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Intellectual Property Register: N° 300462

REPORT ON COPPER MARKET TRENDS

Forecasts 2019-2020

Updated January 2019

COCHILCO

RESEARCH AND PUBLIC POLICY DEPARTMENT

Report on Copper Market Trends

Forecasts 2019-2020


1

Executive Summary

The persistence of trade tensions between the United States and China and their impact in slowing the latter’s economic

growth will continue to constrain recovery of the copper price. This is despite the lowest level of metal exchange warehouse

since 2014 and a world deficit of refined copper. The reduction in the outlook for global growth in 2019, combined with the

trade conflict, has kept investors away from the copper market, maintaining downward pressure on the copper price in the

short term. It is unlikely that the current negotiations between the United States and China will resolve all the complex

trade issues between the two countries in the short term, but a positive result could persuade investors to return to the

market, aligning price expectations with the market fundamentals and boosting consumption of industrial metals.

From the standpoint of the fundamentals of copper supply and demand, the price outlook is positive, although we expect

its increase to be slow. For 2019 and 2020, COCHILCO is forecasting deficits of 242,000 and 201,000 metric tons (equivalent

to 3.5 and 3 days of world consumption), respectively, or, in other words, a market that is technically in equilibrium. These

deficits are larger, for both years, than those forecast in the previous version of this report (November 2018). This reflects

a lower forecast for copper production at the Grasberg mine in Indonesia in line with the announcement made by Freeport-

McMoRan.

The table below summarizes the fundamental parameters that will define the copper market in 2019-2020 as regards mine

copper production, the supply and demand of refined copper and the market balance.

Note: p = preliminary; f = forecast.

Source: COCHILCO.

ktmf Var. % ktmf Var. % ktmf Var. %

Production of mine copper 20,623 1.8 20,953 1.6 21,451 2.4

Supply of refined copper 23,297 -0.4 23,834 2.3 24,295 1.9

Primary 19,577 0.7 20,045 2.4 20,416 1.8

Secondary 3,720 -5.8 3,789 1.9 3,879 2.4

Demand for refined copper 23,501 0.9 24,076 2.4 24,495 1.7

China 12,262 4.0 12,569 2.5 12,757 1.5

Rest of world 11,239 -2.2 11,507 2.4 11,738 2.0

Market balance -204 -242 -201

Copper price (US$/lb)

2018 p 2019 f 2020 f

2.97 3.05 3.08

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Forecasts 2019-2020


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In 2018, world copper demand expanded by 0.9%, with demand in China growing by 4%, ahead of expectations. In the rest

of the world, demand was down by 2.2%, due mainly to the sharp fall in the consumption of Southeast Asian countries,

principally Taiwan, South Korea and Thailand.

In 2019, world copper demand would increase by 575,000 metric tons (2.4%), ahead of the growth of mine copper supply.

In China, demand would increase by 307,000 metric tons, but the increase in percentage terms (2.5%) would be smaller

than in 2018. In India, which has seen strong economic growth over the last five years, demand would rise by 12%, boosted

by a recovery of its smelting industry.

In 2020, growth of world demand would decelerate to 1.7%, representing an increase of 419,000 metric tons on 2019.

Growth of consumption in China would slow to 1.5%, close to its long-term level, while growth in the rest of the world

would come mainly from India and Southeast Asia.

In this update of its projections, COCHILCO has not changed its forecast of an average copper price of US$3.05 per pound

in 2019 and US$3.08 in 2020. Although the projected copper deficit for 2019-2020 is larger than in the previous report,

trade risks remain and, as the International Monetary Fund (IMF) warned in its October World Economic Outlook, the

probability that US economic growth will slow in 2020 has increased. In addition, although the situation facing the United

Kingdom as regards Brexit is not decisive for the copper price, it could increase the volatility of financial markets and further

reduce investors’ exposure to commodities, prolonging the downward pressure on the price of industrial metals.

In Chile, mine copper production increased by 6% in 2018 to 5.83 million metric tons, driven mainly by Escondida, where

output was up by 34.3% on 2017. In 2019, production is forecast to reach 5.94 million metric tons and, in 2020, would

marginally exceed 6 million tons.

