-2

0

2

4

6GDP Growth

%

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Mature 7,232 7,762 7,066 5,766 6,346 6,159 5,915 0.7% -2.7%

of which EU-27 3,489 3,955 3,768 3,262 3,495 3,367 3,093 1.3% -2.4%

of which Japan 1,411 1,167 1,185 876 1,060 1,003 978 -1.9% -1.8%

of which North America 2,332 2,640 2,113 1,627 1,791 1,789 1,844 1.2% -3.5%

BRICs 1,540 3,691 6,676 7,634 8,615 9,459 9,765 9.1% 10.2%

of which China 882 2,775 5,147 6,359 7,139 7,725 8,058 12.1% 11.3%

of which India 98 297 506 553 587 616 638 11.8% 7.9%

North East Asia** 769 1,566 1,401 1,391 1,442 1,311 1,225 7.4% -2.4%

of which South Korea 354 911 819 896 909 830 780 9.9% -1.5%

of which Taiwan 416 655 582 495 533 481 445 4.6% -3.8%

ASEAN 250 543 753 687 748 745 807 8.0% 4.0%

Other 6,032 6,685 6,897 5,976 6,530 6,438 6,204 1.0% -0.7%

*Each period includes 10 years of growth, using the first year as the base year

**Sum of South Korea and Taiwan


GLOBAL CONSUMPTION BY REGION

REGIONAL OVERVIEW

The mature economies’ share of global consumption

continued to fall in 2012, as offtake within the group slid

by 4%. Weakness in the EU-27 and Japan outweighed a

modest rise in North American offtake.

The BRICs continued to gain market share, despite

demand growth slowing dramatically to 3%. Growth was

seen in Brazil, China and India, whilst Russian offtake

contracted sharply on a year-on-year basis.

The 1% increase in the global total that was witnessed last year was considerably below trend growth rates of around 3% per annum that have been seen in recent decades. The lacklustre performance was, in part, a function of a 4% decline in mature economy copper consumption, which continued the longer term downtrend in demand within this group that has been

in place over the 2002-12 period as a whole. Offtake in South Korea and Taiwan also contracted sharply, for the second consecutive year.

In addition, the easing of global growth also reflected a notable slowdown in the rate of expansion in demand amongst the BRICs. Consumption within this group grew at 3% last year, which was substantially below the double-digit rates of growth seen over the 2002-12 period as a whole.

Despite the slowdown, copper demand growth within the BRICs continued to outperform the global average. Consequently, the group gained market share, with their consumption accounting for 49% of the global total last year, as against 48% in 2011. In contrast, the mature economies continued to lose ground, with their share of global copper demand falling to 30%, from 31% in 2011.

GLOBAL COPPER CONSUMPTION BY REGION, 2012


Other15%

China41%

EU-2716%

Remaining BRICs 9%

South Korea& Taiwan 6%

North America9%

Japan5%

GLOBAL COPPER CONSUMPTION BY REGION, 1992


Other13%

China8%

EU-2732%

Remaining BRICs 6%

South Korea& Taiwan 7%

North America21%

Japan13%

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MATURE ECONOMIES

Last year represented another year of negative growth for mature economy copper consumption, with the total falling 4% year-on-year to 5.915 million tonnes. Consumption amongst the mature economies has now fallen in five out of the past six years, reflecting a host of factors, including the weakness in underlying economic activity, in addition to a decline in the metals intensity of economic growth within the group. The latter itself has resulted from the relocation of manufacturing capacity to lower cost regions, the growth of the less metals-intensive service sector as a proportion of GDP, in addition to lower infrastructure investment. The weakness in copper consumption over recent years has also been compounded by ongoing trends towards substitution, miniaturisation and thrifting, as a result of high copper prices and technological advancements.

The was the region’s weakest performer by some distance last year, as consumption slid 8% to 3.093 million tonnes. The major southern European countries continued to exhibit weakness, with Italian and Spanish offtake falling by 4% and 8%, respectively. Meanwhile, European powerhouse Germany also posted a noteworthy 12% decline. Rather than reflecting a sharp contraction in domestic products demand, however,

the decline in German offtake was primarily a function of weakening demand from its key trading partners, which led to a reduction in capacity utilisation at semi-fabricating plants within the country.

The fall in demand within the region in the first half of 2012 was particularly sharp, as total EU-27 demand slid by 10%, Thomson Reuters GFMS estimates showed. This continued the weakness seen over the second half of the prior year, as sovereign debt concerns and stagnating economic growth continued to lead to lower end-user demand. The impact of government spending cuts and weak private sector investment, for example, dented offtake in the utilities and building sectors, whilst weak consumer confidence affected demand for consumer goods. As a result, semi-fabricators cut operating rates, as well as took the decision to continue to destock inventory and operate in a just-in-time purchasing environment.

The year-on-year decline in offtake did, subsequently, ease over the second half of 2012, although nevertheless remained considerable at 6% lower. Moreover, putting the weakness into context, the second half tonnage total of 1.510 million tonnes was some 7% lower than that seen in the first half of 2009, during the depths of the financial crisis.


Electrical & Electronic Products 834 756 814 801 756 22% 23% 23% 24% 24%

Transportation Equipment 451 363 407 404 373 12% 11% 12% 12% 12%

Consumer & General Products 230 205 223 206 180 6% 6% 6% 6% 6%

Industrial Machinery & Equipment 667 559 633 622 579 18% 17% 18% 18% 19%


EU-27 COPPER CONSUMPTION BY END USE

MATURE ECONOMY COPPER CONSUMPTION EU-27 CONSUMPTION BY HALF-YEAR

0

2000

4000

6000

8000

10000

201220102008200620042002

Tonn

es (t

hous

ands

)


EU-27

North America

Japan

0

500

1000

1500

2000

2500

H1-12H1-11H1-10H1-09H1-08

Tonn

es (t

hous

ands

)


-10%-6%

Note: Growth figures reflect year on-year change

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demand surprised on the downside last year, falling 3% to 978,000 tonnes. This followed a 5% decline in 2011, when demand was affected by destruction caused by the earthquake and tsunami in the early part of that year. Whilst the ramping up of post-disaster reconstruction efforts served to restrict the downside, the scale of such rebuilding nevertheless lagged behind expectations, whilst the downturn in demand for the country’s electronic goods pressured consumption.

Highlighting the weakness in demand in the country, output of rolled copper and copper alloy products fell almost 7% year-on-year in 2012, according to the Japan Copper and Brass Association (JCBA). The weakness in demand for the country’s electronic goods, which use rolled products in the form of semiconductor lead frames and connectors, was a key factor behind the decline. Meanwhile, offsetting part of the weakness in the electronic goods sector were the increases in demand from the automotive and construction sectors, which were key contributors to a 2% rise in copper wire and cable shipments last year, data from the Japanese Electric Wire and Cable Makers Association (JCMA) showed.

Similar to conditions in the EU-27, the year-on-year declines in Japanese consumption did ease as the year progressed. Indeed, over the second half of 2012, demand was down just 1% on a year-on-year basis, compared with a 4% decline in the first half of the year, according to our estimates. Looking ahead,

reconstruction efforts, fiscal stimulus and a weaker yen do offer hope of a rebound in consumption, although the longer term factors weighing on demand, such as the shift in manufacturing capacity away from the country, should serve to limit the extent of any upside.

The healthier state of the economic environment, in comparison to its mature economy peers, was reflected in its copper consumption, as demand rose 3% in 2012 to 1.844 million tonnes. Within this total, offtake in the United States, the world’s second largest copper consumer, rose by just under 3% last year to 1.687 million tonnes, whilst Canadian consumption grew 9% to 157,000 tonnes.

Despite the increase, however, the 2012 total remained considerably short of pre-crisis levels, with North American offtake some 20% lower than that seen in 2007. In addition to the aforementioned longer term factors that have continued to place pressure on mature economy consumption, upward momentum last year was also tempered by weak export demand, in addition to disruptions caused by Hurricane Sandy and the uncertainty surrounding fiscal cliff negotiations as 2012 came to a close. The latter had a notable impact in restricting confidence and investment over the closing months. Although the recovery in the housing and auto sectors were bright spots, and offer hope of an ongoing recovery in consumption into 2013, notable headwinds, such as possible adverse effects stemming from rising taxes and cuts in government spending, remain.

Building Construction 1,039 791 824 799 807 49% 49% 46% 45% 44%






NORTH AMERICAN COPPER CONSUMPTION BY END USE

Building Construction 208 138 148 151 153 18% 16% 14% 15% 16%






JAPANESE COPPER CONSUMPTION BY END USE

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INTENSITY OF USE

As analysed throughout this chapter, a key longer term trend

in the copper market has been the growing importance of

the BRICs, and most notably China, in driving consumption.

This has been met with a corresponding fall in the mature

economies’ share of total global demand. Whilst contrasting

fortunes in relation to economic growth have been a key factor

behind this development, another major driver has been the

divergent trends between the intensity of copper consumption

in the developing and mature economies. Specifically, the

“benchmark” cases have seen the intensity of copper use

(measured as tonnes of copper consumption per million

dollars of GDP) rise in the developing economies that are in

the early stages of economic development and then level out

or fall as countries reach mature economy status.

The lesser developed economies tend to exhibit low levels of

per capita copper consumption and, generally, a low intensity

of use. This is due to a lack of semi-fabricated production

capacity, brought about by their relative focus on the relatively

low-metals intensive agricultural sector and a lack of domestic

spending on copper-related products. Indeed, in looking at

our selected list of countries above, in 1990 the three lowest

ranked countries in terms of per capita income, namely Brazil,

China and India, were all ranked in the lower half of the

accompanying table.

Thereafter, as developing countries move forward and

trends towards industrialisation and urbanisation begin to

emerge, spending on infrastructure and increased demand

for consumer goods, amongst other areas, boost demand

for copper. Importantly, such increases in demand are also

generally accompanied by the expansion of the domestic

manufacturing sector. In areas where rapid growth in copper

consumption have been observed, the increase in semi-

fabricated production capacity has not only been serving the

domestic but also the export market. The latter was observed

in South Korea in the 1990s and, most strikingly, China over

recent years. Indeed, China has seen its intensity rank rise

from fifth to first amongst our selected countries over the

1990-2012 period, with last year’s 0.75 tonne per million dollar

of GDP total six times greater than that of the United States.

In turning to trends in the mature economies, a slowdown

in infrastructure-related consumption, amongst other

pressures, has imparted downward pressure on the intensity

of copper usage. Furthermore, such countries have suffered

from the relocation of manufacturing activity towards more

cost-competitive emerging economies, increasing the import

of copper-containing goods at the expense of domestic

production.

These trends are demonstrated in the charts below. Indeed,

a decline in the intensity of copper usage is clearly evident in

Japan, the United States and South Korea (over recent years).

Furthermore, whilst the relatively large manufacturing base

in Germany had served to support intensity of use there, it

has also more recently started to turn lower. Meanwhile, in

contrast, we can see a clear uptrend in the intensity of use for

the emerging economies of China and India since 1992.

