The year 2010 proved to be very fruitful for non-ferrous metals. Most of the commodities outperformed the broader equity markets and created wealth for investors. The one commodity that remained in limelight was Copper. Copper outperformed the base metals barring Nickel, with returns of 26% in the year 2010. The LME Copper three-month forwards tested an all time high of $ 9514 per tonne. Domestic markets overtook peers in term of returns and gave returns of 41% to its investors. We have tried to portray the key events that occurred in the process of Copper becoming a Multibagger. The major proceedings for 2010 are as follows:
Beginning January 2010 announcements of reopening of major mines indicated that the demand was reshaping for the red metal and there were expectations of prices getting firmer due to which most of the mines were improving production capacity.
Expansion of Mines
BHP Billiton announces expansion of Antamina copper mine
BHP Billiton announced that it plans to expand its Antamina copper and Zinc mine in northern Peru. The expansion project will increase the site's ore processing capacity by 38% to 130000 tonnes per day. First production from the expansion is anticipated in late 2011.
Antamina is a joint venture between BHP Billiton (33.75%), Xstrata (33.75%), Teck Resources (22.5%) and Mitsubishi Corporation (10%). All partners approved their respective shares of the project's $1288 million capital budget. BHP Billiton share was $434.7 million.
Meanwhile, BHP Billiton copper production declined by 12% to 271100 tonnes during Oct-Dec 2009. The drops were a result of a strike at the Spence mine in Chile that costed the company 28000 tonnes and an incident at Olympic Dam in Australia that reduced output by roughly 20000 tonnes. The reductions were partially offset by stronger production at Escondida in Chile due to higher grades and the return to full operation of the Laguna Seca SAG mill.
Vale eager to accelerate Copper projects
Vale said that it was eager to accelerate Copper projects. The strategy is aimed for making Brazilian major to become the top five producer in the world. Vale targeted three or four projects in Chile, Peru and Brazil's Carajas region and may also explore for copper in Indonesia and the Philippines. Vale has plans to produce about 1 million tons annually within five years. This compares with the 198000 tons the company produced in 2009 and a target of 691000 tons by 2015 that the company announced in October 2010.
Vale also said it completed its Tres Valles mine in central Chile's Coquimbo region, with initial capacity of 18500 metric tons of copper cathodes a year. The company's current pipeline of copper projects in Brazil will lead to production of 700,000 metric tons a year once completed. Vale produced 131000 tons of copper in the first nine months of 2010.
Hindustan Copper khetri complex to be enhanced by 2015
In early January, Hindustan Copper announced the enhancement of Khetri Copper complex from present level of 1.0 million tonne per annum to 2.6 million tonne per annum by 2015. This involved expansion of Khetri & Kolihan mine and development of Banwas deposit and Chandmari mine. Expansion of mines like HCL and BHP Billiton gave the indication that the tide was turning in favor of Copper at very early of the year. It indicated the crisis that brought the demise of the commodities in late 2008 and 2009 was over to a large extent.
Canada first mineral resumes production at Bwana Mkubwa
Canada's First Minerals resumed copper production at its Bwana Mkubwa processing plant in Zambia after sourcing raw material from the Democratic Republic of Congo, mines minister Maxwell Mwale said in January.
Fears from Europe:
Debt crisis in Greece irk the markets
The first set of negative vibes in the markets in 2010 was the debt crisis in Greece and other European countries. This led to a sharp sell-off in the metals and Copper spearheaded the losses. The other countries that faced a similar crisis as Greece were Portugal, Italy, Ireland and Spain. Euro zone and IMF approved a massive bailout package of $ 146.2 billion or 110 billion EURO to Greece. The news came as a relief for the seller driven market. The bailout was approved in May and for a period of three years. The Greece bailout was followed by austerity measures in the country.
Chinese Checkers:
Tongling non-ferrous metals started building a new copper smelter in Anhui province. The smelter will have a capacity of 400000 tonnes and is expected to begin operation in 2012. Tongling capacity of Copper production is expected to reach 1.2 million per annum after the commissioning of the smelter. This will also make the company largest Copper producer in China. In 2009, Tongling Nonferrous produced 718600 tons of cathode copper, 10.80% more than in 2008.
China state owned miners accelerated acquisition of Copper assets
In order to streamline its Copper industry, China state owned miners accelerated the acquisition of Copper assets within the country in March 2010. The government encouraged mergers & acquisitions to streamline the industry. The nation's top two copper producers, Jiangxi Copper Corporation (JCC) and Anhui-based Tongling Nonferrous Metals Group Holdings Co received a series of M&A proposals in 2010.
Jiangxi Copper invests $ 295 million in Copper product plant:
Fresh capacities coming in the markets for Copper is an indicator of improved market dynamics for Copper. Jiangxi Copper said in August 2010 that it would build a 400000-tonne per year copper product plant in Guangdong province. The total investment will be 2 billion yuan or $294.6 million.