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Forecasts 2019-2020


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CONTENTS

CHAPTER 1: EVOLUTION OF THE COPPER MARKET ................................................................................................ 4

2.1 Recent evolution of the copper price ................................................................................................................. 5

2.2 Evolution of world stocks of refined copper ........................................................................................................ 7

2.3 Investment and hedge funds................................................................................................................................. 7

2.4 World production of mine copper ........................................................................................................................ 8

2.5 World production of refined copper .................................................................................................................... 9

2.6 World consumption of refined copper................................................................................................................. 9

1.7 World refined copper market balance................................................................................................................10

CHAPTER 2: UPDATE OF COPPER MARKET FORECASTS, 2018-2020 .................................................................... 11

2.7 Update of demand for refined copper .............................................................................................................12 a. China ........................................................................................................................................................................14

b. United States ...........................................................................................................................................................14

c. Euro zone .................................................................................................................................................................15

2.8 Forecast for world mine copper production .....................................................................................................15 a. Forecast for mine copper production, 2019-2020 ............................................................................................16

b. Forecast for mine copper production in Chile .................................................................................................17

2.9 Forecast for world refined copper balance......................................................................................................17

2.10 Outlook for the copper price ...............................................................................................................................18

2.11 References ..............................................................................................................................................................21

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Forecasts 2019-2020


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CHAPTER 1: EVOLUTION OF THE COPPER MARKET

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Forecasts 2019-2020


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2.1 Recent evolution of the copper price

In the last quarter of 2018, the average copper price showed relatively little variation, increasing by ¢US$3 per pound on the

previous quarter (from US$2.77 in the third quarter to US$2.8 in the last quarter). This was in contrast to the change seen in

the third quarter when the average price dropped by ¢US$34 per pound on the second quarter, due to the start of the so-

called trade war between the United States and China which, at the date of publication of this report, was still ongoing.

In January this year, news about the trade dispute continued to determine both the level of the copper price and its trend

and was the principal cause of the uncertainty preventing a price recovery in the short term. In this context, investors

significantly reduced their exposure to the metal and, in January, a net short (selling) position prevailed, suggesting that they

were waiting for the results of the trade negotiations between the two countries, which are expected to conclude on March

1. The talks are, however, unlikely to resolve all the issues of which the most complex are the US demand for modification of

the intellectual property regime and for elimination of China’s demand that technology be shared as a condition of doing

business there. There is, nonetheless, a positive perception that, at the end of the negotiations, investors may return to the

copper market, aligning price expectations with the market fundamentals.

The market fundamentals are supported principally by expectations about Chinese demand for refined copper and

concentrate. Although the growth of demand in China is expected to decelerate in 2019-2020, it will continue to increase as

a percentage of global demand, reaching over 50%. In the light of this and of supply constraints related principally to lower

production (-40%) at the Grasberg mine in Indonesia, COCHILCO is forecasting a world deficit of refined copper in 2019-2020

and low metal exchange stocks.

It appears that the market fundamentals are not influencing the short-term copper price, but this is an erroneous perception.

They are exerting resistance against downward pressure on the price. If, in contrast to the current situation, metal exchange

stocks were high and a copper surplus were expected for the next few years, the spot price would be far below its present

level.

Figure 1 shows the evolution of the nominal short-term copper price (1a) between January 2018 and January 2019 and the

long-term price (1b) between 2005 and January 2019. In the first panel, it can be seen that, as from July 2018, the spot price

was below the moving 200-day average (average of ten months’ trading) and short-term changes of trend are apparent. The

sharp fall in the copper price (a little over ¢US$70 per pound between July and August 2018) was related to strong negative

sentiment among investors about the trend of copper consumption in China, which was constantly exacerbated by the

escalation of US import tariff increases.

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Forecasts 2019-2020


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Expectations of a downward adjustment in Chinese copper consumption were confirmed by the publication of import

statistics. In 2018, its imports of unwrought copper and copper concentrate grew by 13% over the whole year but, in

November and December, both showed a significant drop, pointing to an adjustment of demand over the next few months,

which could, however, be partly offset by growing restrictions on the import of scrap for environmental reasons.

Looking at the longer term (Figure 1b), the nominal price averaged US$2.96 between 2005 and January 2019, a period that

included the subprime crisis. This was coincidentally also the average price in 2018. Since the end of 2016, the copper price

has maintained an upward trend, albeit with great volatility, that was interrupted only by the trade conflict between the

United States and China.

FIGURE 1: EVOLUTION OF THE SHORT AND LONG-TERM COPPER PRICE

Source: Compiled using information from the London Metal Exchange (LME).

In January 2019, China’s Statistics Office published a set of economic indicators that confirmed an increase in the country’s

rate of deceleration. This was the main factor in a drop in the average copper price for January as compared to the previous

month. In the last quarter of 2018, China’s GDP growth, at 6.4%, was the lowest since the 2008 financial crisis. Figures for

foreign trade in December were surprisingly negative, with exports and imports dropping by 4.4% and 7.6%, respectively.