INTENSITY OF USE (1990-2012)

5 1 China 0.41 0.75

1 2 South Korea 0.66 0.56

3 3 Germany 0.50 0.39

2 4 Russia 0.54 0.30

4 5 Japan 0.48 0.25

8 6 Brazil 0.12 0.21

7 7 India 0.13 0.16

6 8 United States 0.27 0.12

Source: Thomson Reuters GFMS, ICSG, IMF, The World Bank

*Intensity of use = tonnes of copper consumption per million dollars of GDP (ppp, 2005 International $)

INTENSITY OF USE - SELECTED COUNTRIES

40

80

120

160

200

201020062002199819941990

Inde

x (1

990

= 10

0)


South Korea

India

China

40

80

120

160

200

201020062002199819941990

Inde

x (1

990=

100)


United States

Germany

Japan

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THE BRICS

The BRICs continued to drive gains in global copper demand last year, with total offtake amongst the group rising by 306,000 tonnes to 9.765 million tonnes. The 3% year-on-year increase did, nevertheless, represent a notable deceleration from the double-digit growth rates that the market had been accustomed to over previous years, which itself was largely a function of the broader slowdown in economic growth within the group last year.

demand growth continued to slow in 2012, with the 8.058 million tonne total representing an increase of just over 4% from the 2011 total. Performance was particularly weak in the opening six months, as the broader slowdown in economic growth and a destocking of finished product inventory had an adverse impact on copper consumption. Conditions showed signs of a modest improvement over the latter months of the year, as these trends started to be reversed, although this was not enough to prevent full-year Chinese consumption growth slowing for the third consecutive year in 2012.

We must emphasise that Thomson Reuters GFMS’ figures reflect “real” rather than apparent Chinese consumption, to avoid distortions that can be caused by stocking trends. Consequently, we stripped out the significant SRB and private unreported stock increases that took place in 2009 as well as our estimates for unreported stockpiling that took place over the following three years. As we discuss in chapter 5, our field analysis to the country concluded that such stocks increased sharply in 2012, in part driven by the surge in copper imports for use as collateral against loans. The net result is that

our estimate of “real” consumption growth last year is significantly lower than the 12.3% rise in apparent Chinese consumption (defined as production plus imports minus exports).

From a broader economic standpoint, end-year data confirmed the slowdown in growth in the country in 2012. Indeed, Chinese GDP growth decelerated to 7.8% last year from 9.2% in 2011, and industrial production growth slid to 10.8% from 13.8% over the corresponding period. Both indicators posted their lowest rate of increase in over a decade. The downturn in investment and overseas demand growth, as can be seen in the accompanying table, were two key factors driving the weaker performance.

From a copper specific perspective, similar to 2011, we saw growth in the majority of end-use sectors continue the downtrend from the elevated levels seen in previous years. Indeed, whilst lower copper prices last year led to periods of tightness in the scrap market, which provided some support to refined copper usage, offtake was affected by the aforementioned softening in the rate of economic expansion, as well as an ongoing decline (albeit marginal) in the copper intensity of such growth. The latter is displayed in the accompanying chart, and is discussed in the “Intensity of Use” focus box.

The sharpest slowdown was witnessed in the building construction sector, as a result of lower growth in building activity and a sharp destocking of inventory in the air conditioning sector. Elsewhere, reduced investment had an adverse effect on copper offtake in the electrical and electronic products, as well as

KEY CHINESE ECONOMIC INDICATORS (Y-O-Y % CHANGE)

Real GDP 9.6% 9.2% 10.4% 9.2% 7.8%

Industrial Production 12.9% 12.3% 14.4% 13.8% 10.8%

Exports 17.4% -16.0% 31.3% 20.3% 8.0%

Total Fixed Asset Investment 26.1% 30.5% 24.5% 23.8% 20.6%

Source: Thomson Reuters GFMS, China NBS, Chinese Customs

Interestingly, however, the intensity of use in both countries

has shown signs of flattening out (and, in fact, declining

marginally) over recent years.

Within China, the more recent gentle downtrend from the 2010

peak of 0.78 tonnes per million dollar of GDP, to 0.75 in 2012,

reflects the disproportionate slowdown in some of copper’s key

end-use markets from the stimulus-elevated levels of 2009-

10, and is also arguably more recently starting to reflect the

government’s drive towards re-structuring economic growth

in favour of domestic consumption. Meanwhile, in India, the

intensity of use eased marginally to 0.16 last year, from a

peak of 0.17 in 2007. This serves to reflect the continued slow

progress in developing its infrastructure (investment in which

is traditionally very copper intensive), as well as the fact that,

in comparison to China’s manufacturing-driven economy, the

Indian economy remains biased towards the relatively less

copper-intensive service sector.

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CHINESE COPPER CONSUMPTION AND INTENSITY OF USE

0

2000

4000

6000

8000

10000

20102005200019951990

Cons

umpt

ion

(Tho

usan

d To

nnes

)

*Intensity of use = tonnes of copper consumption per million dollars of GDP (ppp, 2005 International $)

Source: Thomson Reuters GFMS, ICSG, IMF, World Bank

Intensity of Use*

0.3

0.4

0.5

0.6

0.7

0.8

Intensity of Use*

CopperConsumption

the industrial machinery and equipment, sectors. Meanwhile, weak export demand, as well as destocking in the white goods sector over the first half of the year, hit consumption in the consumer and general products sector. The only sector to buck the trend was that of transportation equipment, where growth accelerated marginally last year following the sharp slowdown in 2011.

Regarding the prospects for 2013, we expect to see a slight rebound in Chinese demand growth next year. This is based on a marginal recovery in economic growth, as some of the measures introduced in late 2012 to boost investment kick-in and lift growth. The depletion of downstream product inventories last year also leaves some markets, such as air conditioners and white goods, better positioned than they were at the start of 2012.

Similar to the trend in China, the growth in copper offtake eased in 2012 from that seen over previous years, rising by just under 4% to 638,000 tonnes. A notable deceleration in economic growth, which grew at the slowest rate in a decade last year, was heavily accountable, driven by a sharp slowdown in investment and external demand. Indeed, whilst the construction industry posted robust performance, growth in a number

of other sectors slowed notably. The auto industry, for example, was affected by a host of factors which, in addition to the deteriorating economic backdrop, included rising fuel prices and financing costs. Despite the recent dip in growth, however, the prospects for the Indian copper market remain significant, as highlighted by the country’s low rate of per capita consumption in comparison to its BRIC peers (see chart below).

In , copper demand grew by 3% last year to 419,000 tonnes. Delays to a number of infrastructure projects associated with the 2014 FIFA World Cup and 2016 Olympic Games have meant that the expected boost to Brazilian copper consumption resulting from such investment has lagged behind expectations. In the meantime, demand from other key sectors, such as the utilities, automotive and telecommunication industries, also struggled to gain ground.

In , consumption remained substantially higher than the sub-450,000 tonne totals seen in both 2009 and 2010, with offtake standing at 651,000 tonnes last year. The existence of a 10% export tax on copper cathode, which was re-introduced in 2010, continues to support consumption at higher levels, as many Russian producers who previously exported cathode now elect


Electrical & Electronic Products 2,522 3,198 3,442 3,733 3,947 49% 50% 48% 48% 49%





CHINA COPPER CONSUMPTION BY END USE

THE BRICS PER CAPITA COPPER CONSUMPTION

0

1

2

3

4

5

6

20112007200319991995

Copp

er C

onsu

mpt

ion

Per C

apita

(kg)

Source: Various

China

India

Russia

Brazil

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to process refined copper into copper wire rod and then export this product, to avoid incurring the duty paid on copper cathode exports.

Nevertheless, the 2012 total did represent a 9% drop on the 712,000 tonnes seen in the previous year, which itself represented the highest level seen since the collapse of the former USSR. One possible explanation for the sharp decline is that the 2011 base overstates the strength of consumption in that year (which would imply a build up of cathode stocks), as the industry took time to adjust following the introduction of the export tax. In addition, a weak external environment (particularly in Europe) and a softening of growth in the domestic economy also served to restrain demand for the country’s semi finished products last year.

REST OF THE WORLD

In North East Asia, consumption continued to struggle, with demand dropping by 6% and offtake in falling by 7%. In both instances, consumption was hit by the ongoing weakness in external demand from the electronics industry. In addition, similar to trends in the mature economies, copper demand continues to be pressured by the longer term relocation of semi-manufacturing capacity to lower cost areas. The sharp weakening of the Yen over recent months also poses a threat to the Korean and Taiwanese tech industries going forward.

Performance in South East Asia was far stronger, with a host of countries in the region posting gains. was the star performer within the region, as consumption rose 13% to 238,000 tonnes. Meanwhile, also grew at an impressive rate of 11%, taking offtake last year to 188,000 tonnes. In both cases, the growth in copper consumption was consistent with the broader strength of economic growth. Government efforts to boost infrastructure investment and strong growth in private sector investment were particularly influential in supporting demand from the construction and utilities industries. This, combined with strong domestic household consumption, helped both Indonesia and Malaysia post strong increases despite the weakness in external demand.

Elsewhere in South East Asia, was the other major area of copper consumption growth. Offtake rose by 6% to 238,000 tonnes, reflecting the recovery in a number of end-use sectors, including autos and electronics, from the low base of 2011 when widespread flooding within the country dampened demand.

Meanwhile, growth was also seen in a host of countries elsewhere in Asia and the Middle East. copper demand expanded by 2% last year to 418,000 tonnes. Ongoing investment in domestic infrastructure continued to provide a degree of support to the total, although weakness in the external demand environment nevertheless ensured that growth slowed from that seen over the prior two years. Meanwhile, in and the

offtake expanded by 16% and 11%, respectively The expansion of semi fabricating facilities in the Middle East that has taken place over recent years, to feed the ongoing expansion of the region’s infrastructure networks, continues to buoy copper consumption.

Elsewhere, was the other major area of growth, with consumption there rising 8% last year to 332,000 tonnes. The automotive sector remained an area of strength, and expanded at a double-digit pace, supported by an ongoing inflow of foreign investment into this sector. Meanwhile, strong public spending in the construction sector helped to offset the adverse effects on demand imposed by a softening in export demand from some of its key trading partners. Notably, this increase in Mexico, combined with the aforementioned expansion in Brazil, helped copper consumption in Latin America rise 4% last year, well above the global average.

Finally, performance was less positive in North Africa, with consumption falling by 5% last year. This represented the second consecutive year of decline, and reflected the fact that the Egyptian economy has struggled to get back on track amidst ongoing social unrest, political upheaval and the weakness in demand in key trading partners such as the Eurozone, amongst other factors.

COPPER CONSUMPTION BY MAJOR GROUPING (INDEXED)

Copp

er d

eman

d In

dex

(100

= 2

002)

Source: Thomson Reuters GFMS, ISCG* Sum of South Korea and Taiwan

0

50

100

150

200

250

300

201220102008200620042002

BRICs

Mature Economies

NE Asia*

ASEAN

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SUBSTITUTION, MINIATURISATION AND

THRIFTING TRENDS IN COPPER CONSUMPTION

Thomson Reuters GFMS estimate that copper usage grew at

just under 3% over the 2002-2012 period, which was amongst

the lowest rates of growth within the base metals sector.

