COPPER ADVISORY SERVICE Report Number: 124 Prepared By ... Copper Report 124... · SCBH/VH 2186...

SCBH/VH 2186 26.05.10 CAS098 Simon Hunt Strategic Services This document has been prepared with care. However, Simon Hunt (Strategic Services) Ltd makes no warrant of any kind in regard to the contents and shall not be liable

for incidental or consequential damages, financial or otherwise, arising out of the use of this document. The contents of this report are for the sole use of the recipient

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COPPER ADVISORY SERVICE

Report Number: 124

Prepared By

Simon Hunt Strategic Services

May, 2010

This document has been prepared with care. However, Simon Hunt (Strategic

Services) Ltd makes no warrant of any kind in regard to the contents and shall not be

liable for incidental or consequential damages, financial or otherwise, arising out of

the use of this document. The contents of this report are for the sole use of the

recipient and may not be transmitted in any form whatsoever without prior

permission.

Email address: [email protected]

www.simonhuntstrategicservices.com

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Simon Hunt Strategic Services

mailto:[email protected]

http://www.simonhuntstrategicservices.com/




TABLE OF CONTENTS

1. INTRODUCTION ...................................................................................... 1

2. EXECUTIVE SUMMARY & PRICE OUTLOOK ................................................ 4

2.1 Economic Background ...................................................................... 4

2.2 Consumption ................................................................................... 5

2.3 Production ....................................................................................... 6

2.4 Prices ............................................................................................... 7

3. ECONOMIC BACKGROUND ....................................................................... 9

4. CONSUMPTION ..................................................................................... 15

5. PRODUCTION ........................................................................................ 23

5.1 Democratic Republic of the Congo ................................................. 24




TABLE OF CONTENTS

Table1: World Copper Production, Consumption and Balances – Summary – Kt

– Cu 2000- 2015 .......................................................................................... 3

Table 2: Average Annual Copper Prices ......................................................... 8

Table 3: The Cost of the Banking Crisis ......................................................... 9

Table 4: China‟s Electricity Production by Quarter ....................................... 10

Table 5: China‟s Real GDP ........................................................................... 11

Chart 1: Longitudinal Summary of Forecasts ............................................... 14

Chart 2: Global ICSG Usage versus SHSS Global Refined Consumption 2000-

2009 Mt - Cu .............................................................................................. 15

Table 6: World Average Consumption Average Annual Growth .................... 16

Chart 3: Picture from Superconducting Power Cables .................................. 17

Chart 4: Market Penetration Curves for High Temperature ........................... 17

Table 7: HTS Market Penetration in the USA ................................................ 18

Table 8: Copper: Global Trend Growth Rate ................................................. 19

Table 9: What Actually Is China‟s Copper Consumption Kt - Cu ................... 20

Table 10: Copper Usage – Kt - Cu ............................................................... 21

Table 11: China‟s Refined Consumption by Sector – Kt - Cu ........................ 21

Table 12: World Refined Consumption by Region – Kt - Cu ......................... 22

Table 13: World Copper Production & Capacity Utilisation Levels – Kt - Cu .. 23

Table 14: World Refined Production Kt – Cu 2005 – 20015 .......................... 27

SCBH/VH 2186 26.05.10 CAS098 Page 1 Simon Hunt Strategic Services This document has been prepared with care. However, Simon Hunt (Strategic Services) Ltd makes no warrant of any kind in regard to the contents and shall not be liable



1. INTRODUCTION

The world is on the cusp of the Debt-Deflation Cycle. Governments and central banks will be

powerless in stopping the avalanche of liquidation. Bureaucrats and Keynesians fail to

understand that the point has been reached whereby each dollar of new debt generates almost

no growth. Even the Bank for International Settlements is warning that a continuation of these

policies will end in failure. It is time to cut deficits and reduce debt. In other words, it is time

to bite the bullet. Savings will have to rise faster than consumption, implying anaemic growth

at best in the developed world and slower growth in emerging economies.

There are some highly successful investors and advisors who believe that we are now about to

suffer the consequences of decades of spending more than was being earned by both

households and governments. The world escaped the debt trap a year or so ago by

governments transferring debt from the private sector on to their balance sheets and central

banks flooding the world with liquidity. Despite these actions, total debt in the USA, for

example, has contracted at a rate not seen since the Great Depression.

In Europe, markets have realised that Greece‟s indebtedness is not isolated to that country,

but covers all Mediterranean countries. The simple fact is that these countries will be unable

to repay their debts under any realistic scenario. Yet, the EU, the ECB and the IMF pretend that

this is not the case by producing a financial package of almost 1 Trillion dollars. This policy

risks a breakup of the Eurozone because the Calvinistic countries centred around Germany are

in uproar that they are being bullied into financing the spendthrifts of their Mediterranean

partners. So great is the uproar in Germany that the country‟s coalition government may not

survive the year. Moreover, there is another real risk: it is that Germany‟s constitutional court

will rule that the bailout package is illegal because it is contrary to the laws of Maastricht.

China‟s leaders are worried by the prospects of rising inflation and how speculative the

economy has become. They also see a real risk of a second global credit crisis followed by

recession and need to place their economy on a sound footing now. Measures have been taken

to cool the economy; more will have to be taken as M1 probably grew faster last month than in

April. The country‟s growth profile in the second half will be quite different to the first. China‟s

growth slowdown will impact the rest of Asia.

And indicators such as those of ECRI and others are indicating that the US economy will slow

substantially in the second half of the year, if not revert back into recession. M3, as tracked by

John Williams of Shadow Government Statistics, has collapsed.

Financial markets dominate the pricing of copper. The volumes traded in OTC markets dwarf

those traded on regulated exchanges like the LME. When the next credit crisis breaks out the

regulated markets will experience a flood of one way trading as banks and others will be

forced to unwind their long positions onto markets like the LME, COMEX, etc. as the OTC

markets will dry up.

A longer term issue for the copper industry is that manufacturers dislike the volatility that

traded metals now experience and understand fully how the metal is being priced far above its




intrinsic value. They are turning to new technologies to discontinue using cooper and to

reduce its use across many products through improved designs.

What should be worrying producers, investors and bankers are the following:-

A decade of low global economic growth.

Chinas real growth slowing to around an average of 5 – 6% a year during the

coming decade

Falling intensity of use in a low global growth environment.

The forced liquidation of cathode now being warehoused outside the

reporting system

And the trend for copper prices being sharply down over the coming decade.