Urban fixed asset Investment also continued to decelerate, expanding by 5.9% in December 2018 as compared to 7.2% in the

same month in 2017. The PMI (Purchasing Managers’ Index) for the manufacturing sector, an indicator that influences

expectations of copper demand, was slightly below 50 points in December and January, indicating that manufacturing activity

is contracting.

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Forecasts 2019-2020


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2.2 Evolution of world stocks of refined copper

The total volume of world stocks of refined copper, which includes the stocks available in metal exchange warehouses and

those in customs warehouses in the port of Shanghai, fell from the equivalent of 3.14 weeks of consumption in January 2018

to 2.44 weeks last December, equivalent to a 22% reduction (Figure 2a). At present, visible stocks (available in metal

exchange warehouses) are at their lowest level since 2014 and, at end-2018, were running at around 350,000 metric tons,

equivalent to 4 days’ consumption.

However, as shown in Figure 2b, there is not a stable negative correlation between the availability of stocks and the copper

price in the short term. This is because the liquidity and behavior of copper contracts traded on the metal exchanges are

comparable to those of a financial asset and, consequently, have a strong inverse correlation with the value of the dollar on

international markets which is, in turn, affected by the monetary policy strategy of the US Federal Reserve.

FIGURE 2: COPPER STOCKS ON METAL EXCHANGES AND IN SHANGHAI CUSTOMS WAREHOUSES

Source: COCHILCO based on data published by Reuters.

2.3 Investment and hedge funds

The behavior of investment funds is crucial in explaining short-term fluctuations in the copper price. Figure 3 shows net

transactions (purchases less sales) of copper futures contracts by investment funds on the London Metal Exchange (LME)

since January 2018 and their correlation with the copper price. In June, the positive correlation seen in Figure 3a began to

reflect a negative sentiment about the price’s short-term evolution that has persisted with little change since then.

As of the second week of January, investment funds continued to have a net short position in copper futures, with their

view of the market dominated by the absence of positive news about the trade negotiations between the United States

and China and by weak economic data from China which confirmed an increase in its rate of deceleration as from the last

quarter of 2018. This implies that, on average, investors are ignoring forecasts of a copper deficit in 2019 and 2020.

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Forecasts 2019-2020


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FIGURE 3: BEHAVIOR OF INVESTMENT FUNDS ON THE LONDON METAL EXCHANGE

Source: Compiled using data from COMEX.

2.4 World production of mine copper

Based on the latest data from the World Bureau of Metal Statistics (WBMS), world mine copper production increased by

346,000 metric tons (2.1%) in the ten months to October 2018. The main increases occurred in Indonesia (29.3%), Australia

(10%), DR Congo (7.8%), Zambia (7.4%) and Chile (6%). In volume terms, Chile accounted for 271,000 metric tons of the

increase, followed by Indonesia with 155,000 metric tons, while the main reductions occurred in China where there was a

drop of 191,000 metric tons and the United States with a drop of 66,000 metric tons.

FIGURE 4: WORLD MINE COPPER PRODUCTION, JAN-OCT 2018 (‘000 METRIC TONS)

Source: Compiled by COCHILCO using data from the World Bureau of Metal Statistics (WBMS).

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Forecasts 2019-2020


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2.5 World production of refined copper

WBMS data to October 2018 shows that world refined copper production increased by 144,000 metric tons (0.6%), due

principally to higher output in DR Congo (155,000 metric tons) and Zambia (97,000 metric tons). In India, there was a

reduction of 244,000 metric tons (-34.5%) that reflected the stoppage at the Tuticorin refinery, which has yet to restart

operations.

FIGURE 5: WORLD REFINED COPPER PRODUCTION, JAN-OCT 2018 (‘000 METRIC TONS)

Source: Compiled by COCHILCO using data from the World Bureau of Metals Statistics (WBMS).

2.6 World consumption of refined copper

In the first ten months of 2018, world consumption of refined copper increased by 0.4%, equivalent to 68,000 metric tons

of fine copper, led by China with an increase of 5.6%. In the rest of the world, there was a drop of 4.9% that occurred

principally in the United States, Italy, South Korea and Taiwan.

The increase in Chinese consumption in the first ten months exceeded COCHILCO’s forecast of a 4% increase over the whole

year and the last quarter is expected to have shown a deceleration of consumption in line with the reduction in metal

imports.

Figure 6 shows the behavior of the copper consumption of the eight main consumer countries during the first ten months

of 2018 as compared to the same period in 2017.