Whilst in part due to the relative end-use structure of each

metal’s consumption, one factor which has served to restrict

the growth in copper consumption, in particular, over recent

years, has been increased trends towards substitution (the use

of alternative materials), miniaturisation and thrifting (the use

of smaller amounts of copper within a particular application).

Within this focus box we provide an overview of the key drivers

behind these trends.

First and foremost, increased pressure to undertake

substitution, miniaturisation and thrifting has been a function

of the increase in the price of copper and increased price

volatility over recent years, which has been brought about

by a number of factors including tight raw material supply

and the growth of investment activity in copper. Such price

developments have placed significant pressure on the balance

sheets of fabricators and those further downstream who are

struggling to pass price increases, and the cost of dealing with

heightened volatility, on to consumers.

Substitution and miniaturisation trends have been particularly

acute since the rapid price increase in the spring of 2006,

which briefly took prices to just under $8,800/tonne. This was

some $5,500/tonne higher than the level seen at the same

point of the previous year. More recently, although prices have

since retreated from the record highs of over $10,000/tonne

that were seen near the start of 2011, the price ratio between

copper and competing materials remains wide.

In quantifying such disparities, we compare copper prices

against the material which poses the greatest potential for

substitution losses, namely aluminium. As can be seen by the

charts below, copper prices are now around four times higher

than aluminium prices, as against a situation of near-parity

at the start of 2003. Moreover, the absolute price differential

stood at just under $6,000/tonne in early 2013 as against

$200/tonne in early 2003.

Aside from such price considerations, there have also been

a number of other factors contributing to substitution and

miniaturisation over recent years. These include technological

advancements, such as the development of high performance

fibre-optic cabling in the telecommunications sector, as well

as the invention of increasingly compact electronic devices,

which utilise less copper per unit than their older and bulkier

counterparts. Other causes include consumer preferences,

regulations and theft, with the theft of copper cabling

providing an example of the latter.

Finally, it should be acknowledged that it is not all bad news

for copper. Firstly, it could be argued that much of the “easier”

substitution, such as substitution for zinc in roofing in the

building construction sector, has already taken place. In

addition, copper’s superior conductivity has meant that it will

retain its importance in a number of electrical applications,

whilst the sheer fixed cost of developing substitutes and

retooling will remain a factor in restricting substitution in some

areas, such as the industrial machinery and equipment sector.

Furthermore, whilst substitution has, and is expected to

continue to be, a net loss in tonnage terms, there have

been some areas where copper has gained at the expense

of competing materials. In the electronics and appliances

sector, for example, copper is being used as a substitute for

gold bonding wire and lead-based solders. The growth of new

markets, such as electric vehicles and renewable energy, also

provide room for growth in copper consumption.

COPPER/ALUMINIUM PRICE DIFFERENTIALCOPPER/ALUMINIUM PRICE RATIO

1

2

3

4

5


Copp

er to

Alu

min

ium

Pric

e R

atio


0

1000

2000

3000

4000

5000

6000

7000

8000


Pric

e D

iffer

entia

l ($/

tonn

e)


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END USE OVERVIEW

The electrical and electronic products and

transportation equipment sectors were the strongest

performing end-use segments last year. Robust demand in

China in particular was accountable for the former, whilst

gains in the transportation equipment sector were more

broad-based.

In contrast, the building construction, consumer and

general products, as well as the industrial machinery

and equipment, sectors all posted declines. Within these

segments, slowing demand growth in China was met by

weakening demand in the mature economies.

In percentage terms, performance across the various end use sectors varied significantly last year, ranging from a 4% gain in the transportation equipment sector to a 3% decline in the consumer and general products sector. Nevertheless, the tonnage changes were not significant enough to alter the global breakdown by end use from that seen in 2011. Consequently, the electrical and electronic products segment continued to hold its position as the largest consuming sector, accounting for 38% of global demand, followed by the building construction sector which accounted for 31% of the global total. The strong performance within the automotive sector allowed transportation equipment to hold on to its 11% share, whilst the consumer and general products and industrial machinery and equipment sectors both continued to account for 10% of global demand.

BUILDING CONSTRUCTION

Copper consumption within the building construction sector slid 1% last year. Total mature economy demand contracted by 5%, and the group’s share of the global total slid to 35% from 37% in 2011, largely owing to ongoing weakness in the EU-27. Meanwhile, China remained the key area of growth, and its share of global demand grew to over a third of the total last year. The rate of increase in Chinese offtake did, nevertheless, slow

notably from that seen over previous years, reflecting the broader slowdown in growth in construction activity and weakness in the air conditioning industry.

In addition to the wider constraints imposed by the slowdown in global growth and building activity, substitution pressures also continue to ensure that global demand in the building construction industry remains below prior peaks. The plumbing tube sector is being affected by the switch towards plastics in some areas, whilst substitution towards aluminium is a growing threat within the heating, ventilation, refrigeration and air conditioning sectors. Furthermore, copper demand from the roofing sector has now all but disappeared. Positively, however, the other major area for consumption within this sector, namely building wire, continues to remain largely insulated from substitution as a result of copper’s superior conductivity and the failure of past experiments with aluminium in this area.

As alluded to above, the weakness in the building construction sector was particularly pertinent in the

last year, where we estimate offtake slid by 10%, as tough restrictions on bank credit and the general slowing of economic activity affected the property market. Performance was particularly weak in Southern Europe, as highlighted by data from Eurostat, which showed

Spanish and Italian production in the construction industry falling by 3% and 14% respectively, which outpaced a 1% decline in the indicator for Germany.

Performance was better in , where demand from this sector

rose 1%, assisted by signs of a recovery in the US residential sector and a more muted uptick in the non-residential sector. Nevertheless, with the bulk of

GLOBAL COPPER CONSUMPTION BY END USE, 2012

000 tonnes

Building Construction 6,182 6,115 -1%

Electrical & Electronic Products 7,404 7,583 2%

Transportation Equipment 2,186 2,265 4%

Consumer & General Products 2,010 1,951 -3%

Industrial Machinery & Equipment 1,959 1,931 -1%


GLOBAL COPPER CONSUMPTION BY END USE - 2012 PERFORMANCE OVERVIEW


Industrial Machinery & Equipment 10%

Transportation Equipment 11%

Building Construction31%

Electrical & ElectronicProducts 38%

Consumer & General Products 10%

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copper in this sector being consumed at the latter stage of the construction cycle, for instance in the installation of internal building wire and heating and plumbing systems, the improvement in construction activity has not yet been fully reflected in the growth in copper offtake. Ongoing substitution pressures also continue to ensure that usage in this sector remains well below prior peaks.

In , consumption from the building construction sector rose 1% year-on-year in 2012. There has been some boost to consumption offered by post-disaster reconstruction efforts, highlighted by the 4% increase in cable and wire shipments to the construction industry in 2012. However, the speed of such reconstruction works has nevertheless lagged behind expectations, and the weakness in the air conditioner sector, as highlighted by the double-digit decline in Japanese copper tube output last year, also imparted a restraining influence on offtake.

The building construction sector continued to support copper consumption growth in 2012.

Nevertheless, the 3% increase from this sector slowed down significantly from the growth of 12% seen in the previous year, impacted by the weakness in the air conditioning sector and the broader slowdown in growth in the wider construction industry last year.

In the real estate market, the Chinese government continued to make efforts to cool the property sector, in order to cap the soaring house prices that have been seen across the country, and in tier-1 cities in particular. The tighter controls were reflected in the slowdown in total urban fixed asset investment, from 25% in 2011 to 21% last year, which led to a fall in new housing starts as well (see accompanying chart).

Nevertheless, with the building completion cycle normally taking 18-24 months to complete within China, housing completions remained at elevated levels last year. Indeed, total floor space of completed buildings increased 7% year-on-year by end 2012 according to China’s National Bureau of Statistics (NBS), supported by the previous boom in China’s real estate investment and housing starts (over 2009-2011). Given that copper tends to be used in the late stages of property construction, as mentioned above, copper offtake was supported last year despite the fact that the overall real estate market was under tight controls during this time.

COPPER USAGE IN BUILDING CONSTRUCTION, BY REGION, 2008 COPPER USAGE IN BUILDING CONSTRUCTION, BY REGION, 2012

000 tonnes

EU-27 1,586 1,380 1,419 1,334 1,206

Japan 208 138 148 151 153

North America 1,039 791 824 799 807

China 1,238 1,474 1,777 1,985 2,045

Other 1,852 1,724 1,847 1,913 1,904


COPPER USAGE IN BUILDING CONSTRUCTION

CHINA FLOOR SPACE OF NEWLY STARTED HOUSING* VS FLOOR SPACE OF COMPLETED BUILDINGS*

-20

0

20

40

60

80

Floo

r Spa

ce o

f New

ly S

tart

ed B

uild

ings

* (y

-o-y

%)

*3 Month Moving AverageSource: NBS, Thomson Reuters GFMS

New Starts

Completions

-40

0

40

80

120

160


Floor S

pace of C

omp

leted B

uild

ing

s* (y-o-y %)


Other31%

China33%

EU-2720%

North America13%

Japan3%


Other31%

China21%

EU-2727%

North America18%

Japan4%

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In contrast, copper consumed in the air-conditioning industry, which is estimated to account for roughly half of China’s total consumption within the building construction sector, was very weak in 2012.

This was, firstly, a function of the lacklustre demand environment. In the domestic market, the termination of the government’s subsidies in the home appliance sector at the end of 2011 impacted on consumption. Also, Chinese demand for air-conditioners is closely related to property sales (in most cases, air-conditioners are purchased by home buyers rather than property developers). China’s real estate sales were subdued last year, with total floor space sold up only 2% year-on-year, slowing down from 4% growth in 2011. Meanwhile, combined with the weakness in the demand environment, external demand for air-conditioners worsened last year, affected by the sluggish economic recovery in the more developed countries. China’s total exports of air-conditioners declined by 3% to 47.11 million units over 2012.

Secondly, the weakness was also a function of the existing high level of finished air-conditioner inventories in early 2012, as a result of a sharp increase in capacity and production in the industry previously, encouraged by the aforementioned home appliance subsidy policies. Over the course of 2012, the Chinese air-conditioner market went through a destocking process as manufacturers scaled back production. According to our industry sources, stocks at producers are estimated to have been drawn down from a peak of over 10 million units to around 7.5 million units by the end of the year, which is a relatively reasonable inventory level for the Chinese air-conditioner market.

Inevitably, this affected domestic output of semi-finished products used in the air conditioning sector. Copper tube output, for example, is believed to have declined by as much as 10% over 2012 as a whole, with the first half of the year being particularly poor. Also reflecting the weakness in this sector, Chinese Customs data showed copper tube and pipe exports falling 7% in 2012 from a year ago.

Outside of the major regions detailed above, growth in copper demand from the building construction sector in a number of other emerging markets broadly offset the weakness in activity in the more mature markets. The construction sector, for instance, continued the growth seen in previous years, with offtake in the residential construction market continuing to benefit from ongoing trends towards urbanisation. Latin

America also continues to remain a growth area for the building construction sector, with and both seeing building activity increase last year.