SCBH/VH 2186 26.05.10 CAS098 Page 3 Simon Hunt Strategic Services This document has been prepared with care. However, Simon Hunt (Strategic Services) Ltd makes no warrant of any kind in regard to the contents and shall not be liable for incidental or consequential damages, financial or otherwise, arising out of the use of this

document. The contents of this report are for the sole use of the recipient and may not be transmitted in any form whatsoever without prior permission.

Table1: World Copper Production, Consumption and Balances – Summary – Kt – Cu 2000- 2015




2. EXECUTIVE SUMMARY & PRICE OUTLOOK

2.1 Economic Background

The world is at a critical crossroads. The second half of the Credit Crisis has

started. The banking crisis has morphed into a sovereign debt crisis as

governments transferred private sector debt onto their own balance sheets and

central banks poured steroids into the system.

The Greek crisis started as an outlier and is spreading, not just within Europe, but

globally. Europe‟s coming austerity will spread throughout the world. The cause will

not just be a loss of exports to Europe, but markets treating highly indebted

countries the way that they treated banks two-odd years ago. Bond and equity

holders run for cover and ask questions afterwards. In effect, markets are assuming

that European banks hold too many loss-making credits, not just government paper

but lots of „toxic‟ assets which they have not owned up to.

A banking run is unfolding in a slow but accelerating motion in Europe that is likely

to spread beyond the Mediterranean countries to the rest of Europe because nearly

all banks are holding PIIGS paper – in all around $2 trillion. Confidence within the

system is falling as interbank rates rise. The downgrading of Spain‟s credit rating is

a case in point.

The proposed massive bailout package, hastily cobbled together by the EU, the ECB

and the IMF, may yet be derailed by Germany‟s Constitutional Court and the

collapse of Ms.Merkel‟s coalition government. Political developments in Germany

suggest that the present coalition government may not survive the year: Schaeuble

and Merkel are isolated.

So serious is the sovereign debt problem that the Bank for International Settlements

is forced to state (BIS Working Paper No 300) that “drastic measures are necessary

to check the rapid growth of current and future liabilities of governments and

reduce their adverse consequences for long-term growth and monetary stability.” In

effect, the venerable institution is suggesting that current policies, so loved by the

Davos crowd, of adding new debt onto an existing pile will only lead to an eventual

collapse.

These developments are taking place as the world economy is slowing. China is

taking measures to slow growth as its leaders are concerned by the speculative

nature of its own economy and the risks of a renewed global financial crisis and

recession. More measures will have to be taken as advance indicators suggest that

M1 rose by 31% in May, higher than April‟s figure. These measures to tighten

monetary policy will have a knock-on impact throughout the rest of Asia.

US growth will at best slow to around 1.5% in the second half of this year. M3 is

collapsing at a rate not experienced since the great depression, normally a sure

indicator of future business activity. The cratering of mortgage applications for new




purchases, falling home permits and the extended time before a builder can sell a

new home suggest that the housing market will fall sharply in the second half of the

year and, with this decline, will also be a fall in retail sales.

Europe‟s recovery is likely to stumble during the summer followed by a return to

recession as the PIIGS are forced onto austerity programs, as exports from Germany

to elsewhere in the EU fall and slowdown to the rest of the world. Political instability

will be a strong headwind for both the consumer and corporations. A restructuring

of the Eurozone is a likely outcome of this mess as it shows how incompatible are

the Mediterranean countries with the Calvinistic countries of the north.

In summary, the world has entered the second and more dangerous phase of the

Debt-Deflation cycle, one that could be the precursor to renewed recession, thus

bringing forward our date from 2012 to the present. However, given the extreme

reluctance of politicians and their economic advisers to bite the bullet now, a new

round of fiscal and monetary ease is possible in the autumn. But, the point has

been reached where almost no growth is being generated for each dollar of new

debt; it is just pushing on a string. It is only a matter of time before the second

credit crisis and recession breaks out.

2.2 Consumption

World industrial production fell by 6.2% last year. Intensity of use declined also,

indicating that real refined copper consumption fell by almost 10% last year, not the

make-believe numbers based on “demand” being generated by the consensus.

Demand, which includes sales to financial institutions, mostly banks, distorts the

real fundamentals of the industry as sales by producers and others to this sector

are then warehoused outside the reporting system.

In the first half of 2010, improving consumption was driven by the need to

replenish inventories within the supplier and distribution channels. There was also

some robust new demand for appliances and electronics in various parts of the

world. Forward looking indicators suggest that these are weakening in the USA and

Europe. Asian demand for appliances etc. should also slow.

China‟s consumption was boosted in the last six months by the huge expenditure in

Shanghai for Expo 2010. That has now ended. Government has introduced

measures to slow construction and will maintain tight monetary conditions for most

of the year. SHIBOR, or interbank rates, are soaring having risen from 1.64% at the

end of April to 2.50% a few days ago. There are reports of a real shortage of

liquidity in the market with the large banks rushing to borrow from the money

markets. A combination of the Reserve Rate Requirement, reduced FX inflows and

lower trade surplus has resulted in a collapse in the excess reserve ratio to what is

estimated to be only 1.5%.




A review is being undertaken by Beijing into the investment agencies run by local

governments, which owe state banks around US$880bn, according to local media.

These agencies accounted for a very high proportion of last year‟s $1.4 trillion bank

lending. In the meantime, many local government projects will be suspended until

new financing can be arranged. These issues will slow overall infrastructure and

construction activity.

Moreover, export growth should weaken from China in the second half. Not only is

growth slowing in the real estate sector, but there are reports of stocks of cars and

other appliances building up within the distribution system. Production cuts are

likely soon.

A further sector where weakness is evident is within the electricity sector. Power

cable orders are weak as well as for transformers and other electrical equipment.

China‟s increase in copper consumption will be more modest this year than many

analysts are assuming.

So far substitution has been driven mainly by copper being replaced by another

material and being used more efficiently. The next phase will be new technologies

which will soon be reaching their stage of commercialisation. The principal

technologies are High Temperature Super Conductors (HTS), carbon nano tubes and

Graphite Film. The former should start replacing copper markets before 2015 and

the latter two soon after. The potential lost markets for copper from new

technologies will far exceed any new uses which the industry can generate. In

general, though there will be exceptions, there will be a reluctance by

manufacturing to adopt copper because of its known volatility and the manner in

which price is being manipulated.

In summary, manufacturing will increasingly use technologies that do not use LME

based materials or, at least, limit its use.