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Forecasts 2019-2020


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FIGURE 6: WORLD CONSUMPTION OF REFINED COPPER, JAN-OCT 2018 (‘000 METRIC TONS)

1.7 World refined copper market balance

Using preliminary WBMS data to October 2018, the world refined copper market balance was calculated for 2015-2017 and

the first ten months of 2017 and 2018 were compared (Figure 7).

FIGURE 7: WORLD REFINED COPPER MARKET BALANCE

Source: Compiled using information from WBMS.

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Forecasts 2019-2020


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CHAPTER 2: UPDATE OF COPPER MARKET FORECASTS, 2019-2020

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Forecasts 2019-2020


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2.7 Update of demand for refined copper

According to preliminary WBMS data for 2018, world demand for refined copper reached 23.5 million metric tons, up by

221,000 metric tons (0.9%) on 2017. In China, which accounts for 52% of world copper consumption, there was a surprising

4% increase in which the growth of the country’s smelting capacity and replenishment of stocks played a significant role. In

the rest of the world, demand was down by 2.2%, due mainly to a reduction in some Southeast Asian countries such as

Taiwan (-15%) and South Korea (-10%) as well as the United States (-4%) and Europe (-0.1%).

The growth of copper consumption in China occurred in the macroeconomic context of a deceleration of GDP growth (from

6.8% in the first quarter to 6.4% in the last quarter). This partly reflected the growing trade restrictions imposed by the

United States, which weakened investment and consumption in China and are, in the short term, the focus of investors’

attention. In addition, the monetary normalization strategy of the US Federal Reserve, with successive increases in the

federal funds rate, meant a devaluation of the Chinese currency, increasing the cost of metal imports. This led to a

progressive weakening of expectations about China’s growth that was reflected in the 26.8%1 loss of the Shanghai Exchange’s

CSI 300 share index2 in 2018.

However, from the standpoint of its fundamentals, demand for primary copper was boosted by the following factors:

Since the beginning of 2018, China has, for environmental reasons, been applying growing restrictions on the import

of category 7 scrap and has introduced a 25% tariff on scrap imports from the United States. In this context,

secondary refined production in China showed a 4% decrease in the first nine months of 2018 as compared to the

same period in 2017. Together with a 17.9% drop in mine production during the first nine months, this boosted its

imports of refined copper and copper concentrate, which were up by 14% to September, surpassing all forecasts.

At end-2018, stocks of refined copper on the metal exchanges were running at their lowest level since 2014 and

represented four days of world consumption. As from May 2018, they showed a sustained drop that accelerated as

from September and, on the last day of trading in 2018, stood at 310,000 metric tons, down by 55% on end-2017.

In this context, the increase in imports of refined copper and copper concentrate in China was explained partly by

the need to ensure availability. In addition, the perception that the spot price was below its short-term trend

reduced the cost of replenishing stocks.

1 On 2 January 2018, the CSI 300 opened at 4,087 points and closed on 27 December 2018 at 2,991 points.

2 CSI 300 is a share price index weighted by market capitalization, which reflects the performance of the 300 most traded shares on the

Shanghai and Shenzhen Exchanges. It is compiled by China Securities Index Co.

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COCHILCO is forecasting that, in 2019, world copper demand will rise by 2.4%, up from 0.9% in 2018, equivalent to an

increase of 575,000 metric tons. China would show an expansion of 2.5%, as compared to the 4% expected for 2018, and

would account for 52% of the total increase while, in the rest of the world, demand would show a significant recovery,

rising by 2.4% after its estimated 2.2% reduction in 2018. This would mainly reflect a recovery of copper consumption in

the United States (from a fall of 4% in 2018 to growth of 1.5% in 2019), South Korea (from a 10% decrease to a 1%

increase) and Taiwan (from a 15% decrease to a 1.5% increase). In addition, growth of demand in India would accelerate

to 12%, up from 5% in 2018.

An important source of uncertainty in the Chinese market is the behavior of copper scrap imports. In 2018, imports of

category 7 scrap (mainly electric cables and engines with a copper content of only 5%), which requires treatment before

being processed at copper smelters, dropped by 32% in gross weight and 10% in copper content. As from the second half

of 2019, category 6 scrap, which has an average copper content of 95% and can be processed at copper smelters without

prior treatment, is scheduled to be reclassified as a restricted import product. As a result, importers will have to apply

for an import quota and it is not yet known how restrictive this quota will be. It is important to remember that scrap

processing accounts for 24% of China’s output of refined copper and 17.8% of the country’s copper consumption. The

growing restrictions on scrap imports, therefore, imply an increase in imports of primary refined copper and copper

concentrate.