ELECTRICAL AND ELECTRONIC PRODUCTS

The electrical and electronic products sector was one of only two end-use sectors to record a year-on-year increase in copper consumption last year, with offtake rising 2% to 7.583 million tonnes. Given the weakness in the telecommunications and business electronics sectors, ongoing demand from the broad and diverse power utilities sector remained the key driver of gains within the electrical and electronic products segment. From a geographical perspective, the emerging economies, and in particular China, were the key contributors to growth, with the world’s largest consumer seeing its share of the global electrical and electronics industry rise to 52% in 2012 from 50% in 2011.

In the mature economies, consumption from the utilities sector continues to remain largely reliant on the ongoing need for maintenance and upgrading of the existing, ageing, power networks. This was certainly a feature supporting growth in the market, where demand from the electrical and electronic products sector as a whole posted a 3% gain. The improvement in the construction sector also added upward momentum, and contributed to volume growth in the low voltage cable sector.

Looking ahead, the growing focus on increasing renewable energy capacity continues to offer strong opportunities for growth in the utilities sector in the North American market. In the United States, new wind installations grew sharply last year and the recent extension of the production tax credit (PTC) on wind power projects, which offers around 2.2 cents for every kilowatt-hour of electricity produced by wind farms, is expected to continue to sustain demand from this sector going forward. Copper is used extensively in such projects, both in the wind turbine itself as well as in the

000 tonnes

EU-27 834 756 814 801 756

Japan 449 377 446 408 377

North America 432 338 375 380 389

China 2,522 3,198 3,442 3,733 3,947

Other 1,963 1,876 2,001 2,083 2,113


COPPER USAGE IN ELECTRICAL AND ELECTRONIC PRODUCTS

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cabling required to transmit the energy from the unit to its final destination.

Meanwhile, in the , demand in the electrical and electronic products sector was far weaker and contracted 6% on a year-on-year basis. Offtake from the power utilities segment came under severe pressure as efforts to deal with growing budget deficits, particularly in Southern Europe, impacted on investment in the sector. Demand for distribution cables was one area of weakness, as this segment also continued to be affected by the ongoing downturn in the residential construction sector. Nevertheless, similar to the United States, the growth in the renewable energy sector offers prospects for growth going forward. Indeed, the European Union has stated its target of sourcing 20% of its energy requirements from renewable means by 2020, which has led to forecasts for strong growth in offshore wind farms in Northern Europe.

demand in the electrical and electronic products sector also came under pressure last year, falling 8% year-on-year, with consumption particularly weak over the opening six months. Activity continued be affected by the fallout from the Fukushima disaster seen in early 2011, which sparked concerns over the safety of nuclear power facilities and led to a pullback in investment in the utilities sector. The downturn is highlighted by data from the Japanese Electric Wire and Cable Makers Association (JCMA), which showed cable and wire shipments to the electric power industry falling by 11% last year.

In the emerging economies, the low levels of per capita power consumption and ongoing trends towards urbanisation and industrialisation provide for continuing investment and offer prospects for growth in this sector going forward. In , for example, although slowing

from an 8% increase in 2011, copper demand from the electrical and electronic products sector continued to grow at a robust pace last year, rising 6% to 3.947 million tonnes. This segment remained the key driving force of China’s total copper consumption growth and the rate of expansion significantly outperformed other end-use sectors in tonnage terms.

The majority of copper consumed within this sector was in the power utilities area, in the form of power cables, transformers and other related equipment. In terms of power cable output, statistics from China’s NBS show that total power cable production (including aluminium cables) increased by 14% to 40 million km in 2012. However, our talks with cable manufacturers within the country suggested that these statistics overstate the strength of copper-cable output, which is believed to have risen at a mid-single digit pace. Meanwhile, output of transformers was broadly flat year-on-year, following a 7% rise in 2011, data from the NBS showed.

Other data relating to the Chinese utilities sector, from the China Electricity Council, showed that Chinese investment in the electric power industry totalled 746.6 billion yuan, representing a slight decline of 2% year-on-year. The main source attributed to the decline was investment in power generation, which fell by 4% to 377.2 billion yuan, while total expenditure in the power grid, which is comparatively more copper-intensive, increased marginally to 369.3 billion yuan. Both of the power grid operators in China, namely the State Grid Corporation of China (SGCC) and China Southern Power Grid (CSG), saw an increasing weight given towards investment into power distribution in comparison with power transmission over 2012. This was a positive sign in terms of copper usage, as the red metal is not intensively consumed in long-distance power transmission, including the UHV (ultra-high voltage) projects that

COPPER USE IN ELECTRICAL & ELECTRONIC PRODUCTS, 2012COPPER USE IN ELECTRICAL & ELECTRONIC PRODUCTS, 2008


Other32%

China41%

EU-2713%

North America7%

Japan7%


Other28%

China52%

EU-2710%

North America5%

Japan5%

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the government has listed as one of the development priorities during its 12th Five-Year Plan Period.

From a longer-term point of view, we expect power cables to continue to provide crucial support for Chinese copper consumption growth. In China, copper’s use within power cables mainly lies with underground cables in urban areas, where space constraints mean copper cables are preferred over their larger aluminium counterparts. The development in transferring overhead lines to underground cables is unbalanced across the country so far, with progress mostly seen in the more developed cities in coastal areas. In recent years, however, some inland regions have also made increasing efforts in promoting this trend, although at a lower speed compared to the wealthier areas, given that such projects are largely subject to local governments’ investment decisions. In line with the country’s long-term development strategies in the power industry, we believe that there is great potential for increasing use of underground cables in the middle and western provinces in China. As such, copper demand in the Chinese electrical and electronic products sector is expected to continue to grow.

In other regions, demand in the remained supported by the completion of major projects undertaken in previous years. Although investment in this region has not been immune to the wider economic troubles and uncertainty, we remain positive on the prospects for demand in this area, as well as in India and the other emerging economies, given their growing energy infrastructure requirements.

Elsewhere in the electrical and electronic products segment, demand from the telecommunications sector continued to be eroded by the ongoing substitution of copper cables for fibre-optics. This trend is impacting on demand in this sector across all geographical regions, with operators across the globe keen to utilise the technical performance advantages associated with fibre-optic technology. This is expected to continue over the coming years, with copper consumption in the telecommunications sector consequently expected to be eroded further.

Meanwhile, demand in the business electronics sector also weakened last year. Activity was particularly downbeat over the first half, as a result of reduced investment in the face of the ongoing uncertainty surrounding the demand environment. Positively, demand in some areas, such North America and Asia, did show signs of improvement over the final quarter

of 2012. The recovery in Asia during this period was, in part, a function of the low base effect of late 2011, when heavy floods in affected output in its electronics industry and resulted in significant disruptions to the electronics supply chain.

TRANSPORTATION EQUIPMENT

The transportation equipment sector was the strongest performing end-use sector last year as consumption rose 4% to 2.265 million tonnes. North America and Japan were the major areas of expansion, driven by rapid growth in the light vehicle sector, and this helped their combined share of the global total rise to 15%, from 14% in 2011. Meanwhile, despite weak demand in the heavy duty diesel and railway sectors, a rebound in automotive production helped Chinese demand growth accelerate on a year-on-year basis. In contrast, ongoing austerity measures and the wider weakness in the EU-27 economy led to a decline in demand in that region last year.

The light vehicle sector, which comprises of passenger cars and light commercial vehicles, accounts for the largest share of copper usage in the transportation sector. The bulk of the copper used within such vehicles is accounted for by electrical applications, such as the wiring harness, motors, generators and alternators. Importantly, the red metal’s high performance in conducting electricity had previously ensured that substitution in this sector has remained limited. Furthermore, the installation of a number of additional electrical applications (such as satellite navigation systems), as well as the development of electric vehicles, has even led to an increase in copper usage in many brands of automobiles.

Whilst copper continues to be viewed as the industry standard in such applications, it should be noted that, going forward, the development of aluminium wiring harnesses for automobiles does provide a significant substitution threat to copper usage in the transportation equipment sector. Indeed, whilst the development and utilisation of such aluminium-based systems are still in

000 tonnes

EU-27 451 363 407 404 373

Japan 93 58 66 57 67

North America 246 186 225 241 279

China 467 634 739 758 778

Other 757 592 691 726 769


COPPER USAGE IN TRANSPORTATION EQUIPMENT

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the relatively early stages, the benefits of a reduction in car weight and corresponding increases in fuel efficiency will serve to act as an attraction to car manufacturers.

Given its current importance to the transportation equipment total, the strength of the light vehicle sector was a key driver of the growth in copper offtake last year. Looking at some of the major markets, the most notable increases in demand came in and the

. Year-on-year growth was particularly strong in the former over the first half of the year, in large part owing to the very low base of the corresponding period of 2011 when the mid-March earthquake and tsunami hit domestic production of autos and transport-related parts. Reflecting such strength, copper wire and cable shipments to the automotive industry posted a double-digit gain in 2012, data from the JCMA showed. Performance did, however, ease notably over the second half of the year, as the momentum offered by the low base effect waned. The exhaustion of government subsidies for purchasing fuel-efficient cars in late September, as well as the adverse effects on automotive exports to China following the territorial dispute over a group of islands in the East China Sea, also affected offtake. We estimate that copper demand in the Japanese transportation equipment sector as a whole rose 17% last year.

Meanwhile, rapid growth in the light vehicle sector in the United States also helped the North American transportation equipment sector post growth of 16% in 2012. The ongoing release of pent-up demand following the 2008-2010 downturn, as well as improved access to credit and low interest rates, continued to drive strong growth in the automotive sector. The improvement in construction activity also served to boost demand for pick-up trucks.

The 3% growth in the transportation equipment sector last year was also heavily reliant on the acceleration in growth in the light vehicle sector following the lacklustre performance seen in 2011. Auto production rose just under 5% in 2012, up from the 1% gain seen in 2011, data from the China Association of Automobile Manufacturers showed. Nevertheless, the rate of expansion remained well below the gains seen in 2009 and 2010, as a result of the broader slowdown in economic growth and the phasing out of subsidies for the industry. The imposition of government regulations to ease traffic congestion in major cities, including restrictions on the number of license plates that are issued, has also restrained the rate of expansion.

Elsewhere, rising incomes continued to drive growth in the light vehicle sector in , although the rate of increase eased substantially from the double-digit gains seen in prior years. A rise in borrowing costs, a slowdown in economic growth and rising fuel prices were all accountable for the easing in growth. Meanwhile,

and posted robust gains, continuing

CHINA AUTO PRODUCTION

COPPER USE IN TRANSPORTATION EQUIPMENT, 2012COPPER USE IN TRANSPORTATION EQUIPMENT, 2008


Other38%

China23%

EU-2722%

North America12%

Japan5%


Other34%

China34%

EU-2716%

North America12%

Japan3%

0

4

8

12

16

20

20122011201020092008

Mill

ion

Uni

ts

Note: Figures above bar show year-on-year growth

+1%+33%

+48%

+5%

+5%

Source: Thomson Reuters GFMS, CAAM

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the strong performance seen in 2011, whilst vehicle production in recovered markedly following the flood-related disruptions to output seen in the second half of 2011.

The aforementioned increases comfortably outweighed declines in demand in the light vehicle sector elsewhere, such as in the , as well as and

. The largest decline was experienced in the former, where weak domestic demand continued to dent performance in the European market, with new passenger car registrations falling over 8% year-on-year to the lowest level since 1995. This weakness was heavily accountable for the 8% decline in copper offtake in the EU-27 transportation equipment sector last year.