Real global copper consumption increased by only 0.5% a year from 2000 to 2010

is forecast, rather hopefully, to increase by an average of 1.9% a year from 2010 to

2015.

2.3 Production

Global production of copper-in-concentrates was essentially unchanged last year

bringing capacity utilisation to a decade low of 82.2%. It should increase by 3.6%

this year and average a growth of 4.3% a year to 2015.

Global smelter production fell by 1% last year also bring capacity utilisation down to

a decade low of 69%. Much of the surplus smelter capacity is located in China. What

happens in future will depend on how central government will be able to control the

expansion and restructuring plans of the local governments.

The concentrate market should remain tight until the activities of the financial

sector‟s interest in physical metal stops, because their buying adds an additional




element to overall cathode demand and, thus, to demand on smelters. Perversely, it

tightens the concentrate market so allowing its producers to negotiate low

treatment charges.

World SxEw output rose by 5.5% last year, should increase by 8% this year and

average a growth of 9.5% a year to 2015.

World secondary production rose by an estimated 3.2% in 2009, boosted by rising

prices. It should be virtually unchanged this year because of falling metal prices but

rise significantly in 2011.

Thus, world refined production should increase by 3.2% this year after an increase

of 1% in 2009.

2.4 Prices

Prices continue to be driven by financial markets and less by real industrial demand.

According to Barclay‟s Bank, a major player in this field, total commodity linked

assets under management grew by 36% last year to US$257bn with ETF

programmes growing even faster - +48% to $92bn. Copper, like many other

commodities, has increasingly become a financial asset rather than an industrial

metal. In fact, the size of the resources which banks and others pour into these

markets dwarfs that of the real world of manufacturing.

It is this size which will lead to the eventual crash in prices. As one seasoned

investor remarked – if you are the market you are in trouble. The problem is

compounded by the fact that most trades are conducted in the OTC markets, which

are completely and utterly unregulated. They do impact the regulated markets like

the LME, Comex and SHFE because markets are interrelated. When the next credit

crisis arrives, the OTC market will dry up because banks will be fearful of trading

with each other. Then, deals which had been conducted in the OTC markets will be

unwound onto the regulated exchanges like the LME. Will this regulated market

then be able to cope with the volumes of what will essentially be a one way trade as

banks‟ clients unwind their long positions?

There is a good correlation between changes in global reserves and commodity

prices as Albert Edwards of Societe Generale showed in a recent piece. Global FX

reserves are falling sharply partially due to the disappearance of the huge Chinese

trade imbalance. If this trend continues, which is likely, then copper and other

commodity prices will be falling sharply.

Another good correlation is the Chinese stock market which leads the CRB index by

four months, according to Dave Rosenberg at Gluskin Sheff. The Shanghai stock

market has been falling sharply and according to the work of our associate,

WaveTrack International, should fall much more by yearend.




Copper prices will be impacted by both financial markets and its own fundamentals.

In the first four months, global real consumption rose by around 6-8% yoy due to

some real improvement in underlying demand for semis and replenishment of

inventory within the supplier and distribution channels. The inventory cycle is now

complete and the world economy‟s growth is slowing.

Financial markets are on the cusp of their second credit crisis. Whether it can be

postponed for a year or two by the Davos crowd‟s unwillingness to bite the bullet or

whether the crisis in Europe becomes uncontainable and spills over into the rest of

the world remains to be seen. But, the crisis is here.

We are betting that the crisis will deepen into the autumn when policy makers will

then make one more vein attempt at inflating the world out of its debt crisis, but we

are watchful that this attempt will fail because some key governments will not go

along with the plan.

Copper prices should then fall to around $5300 in June/July, have a bounce in the

autumn and end the year around $4300. If we get traction, however modest, from

the reflationary policies prices could rise to $8000+ in 2011, but then start to fall

in 2012.

What then follows will be a long period of weak copper prices falling to a low of

under $1500 in the 2015-17 period. Around 2018, the global economy should

emerge from its K-Winter into Spring and Summer and a long period of sustainable

growth driven by new technologies. For copper this would include HTS, carbon nano

tubes etc.

We have been reluctant to produce annual prices because of the difficulties

associated with financial markets since copper‟s real fundamentals have little

impact on its pricing. However, we were forced to produce prices in nominal US$s

for a client so will reproduce them here.

Table 2: Average Annual Copper Prices

Nominal US$/tonne

2010 6400

2011 8000

2012 7500

2013 5700

2014 4000

2015 2500

2016 2150




3. ECONOMIC BACKGROUND

The world is at a critical junction. The recovery in the global economy over the past year has

little to do with a fundamental restructuring of the financial sector and more to do with the

huge fiscal and monetary steroids that have been thrown into markets. Steroids do provide

short-term benefits, but always longer term pain as athletes discover to their cost.

Table 3: The Cost of the Banking Crisis

Deficit (% of

GDP)

Projected Bond Issuance

($billion)

IMF Estimate 27% $10,239

Rogoff, Best Case 40% $15,309

Rogoff, Average 86% $33, 029

Source: CIA World Fact Book, IMF, Rogoff & Reinhart

Taken from Niels Jensen, Absolute Return Partners LLP

That realisation is just dawning on investors. Professors Rogoff and Reinhardt find that credit

crises are followed by sovereign debt crises. Yesterday‟s banking crisis has morphed into

today‟s sovereign debt crisis. Governments around the world have transferred private sector

debt onto government balance sheets. It is instructive that total debt in the USA has fallen to a

level never before seen in that country‟s history. In other words, despite government debt

soaring, private sector debt has collapsed even more. This development is hardly inflationary.

There are four developments which together are creating nervousness, confusion and

uncertainty. They are China‟s attempts to slow its economic growth: the sovereign debt crisis

in the Eurozone: a rapid slowdown of growth in the US economy for the rest of this year: and

the US Administration‟s attempts to restructure its banking sector and how it functions in

markets, including commodities. They coalesce into a huge risk for the world‟s credit markets

and economy.

US officials have forgotten George Washington‟s words in trying to postpone what they must

know is inevitable – a second credit crisis and return to global recession, “ Paper money has

had the effect in your state that it will ever have – to ruin commerce, oppress the honest, and

open the door to every species of fraud and injustice.”

It is something that China‟s leadership does understand. When they become convinced of a

trend they act and in recent years have taken pre-emptive measures. 2007 was an example

when they tightened much to everyone‟s condemnations. But, they were right for they foresaw

the global credit crisis and recession which would occur the following year. Today‟s tightening

has a similar objective. It is not just to prick a real estate bubble, but to prepare the economy

for the next global credit crisis and return to recession. This means that further tightening

measures will be coming to squeeze the speculative element out of the economy. The

objective is to force economic restructuring and consolidation so that when the next global

crisis occurs, China is in a position to withstand the shock and have the resources to reflate.




