1

The Role of Recycling in Feeding the

Chinese Demand for Copper

Carlos R. Risopatron

Head of Environment and Economics International Copper Study Group

email: risopatron@icsg.org www.icsg.org

ICSG Membership Membership open to countries involved in copper production, use or international trade

of copper raw materials and products.

23 member countries + the EU in 2012. 4 recent member states.

Non-member countries can attend as observers.

Australia

Belgium

Chile

China

European

Community

Finland

France

Germany

Greece

India

Italy

Iran

Japan

Serbia

Spain

United States

Zambia 2012

Luxembourg

Mexico

Peru

Poland

Portugal

Russian Federation

Sweden

The Role of Recycling in Feeding the Chinese Demand for Copper

Contents

1. Global Copper Market, Scrap Trade and Impacts in China

2. Industrial Use of Scrap and Refined Copper in China and ROW

3. Scrap Direct Use in Wire Rod and in Other Chinese Fabricators

4. Scrap Use in Copper Smelters and Refineries in China

5. Drivers of Future Demand for Scrap in China and the Rest of the World

1. Copper and Copper Alloy Scrap Trade:

How the Shortage of Scrap Impacts

the Chinese Copper Market?

World Refined Copper Demand: Million Tonnes of Copper, ICSG.

0 5 10 15 20 25

2002

2012 * Preliminary

World ex-China China

The copper supply response, mainly from miners but also from recyclers,

has kept the global refined copper market in balance with the Chinese demand.

1974 2012 Growth

World Refined Demand Kg per Cápita 1.93 2.94 52.3%

Refined copper demand per

capita growing, but still below world population growth !

In consequence the tight global refined copper balance

explains most of the volatility in the refined copper price.

ICSG World Refined Copper Balance and

LME Refined Price Annual Growth 1974-2012

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

-1,000 -800 -600 -400 -200 0 200 400 600 800 1,000

ICSG Refined Copper Balance in Tonnes

2006: traders driving !

2011

2012

In 2012 the global copper mine production increased >624 Kt driven by more use in mine capacity.

The consequence record refined copper production in China, but rest of the world produced less!

0

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2009 2010 2011 2012

China Refined Output Kt-Cu China Net Ore Imports (Kt-Cu)

“Is time to stop building“ Ivan Glassenberg CEO Glencore Intl. High cost projects cancelled: tight beyond 2015.

2012 World Copper Mine Output Expansion

Annual Growth in Kt-Cu

431.1

193

0

50

100

150

200

250

300

350

400

450

500

Concentrates SX-EW

2012 Copper Mine Production Addition Vs 2011

5,163.0 5,824.5

14,661.014,555.5

0

5,000

10,000

15,000

20,000

25,000

2011 2012

Rest of the World: Refined Copper Output

China Refined Copper Output

2011 2012

Mine Production "Made in China" 1,299 1,490

Domestic Recycling in China 1,093 1,166

Scrap Imports 1,640 1,984

Refined Imports 2,835 3,402

Concentrate Imports 1,795 2,192

Semis Imports 636 543

Blister/Anode Imports 396 496

Alloy/Ingots 31 43

Scrap Exports 0.6 0.6

Refined Exports 156 274

Concentrate Exports 0.02 0.20

Semis Exports 331 323

Blister/Anode Exports 0.02 0.04

Alloy/Ingots Exports 0.28 0.02

Copper Available in China (a) 9,237 10,718

Industrial Use of Copper (b) 9050 9,197

Additional Copper Oversupply (a-b) 187 1,521

Accumulated Oversupply Since 2009 1,998 3,519

Copper Availability in China 2011-2012All in Copper Content, based in ICSG Statistics

Source: ICSG and UN COMTRADE Trade Values

The domestic oversupply in China made copper prices to fall 10% in 2012 ... but the oversupply was just < 15% of China copper industrial use/year.

China: Annual Growth of Imported Copper

Raw Materials 2012/2011 (%)

(15.0)

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

Refined Copper Concentrates Scrap

Volume

Value

With copper prices down 10% in 2012, China imported >20% more refined and concentrates and no much copper and copper alloy scrap in 2012.

Scrap imports value down in proportion to the refined price fall.

Whith 2011-2012 Chinese re-stocking completed, reported global stocks of refined copper recovered.

Stocking De-stocking

ICSG Reported Stocks of Cathode by Source (Kt).

Shanghai Bonded Stocks Not Included

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200

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1,200

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2010 2011 2012

Government Merchants Consumers Exchanges Producers

ICSG Reported World Stocks of Refined Copper

Global copper and alloy scrap export flows in 2012: down just -1.2%. Scrap exports growing fast in crisis-hit Spain and Japan. Down in UK, USA and Germany.

2010-2012 Exports of Copper Scrap and Copper Alloy Scrap

Reported in Kt

0

1,000

2,000

3,000

4,000

5,000

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2010 2011 2012

United States Germany United Kingdom Japan

France Netherlands Italy Canada

Belgium Spain Mexico Korean Rep.