Looking past the light vehicle sector, performance in other areas within the transportation segment varied wildly. On a positive note, copper offtake in the aircraft sector continued the strong performance recorded in 2011. Combined deliveries of planes from Airbus and Boeing, the major two aircraft manufacturers, rose 18% last year, following a 4% rise in 2011. Although combined orders slid 11% in 2012, this followed a successive doubling of orders over the prior two years, which led to a significant backlog of orders that are yet to be delivered against. As a result, we continue to expect strong demand from this sector over the coming year.

Meanwhile, in contrast, the heavy duty diesel sector was a drag on the total. Similar to trends in the light vehicle sector, Japan and the United States were amongst the areas of growth, contrasting with weakness in the Eurozone. However, this time China and India also added downward momentum, with the heavy duty diesel market greatly affected by the broader slowdown in economic growth in these countries.

Demand from the railway sector also remained under pressure. Again, the European market was an area of weakness, impacted by cuts in spending, whilst Chinese investment continued to suffer following the fatal high-speed train crash seen in July 2011. However, there remains significant potential for growth in the railway sector in the emerging economies going forward. Highlighting this, both China and India have announced plans to ramp up railway infrastructure spending over the coming years.

CONSUMER AND GENERAL PRODUCTS

The consumer and general products sector was the worst performing end-use segment last year in percentage terms, falling 3% to 1.951 million tonnes. The appliance and consumer electronics sectors, which are the largest markets in this subcategory, both struggled amidst the ongoing weakness and fragility in global growth, although there were some signs of improvement over the final months of the year. Furthermore, technological advancements, which have allowed a number of handheld electronics to become more compact and efficient in nature, have also meant that miniaturisation pressures continue to play a role in restricting copper offtake from the consumer and general products sector.

In the mature economies of the and the , offtake in the consumer and general products

sector slid 13% and 2% year-on-year in 2012, respectively. The downbeat economic environment has restricted demand for consumer electronics, with the downturn in demand particularly pertinent in the former, highlighted by the double-digit decline in EU-27 semiconductor shipments last year, as recorded by data from the Semiconductor Industry Association (SIA). Moreover, the weakness in the housing sector over previous years also

000 tonnes

EU-27 230 205 223 206 180

Japan 135 98 140 123 118

North America 221 171 201 200 195

China 664 735 826 876 908

Other 564 539 620 606 549


COPPER USAGE IN CONSUMER AND GENERAL PRODUCTS

GLOBAL SEMICONDUCTOR BILLINGS

0

100

200

300

400

20122011201020092008

Num

ber o

f shi

pmen

ts (m

illio

ns)

Source: SIA

Other Asia/Pacific

Europe

Japan

Americas

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continues to temper home appliance demand, although a more recent uptick in this sector in the United States has offered hope of a rebound going forward.

The consumer and general products sector continued to decline last year, by 4%, continuing the weakness seen over the second half of 2011. The ongoing downturn in demand for electronics has continued to place pressure on the sector, whilst the Japanese market has also been affected by a strengthening yen (up until the latter part of 2012) which has led to manufacturing capacity being transferred overseas. Highlighting the weakness in demand in this sector, Japanese output of copper strip, which is used heavily in the production of semiconductor lead frames and connectors for the electronics industry, slid by just under 6% last year, data from the Japan Copper and Brass Association showed.

copper consumption in the consumer and general products sector increased by 4% to 908,000 tonnes last year, but the rate of increase nevertheless slowed significantly from the 6% rise seen in 2011. The slower pace of growth was primarily caused by weaker demand for home appliances from Chinese consumers, in part driven by the broader slowdown in Chinese economic growth. Also, as mentioned in the “Building Construction” section, home appliance purchases in China are positively related to property sales, which only saw a marginal increase of 2% (in floor space terms) last year, due to the government’s cooling policies on the real estate market.

In addition, downward pressure on the consumer product sector also came from the removal of purchase subsidies, following the expiration of the “home appliances trade-in” programme at the end of 2011. As for the “home

appliances going to the countryside” programme, given that it was the fifth and final year of implementation in 2012, its impact was largely reduced compared to previous years. Data released by China’s Ministry of Commerce indicated that home appliance sales generated by the programme declined by 21% in unit terms, or by 17% in value terms, on a year-on-year basis in 2012.

In contrast, the smart phone and tablet markets were areas of growth although, as mentioned previously, the rise of these markets has come at the expense of more traditional (and in some cases more copper intensive) products. Chinese total output of mobile sets amounted to 466 million units (+11%) in 2012, with 265 million units (+81%) of 3G and 202 million units (-27%) of 2G phones being produced, according to the Ministry of Industry and Information Technology’s China Academy of Telecommunication Research. Growth from the tablet market came from both manufacturing foreign-branded products and developing domestic brands, with the latter focusing more on mid-to-low end markets.

Performance elsewhere in Asia was generally downbeat. copper consumption is heavily dependent

on the electronics industry, and the country accounts for around half of the global output of copper foil, which is used in a host of electronic devices in the form of printed circuit boards and lithium batteries. In addition to the downturn in demand for consumer electronics over the year, Taiwanese consumption continued to be impacted by ongoing thrifting and miniaturisation pressures. Meanwhile, demand from the consumer and general products sector also continued to be heavily impacted by similar factors, as well as the shift in semi-manufacturing capacity overseas.

COPPER USE IN CONSUMER & GENERAL PRODUCTS, 2012COPPER USE IN CONSUMER & GENERAL PRODUCTS, 2008


Other31%

China37%

EU-2713%

North America12%

Japan7%


Other28%

China47%

EU-279%

North America10%

Japan6%

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INDUSTRIAL MACHINERY AND EQUIPMENT

Copper demand in the industrial machinery and equipment sector fell by 1% in 2012. Performance varied significantly across regions, as modest growth in China and other emerging economies was offset by ongoing weakness in the mature economies, with the exception of North America.

Mature economy demand for copper in the industrial machinery and equipment sector slid 4% last year. This decline was in large part due to weakness in the , where offtake crashed 7%, weighed down by the general weakness in the economic environment which restricted capital investment.

In , despite the broader downtrend in demand in many other sectors last year, demand from the industrial machinery and equipment sector managed to post a largely flat performance. Positive momentum was offered by increasing demand for construction-related machinery, supported by reconstruction efforts following the natural disasters which took place in early 2011. Looking ahead, the rapid weakening of the yen over recent months could support demand from this sector by providing some incentive to the manufacturing industry to undertake capital investment, and stem the tide in terms of the shift in capacity away from Japan that has taken place over recent years.

In , copper demand from this sector rose 3% year-on-year. The sharp improvement in building activity over the year, particularly in the residential market, provided a timely boost to demand for construction-related machinery. Meanwhile, although capital investment was hit over the close of the year by concerns over the “fiscal cliff”, and the potential adverse

effects that could be seen if a deal was not reached, ongoing investment in the replacement of ageing machinery and equipment served to provide a degree of support.

Within , growth in the industrial machinery and equipment market grew by 2% year-on-year. Although remaining in positive territory, this did, nevertheless, represent a notable slowdown from the 5% rise seen in 2011. The government-engineered slowdown in the building sector, which hit demand for construction-related machinery, and the wider slowdown in economic growth, which dented investment and capital spending from the private sector, were particularly influential in restraining offtake over the first half of the year.

Elsewhere, demand from the industrial machinery and equipment sector within remained solid. Consumption in and , for example, was supported by robust demand for construction-related equipment. Meanwhile, with commodity prices remaining attractive for investment, offtake for mining-related machinery and equipment continued to grow in a host of markets, including and the aforementioned countries within Latin America.

COPPER USE IN INDUSTRIAL MACHINERY & EQUIPMENT, 2012COPPER USE IN INDUSTRIAL MACHINERY & EQUIPMENT, 2008

000 tonnes

EU-27 667 559 633 622 579

Japan 300 205 260 264 263

North America 173 141 167 169 174

China 257 318 354 373 379

Other 489 459 483 530 537


COPPER USAGE IN INDUSTRIAL MACHINERY AND EQUIPMENT


Other26%

China14%

EU-2735%

North America9%

Japan16%


Other28%

China20%

EU-2730%

North America9%

Japan14%

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7.APPENDICES

Appendix 1 - Refined Copper Supply & Demand - End Use Focus, 2005-2012 78

Appendix 2 - Refined Copper Supply & Demand - Regional Use Focus, 2005-2012 80

Appendix 3 - Copper Mine Production, 2005-2012 81

Appendix 4 - Copper Solvent Extraction - Electrowinning Production, 2005-2012 83

Appendix 5 - Copper Inventories, 2003-2012 84

Appendix 6 - Nominal Copper Prices, 1975-2012 85

Appendix 7 - Real Copper Prices, 1975-2012 86

Appendix 8 - Copper Prices in 2009 87




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APPENDIX 1 – REFINED COPPER SUPPLY & DEMAND – END-USE FOCUS (THOUSAND TONNES), 2005-2012

2005 2006 2007 2008 2009 2010 2011 2012

Refined Production

North America 1,770 1,751 1,764 1,722 1,497 1,413 1,306 1,270

Latin America 3,975 3,934 3,953 4,070 4,195 4,144 4,117 3,805

of which Chile 2,824 2,811 2,936 3,058 3,272 3,244 3,092 2,902

Europe 3,458 3,525 3,460 3,532 3,427 3,601 3,710 3,712

of which EU-27 2,434 2,473 2,425 2,564 2,492 2,628 2,720 2,748

Asia 6,370 7,100 7,726 7,809 8,042 8,547 9,078 9,737

of which China 2,600 3,003 3,499 3,795 4,051 4,540 5,197 5,715

of which Japan 1,395 1,532 1,577 1,540 1,491 1,549 1,328 1,510

Africa 529 553 589 603 709 874 961 1,060

Oceania 469 429 442 502 446 424 477 475

Total Refined Production 16,571 17,291 17,933 18,238 18,316 19,003 19,649 20,059

Refined Consumption

B uilding Construction

EU-27 1,723 1,904 1,776 1,586 1,380 1,419 1,334 1,206

Japan 262 263 216 208 138 148 151 153

North America 1,278 1,183 1,125 1,039 791 824 799 807

China 998 959 1,269 1,238 1,474 1,777 1,985 2,045

Other 1,757 1,819 1,891 1,852 1,724 1,847 1,913 1,904

Total Building Construction 6,019 6,127 6,278 5,923 5,507 6,015 6,182 6,115

Electrical and Electronic Products

EU-27 807 875 871 834 756 814 801 756

Japan 424 443 446 449 377 446 408 377

North America 476 486 461 432 338 375 380 389

China 1,628 1,696 2,295 2,522 3,198 3,442 3,733 3,947

Other 1,758 1,805 1,847 1,963 1,876 2,001 2,083 2,113

Total Elect. and Electronic Products 5,093 5,305 5,919 6,201 6,545 7,077 7,404 7,583

