1

Copper Mail No. 135 – May 3, 2016 The Aurubis Copper Mail informs you monthly about current trends on the copper market. In focus

April was the month of association conventions, conferences and trade fairs. In the copper

industry, for example, these included the traditional Cesco Week in Chile (the conference of

the Centro de Estudios del Cobre y la Minería), the Wire and Tube trade fair in Düsseldorf

and the general meeting of the Association of German Metal Traders in Dresden. While

participation in these kinds of events provides only parts of the puzzle, when pieced together,

they offer a good overall view of the mood on the copper market. Once again, this view is

generally disjointed. The situation fills some with confidence and others with doubt about the

existing risks.

2

Economic situation

Chinese industry sent out positive signals in late April. The national statistics office reports an

11.1 % increase in company profits in the industrial sector for March. This is the largest

increase since July 2014. This trend corresponds to the figures on the development of

industrial production and fixed asset investment, which were published in mid-April.

The US Federal Reserve was restrained during their last meeting in April and left the interest

rate untouched. However, there were signals that an increase in the federal funds rate could

be approaching, even as global economic risks were pointed out once again.

Copper essentials The copper price trend wasn’t the result of any one particular factor in April. Speculative

activities in the commodities sector were especially prevalent, with crude oil, iron ore and

steel front and center. Their distinct price increases lifted the entire raw material sector,

which also benefited copper, according to different market reports. Some reports referred to

Chinese import figures for refined copper in March as a fundamental aspect, as they reached

an outstanding level of 458,000 t. Market commentaries also pointed out the positive trend in

the Chinese real estate sector. At the same time, the price recovery was accompanied by

doubts and the question of the basic justification of this development. These doubts were

raised due to the increase in copper inventories in Chinese bonded warehouses in particular,

which was directly attributed to the high imports. Furthermore, Chinese traders and smelters

caused upheaval with their considerations of exporting more copper. In light of the current

3

arbitrage situation between the SHFE and the LME, however, this doesn’t offer much

incentive. Last but not least, there have been higher transaction costs that are intended to

counter the extremes in Chinese commodity futures.

• Price trend

The copper price was not able to maintain the level of late March into the first half of April.

Following an LME settlement price of US$ 4,940/t on March 30, the quotations fell to US$

4,645/t on April 11. The price recovered again afterward, reaching US$ 5,000/t. The

backwardation, a situation in which spot prices exceed forward prices, remained but

decreased to about US$ 10/t. The Chilean Copper Commission maintained its 2016 average

price forecast of US$ 2.15/lb and US$ 4,740/t.

4

• Copper raw materials

In Codelco’s El Teniente mine in Chile, production was started up again on April 21 after a

compulsory five-day break. The media reports a production loss of 5,000 t of copper per day.

Heavy rains led to landslides. The loss isn’t perceptible on the concentrate market. On the

contrary, there was a good supply, especially in spot business in the second half of April,

which was bolstered by traders’ increased willingness to sell. The good deliveries from the

new Las Bambas mine in Peru and from the production expansion of the Peruvian Cerro

Verde mine also had an impact. According to Metal Bulletin, traders were purchasing

concentrates less aggressively as well. In this environment, treatment and refining charges

tend to increase.

During the general meeting of the Association of German Metal Traders on April 21, 2016,

the picture presented for the recycling business was bleak. The association represents about

80 % of the German companies that trade and recycle non-ferrous metals. A total of 23 % of

5

the companies assess the current business situation as worse than the start of the prior year,

and 13 % anticipate that the situation will improve in the coming months. The current supply

of non-ferrous scrap on the German market was described as insufficient. Nearly half of the

surveyed companies said that there was a shortage of copper, aluminum and zinc on the

recycling market.

• Production

During the Q1 2016 reporting season of large mining companies, good production outlooks

prevailed. Chile was one example: Codelco, the world leader with a copper output of 1.732

million t last year, maintains its production target for 2016 despite storm damage at the

Andina and El Teniente mines (see Copper raw materials). A Q1 output that is 14,000 t

higher than expected would compensate for the production losses, according to the

company’s CEO. Antofagasta is sticking to its annual production target. Although the

company has reported a lower output for Q1 2016 compared to Q4 2015, it is 7.3 % above

Q1 2015. The Chilean Copper Commission confirmed its January forecast and anticipates a

copper output of 5.77 million t in Chile in 2016 and 5.95 million t in 2017. The total was 5.76

million t in 2015.

On the smelter side, Aurubis Bulgaria started its maintenance shutdown on April 14, which is

planned to take 50 days. The annual throughput of copper concentrate at this site is 1.1

million t.

• Inventories

There was a special focus on the inventory trend in April, as it was expected to provide an

indication of copper demand. This proved to be a challenge, however, since there were

considerable shifts within the storage system with regards to the exchanges and the

individual regions. First, the metal exchanges: here, there the total volume declined by about

30,000 t. On April 26, around 545,000 t of copper were recorded, compared to the start of the

month with 577,000 t. The inventory in the SHFE warehouses decreased by 37,000 t to

332,000 t, but the inventory in the LME’s Asian warehouses rose by 31,000 t at the same

time, particularly in Singapore. This was likewise accompanied by a reduction of roughly

15,000 t in the LME’s US inventories. There was warehousing in the Chinese bonded

6

warehouses in April as well, which was largely due to the high copper imports to China as

well as copper deliveries from the country’s smelters. Overall, about 100,000 t supposedly

went this route from mid-March to mid-April, so the Shanghai bonded warehouse most

recently held an estimated 560,000 to 570,000 t of copper.

• Product markets

The international Wire and Tube trade fair, which took place in Düsseldorf in April, is the

leading trade fair in the wire, cable and tube industry and is therefore also interesting as a

gauge of the mood among copper product manufacturers. According to the event organizers,

the exhibitors were very pleased with the transactions they were able to close.

7

The German Electrical and Electronic Manufacturers’ Association (ZVEI) currently assumes

that production in the German electrical and electronics industry will grow by 1 % in 2016

(2015: 1.3 %). When it came to exports from the industry, the US took the first place position

from China in 2015, with 16.4 % growth to € 15.9 billion.

In Germany, the federal government and industrial representatives agreed on a buyers’

premium for electric cars and hybrids. The funding is slated to start in mid-May 2016. The

goal is to bring a million electric cars onto the market by 2020. In early 2016, only 25,500

electric cars and 130,000 hybrids were licensed, so this goal appears to be very ambitious.

Nevertheless, this is positive news for copper demand overall, since the amount of copper in

each electric car is significantly higher. Hardly any noticeable short-term effects are expected

on the copper market from this development, however. According to the German Copper

Institute (DKI), electric cars include three times as much copper as conventional cars with

combustion engines. The Fraunhofer Institute estimates that there is about 25 kg of copper in

a traditional car.