The table below summarizes COCHILCO’s forecasts for demand for refined copper, including both primary copper and

copper from the processing of scrap.

TABLE 1: FORECASTS FOR REFINED COPPER DEMAND, 2018-2020 (‘000 METRIC TONS)

Source: COCHILCO.


Ktmf Diff var. % Ktmf Diff var. % Ktmf Diff var. %

China 12,262 472 4.0 12,569 307 2.5 12,757 189 1.5

Europe 3,773 -4 -0.1 3,830 57 1.5 3,868 38 1.0

US 1,700 -71 -4.0 1,726 26 1.5 1,752 26 1.5

Japan 1,008 10 1.0 1,003 -5 -0.5 993 -10 -1.0

South Korea 590 -66 -10.0 596 6 1.0 590 -6 -1.0

India 510 24 5.0 571 61 12.0 620 49 8.5

Turkey 461 16 3.5 467 6 1.2 483 16 3.5

Mexico 399 28 7.5 413 14 3.5 426 12 3.0

Taiwan 423 -75 -15.0 430 6 1.5 436 6 1.5

Thailand 356 -7 -2.0 374 18 5.0 389 15 4.0

R. World 2,018 -106 -5.0 2,099 81 4.0 2,183 84 4.0

World 23,501 221 0.9 24,076 575 2.4 24,495 419 1.7

2020 fCountry

2018 p 2019 f

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In 2020, demand would reach 24.5 million metric tons, up by 419,000 metric tons (1.7%) on 2019. China would explain 52%

of this expansion, with an annual increase of 1.5%, down from the 2.5% increase forecast for 2019, reflecting expectations

of lower GDP growth which would, in turn, be the result of slower growth of investment and consumption. In addition, the

housing market will be affected by higher mortgage rates and restrictions on purchases in larger cities.

a. China

In the last quarter of 2018, GDP growth in China, at 6.4%, was the lowest since the first quarter of 2019 in the midst of the

subprime crisis. Exports and imports were down year-on-year by 4.4% and 7.6%, respectively, in November and December

2018 while urban fixed asset investment decelerated from 7.2% in December 2017 to 5.9% in December 2018. In December,

the growth of retail sales, at 8.2%, was 1.2 percentage points below its rate in December 2017. The same negative trend was

also apparent in industrial production while manufacturing activity as measured by the PMI3, which has a high correlation

with copper consumption, was below 50 points, indicating a contraction, in December 2018 and January 2019. China’s GDP

growth target for 2019 is expected to be announced during the National People’s Congress in March and will probably be

between 6% and 6.5%.

This deterioration in indicators of economic growth justifies a downward adjustment of the forecast expansion of copper

demand from 4% in 2018 to 2.5% in 2019. This would imply additional demand of 307,000 metric tons as compared to 472,000

tons in 2018. The decrease would be explained mainly by slower growth of domestic consumption of electrical and electronic

goods and, possibly, slow growth of car sales which, in 2018, were down by 3.1%. A reduction in borrowing would continue

to affect consumption and limit the impact of possible monetary stimulus plans. In addition, the housing market will be

affected by higher mortgage rates and restrictions on purchases. Similarly, foreign trade would grow more slowly, reflecting

the deceleration of Europe and trade tensions with the United States since a probable agreement in March would take time

to implement.

b. United States

In the United States, macroeconomic fundamentals (employment, inflation and GDP growth) remain solid but the slow

strengthening of investment, which has failed to live up to the expectations created by the 2017 tax cuts, as well as a scarcity

of announcements about implementation of the infrastructure plan promised at the beginning of the current administration

and the ongoing trade tensions with China, have reduced the short-term growth outlook. In addition, the partial federal

government shutdown, which has not been fully resolved, and upcoming negotiation of the debt ceiling - which, in the light

of experience with the federal budget, could prove complex - add to uncertainty about country’s economic performance over

3 PMI: Purchasing Managers’ Index.

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Forecasts 2019-2020


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the next few quarters. In this context, the Federal Reserve has decided to pause its aggressive monetary policy normalization

strategy, pending economic data that gives a clearer indication of the trend of underlying inflation in a context of weakening

global growth.