Transportation Equipment

EU-27 449 451 466 451 363 407 404 373

Japan 96 101 104 93 58 66 57 67

North America 328 306 291 246 186 225 241 279

China 292 295 439 467 634 739 758 778

Other 793 831 844 757 592 691 726 769

Total Transportation Equipment 1,959 1,984 2,144 2,014 1,833 2,128 2,186 2,265

Consumer and General Products

EU-27 242 280 249 230 205 223 206 180

Japan 150 155 156 135 98 140 123 118

North America 251 249 245 221 171 201 200 195

China 550 553 635 664 735 826 876 908

Other 478 535 536 564 539 620 606 549

Total Consumer and Gen. Products 1,672 1,773 1,821 1,814 1,749 2,010 2,010 1,951

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APPENDIX 1 – REFINED COPPER SUPPLY & DEMAND – END-USE FOCUS (THOUSAND TONNES), 2005-2012

2005 2006 2007 2008 2009 2010 2011 2012

Industrial Machinery and Equipment

EU-27 665 745 726 667 559 633 622 579

Japan 298 320 324 300 205 260 264 263

North America 223 219 192 173 141 167 169 174

China 221 184 244 257 318 354 373 379

Other 526 523 527 489 459 483 530 537

Total Ind. Machinery and Equipment 1,933 1,992 2,014 1,887 1,682 1,897 1,959 1,931

Total Refined Consumption 16,675 17,181 18,178 17,839 17,315 19,127 19,742 19,845

Gross Surplus/(Deficit) (104) 110 (244) 399 1,001 (124) (93) 214

Stocks

LME Warehouses 92 191 199 341 502 378 372 321

COMEX Warehouses 7 34 15 35 99 65 88 71

SHFE Warehouses 58 28 26 18 95 132 93 205

Total Exchanges 157 253 240 393 697 574 553 597

as no. of weeks consumption 0.5 0.8 0.7 1.1 2.1 1.6 1.5 1.6

Total Exchange Stocks Change 16 96 (13) 153 304 (123) (21) 43

Implied Off Exchange Stocks Change (120) 14 (231) 245 697 (1) (71) 171

Price ($/tonne) 3,684 6,731 7,126 6,952 5,164 7,539 8,811 7,950

High 4,650 8,788 8,301 8,985 7,346 9,740 10,148 8,658

Low 3,072 4,537 5,226 2,770 3,051 6,091 6,785 7,252


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2005 2006 2007 2008 2009 2010 2011 2012

Refined Production

North America 1,770 1,751 1,764 1,722 1,497 1,413 1,306 1,270

Latin America 3,975 3,934 3,953 4,070 4,195 4,144 4,117 3,805

of which Chile 2,824 2,811 2,936 3,058 3,272 3,244 3,092 2,902

Europe 3,458 3,525 3,460 3,532 3,427 3,601 3,710 3,712

of which EU-27 2,434 2,473 2,425 2,564 2,492 2,628 2,720 2,748

Asia 6,370 7,100 7,726 7,809 8,042 8,547 9,078 9,737

of which China 2,600 3,003 3,499 3,795 4,051 4,540 5,197 5,715

of which Japan 1,395 1,532 1,577 1,540 1,491 1,549 1,328 1,510

Africa 529 553 589 603 709 874 961 1,060

Oceania 469 429 442 502 446 424 477 475

Total Refined Production 16,571 17,291 17,933 18,238 18,316 19,003 19,649 20,059

Refined Consumption

North America 2,556 2,444 2,315 2,113 1,627 1,791 1,789 1,844

Latin America 967 907 877 900 807 910 906 946

Europe 4,581 5,008 4,822 4,481 3,700 4,003 4,137 3,801

of which EU-27 3,887 4,255 4,088 3,768 3,262 3,495 3,367 3,093

Asia 8,184 8,442 9,744 9,895 10,754 12,007 12,505 12,861

of which China 3,690 3,688 4,882 5,147 6,359 7,139 7,725 8,058

of which Japan 1,229 1,282 1,247 1,185 876 1,060 1,003 978

Africa 228 235 270 297 295 283 280 264

Oceania 159 146 150 153 132 134 126 128

Total Refined Consumption 16,675 17,181 18,178 17,839 17,315 19,127 19,742 19,845

Surplus/(Deficit) (104) 110 (244) 399 1,001 (124) (93) 214

Stocks

LME Warehouses 92 191 199 341 502 378 372 321

COMEX Warehouses 7 34 15 35 99 65 88 71

SHFE Warehouses 58 28 26 18 95 132 93 205

Total Exchanges 157 253 240 393 697 574 553 597

as no. of weeks consumption 0.5 0.8 0.7 1.1 2.1 1.6 1.5 1.6

Total Exchange Stocks Change 16 96 (13) 153 304 (123) (21) 43

Implied Off Exchange Stocks Change (120) 14 (231) 245 697 (1) (71) 171

Price ($/tonne) 3,684 6,731 7,126 6,952 5,164 7,539 8,811 7,950

High 4,650 8,788 8,301 8,985 7,346 9,740 10,148 8,658

Low 3,072 4,537 5,226 2,770 3,051 6,091 6,785 7,252


APPENDIX 2 – REFINED COPPER SUPPLY & DEMAND – REGIONAL FOCUS (THOUSAND TONNES), 2005-2012

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2005 2006 2007 2008 2009 2010 2011 2012

Africa

Botswana 26 24 23 29 29 31 29 38

DR Congo 101 128 144 227 303 340 435 546

Mauritania 0 5 29 33 37 37 35 37

Morocco 5 5 8 8 6 10 11 11

Namibia 11 6 8 10 0 0 3 5

South Africa 89 90 102 112 111 104 95 75

Tanzania 4 4 2 4 4 6 7 6

Zambia 433 474 507 539 636 686 674 693

Zimbabwe 3 3 4 4 4 3 5 4

Total Africa 671 739 828 966 1,130 1,218 1,295 1,415

Asia

China 777 889 946 1,023 1,041 1,155 1,299 1,642

India 25 29 29 28 29 34 33 31

Indonesia 1,065 816 789 653 993 871 543 398

Iran 164 216 217 227 234 257 259 246

Japan 1 0 0 0 0 0 0 0

Kazakhstan 402 434 456 459 456 425 415 420

Laos 31 61 63 89 122 132 139 150

Mongolia 129 132 132 129 129 126 124 122

Myanmar 35 20 14 0 4 9 9 10

North Korea 12 12 12 12 12 12 12 12

Oman 0 0 6 20 20 16 20 22

Pakistan 18 20 21 20 20 20 20 20

Philippines 16 18 23 20 49 58 64 68

Saudi Arabia 1 1 0 1 2 2 2 3

Turkey 54 46 83 96 93 85 79 89

Uzbekistan 80 80 80 80 80 80 80 80

Vietnam 1 5 10 10 11 11 11 11

Total Asia 2,810 2,779 2,881 2,868 3,296 3,294 3,108 3,324

Europe

Albania 0 0 4 3 7 3 5 5

Armenia 16 18 25 20 19 23 34 36

Bulgaria 95 110 102 99 100 102 104 106

Cyprus 0 1 3 3 2 3 4 4

Georgia 10 9 11 12 10 6 7 7

Macedonia 3 7 7 8 8 8 8 10

Poland 512 497 452 429 439 425 427 427

Portugal 90 79 90 89 86 74 82 67

Romania 16 12 9 9 5 5 7 7

Russia 640 675 677 702 699 696 713 701

Spain 8 7 7 8 18 55 65 93

Scandinavia 102 100 76 70 69 91 97 108

Serbia 13 12 14 19 19 19 27 27

Total Europe 1,503 1,527 1,477 1,472 1,482 1,510 1,578 1,599

APPENDIX 3 – COPPER MINE PRODUCTION (THOUSAND TONNES), 2005-2012

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2005 2006 2007 2008 2009 2010 2011 2012

Americas

Argentina 187 180 180 157 143 140 117 136

Bolivia 0 0 0 0 0 1 6 9

Brazil 131 143 199 216 211 214 215 220

Canada 596 603 588 606 498 521 576 588

Chile 5,321 5,361 5,555 5,319 5,393 5,419 5,259 5,433

Colombia 2 1 1 1 1 2 1 1

Dominican Republic 0 0 0 4 12 9 12 12

Mexico 429 334 322 246 236 244 423 470

Peru 1,010 1,049 1,156 1,229 1,225 1,202 1,201 1,260

United States 1,157 1,222 1,178 1,329 1,196 1,129 1,140 1,159

Total Americas 8,832 8,893 9,179 9,107 8,915 8,882 8,950 9,286

Oceania

Australia 916 859 873 880 841 865 950 919

Papua New Guinea 193 194 169 160 167 160 130 125

Total Oceania 1,109 1,053 1,042 1,039 1,008 1,024 1,080 1,045

World Total 14,925 14,991 15,407 15,452 15,831 15,929 16,011 16,669


APPENDIX 3 – COPPER MINE PRODUCTION (THOUSAND TONNES), 2005-2012

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2005 2006 2007 2008 2009 2010 2011 2012

Africa

DR Congo 50 53 15 42 143 224 337 422

Zambia 103 124 198 175 155 162 168 179

Zimbabwe 0 0 1 1 1 1 3 2

Total Africa 152 177 214 218 300 388 509 603

Asia

China 15 16 12 17 26 33 30 39

Iran 10 9 8 7 7 7 10 13

Kazakhstan 0 0 0 0 0 0 0 6

Laos 31 61 63 64 68 64 79 86

Mongolia 2 2 2 3 3 3 2 2

Myanmar 35 20 14 0 4 9 9 10

Total Asia 92 108 98 90 106 116 130 156

Europe

Cyprus 0 1 3 3 2 3 4 4

Macedonia 0 0 0 0 0 0 0 2

Russia 2 5 9 10 10 10 10 10

Spain 0 0 0 0 6 29 42 68

Total Europe 2 6 12 13 18 41 56 84

Americas

Bolivia 0 0 0 0 0 1 3 3

Brazil 0 0 1 4 4 5 4 5

Canada 0 0 2 2 3 2 2 1

Chile 1,585 1,692 1,848 1,963 2,118 2,089 2,024 2,029

Mexico 93 86 103 94 78 86 144 150

Peru 166 174 172 160 163 153 140 101

United States 554 530 483 532 460 421 440 460

Total Americas 2,397 2,482 2,608 2,755 2,825 2,756 2,757 2,748

Oceania

Australia 51 52 47 43 15 9 31 35

Total Oceania 51 52 47 43 15 9 31 35

World Total 2,694 2,825 2,979 3,120 3,265 3,310 3,483 3,627


APPENDIX 4 – COPPER SOLVENT EXTRACTION – ELECTROWINNING PRODUCTION (THOUSAND TONNES), 2005-2012

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APPENDIX 5 – COPPER INVENTORIES (END-YEAR – THOUSAND TONNES), 2003-2012

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

London Metal Exchange Warehouses

Belgium 0.2 0.0 0.0 0.0 1.1 2.0 2.3 0.8 0.4 44.9

France 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Germany 0.0 0.0 0.1 0.1 0.0 16.0 12.0 10.0 7.8 0.0