Jiangxi Copper operates more than 500000 tonnes of annual copper product capacity that uses refined copper as feed. The company planned to produce 900000 tonnes of refined copper in 2010, compared with 802,000 tonnes in 2009
Chinese Copper imports improve between Jan-Dec 2010
Mystery trader (JP Morgan) buys large chunk of Copper stocks:
Closure of the year brought some interesting moves in Copper. The markets rallied sharply on the news that some mystery trader was having large chunk of inventories of LME. The approximate inventories holdings were said to be between 50-80%. Spot premiums were already on a high and with news floating in the markets the premiums multiplied further. A report from Telegraph said that the mystery trader was JP Morgan. Traders said JP Morgan's was the most likely buyer, as it is about to launch a physically backed "exchange-traded fund" (ETF) in copper.
Inventories turn down in LME, Multiply in Shanghai:
China is a major consumer of Copper and Copper products in the world. Year 2010 saw increase of Copper consumption in China, it was also the year of high level of restocking activity in the nation. LME inventories on the contrary declined in the year 2010. The total LME inventories in 2010 were down by 25% to 377550 tonnes as on 31 Dec. The inventories levels at the beginning of the year were 502400 tonnes. Compared to other metals the inventories of Copper declined by highest percentage.
All time high prices of Copper:
The biggest achievement of Copper in 2010 was to enter into an unchartered territory. Improved forecasts, declining supplies and inventories proved fruitful for the metal. China continued to fight from inflation and raised the benchmark rates. So did India that raised its key interest rates to tame inflation. However, this did little to stop the flow of money in metals space especially Copper.
Forecasts for 2011:
Chile Cochilco raised forecasts for Copper prices in 2011
During the initiation of the year 2010, Chile's state copper commission Cochilco raised its forecast for the average copper price to $3.10 per lb in 2010.
The upward revision was due to easy liquidity in the markets in 2010 when compared to 2009 and because China showed stronger consumption than anticipated. For 2011, Cochilco has forecasted an average copper price of $ 3.20 per lb on grounds that it expects demand to rise 6% compared to the year before, creating a global supply deficit of about 150000 tonnes.
Demand will remain intensifying in Copper: ICSG forecasts
For the full year 2010, Copper demand was expected to outcast supplies. The recent report from International Copper Study Group (ICSG) was released on 22 Dec 2010, the report showed that the refined Copper market balance was in production deficit of 80000 tonnes in September 2010. After making seasonal adjustments the production deficit stood at 60000 tonnes in September 2009. The apparent refined Copper market balance for Jan-Sep 2010 was 436000 tonnes. This compared to a production deficit of 55000 tonnes, in Jan-Sep 2009. The world apparent usage grew by 8% in Jan-Sep 2010, compared to the corresponding period previous year. China apparent usage was up by 4.5% during first 9 months.
Production in Chile was up by 1.5% from its low level during the same period of 2009, but output from, Peru, the United States, Australia and Indonesia decreased by an aggregated 7.5% (245000 tonnes). During the first nine month of 2010, world-refined production increased by 5% (705000 tonnes) compared with production in the same period of 2009: primary production increased by 1.9%, while secondary production (from scrap) increased by 24.5%.
Copper forecasted to gain by 12% in 2011: ABARE
Copper prices are forecasted to improve by 12% in the year 2011. Draw down in stocks and higher consumption will benefit the metal in 2011. China, Germany and US were the main drivers for growth in the year 2010 and for 2011, world Copper consumption is expected to increase by 5% to 19.3 million tonnes. World copper consumption is forecasted to increase by 2 per cent to 19.7 million tonnes in 2011. The slower rate of consumption growth relative to 2010 reflects the assumption of weaker economic growth in large copper consuming economies, particularly the United States and China.
Outlook for 2011:
Based on the above facts and fundamentals of Copper, year 2011 looks promising for the red metal. However, in January 2011 demand is likely to be slow as major consumers like China fights for tackling inflation. The rise of benchmark rates in Shanghai is expected to bring softness in Copper prices. Already ruling at all time highs the prices are prone to negative news from Europe and Asia. Global rebalancing and booking of profits by funds can be other dampener for the metal. We expect LME prices to find tough resistance at $ 9500-9600 levels with emerging supports at $ 8800-9000 per tonne. On MCX, we are expecting rangebound activity with profit booking on every rally. The prices are expected to move in range of Rs 440-425 per kg. Growth is expected to refresh from US based on positive GDP numbers and improved manufacturing activity. The rise of prospects of better economy in US can however led to consolidation of Dollar. The rise will be creating gap between prospective buyers and Copper at least for short term.