In its October World Economic Outlook, the International Monetary Fund (IMF) forecast growth of 2.5% in the US in 2019,

driven by the ongoing effect of fiscal stimulus on consumption which, will, however, begin to fade in 2020.

c. Euro zone

In the euro zone, growth indicators show a systematic deterioration. In 2018, growth of industrial production dropped from

3.9% in January to 3.3% in November (latest data available). Similarly, GDP growth, which reached 1.6% in the third quarter,

probably dropped to around 1.2% in the last quarter when the growth of retail sales dropped from 1.8% in November to 0.8%

in December. In 2018, sales of new cars increased by 1.8% as compared to 5.7% in 2017 and 7.2% in 2016. In January 2019,

manufacturing activity as measured by the PMI, fell to 50.5 points, only marginally above the contraction zone, down from

60.3 points a year earlier.

In Germany, the main European economy, growth in 2018 is estimated to have been 1.5%, its lowest level since 2013 (0.5%),

and, in the third quarter, the economy contracted by 0.2%. This was attributed mainly to lower exports, which were down by

0.93%, and the car industry’s lack of readiness for a change in emissions tests (in 2018, car production decreased by 0.2%

after increasing by 2.7% in 2017).

The IMF anticipates GDP growth of 1.9% in the euro zone in 2019, with most of the main economies weakening, albeit slightly.

Germany would see an expansion of 1.9%, followed by France with 1.6% and Italy with 1%. Spain, the fourth largest economy,

would grow by 2.2%, although this would represent a drop from 2.7% in 2018.

2.8 Forecast for world mine copper production

As indicated in previous reports, this forecast for world mine copper production is based on the output capacity of the main

mining operations, including projects currently under construction. It also considers 70% and 30%, respectively, of the

capacity of projects that Wood Mackenzie identifies as highly probable and probable. It is then adjusted to allow for a 5%

production shortfall due to operational difficulties, delays on the start-up of projects, lower ore grades, low recovery and

weather effects.

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Forecasts 2019-2020


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a. Forecast for mine copper production, 2019-2020

In 2018, world mine copper production (SX-EW cathodes and copper concentrate) reached 20.6 million metric tons, up by

374,000 metric tons (1.8%) on 2017. Most of the additional supply came from Chile and Indonesia, which contributed

328,000 metric tons and 133,000 metric tons, respectively, while there was a decrease of 224,000 metric tons in supply from

China.

COCHILCO expects that, in 2019, world mine copper production will increase by 1.6% on 2018. Production at the Grasberg

mine in Indonesia is forecast to fall by 40%, although a larger drop cannot be ruled out. Few production stoppages as a

result of labor conflicts are expected in 2019 and, in the light of experience in 2018, the 5% allowance discussed above

should amply cover this factor.

Despite the Zambian government’s imposition of tariffs on imports of copper concentrate and tighter conditions as regards

mining taxes, its output of mine copper is forecast to increase by 9.5% in 2019. However, the political instability seen in the

region and, particularly, in Zambia and RD Congo represents an important element of uncertainty for copper supply

forecasts.

Table 2 summarizes the forecasts for world mine copper production in 2019 and 2020.

TABLE 2: FORECASTS FOR MINE COPPER PRODUCTION IN 2019-2020 (‘000 METRIC TONS)

Source: COCHILCO.


Ktmf Diff var. % Ktmf Diff var. % Ktmf Diff var. %

Chile 5,831 328 6.0 5,941 110 1.9 6,024 83 1.4

Peru 2,420 -24 -1.0 2,505 85 3.5 2,442 -63 -2.5

China 1,433 -224 -13.5 1,483 50 3.5 1,535 52 3.5

RD Congo 1,180 85 7.8 1,357 177 15.0 1,425 68 4.5

US 1,182 -75 -6.0 1,259 77 6.5 1,284 25 2.0

Zambia 1,007 66 7.0 1,103 96 9.5 1,202 99 9.0

Australia 946 86 10.0 1,003 57 6.0 1,008 5 0.5

Indonesia 800 133 20.0 480 -320 -40.0 624 144 30.0

Kazakhstan 779 34 4.5 775 -4 -0.5 759 -15 -2.0

Russia 744 4 0.5 733 -11 -1.5 744 11 1.5

Mexico 727 -15 -2.0 764 36 5.0 794 31 4.0

Canada 535 -59 -10.0 568 32 6.0 551 -17 -3.0

Others 3,038 36 1.2 2,977 -61 -2.0 3,052 74 2.5

World 20,623 374 1.8 20,953 331 1.6 21,451 497 2.4

2018 p 2019 f 2020 fCountry

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b. Forecast for mine copper production in Chile

In 2018, Chile’s mine copper production increased by 328,000 metric tons (6%) to 5.83 million metric tons. Production at

Minera Escondida was up by 317,000 metric tons (34.3%) and, at Anglo American Sur, by 74,000 metric tons (21.1%). Output

was, however, down at Codelco by 56,000 metric tons (-3.3%) as well as at Candelaria, with a drop of 49,000 metric tons (-

32.3%) and at Esperanza, with a drop of 23,000 metric tons (-5.1%). Figure 8 shows Chile’s mining production in 2016-2018

by month and by company for 2017-2018.