The implications of this policy on the rest of the world are ominous. Demand for metals and

many types of semi-processed and finished goods from the outside world will fall. China‟s

tightening will impact monetary policies in other Asian countries which will suffer from

declining exports. Raw material markets will come under pressure and prices should fall.

Commodity producing countries‟ exchange rates will come under pressure, especially that of

the A$. China will be in no hurry to revalue the RMB and when it does it is likely to follow a

basket of currencies, similar to Singapore. Fabricators and others who have produced more

than they have sold, as a deliberate policy to speculate on rising prices, will be forced to

liquidate and so on. In short, China‟s tightening has global ramifications, some of which,

especially in the metals field, will have large implications for producers and their customers‟.

China‟s leadership is taking these actions just as its forward leading indicators are softening.

The latest OECD monthly Composite Leading Indicators carried a salutary warning for China,

“...some evidence of a potential halt in expansion is emerging in China and Brazil.” For China,

the year-on-year percentage change shows January up by 10.8%, February by 6.4% and March

by only 3.5%.

Table 4: China‟s Electricity Production by Quarter

Billion % Change

KwH YoY QoQ

2007:1 644.0 na na

2007:2 776.9 na 20.2

2007:3 866.6 na 11.6

2007:4 842.9 na -2.8

2008:1 813.4 26.2 -3.6

2008:2 877.4 12.8 7.9

2008:3 936.2 8.0 6.7

2008:4 799.8 -5.0 -14.6

2009:1 780.9 -4.0 -2.5

2009:2 863.3 -1.6 10.5

2009:3 1013.0 8.2 17.4

2009:4 982.8 22.9 -3.0

2010:1 958.0 22.7 -2.5

April 331.6 22.3 1.5

Some of us have doubts as to the reliability of China‟s quoted GDP and other numbers. We find

that its electricity production data better reflects what is actually happening on the ground.

The quarter-on-quarter growth rates, shown in Table 2, indicate that growth is slowing with

April‟s number being month-on-month. Based on our work, real GDP grew by 8.9% in 2008,

not the reported 9.6%, and by only 5.2% in 2009, not the official rate of 8.7%. By yearend,

China‟s real GDP growth will probably be negative just as it was in the fourth quarter of 2008.




One reason for the expected slowdown is that construction for Shanghai‟s Expo 2010 ended in

April. Shanghai has spent more than twice as much on the Expo, including its related

infrastructure, than Beijing spent on the Olympic Games. All the related inputs are over. In this

environment, it is unlikely that there will be a comparable increase in central and local

government expenditures to make up for this loss.

Table 5: China‟s Real GDP

Our Official

Numbers Numbers

2005 10.8% 10.4%

2006 11.8% 11.7%

2007 12.4% 11.9%

2008 8.9% 9.6%

2009 5.2% 8.7%

2010 6.0% 10.0%

Tighter policies in China will impact the rest of Asia. However, in Thailand the future shape of

democracy is being fought over. In essence it is rural households pitting themselves against

urban elites. The question one must then ask is whether this will spread from Thailand around

other Asian countries including China. We will revert back later on this critical question.

The second cause for global confusion and fear is the Eurozone. The real issue for Greece and

the other Mediterranean countries is insolvency. It is slowly being realised, especially by the

German electorate that Greece will never be in a position to repay its debts. By adding more

debt onto an existing mountain that cannot be repaid in any sensible timeframe only makes

the problem worse. The same applies to the other countries in the region. For instance,

Britain, France and Germany are owed $2003 billion by the PIIGS countries.

This is an issue well made by Peter Boone and Simon Johnson in their article in yesterday‟s

Sunday Telegraph, “The ECB-EU approach will not return countries to reasonable levels of

growth – the debt overhang is simply too large. The southern and western periphery of the

Eurozone cannot grow out of their debts under these arrangements and so will stumble from

stabilisation programme to stabilisation programme – as did Latin America in the 1980s. This

is bound to lead to hostile politics, social unrest and more economic crises.”

What only a few months ago was the unspoken and unthinkable is now being seriously

discussed with backroom contingency plans being worked out. How do countries exit the EU

and should they? What is at stake is the survivability of the EU, at least in its present structure.

In simple terms, there is an inherent incompatibility of a Calvinistic culture cohabiting with a

Mediterranean culture.

In the meantime, the bailout package has been ratified by Germany‟s parliament and upper

house and has been signed into law by President Koehler. What is not yet clear are the

conditions, not just attached to the bill, but to the covert agreements reached with other core




governments within the EU. These might include the announcement that Webber will replace

Trichet when the latter resigns, that other Eurozone governments adopt the German policy

towards fiscal and monetary policies and so on. For, what frightens Germany is the potential

for the ECB to be influenced by political considerations and for the Eurozone to become a

clone of the USA in its attitude towards debt. At the heart of German policy is its psychology:

its fear of a rerun of events during the Weimar Republic. German policy makers will do

everything and anything to prevent such a development from happening. Whilst the politicians

have endorsed the bailout package, the Constitutional Court may yet declare the package

illegal because the new law contradicts the Maastricht Treaty.

Events which are unfolding at such a rapid pace will have widespread ramifications. EU

governments have effectively guaranteed the liabilities of their entire banking system;

Eurozone member states have not just guaranteed Greek debt for the next three years, but

have extended it to the rest of the Eurozone; and the ECB has been bullied into monetising

southern European debt. These developments lie closer to the philosophy of the Anglo-Saxon

model and that of Mediterranean countries (pile more debt on debt) but contrary to that of

Calvinistic nations like Germany. Either other governments have covertly agreed policies with

Germany which will bring them closer to the German model or there will be a breakup of the

Eurozone.

The weekend announcement that the Bank of Spain has bailed out the Cordoba based Cajasur

illustrates how fragile is the Spanish financial sector. Some analysts estimate that Spain‟s

property companies have debts of E445bn, mostly owed to these savings banks known as

cajas. Others estimate that the private sector‟s debt add up to about 300% of GDP. This

weekend announcement is one of the first to show that private sector debt will have to be

transferred onto the balance sheet of government.