Italy 10.2 0.0 1.2 4.2 16.0 27.1 5.1 3.6 8.4 0.8

Korean rep. - 1.5 69.9 50.5 78.9 61.4 110.9 49.5 25.0 92.2

Malaysia - - 0.1 0.1 0.2 0.0 3.6 1.9 2.3 21.6

Netherlands 9.2 1.3 3.8 18.3 24.2 90.7 35.0 14.5 31.3 26.8

Singapore 0.1 9.3 12.7 32.2 13.5 11.4 25.4 11.2 9.9 13.9

Spain 39.6 0.1 3.4 0.9 2.8 23.5 13.2 1.5 1.0 0.0

Sweden 0.0 0.7 0.4 3.4 0.2 0.0 0.0 0.0 0.0 0.0

United Arab Emirates 0.3 0.0 1.7 0.2 0.0 0.0 0.5 0.0 0.0 0.0

United Kingdom 35.8 0.0 1.3 5.4 1.9 2.5 10.9 0.3 0.1 0.7

United States 335.1 26.6 0.4 71.1 58.8 105.9 283.4 284.5 285.5 119.7

Total LME Warehouses 430.5 48.9 92.2 190.6 198.9 340.6 502.4 377.7 371.6 320.5

COMEX 280.9 48.2 6.8 34.1 15.2 34.5 99.2 64.6 88.0 70.7

SHFE 110.6 43.8 57.8 28.1 25.6 17.8 95.3 131.9 93.2 204.8

Total Exchanges 822.1 140.9 156.9 252.8 239.8 392.9 696.9 574.2 552.8 596.0

Producers, Consumers, Merchants & Government (ICSG estimates)

Producers 751.3 618.9 600.9 693.7 572.9 548.9 582.6 550.0 562.4 729.6

Merchants 18.8 10.7 5.9 6.3 14.9 24.5 9.9 9.5 10.0 10.2

Consumers 169.9 135.4 104.3 121.8 133.9 128.7 96.1 71.5 88.1 75.9

Government 34.0 34.0 - - 10.0 10.0 - - - -

Total 974.0 799.0 711.1 821.8 731.7 712.1 688.6 631.0 660.5 815.7

Total Reported Stocks* 1,796.1 939.9 868.0 1,074.6 971.5 1,105.0 1,385.5 1,205.2 1,213.3 1,411.7

as no. of weeks consumption 6.0 2.9 2.7 3.3 2.8 3.2 4.2 3.3 3.2 3.7

* Sum of exchange stocks and ICSG stocks

Source: Various

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APPENDIX 6 – NOMINAL COPPER PRICES

Kwacha Nuevo

US$ Euro Yuan Chilean Rouble ‘000 sol

/tonne US¢/lb /tonne1 /tonne Yen/kg Won/kg peso/lb /tonne Rph/kg /tonne /tonne

1975 1,237 56 948 n/a 367 599 2.8 n/a 513 0.8 n/a

1976 1,403 64 1,175 n/a 416 679 8.3 n/a 582 1.0 n/a

1977 1,310 59 1,079 n/a 351 634 13 n/a 544 1.0 n/a

1978 1,365 62 1,020 n/a 287 661 20 n/a 603 1.1 n/a

1979 1,973 89 1,375 n/a 432 955 33 n/a 1,229 1.6 n/a

1980 2,185 99 1,525 n/a 494 1,327 39 n/a 1,370 1.7 n/a

1981 1,743 79 1,545 2,980 384 1,187 31 n/a 1,101 1.5 n/a

1982 1,477 67 1,496 2,803 368 1,081 34 n/a 977 1.4 n/a

1983 1,590 72 1,792 3,150 378 1,234 57 n/a 1,446 2.0 n/a

1984 1,376 62 1,754 3,206 327 1,109 61 n/a 1,412 2.5 n/a

1985 1,416 64 1,880 4,169 338 1,233 103 n/a 1,573 4.4 n/a

1986 1,372 62 1,386 4,749 231 1,209 120 n/a 1,759 11 n/a

1987 1,784 81 1,531 6,656 258 1,467 178 n/a 2,932 17 n/a

1988 2,597 118 2,191 9,692 333 1,898 289 n/a 4,378 21 n/a

1989 2,843 129 2,551 10,711 392 1,909 344 n/a 5,033 39 n/a

1990 2,662 121 2,054 12,758 385 1,884 368 n/a 4,906 81 n/a

1991 2,337 106 1,857 12,464 314 1,714 370 n/a 4,557 151 1,826

1992 2,283 104 1,726 12,603 289 1,783 375 649 4,634 393 2,843

1993 1,912 87 1,607 11,048 212 1,535 350 1,789 3,990 866 3,795

1994 2,313 105 1,922 19,981 236 1,859 441 5,151 4,997 1,548 5,067

1995 2,937 133 2,216 24,579 276 2,264 528 13,387 6,603 2,538 6,596

1996 2,290 104 1,774 19,100 249 1,843 428 11,920 5,365 2,767 5,606

1997 2,276 103 2,014 18,933 275 2,162 433 13,169 6,621 2,991 6,051

1998 1,653 75 1,485 13,720 216 2,311 345 16,202 16,551 3,078 4,840

1999 1,574 71 1,481 13,027 178 1,871 365 38,799 12,216 4,160 5,327

2000 1,814 82 1,973 15,019 196 2,051 445 51,038 15,235 5,874 6,325

2001 1,578 72 1,762 13,059 191 2,037 452 46,037 16,152 5,647 5,535

2002 1,558 71 1,653 12,891 195 1,949 487 48,853 14,498 6,817 5,473

2003 1,780 81 1,570 14,732 206 2,121 554 54,583 15,234 8,399 6,190

2004 2,868 130 2,307 23,741 310 3,283 792 82,624 25,644 13,470 9,777

2005 3,684 167 2,978 31,112 408 3,914 930 108,629 35,856 15,921 12,155

2006 6,731 305 5,341 53,614 782 6,414 1,621 182,317 61,583 23,985 21,983

2007 7,126 323 5,198 54,166 839 6,615 1,685 182,023 65,079 28,162 22,279

2008 6,952 315 4,665 48,398 727 7,374 1,591 170,031 65,626 25,140 20,116

2009 5,164 234 3,669 35,267 481 6,474 1,289 161,865 52,532 25,612 15,388

2010 7,539 342 5,682 50,979 659 8,702 1,736 229,084 68,366 36,014 21,279

2011 8,811 400 6,329 56,999 704 9,743 1,926 258,150 77,101 42,676 24,267

2012 7,950 361 6,182 50,148 634 8,952 1,751 246,600 74,331 40,823 20,957

1 Data prior to the establishment of the euro are based on the Bank of England’s constructed series.

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APPENDIX 7 – REAL COPPER PRICES (CPI INFLATED – CONSTANT 2012 MONEY TERMS)

Kwacha Nuevo


/tonne US¢/lb /tonne1 /tonne Yen/kg Won/kg peso/lb /tonne Rph/kg /tonne /tonne

1975 5,278 239 4,360 n/a 653 5,804 951 n/a 20,066 36,526 n/a

1976 5,661 257 4,922 n/a 677 5,710 920 n/a 18,992 38,010 n/a

1977 4,962 225 4,107 n/a 529 4,838 738 n/a 15,965 33,372 n/a

1978 4,807 218 3,608 n/a 414 4,406 807 n/a 16,396 30,312 n/a

1979 6,240 283 4,476 n/a 602 5,384 1,029 n/a 28,730 39,566 n/a

1980 6,089 276 4,454 n/a 638 5,812 883 n/a 27,132 39,024 n/a

1981 4,402 200 4,044 15,397 473 4,287 588 n/a 19,425 30,103 n/a

1982 3,514 159 3,546 14,210 441 3,640 592 n/a 15,744 24,224 n/a

1983 3,666 166 3,921 15,733 444 4,020 775 n/a 20,846 29,538 n/a

1984 3,040 138 3,589 15,571 376 3,529 699 n/a 18,422 30,664 n/a

1985 3,022 137 3,644 18,523 380 3,831 900 n/a 19,602 39,771 n/a

1986 2,874 130 2,606 19,813 259 3,656 875 n/a 20,719 61,734 n/a

1987 3,605 164 2,803 25,880 289 4,305 1,079 n/a 31,597 66,727 n/a

1988 5,041 229 3,897 31,721 370 5,197 1,530 n/a 43,669 54,771 n/a

1989 5,264 239 4,351 29,710 427 4,946 1,559 n/a 47,168 43,888 n/a

1990 4,677 212 3,362 34,322 406 4,497 1,323 n/a 42,649 42,999 n/a

1991 3,939 179 2,919 32,429 321 3,743 1,092 n/a 36,210 40,741 12,222

1992 3,736 169 2,619 30,818 290 3,662 960 1,380,510 34,241 39,905 10,967

1993 3,037 138 2,361 23,554 211 3,009 795 390,419 26,877 31,014 9,853

1994 3,583 163 2,750 34,326 233 3,430 897 275,711 31,021 35,879 10,630

1995 4,424 201 3,095 36,058 272 3,998 993 240,886 37,457 43,594 12,452

1996 3,352 152 2,425 25,873 245 3,103 750 145,177 28,187 33,216 9,489

1997 3,255 148 2,710 24,948 266 3,485 714 139,761 32,746 28,868 9,435

1998 2,328 106 1,977 18,225 208 3,463 542 134,671 51,683 23,865 7,036

1999 2,169 98 1,950 17,550 172 2,782 554 173,629 31,658 25,439 7,484

2000 2,419 110 2,544 20,154 190 2,982 651 189,110 38,066 28,489 8,565

2001 2,045 93 2,220 17,397 187 2,845 638 140,439 36,195 22,566 7,350

2002 1,988 90 2,037 17,307 193 2,649 671 128,714 29,040 22,285 7,254

2003 2,221 101 1,895 19,550 203 2,786 743 126,523 28,628 22,618 8,023

2004 3,486 158 2,726 30,321 307 4,163 1,051 172,717 45,358 30,748 12,224

2005 4,330 196 3,443 39,027 405 4,830 1,197 201,518 57,421 30,716 14,955

2006 7,665 348 6,045 66,281 774 7,741 2,018 308,370 87,189 42,445 26,516

2007 7,891 358 5,759 63,917 831 7,787 2,008 282,435 86,590 45,037 26,403

2008 7,413 336 5,006 53,929 709 8,292 1,745 231,209 79,542 35,754 22,536

2009 5,526 251 3,925 39,568 476 7,085 1,393 197,131 60,747 32,123 16,748

2010 7,938 360 5,981 55,355 657 9,249 1,850 261,099 75,198 41,630 22,810

2011 8,993 408 6,487 58,712 703 9,957 1,986 271,321 80,494 45,401 25,165

2012 7,950 361 6,182 50,148 634 8,952 1,751 246,600 74,331 40,823 20,957

1 Data prior to the establishment of the euro are based on the Bank of England’s constructed series.

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/tonne US¢/lb /tonne /tonne Yen/kg Won/kg peso/lb /tonne Rph/kg /tonne /tonne

Annual Average 5,164 234 3,669 35,267 481 6,474 1,289 161,865 52,532 25,612 15,388