FIGURE 8: CHILEAN MINE COPPER PRODUCTION (‘000 METRIC TONS)

Source: COCHILCO based on information from companies.

In 2019, mine copper production in Chile is forecast to expand by 110,000 metric tons (1.9%) to 5.94 million tons. This

forecast reflects the statistical effect of a high base of comparison in 2018 and the fact that some operations have reached

their maximum production level. The increase corresponds principally to Codelco and Spence.

2.9 Forecast for world refined copper balance

COCHILCO anticipates that, in 2019-2020, there will be a deficit in the world copper market of between 241,000 and 204,000

metric tons, equivalent to between three and four days of consumption. In other words, supply and demand will remain

virtually in balance in the short term. The key factors in this forecast include:

Ktmf Var. %

Codelco 1,678 1,734 -56 -3.3%

Escondida 1,243 925 317 34.3%

Collahuasi 559 524 35 6.7%

Los Pelambres 371 356 14 4.0%

Anglo American Sur 422 349 74 21.1%

El Abra 91 78 13 16.5%

Candelaria 102 150 -49 -32.3%

American Norte 84 88 -4 -4.9%

Zaldivar 95 103 -9 -8.5%

Cerro Colorado 66 66 0 0.0%

El Tesoro 93 65 28 43.6%

Quebrada Blanca 26 23 2 9.0%

Lomas bayas 73 78 -5 -6.8%

Esperanza 155 164 -8 -5.1%

Spence 176 199 -23 -11.3%

Otros 600 601 -1 -0.2%

Total 5,831 5,504 328 6.0%

Diff2018 2017Company/Operation

Fig 8b. Production by company (‘000 metric tons)

350

400

450

500

550

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dic

Fig 8a. Mine copper production by month, 2016-2018

2016 2017 2018

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Forecasts 2019-2020


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a) China will continue to restrict imports of scrap. In 2018, its imports of category 7 copper scrap dropped significantly

and, in the second half of 2019, a new restriction on category 6 scrap will come into force. Scrap accounts for 24% of China’s

output of refined copper (2017) and, given the increase seen in its smelting and refining capacity over the last year,

concentrate imports would continue to show solid growth in 2019. In the rest of the world, however, there would be an

increase in the scrap available for direct use in smelting (category 6 scrap), which would compete with imports of primary

refined copper.

b) At the end of 2018, visible stocks of refined copper on the metal exchanges (LME, COMEX and the Shanghai Futures

Exchange) were equivalent to around four days of world consumption, their lowest level since mid-2013. Visible stocks are

expected to remain low through to 2020 in line with the forecast of a world deficit in 2019 and 2020.

Table 3 summarizes COCHILCO’s forecasts for the copper market in 2019-2020.

TABLE 3: FORECASTS FOR BALANCE OF REFINED COPPER MARKET, 2018-2020 (‘000 METRIC TONS)

Source: COCHILCO.


2.10 Outlook for the copper price

2019 began with a slow but persistent upward trend in the copper price, reflecting a perception that supply and stocks were

limited as well as interruptions in the operation of smelters in Chile, India and China, new Chinese restrictions on the import

of scrap (this time, category 6 scrap) scheduled to come into force in the second half of 2019 and a depreciation of the dollar

on international markets in response to the Federal Reserve’s pause in its monetary normalization strategy. In addition,

positive indications about the progress of trade negotiations between the United States and China encouraged investment

ktmf Var. % ktmf Var. % ktmf Var. %

Production of mine copper 20,623 1.8 20,953 1.6 21,451 2.4

Supply of refined copper 23,297 -0.4 23,834 2.3 24,295 1.9

Primary 19,577 0.7 20,045 2.4 20,416 1.8

Secondary 3,720 -5.8 3,789 1.9 3,879 2.4

Demand for refined copper 23,501 0.9 24,076 2.4 24,495 1.7

China 12,262 4.0 12,569 2.5 12,757 1.5

Rest of world 11,239 -2.2 11,507 2.4 11,738 2.0

Market balance -204 -242 -201

Copper price (US$/lb)

2018 p 2019 f 2020 f

2.97 3.05 3.08

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Forecasts 2019-2020


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and hedge funds, which play a key role in determining the spot price, to invest again in copper in the expectation of a recovery

in the price of copper which, in the first week of February, reached just over US$2.8 per pound. However, it is expected that,

as the date for the end of the trade negotiations (March 1) approaches, sharp price fluctuations will be seen, depending on

expectations about their results.