What is inescapable now is that institutions globally are taking risk off the table. Markets are

now likely to remain volatile with the trend being downwards through into the autumn. The

Eurozone will be back into recession by yearend. Investors will be exiting government paper;

French, German and British banks‟ shares will come under increasing pressure. Suddenly,

markets will realise that banks have done little to restructure themselves but have prospered

by having access to virtually zero cost money.

In short, the mirage of recovery is being broken. The fear of sovereign debt defaults will

spread from the PIIGS countries to the rest of the world. Contagion will become global as

investors exit these markets. As always, the good will fall with the bad when the panic sets in.

The US economy is turning down and risks now falling back into recession by year-end. The

ECRI leading indicator is rolling over, the Conference Board‟s leading indicator fell for the first

time since March 2009. The University of Michigan‟s consumer sentiment survey for April fell

but the expectation index slumped to a level last seen in March 2009. The housing market is

turning down and risks experiencing a very sharp slide. Permits are down sharply; the MBA

purchase index slumped a near-30%. Mortgage delinquencies rose to over 10% in 1st quarter,

a new record high. The rate of new foreclosures accelerated giving a total number of some 2

million homes. Weak homes sales will translate into weak purchases of household appliances

and weak retail sales.




Finally, the US Administration is determined to change the way that it allows banks to operate.

Quite what will precisely come out of Washington is largely unknown but the thrust will at

least be to tighten up and make more transparent banks‟ operations in the OTC markets.

Whatever emanates out of Washington is likely to be duplicated in London and probably in

Germany as well. This will make the bank‟s operations in commodity markets more difficult to

carry out than hitherto. The medium term impact on commodity markets will be significant as

we stated in our recent note.

The very best that we can hope for is that global equity markets fall to retest their March 2009

lows. Such a fall is a long journey from today‟s levels. No one market will escape the deluge.

Risk is and will continue to be taken off the table.

We say the best that we can hope for because our threatened second credit crisis starting in

2012 may now be commencing. If so, governments will be parlous to stop the avalanche of

liquidations because we will have entered the second – and more serious phase – of the Debt-

Deflation cycle.

It is the great D-D cycle that will shape the world going forward, not piling new debt on a

mountain of unserviceable existing debt so loved by the Davos crowd. In this connection, Fred

Richards makes an important point: for each dollar of new debt, less and less economic

growth is being generated to the point today where almost no growth is being generated for

each dollar of new debt. It is the old proverb of pushing on a string. It is not inflation that

should worry us but deflation.

There is a risk that the events of recent weeks mark the beginnings of this deflation spiral and

collapse in equity and commodity markets. However, the global economic profile which we are

following is as follows:-

1. Equity markets fall sharply until October/November this year, perhaps even retesting

the March 2009 lows. The US dollar remains the wanted currency until early 2011,

with the index rising to just shy of 100. Metal prices fall sharply.

2. Governments and central banks become worried. Once more the Davos crowd believes

in pouring more debt into economies, but as mentioned above the point has been

reached whereby it is just pushing on string. The US$ should be falling sharply.

Markets could rise very sharply in 2011 with metal prices also surging.

3. In 2012, we should start experiencing the second credit crisis followed by a global

recession which will last longer and be more severe than was experienced in 2008/9.

One reason is that governments and central banks have shot their bolts; there will be

no more firepower left. Prices will fall to levels which allow markets to clear. Metal

prices will start declining.

4. The period from 2012 to around 2018 will be deflationary with inflation only poking

its head out for short periods. It will be marked by more years of recession or very low

growth rather than average growth rates. Commodity markets will be in sharp decline.




5. It will be post circa 2018 when the world will start another long period of sustainable

growth. In a Schumpeterian manner, weak institutions and industries will be

destroyed. It will be technology that will lead the recovery. In this connection we

append a summary of technological forecasts given by William Halal, Professor

Emeritus at George Washington University and President of Techcast LLC.

Chart 1: Longitudinal Summary of Forecasts




4. CONSUMPTION

World industrial production fell by 6.2% in 2009, according to the researchers at the

Netherlands Economic Policy Centre. Copper‟s intensity of use will have fallen also because of

ongoing substitution, using the definition in its broadest sense, and because of the liquidation

of semis inventories within the supplier chains.

We estimate that world refined copper consumption fell by 9.9% in 2009, which is in keeping

with the above mentioned facts. Any estimate below a fall of 6% will be rubbish and can only

be arrived at by assuming that „demand‟ is the same as „consumption‟.

The fundamental issue in analysing global balances is the meaning of these two words. Nearly

everyone uses the word demand, and this includes most major copper producers, either

because they understand the real meaning of the word or because they think that demand is

synonymous with consumption, which, of course, is untrue.

Consumption is material which goes into a furnace to make a copper or copper alloy semi of

some description. Demand has that also as a primary function but it also encapsulates metal

which is sold to financial institutions, mostly banks, which finds its way as inventory outside

the reporting system. This is the new structure of the industry, one that is dangerous and

which will come back to haunt the industry in no mean fashion.

Chart 2: Global ICSG Usage versus SHSS Global Refined Consumption 2000-2009 Mt - Cu

Simon H unt Strategic Services

Global ICSG Usage versus SHSS

Global Refined Consumption

2000-2009 MT-Cu

14

14.5

15

15.5

16

16.5

17

17.5

18

18.5

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009E

ICSG SHSS

mt

In using the word „demand‟, which most if not all producers do, the real fundamentals of the

industry become grossly distorted. In the process, they instil the notion that the global copper

market is in far better shape than it really is. The chart above provides a rough guide as to the




size of the distortion and means that over 2 million tonnes of physical copper is being held by

financial institutions and others outside the reporting system.

This may seem like a ridiculous tonnage, but a look at history suggests that the tonnage is

highly realistic. Back in the early 1980s, we were told by the chief economist of a major mining

finance house that they had estimated that around 1MT was being held by investors outside

the reporting system. We knew of one US industrial company who had purchased 200kt of

cathode as a hedge against inflation and a falling US dollar. Inevitably, when they came to

unwind the trade, they lost money, because the market had already fallen.

Today, many institutional investors will suffer a similar fate when they come to liquidate their

holdings. In a deflationary world, which we see unfolding, interrupted by short periods when

inflation modestly peeps above the deflation perimeter, holding physical copper or other base

metals as a hedge against inflation does not seem a logical asset to own.

Today‟s fundamentals, however, are worse than those seen in the 1980s. Global economic

growth until around 2018 won‟t be conducive to robust growth, not even matching the

historic average trend growth rate seen in the last 25 years of 2.2% a year.