Maximum 7,346 333 5,120 50,143 684 8,566 1,690 222,683 69,199 34,019 21,215

Minimum 3,051 138 2,204 20,863 273 4,060 852 90,300 33,320 14,879 9,502

Range:average 83.2% 83.2% 79.5% 83.0% 85.4% 69.6% 65.0% 81.8% 68.3% 74.7% 76.1%

Monthly Average

Jan 3,221 146 2,435 22,017 291 4,368 908 102,669 35,679 16,138 10,138

Feb 3,315 150 2,591 22,658 308 4,771 910 118,680 39,132 17,901 10,724

Mar 3,750 170 2,872 25,633 367 5,431 1,006 129,612 44,269 20,898 11,869

Apr 4,407 200 3,342 30,098 435 5,874 1,165 147,742 48,397 24,877 13,566

May 4,569 207 3,346 31,173 441 5,734 1,171 145,898 47,278 23,636 13,687

Jun 5,014 227 3,579 34,262 485 6,325 1,252 155,823 50,985 25,376 14,989

Jul 5,216 237 3,703 35,631 493 6,571 1,277 164,297 52,591 26,694 15,685

Aug 6,165 280 4,323 42,123 586 7,640 1,530 195,242 61,366 29,753 18,171

Sep 6,196 281 4,255 42,307 567 7,526 1,542 190,516 60,989 28,746 18,018

Oct 6,288 285 4,242 42,925 568 7,384 1,554 185,039 59,549 29,238 18,051

Nov 6,676 303 4,475 45,574 595 7,762 1,530 193,233 63,010 30,946 19,250

Dec 6,982 317 4,785 47,666 628 8,135 1,591 210,093 65,946 32,557 20,081

Quarterly Average

Mar 3,435 156 2,637 23,483 323 4,867 943 117,160 39,775 18,360 10,928

Jun 4,676 212 3,429 31,935 455 5,993 1,198 150,082 48,982 24,670 14,117

Sep 5,840 265 4,080 39,888 546 7,223 1,444 182,693 58,134 28,330 17,239

Dec 6,643 301 4,496 45,350 597 7,754 1,558 195,949 62,783 30,888 19,110

APPENDIX 8 – COPPER PRICES IN 2009

COPPER PRICES IN 2009

US$

/ton

ne


0

2000

4000

6000

8000

10000

DecNovOctSepAugJulJunMayAprMarFebJan

Weak Chinesescrap imports

Collahuasi estimatesproduction lossesat 20,000 tonnes

Olympic Dam accidentcuts production by 75%

PMI'simproving

LME stocks fell by more than290,000 tonnes

Germany, Japanand France exitrecession

Escondida shutsmill for 45 days

US dollarweakness

Strikecommencesat Spence

Vote toend strikeat Spence

Chinese imports of cathode pickup

Profit-taking by investment funds

Strong Chinese importsof cathode


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Annual Average 7,539 342 5,682 50,979 659 8,702 1,736 229,084 68,366 36,014 21,279

Maximum 9,740 442 7,260 64,183 790 10,908 2,066 297,318 87,704 46,555 27,319

Minimum 6,091 276 4,566 41,598 553 7,303 1,514 189,513 56,281 29,025 17,341

Range:average 48.4% 48.4% 47.4% 44.3% 35.9% 41.4% 31.8% 47.1% 46.0% 48.7% 46.9%

Monthly Average

Jan 7,386 335 5,175 50,425 673 8,402 1,679 220,526 68,400 33,214 21,090

Feb 6,848 311 5,007 46,764 618 7,916 1,651 206,404 63,882 31,896 19,534

Mar 7,463 339 5,500 50,943 677 8,484 1,769 220,631 68,365 34,943 21,184

Apr 7,745 351 5,773 52,865 724 8,636 1,826 225,990 69,870 36,092 21,989

May 6,838 310 5,462 46,685 628 7,982 1,658 208,999 62,677 33,987 19,448

Jun 6,499 295 5,319 44,314 590 7,894 1,584 203,163 59,340 33,291 18,434

Jul 6,735 306 5,263 45,639 589 8,116 1,618 206,107 60,844 33,775 19,013

Aug 7,284 330 5,643 49,432 622 8,593 1,679 221,224 65,310 35,711 20,399

Sep 7,709 350 5,889 51,969 651 8,957 1,725 237,371 69,199 37,398 21,512

Oct 8,292 376 5,966 55,290 678 9,307 1,821 251,351 74,015 38,706 23,144

Nov 8,470 384 6,210 56,343 699 9,570 1,854 262,720 75,710 39,648 23,758

Dec 9,147 415 6,919 60,804 762 10,475 1,966 282,105 82,497 43,082 25,732

Quarterly Average

Mar 7,243 329 5,240 49,452 657 8,278 1,703 216,081 66,953 33,427 20,631

Jun 7,013 318 5,513 47,856 646 8,165 1,687 212,465 63,832 34,426 19,915

Sep 7,242 329 5,598 49,007 621 8,555 1,674 221,573 65,115 35,627 20,307

Dec 8,634 392 6,362 57,461 713 9,780 1,880 265,350 77,381 40,466 24,204



US$

/ton

ne


4000

5000

6000

7000

8000

9000

10000

11000


Sovereign debt issues affect the market

FOMC announces$600 billionQE2 package

ETF Securities launch aphysically-backedcopper contractEarthquake

hits ChileChina announces greater flexibilityin the yuan


Greece asks for EU-IMFfinancial rescue package

Doubts about thesustainability of strongChinese growth

Low spot treatmentcharges reinforcetightness in the concentrate market

US dollar weaknessand healthy industrialproduction growth

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Annual Average 8,811 400 6,329 56,999 704 9,743 1,926 258,150 77,101 42,676 24,267

Maximum 10,148 460 7,539 66,941 847 11,396 2,204 298,429 90,798 48,595 28,080

Minimum 6,785 308 5,050 43,251 520 7,927 1,622 216,870 60,319 33,654 18,842

Range:average 38.2% 38.2% 39.3% 41.6% 46.4% 35.6% 30.2% 31.6% 39.5% 35.0% 38.1%

Monthly Average

Jan 9,556 433 7,150 63,034 790 10,692 2,129 287,797 86,312 45,385 26,603

Feb 9,868 448 7,229 64,884 815 11,033 2,125 288,693 87,961 47,009 27,331

Mar 9,531 432 6,798 62,557 778 10,673 2,072 270,776 83,459 45,222 26,486

Apr 9,483 430 6,574 61,924 791 10,293 2,024 266,471 82,057 44,555 26,690

May 8,927 405 6,240 57,989 724 9,689 1,895 249,542 76,384 42,294 24,747

Jun 9,045 410 6,283 58,561 728 9,776 1,926 253,045 77,431 43,416 24,984

Jul 9,619 436 6,738 62,118 763 10,181 2,016 268,564 82,011 46,426 26,362

Aug 9,041 410 6,318 57,912 696 9,708 1,914 260,094 77,033 44,421 24,758

Sep 8,315 377 6,037 53,118 639 9,281 1,828 254,909 72,402 40,812 22,802

Oct 7,348 333 5,353 46,799 563 8,460 1,695 229,234 65,080 36,358 20,045

Nov 7,552 343 5,570 47,997 585 8,565 1,742 232,884 67,901 37,884 20,423

Dec 7,568 343 5,749 48,052 589 8,689 1,773 238,828 68,446 38,685 20,397

Quarterly Average

Mar 9,646 438 7,047 63,447 794 10,793 2,107 281,868 85,794 45,841 26,791

Jun 9,137 414 6,356 59,379 746 9,902 1,945 255,905 78,470 43,384 25,417

Sep 8,982 407 6,359 57,648 698 9,716 1,918 261,075 77,074 43,847 24,614

Dec 7,489 340 5,554 47,615 579 8,569 1,736 233,554 67,134 37,630 20,289



US$

/ton

ne


5000

6000

7000

8000

9000

10000

11000

12000


Renewed investment activity on back of stronger economic data push the market to new highs

Copper supported by“buying-on-dips” from funds and physical buyers

Supply disruptions in Chile and Indonesia reinforce supply tightness

Larger copper consumerssuch as Italy and Spain hit by debt concerns

LME & SHFE inventorieson a rising trend

Lower Chinese refined copper imports prompts a correction

Investment fundsbecome more risk

averse

Eurozone debt crisisbroadens from earlierfocus on Ireland andPortugal

Financial crisis beginsto affect physical copper demand

Low prices encourage Chinese buyers backto the market


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Annual Average 7,950 361 6,182 50,148 634 8,952 1,751 246,600 74,331 40,823 20,957

Maximum 8,658 393 6,557 54,536 718 9,755 1,891 261,528 79,856 45,541 23,186

Minimum 7,252 329 5,817 46,192 575 8,205 1,597 233,855 67,983 35,219 19,226

Range:average 17.7% 17.7% 12.0% 16.6% 22.6% 17.3% 16.8% 11.2% 16.0% 25.3% 18.9%

Monthly Average

Jan 8,043 365 6,239 50,815 619 9,185 1,819 251,618 72,707 41,159 21,647

Feb 8,423 382 6,364 53,060 661 9,457 1,838 250,682 75,718 43,825 22,591

Mar 8,457 384 6,404 53,389 697 9,529 1,862 248,334 77,250 44,620 22,583

Apr 8,260 375 6,272 52,082 671 9,378 1,818 243,333 75,674 43,272 21,929

May 7,920 359 6,192 50,097 631 9,171 1,791 245,047 73,229 41,279 21,137

Jun 7,420 337 5,917 47,215 589 8,627 1,694 243,246 69,736 38,882 19,779

Jul 7,589 344 6,177 48,349 599 8,672 1,689 246,638 71,532 36,979 19,977

Aug 7,492 340 6,042 47,647 590 8,483 1,633 239,448 71,073 36,671 19,590

Sep 8,068 366 6,268 50,996 630 9,067 1,732 253,222 77,022 40,469 20,992

Oct 8,070 366 6,219 50,551 637 8,928 1,739 251,162 77,375 41,603 20,886

Nov 7,694 349 5,997 47,960 624 8,367 1,675 241,425 73,961 39,893 19,965

Dec 7,963 361 6,072 49,628 666 8,565 1,721 244,689 76,658 41,468 20,423

Quarterly Average

Mar 8,310 377 6,337 52,436 660 9,392 1,840 250,182 75,257 43,223 22,279

Jun 7,869 357 6,130 49,813 630 9,064 1,769 243,934 72,897 41,151 20,958

Sep 7,706 350 6,159 48,935 606 8,730 1,683 246,224 73,090 37,964 20,161

Dec 7,909 359 6,099 49,387 641 8,627 1,712 245,894 75,989 40,975 20,432



US$

/ton

ne


5000

6000

7000

8000

9000

10000

11000

12000


China implements second interest rate cut of 2012

Weak Eurozone data and Greek fears heighten; US “fiscal cliff” looms Mine output data

show pick-up

Fed announces new monetary stimulus

Renewed optimism over Chinese growth and avoidance of “fiscal cliff”

Positive European, US and Chinese economic data released

Uncertainty over Greek elections; Spanish bond yields blow out


Fed comments on maintaining low interest rates through 2014

Various producers report production declines for 2011

China lowers 2012 GDP target to 7.5% Fed launches QE3;

ECB introduces bond-buying programme; China announces large infrastructure project spending

CS 2013 CH7.indd 90 25/03/2013 19:24:56

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