In 2018, the dynamics of trade tensions between the United States and China were the decisive factor in determining the

copper price. However, our forecasts for this year envisage an attenuation of these tensions, with supply and demand

fundamentals coming to the fore. In this context, the factors to watch will be:

Economic growth in China

The deceleration of the Chinese economy intensified in the last quarter of 2018 when GDP growth, at 6.4%, was the lowest

since the 2009 international financial crisis. The country’s main economic indicators (foreign trade, industrial production,

investment and consumption) continue to deteriorate, albeit slowly and controlled by the authorities. In this context, the IMF

is forecasting growth of 6.2% for China in 2019. In the case of demand for copper, we anticipate a deceleration from growth

of 4% in 2018 to 2.5% in 2019. Given the country’s annual consumption of 12.6 million metric tons, this would nonetheless

imply an increase of 307,000 metric tons. In a context of slow growth of world copper supply and a low level of metal exchange

stocks, this would provide solid support for the copper price in 2019. Moreover, demand in the rest of the world, which

dropped by 2.2% in 2018, would increase by 2.4% in 2019 in the context of a larger copper deficit.

Chinese imports of scrap

A stricter policy on the import of scrap in China would boost the perception of a copper deficit and force the country to import

more cathodes and concentrate in order to satisfy domestic demand. At present, it is not clear how restrictive import quotas

will be and whether some components of category 6 scrap will be exempt. Given stoppages at smelters in India and Chile, it

is also not clear whether the greater availability of scrap in the rest of the world would automatically imply higher world

production of secondary refined copper in 2019. In the case of Chile, the stoppages could last beyond the first four months of

2019, accentuating the shortage of refined copper.

Lower growth of mine copper production in 2019

After applying the 5% allowance for production interruptions, world mine copper production is expected to increase by 1.6%

in 2019, down from an expansion of 1.9% in 2018. Some greenfield projects such as Cobre Panamá and Mirador are expected

to start production in 2019, but this will be offset by lower production at the Grasberg mine, announced by Freeport-

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Forecasts 2019-2020


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McMoRan, due to its transition from an open pit mine to an underground mine. Our forecasts envisage a drop of 40% as

compared to 2018, but a drop of more than 50% cannot be ruled out.

COCHILCO expects that the copper price will show a slow recovery in 2019 and 2020, reaching annual averages of US$3.05

and US$3.08 per pound, respectively. This forecast is based on the deficit of copper that is expected to exist through to 2020,

combined with the low level of stocks, the gradual return to stock markets of funds investing in commodities which began in

January 2019, the vulnerability of copper supply, smelter stoppages in 2019 and China’s mounting restrictions on imports of

scrap. The forecasts also consider the deceleration of Chinese growth and of the global economy in general. In other words,

as indicated above, the copper price in 2019-2020 will be driven by the market’s supply and demand fundamentals.

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Forecasts 2019-2020


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2.11 References

- COCHILCO, Producción Chilena de Cobre Mina por Empresa, monthly information prepared by the Research and Public

Policy Department.

- CRU Copper Monitor, Reports for November and December 2018 and January 2019a.

- International Monetary Fund, World Economic Outlook, October 2018.

- Ministry of Energy and Mining of Peru, Estadísticas producción minería metálica, December 2018 (www.mine.gob.pe).

- Reuters, World news and economic information system.

- Wood Mackenzie Research and Consulting, Metals Market Service - Monthly Update.

- Wood Mackenzie Research and Consulting, Metals Market Service, world copper mining database.

- Wood Mackenzie Research and Consulting, Metals Market Service, Global Copper Short-Term Outlook, November 2018-

January 2019.

- Wood Mackenzie Research and Consulting, Metals Market Service, Long-Term Outlook, Q4 2018.

- World Metal Statistics, monthly world copper market statistics, December 2018.

http://www.mine.gob.pe/

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Forecasts 2019-2020


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Report prepared in the

Research and Public Policy Department by

Víctor Garay Lucero

Coordinator for Mining Markets

Director of Research and Public Policy

Jorge Cantallopts Araya

February 2019

report on copper market trends de metales ingls... · source: compiled using information from the...

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