Table 6: World Average Consumption Average Annual Growth

% Change

1960s 4.8

1970s 3.5

1980s 1.2

1990s 2.7

2000-06 2.7

Source Based on ICSG copper usage data

The fundamentals are deteriorating because of the risk, if not probability, that global growth

will be very weak, but also because of ongoing substitution together with new risks entering

this field due to technology. The combined effects will substantially outweigh any new uses

which are being developed by the ICA and others.

It is in the wire and cables sector that the worst of substitution will continue to be

experienced. The first phase has been the replacement of copper wires and cables by

aluminium and fibre optics with major industry players estimating that around 1MT of copper

will be lost by the end of this year since 2005.

The next and more profound loss will occur via new technology, specifically High Temperature

Super Conductors, Carbon Nanotubes and Graphite Film.




Chart 3: Picture from Superconducting Power Cables

In previous reports, we have written extensively about these developments but more recent

industry information confirms that these technologies have moved from the theoretical to the

commercial development stage. Significant projects using HTS Superconductors will start to be

introduced before 2015.

Chart 4: Market Penetration Curves for High Temperature

Superconductors in the USA

Source: Analysis of Future Prices & Markets for High Temperature Superconductors 2006: by Joseph

Mulholland




We have shown this chart before but want to emphasise the pace at which new technology,

once started, accelerates to become a dominant force in markets. The development of fibre

optical markets some 40 years ago well illustrates this point. Copper used in the global

telecom industry peaked in the mid-1980s/1990‟s at around 2.5Mt/a, but is now only around

half that tonnage and is likely to fall to 250kt/a by 2040.

The chart above for the USA, shows how HTS Superconducting cable is expected to penetrate

its main markets. The pace of penetration is summarised in the table below.

Table 7: HTS Market Penetration in the USA

% of Total

2015 2020 2025

Generators 10 40 50

Transformers 0 5 70

Motors

5 40 75

Cables

5 25 45

In the auto industry, the development of IT and car electronics has resulted in a step-up

increase in the number and weight of wire harnesses per vehicle. Weight reduction is an

important design function. Both aluminium and fibre optics will replace the traditional copper

wiring. This trend began a few years back in Japan. By 2030, industry sources estimate that

one-half of global car harnesses will be using either fibre optics or aluminium. We estimate

that this should mean an annual loss of copper of around 160kt a year by 2015 and 400kt a

year by 2025.

In the global power cable market, there will be two main technologies which will replace

copper: HTS superconductors in medium and high voltage underground cables; and carbon

nano tubes and graphite film in low voltage cables, including building wires.

MV and HV power cables consume around 3Mt/year of copper, though lower last year.

Industry sources forecast that by 2030 40% of the global market will be lost, or 1.25 Mt. We

estimate that by 2015 around 120kt/a will be lost; by 2020 around 600kt/a; and by 2025

some 1.25Mt/a, all based on 2008 market estimates.

Nano tubes are already penetrating the electronic, auto and aerospace industries. For copper,

the big loss is when technology has reached the point that it will penetrate into LV cables

including building wires. A global loss to this new technology should be around 100kt/a by

2015 and around 350kt/a by 2025 as nano tubes begin to penetrate the market for LV cables

significantly. The building wire market consumed around 3.8Mt in 2008; the potential loss

could be very large.

No matter how successful the ICA and others will be in developing new uses for copper those

gains will be outweighed by the massive losses attributable to new technologies let alone

ongoing substitution due to high and volatile copper prices which have plagued manufacturers

and fabricators since 2005. Moreover, the user industry understands fully well that producers




sell directly to financial institutions and others knowing that this material is not delivered to

the market or to furnaces.

As a result of the macro and micro developments, copper‟s trend growth rate – as properly

defined – will continue falling. The table below shows historic trend growth ratio for copper

and our forecast for 2015, which are probably too high.

Table 8: Copper: Global Trend Growth Rate

% Per Year

2000-2007 2.4%

2000-2010 0.5

2000-2015 1.0

2010-2015 1.9

Both copper producers and global investors view China as their saviour. China‟s economy will

continue to grow robustly and continue to import large tonnages of cathode. In short, China‟s

economic growth will be sufficient to pull global consumption higher is the consensus story.

We have our doubts that such an outcome will materialise. First, as noted in the economic

section, China‟s actual growth has been less than reported in the last two years; this, too,

translates into copper consumption. Second, some of 2007‟s very high growth rate of copper

consumption was due to fabricators producing for inventory as a speculation on rising prices.

When prices began falling in mid 2008, this inventory was liquidated. In effect, part of the

high 2007 consumption was borrowed from the following year. It is one reason why our data

from 2007 to the present departs from others we know well in China.

A third is that so much of fabricators‟ production originates from small mills – the small

Chinese Upward Cast wire rod mills account for about 40% of China‟s wire rod market. A

similar proportion will be attributable for brass mills. These mills often operate under different

conditions to their larger competitors, being more dependent on scrap and working capital.

Often then the throughput and order books at the larger mills do not reflect the total business

of the country.

Finally, China will not remain immune to the global trends impacting the metal‟s intensity of

use. In fact China will embrace the global trends in copper usage. For instance, it is in the

forefront of projects to replace copper with aluminium in IGT for aircons. It is already starting

to use aluminium for connector tubes in place of copper. It has begun to specify aluminium

conductors for MV cables. At the macro level it is intent on creating a “Smart” national grid,

generally defined as an electricity delivery network modernised by using the latest

digital/information technologies to meet key certain key defining functions, such as




Enabling active participation by consumers

Accommodating all generation and storage options

Enabling new products, services and markets

Optimising assets and operating efficiently

Anticipating and responding to system disturbances in a self-healing

manner

Operating resiliently against physical and cyber attack and natural

disasters

Providing the power quality for the range of needs in a digital

economy.

The evolution of a smart grid, whether in the USA or China, will be one of continuous

improvement. In both countries, it is the development of new technologies, such as HTS, that

will enable these objectives to be realised at least cost. The use of HTS will be integral to the

development of smart grids.

In a nutshell, China‟s intensity of use should decline, especially within a few years when fixed

asset investment and infrastructure spending will decline. Forecasts that extrapolate history

will fall short of reality.

