Development on the markets relevant to our business
General copper market
Many see potential for moderate price recovery in the copper market in 2017. Already in the first several weeks of the new fiscal year, the copper price on the London Metal Exchange recovered to up to US US$ nbsp;5,600/t (settlement) in mid-November.
The key factor for the fundamental situation on the copper market overall in 2017 will be whether this year’s disproportionately good production trend can continue in the coming year. The International Copper Study Group (ICSG) anticipates a roughly 2 % increase in the global output of refined copper. A handful of analysts view the production side as likely to be less stable than in 2016, quoting possible strikes, technical disruptions or maintenance shutdowns that could have unfavorable impacts. On the other hand, the market supply of the raw material, copper concentrate, should ensure good production capacity utilization once again. Furthermore, there will be new or expanded smelter capacities in China that will contribute to refined copper production. This could compensate for possible breakdowns.
China remained the leader on the demand side of the copper market: the country accounts for about 45 % of the global refined copper demand. The International Copper Association thinks an increase of up to 15 % in Chinese copper demand is possible in the current five-year plan, in light of ambitious economic growth plans. For 2017, analysts expect an increase of 4 to 5 %. The country’s energy sector, which is looking to renewable energies, will be a key industry once again. Momentum is also coming from the real estate sector and from rising demand for electric cars. The country’s demand was underestimated in 2016. On the whole, the global demand increase in 2017 is estimated at about 1 to 3 %.
The visible copper inventories at the metal exchanges weren’t classified as excessively high at the start of the new fiscal year, particularly since in October 2016 higher volumes from the previously-supplied Asian LME warehouses were being deducted again. At the same time, copper volumes in Chinese bonded warehouses decreased.
Larger production surpluses of refined copper aren’t expected in 2017. The ICSG estimates a production surplus of about 160,000 t, which is barely significant in light of the market volume of nearly 24 million t. This also applies to similar estimates by other market research institutes. The International Wrought Copper Council (IWCC) and other groups largely anticipate balanced production and demand on the international copper market in 2017.
On this basis, the 2017 copper price should be safeguarded at the lower end for the most part, with limited upward potential. It was already apparent in 2016 that prices dipping below US US$ nbsp;4,600/t consistently stimulated buying interest. However, price volatility will remain a feature of the market.
Markets for copper concentrates and sulfuric acid
Copper concentrates make up a large part of the supply of raw materials for copper production at Aurubis. There is a global market for copper concentrates in which mining companies, traders and primary smelters are active. The primary smelters are largely those that don’t have their own mines or mine stakes. Copper concentrates are generally sourced through long-term supply contracts. The treatment and refining charges agreed in these contracts are oriented to annual benchmarks for purer qualities, but deviate from these benchmarks depending on complexity. The first larger delivery contract between a mine and a concentrate smelter for 2017 can be taken as a benchmark in this case.
The supply on the international copper concentrate markets is likely to continue to be good during the new fiscal year. The commissioning of expansion capacities and new mine projects will positively impact the availability of volumes once again. Production difficulties at mines or unpredictable events such as strikes, technical disruptions, energy bottlenecks and extreme weather could negatively influence supply, however.
Treatment and refining charges for spot shipments of copper concentrates were high at the start of the new fiscal year. The current contract negotiations for 2017 haven’t been concluded yet.
In the case of sulfuric acid, which we produce as a by-product in the course of concentrate processing, an accurate price forecast for the year isn’t possible. The market trend is volatile and depends on the supply situation and demand from the fertilizer industry and the mining industry. Good capacity utilization of sulfur burners and of the metal industry’s concentrate smelters influences the production side. Price changes at short notice, including those due to seasonal effects, are therefore not unusual.
Markets for copper products and recycling
In the coming months, the situation on the copper product markets will likely depend strongly on how the overall economy in Europe develops and how the individual sector economies perform. The following developments are evident:
The German Electrical and Electronics Manufacturers’ Association (ZVEI) anticipates 4 % growth for the global electrical and electronics market in 2017. The industrialized countries contribute to this with plus 2 %, though the main momentum comes from the emerging markets, where 5 % growth is anticipated. In the key market of Europe, which accounts for 19 % of the global market, the ZVEI anticipates sector growth of 3 %.
Demand for cars in Europe rose by 8 % in the first nine months of 2016, according to the European Automobile Manufacturers’ Association. The five largest individual regional markets showed solid growth. At the moment, it seems that this won’t change fundamentally in 2017.
The upswing in the German construction industry continues. As the main German construction association reports, the duration of the orders on hand was most recently at an average of 3.6 months, with demand for construction services described as consistent. The order plus for the first seven months of 2016 was at a nominal level of 16.9 %. In this area as well, the encouraging trend can currently be expected to continue.
Based on these forecasts, we expect stable economic development in 2017 in the three main sectors in which copper is used. However, political and economic risks continue and could change the market situation in each case.
The US economy, the development of which is crucial for our plant there, could continue to recover in 2017 according to the IMF. This could support the US copper business.
Wire rod business is generally somewhat weaker in the first quarter of a new fiscal year due to seasonal factors. We expect this for the new fiscal year 2016/17 as well. Furthermore, projects in the Middle East have been delayed due to the low crude oil price. This affected the business of local cable producers, which slightly weakened demand in the region. Nevertheless, we expect stable conditions to return starting January 2017. For the entire fiscal year, we also anticipate largely stable demand in the cable and wire industry, as well as the automotive sector.
With regards to market development for copper shapes, we expect the demand trend to continue towards high-quality specialty products. The increasing market consolidation for standard products will likely continue. We assume a stable development in demand across this entire sector as well.
On the European market for flat rolled products, we anticipate slightly improved demand with growth opportunities in individual sectors. We don’t expect the market environment to change much in North America.
In Business Line Bars & Profiles, the focus is on new product developments to improve our market presence. The objective is to expand the product portfolio with higher-quality specialty products.
In the area of recycling, which is part of BU Copper Products from an organizational perspective, a forecast is difficult because key sub-markets are influenced by spot transactions. Changes in this area can take effect very quickly.
For copper scrap, the market situation improved after the end of fiscal year 2015/16 due to the increase in copper prices. Because of our market penetration, we expect to be able to supply our facilities even when the availability of volumes is limited.
The availability of complex recycling materials, including electrical and electronic scrap, is fundamentally subject to other conditions and to changes that don’t take effect so quickly. The satisfactory situation for complex recycling materials has not changed significantly up to this point.