In 2011, the global copper industry ended again with a deficit of supply though it was lower than the previous year. Higher demand from China and Russia had boosted consumption during the year. Preliminary data from the International Copper Study Group (ICSG) shows refined copper ended 2011 with a deficit of 358,000 tonnes compared with 377,000 tonnes in the preceding year.
Producers fear that slower economic growth in China could affect copper consumption in 2012. Higher growth in the developed world can fill the void created if economic growth in China actually slackens.
In 2011, world refined copper usage grew by 3%, said the ICSG, with China growing by 7%, Russia by 60%, the US by a mere 0.1%, while the European Union reported a decline of 1.3%. Global mined copper production underperformed and utilization was at 79% which was the lowest in 20 years, according to ICSG. Output was affected by operational failures, labour unrest and lower ore grades.
Despite flat production of mined copper, refined copper production grew by 3.3%. Copper concentrate from mines is refined to obtain the metal. Though primary production was up by only 2.3%, production of copper from scrap was up by 8.2%. Stocks of refined copper at the year-end are almost at the same level as in 2009.
All eyes are on how consumption will grow in 2012, and China is a key component of that calculation. If its government really means business and nudges its economy to slower growth, it’s not good news for the copper industry. At this stage it is too premature to hope that the US and Europe could bounce back so well that they could counter-balance slower growth in China.
Copper prices on the London Metal Exchange have been a tad nervous due to fears of slower growth in China. But they are still higher compared with end-December. The market will be watching if monthly production data actually confirms that China’s demand is slowing.
In India, Hindustan Copper Ltd is the main producer of mined copper for whom a decline in copper prices will be a negative development. Hindalco Industries Ltd and Sterlite Industries (India) Ltd run custom copper smelting operations and their performance depends more on treatment and refining charges. These charges have firmed up and their fees should be higher in 2012.
If changes in market dynamics cloud the outlook for these rates in forthcoming years, or even affect spot rates, it could sour investor sentiment.