Table 9: What Actually Is China‟s Copper Consumption Kt - Cu

2004 2005 2006 2007 2008 2009

BGRIMM 3310 3552 3819 4546 4909 5424

% Change 7.3 7.5 19.0 8.0 10.5

SHSS 3310 3603 3750 4440 4423 4707

% Change 8.9 4.0 18.5 -0.4 6.4

Correlation 3310 3528 3782 4069 4203 4370

% Change 6.6 7.2 7.6 3.3 4.0%

Average of all 3310 3561 3784 4322 4457 4635

% Change 7.6 6.3 14.2 3.1 4.0%

May 2010

Moreover, since 2008, not all sectors have benefited from China‟s apparent surge in activity.

Exports fell sharply in late 2008 and in 2009 with a significant loss to copper consumption.

And developments in power cables and electrical equipment such as transformers have also

been weak. In addition, in the second half of last year, Power Supply Bureaus started to specify

aluminium conductors for MV cables, a market which accounts for almost 10% of China‟s total

copper consumption. Power cable orders remain weak with orders in the first four months

down by around 15% versus 2009.




Table 10: Copper Usage – Kt - Cu

2007 2008 2009 2010

LV 702 762 815 675

MV 374 406 432 360

HV 56 62 71 85

Total 1132 1230 1318 1120

Source: SHSS

What happens in the power cable market has a significant impact on total consumption since

this sector accounts for around 28% of the market. A 15% fall for the year, which we think is

possible, amounts to a loss of around 200kt this year with another loss of some 100kt for

transformer windings this year. This total loss is equivalent to 6.4% of last years‟ total refined

consumption in China.

There has also been a significant production of semis in excess of demand for inventory

reasons. If prices fall to the sort of levels we are anticipating, this inventory will be liquidated

as occurred in 2008.

One reason for the surge in copper demand was the construction for Shanghai‟s Expo 2010,

as we commented on in the economic section. That demand is completed whether for power

cables, magnet wires for the various appliances gone into buildings together with sheet/strip

etc.

Table 11: China‟s Refined Consumption by Sector – Kt - Cu

2007 2008 2009 2010 2011 2012

Construction 950 900 1077 970 1050 962

Infrastructure 1730 1870 2000 2200 2385 2500

Industrial Equipment 300 275 290 280 290 280

Consumer Goods 1260 1220 1200 1250 1200 1100

Rest 200 158 140 130 135 130

Total 4440 4423 4303 4830 5010 4972

Growth Rate % Change per annum -0.4 6.4 2.6 3.7 -0.8

May 2010

Source: SHSS

Above all, we note that about 60% of China‟s consumption is accounted for by construction

and infrastructure and 30% by consumer goods, but, of the latter, around one half of appliance

production is for export.

China‟s government has announced several measures to curb excessive speculative activity in

the property market, which includes restricting property developers access to credit markets.

The initial impact has been to see a sharp fall in prices and sales across the country. Existing

projects are being developed for completion, but new projects are expected to be either




cancelled or postponed. This will impact construction activity in the second half of this year

and in 2011.

Infrastructure spending should also slow as government is withdrawing some of the stimulus

measures. Fixed asset investment (FAI) is slowing from the peak reached in mid-2009, a

trend which should continue into next year. These two sectors are large consumers of copper.

Fourth quarter offtake of semis into these sectors will slow appreciably.

A similar growth slowdown will be seen in the auto sector. Auto production has slowed from a

record high to 131% in January to 48% yoy on a three month average basis to April, but that

month production actually fell by 10% from March. There is also talk that some domestic

brands are experiencing significantly higher stocks at dealers etc. and slower sales. If we are

correct that further extensive falls will be experienced in China‟s stock markets by yearend,

then it is likely that auto sales will continue to weaken.

These developments reinforce our view of China‟s economy slowing down substantially into

the fourth quarter, when GDP should be flat to down on a year-on-year basis.

Table 12: World Refined Consumption by Region – Kt - Cu

2007 2008 2009 2010 2011 2012 2013 2014 2015

Western Europe 3513 3348 2630 2800 2900 2754 2690 2740 2810

North America 2682 2472 2042 2110 2155 2135 2025 2055 2095

Asia 8378 8300 8296 8662 8863 8669 8461 9110 9587

Middle East 710 749 805 855 930 950 910 910 915

Africa 265 281 284 310 331 340 320 337 353

S America 546 590 522 562 584 588 558 545 557

Oceania 146 145 130 135 140 138 135 140 145

Rest of World 1211 1130 804 856 885 876 804 787 834

World 16240 15885 14709 15434 15903 15574 15009 15837 16462

% Change 3.4 -2.5 -9.9 5.0 3.0 -2.0 -3.3 4.5 4.0




5. PRODUCTION

Table 13: World Copper Production & Capacity Utilisation Levels – Kt - Cu

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1 Concentrate

Capacity 11643 11712 12120 12203 12801 13484 13605 13975 14711 15200 15473 15950 16712 17890

Production 10929 11064 10825 10892 11804 12187 12240 12542 12442 12435 12950 13700 14250 15000

Utilisation % 93.90% 94.50% 89.30% 89.30% 92.20% 90.40% 90.00% 89.70% 84.50% 82.20% 83.70% 86.00% 85.30% 83.80%

2 SxEw

Capacity 2570 2768 2971 3025 2978 3094 3309 3632 4114 4379 4566 4685 5024 5198

Production 2366 2615 2690 2751 2340 2710 2857 3090 3255 3520 3700 4000 4400 4500

Utilisation % 92.10% 94.50% 90.50% 90.90% 92.00% 87.60% 86.30% 85.10% 79.00% 80.40% 81.20% 85.30% 87.60% 86.60%

3 Smelter

Capacity 13956 14335 14466 14805 15404 16217 16746 17038 17612 18191 18434 19121 19966 20176

Production 10600 11064 10825 10892 11596 12187 12240 12556 12637 12500 12950 13700 14250 15000

Utilisation % 76.00% 77.20% 74.80% 73.60% 75.30% 75.10% 73.10% 73.70% 71.70% 68.70% 70.30% 71.60% 71.40% 74.30%

4 Refineries ex SxEw

Capacity 14445 14926 15267 15704 16234 17005 17452 17816 18448 19066 19138 19669 20889 21359

Production 12478 12916 12495 12579 13178 13943 14483 15030 15220 15139 15460 16462 16220 17490

Utilisation % 86.40% 86.50% 81.80% 80.10% 81.20% 82.00% 83.00% 84.40% 82.50% 79.40% 80.80% 83.60% 80.00% 81.90%

May 2010

Source: Capacities: ICSG

Production SHSS

There was practically no change in world copper-in-concentrate production last year. Capacity

utilisation at 82.2% was at a decade low. World production should rise by 3.6% this year and

average a growth of 4.3% a year to 2015.

Smelter production, as a consequence of the tight concentrate market, fell by 1% last year with

capacity utilisation also at a decade low of 69%. We maintain a low level of capacity utilisation

throughout the period to 2015, averaging only 72% for the world to 2013. Much of the surplus

capacity rests in China. Here what happens will depend on how strict central government will

be in forcing the smelter sector to restructure. To date, few old smelters with backward

technology have been allowed to close down because technology has been upgraded with the

help of local governments.

As we stated in our last report, one consequence of global demand for cathodes being

boosted by the activities of banks etc. has meant that demand for smelters‟ offtake has been

higher than it would otherwise have been. This has impacted treatment charges; spot TCs/RCs

CIF China are extremely low with some parcels being reported to have changed hands at

negative numbers. Apart from benefitting from higher copper prices, concentrate producers

have gained from selling at very low treatment charges. This situation for smelters will persist

until the investment community begins to liquidate their metal inventories. Then metal




demand will fall, smelter capacity utilisation should fall and the market will be awash with

concentrates. We will then see TCs in the 80-90s.

SxEw output rose by 5.5% last year with capacity utilisation rising marginally to 80.4%.

Production should rise by 8% this year and should have an average annual growth rate of 9.5%.

Of course, SxEw is low cost output. The major project which is on stream is Freeport‟s Tenke

Fungurume in the DRC which has a rated capacity of 115kt-cu rising in due course to 400kt-

cu. Eventual production could be significantly higher.

World secondary production rose by an estimated 3.2% last year; production was boosted by

rising copper prices. We forecast that it will be almost unchanged this year because the trend

in prices should be down for the rest of the year. In China, smelters continue to be aggressive

buyers of scrap to supplement expensive concentrate feed. Their buying is at the expense of

mills who cannot afford to pay the higher prices.

Global refined copper production increased by 1% to 18.4MT last year, but should rise by 3.2%

this year, but should increase by an average rate of 3.9% a year to 2015.

One of the potential sources of future production is the Congo. Set out below are some

comments on the country.

5.1 Democratic Republic of the Congo

The Democratic Republic of the Congo has long been known to contain some of the most

extensive and richest reserves of copper and cobalt in the world. In the 1950s, mine

production from the country accounted for between 7-8% of world output and even in the

1970s its mine production still accounted for some 6%. But, the impact of wars, strife, poor

management and looting caused output to collapse to virtually nothing in the 1990s.

The Congo‟s reported reserves account for about 4% of global reserves, or around 22MT of

contained copper. The reality is that actual reserves will be far higher because little

exploration has been undertaken. Not only are reserves high but average grades are as well,

especially when compared with those in established mining provinces.

It is the Katanga‟s fabulous mineral richness which has caused wars resulting in corrupt

governments and the departure of the Belgians who did much to help educate the province‟s

young, as the writer can attest to whilst living in Home Congolais at Louvain University. Ever

since the expulsion of Union Miniere copper and cobalt production has had a chequered

history.

A new and more enlightened phase for the country began in April 2003 with the country

adopting a transitional constitution after months of negotiations. Meanwhile, in 2001 the

World Bank re-engaged with the Congo after almost a decade of suspended activities because

of widespread corruption, increasing insecurity and political decay.

Signs of political stability, which were confirmed by the elections in 2006, and a new mining

code encouraged foreign companies to re-enter the Congo. Since then some 15 mine projects

have been committed to with another 14 in various stages of development.




But, old issues still cause friction, such as ad hoc changes to the mining code, a prohibition on

the export of concentrates and more recently the introduction of a levy on unprocessed

copper. Moreover, the matter of renegotiating mining licences hangs over the entire mining

sector. Changes are made at whim. The potential rewards of successfully mining in the

Katanga are such that local politicians and others need to be adequately compensated. It is the

way that business has always been conducted in this part of the world. It is probably why

some companies are having huge problems in renegotiating their mining licenses.

Mine production has picked up; it has grown from virtually nothing in 2000 to almost 300kt-

cu last year. Operating and developing capacity should increase from some 450kt-cu last year

to almost 800kt-cu in 2013. But, given the challenges which face mining companies, largely

due to government interference, poor infrastructure etc, it is very unlikely that actual

production will reach anywhere near these levels unless there is a fundamental behavioural

change on the part of government officials, from the Governor, Moise Katumbi, downwards.

There is, however, evidence of improvements on the ground. The local micro economy is

moving with the population visibly interacting in imports of goods and marketing them. A

massive amount of infrastructure will need to be implemented to meet the huge potential of

this country, some of which is financed and developed by the Chinese. The airport runway is

being extended, roads are being repaired, the education system is being improved, the local

economy is getting better and there is more money circulating within the system.

Negating these efforts is the inconsistency in policy implementation both at the provincial and

central government levels. It maintains a view that foreigners are stealing its natural

resources, but one that is either an excuse for its backward policies or a lack of understanding

of the realities of the world outside the Congo. This could be corrected by implementing a

better and transparent border control system. The duty structure only penalises the poorer

members of the population whilst at the same time allowing individuals to make fat profits at

the borders.

Local partnerships too seem to be difficult to manage. One example is the exorbitantly high

cost internal flights due to lack of competition, yet a competitor, Bravo Congo, has been

grounded and the fleet rusting whilst shareholders squabble. Another is Vodacom which

seems to be heading in the same direction. These are signals which the DRC can ill afford to

send to the outside world.

Presidential elections, however, take place next year. President Kabila must be seen to be

exerting influence in places far removed from the capital especially in the Katanga. Whilst

Moise is on good terms with Kabila, the President must satisfy other cronies through

patronage. Sometimes these are against the wishes of Moise and his local government and,

surely, make more difficult the relationships between Moise and the mining companies. Once

more, we revert to the incredible potential mineral wealth of Katanga. It is akin to the old story

of the honey pot.

The optimistic view is that a period of greater stability will emerge after next year‟s

Presidential elections, allowing a more pragmatic approach to be adopted for the mining

sector in the Katanga.




The pessimistic outlook is that the shear potential wealth of the province will encourage even

more corruption and the rise of a new group of leaders.

One day, in our view, Katanga will realise its potential and mining companies will be rewarded

for their patience. Note that announced capacity of close to 800kt-cu in 2013 is around the

country‟s historic share of world copper mine production.




Table 14: World Refined Production Kt – Cu 2005 – 20015

COPPER ADVISORY SERVICE Report Number: 124 Prepared By ... Copper Report 124... · SCBH/VH 2186...

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