Rest of World < 100 Kt

Scrap Exports 2012 Annual Growth in Volumes Kt

-200.0

-150.0

-100.0

-50.0

50.0

100.0

United Kingdom

Rest of World < 100 Kt

United States

GermanyCanada

NetherlandsBelgium Italy

FranceMexico

Korean Rep.Japan

Spain

China continued importing most of its scrap from EU-27.

EU exports of copper and alloy scrap to China: > 1 millon tonnes in 2011... -Gross Weight-

In 2012 EU-27 scrap exports to China mainly copper alloys,

still very high scrap export volumes to China: ~989 Kt.

European Union Exports to China in 2012

Copper and Alloy Scrap Kt. Gross weight.

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Copper Scrap Alloy ScrapIRELAND LUXEMBOURG MALTA SLOVAKIA LATVIA LITHUANIA

ESTONIA CYPRUS SWEDEN AUSTRIA HUNGARY DENMARK

GREECE BULGARIA SLOVENIA POLAND PORTUGAL ROMANIA

CZECH REPUBLIC (CS->1992) FINLAND FRANCE SPAIN BELGIUM (and LUXBG -> 1998) ITALY

UNITED KINGDOM NETHERLANDS GERMANY (incl DD from 1991)

~2.5 Bn Euro in gross revenues to EU-27 scrap exporters last year.

Less copper scrap available across different regions of the world in 2011-2013:

= less scrap direct melt scrap use in Chinese brass mills and wire rod plants.

2012

Cathode from Scrap ICSG 1,870

Scrap in Wire Rod ICSG Survey 400

Scrap in Brass Mills - BGRIMM 750

Copper in China Scrap Use 3,020

China: Copper in Scrap Use

Copper Content Kt-Cu

Spreads Nr.2 Copper Scrap by Region 2011 to 2013

US Dollars per Tonne.

0

200

400

600

800

1,000

1,200

1,400

1,600

EU-27 Imported in China Domestic in

China

North America

Q1 2011 Q1 2012 Q1 2013

China 2012: Copper in Scrap Use 3.02 Mt-Cu Copper Content

62%13%

25%

Cathode from Scrap Official ICSG Scrap in Wire Rod ICSG Survey 2012 Scrap in Brass Mills BGRIMM

The Chinese copper scrap balance remains very tight… scrap is expensive versus copper refined prices in China + refined oversupply = small spreads.

0

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2009 2010 2011 2012

SHFE Cash #1 copper cu 98% min #2 Copper 94%-96%

Guangzhou China, January 2013:

Copper Scrap and Refined Prices Spot Matket,

in Yuan/Tonne (ICSG Antaike)

0 10,000 20,000 30,000 40,000 50,000 60,000

Refined Copper SHFE

# 1 Cu 97%

#2 Cu 94%-95%

Transformers Cu

94%-95%

Brass: Cu 59%-60%

Used Motors Cu 8%

Chinese scrap smelters and refineries hardly profitable in this environment.

Closures in 2013: Yunnan Copper, Jiangxi Copper, Jinchuan Group

Domestic old scrap recycling growing slowly in China… slow GDP 2011-2012, lower refined prices, and low historic stock of copper.

China Coper Scrap Supply 2011-2013 Kt-Cu

2012-2013 Forecasts

0 500 1,000 1,500 2,000 2,500 3,000 3,500

2011

2012

2013

Copper in Scrap Imports Domestic Old Scrap Domestic New Scrap

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

Jan

Feb

Mar

Apr

May

Jun Jul

Aug

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Jun Jul

Aug

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Jan

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Jun Jul

Aug

Sep

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Nov

Dec

2009 2010 2011 2012

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

500.00

China Secondary Refined Production (Kt-Cu)

China Copper Scrap Net Imports (Gross Weight)

...and refined output from scrap constrained by Chinese imports restrictions.

April 2013: with refined copper prices falling sharply, the scrap flow into China stopped.

So cheaper cathode is replacing expensive direct melt scrap in copper fabrication.

In 2012 the scrap directly melted by Chinese fabricators fell 11% in a year !

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2011 2012

Direct Melt Scrap: Brass Mills+Wire Rod Cathode from Scrap Official ICSG

0

1,000

2,000

3,000

4,000

5,000

6,000

2009 2010 2011 2012

China Survey: Wire Rod Output

China Survey: Direct Melt Scrap in Wire Rod Plants

With enough rfined stocks, refined imports contracted in Q1-2003.

More world mine supply, = China importing more ores and concentrates in 2013.

China: % Annual Imports Growth:

Copper Scrap, Concentate and Refined

January-March 2013/2012

-36.8

26.4

-3.05

-40

-30

-20

-10

0

10

20

30

Copper and Alloy Scrap Concentrates/Ores Refined Copper

Copper Scrap Imports January-April 2013 = 1.4 Mt = - 4.6% YoY. “Operation Green Fence” + refined oversupply+ less alloy scrap use in brass mills?

Official chinese statistics reporting more scrap refined in China in 2013. The domestic scrap recycled is up or blister imports are reported as “secondary refined output”?

2. How Much Industrial Use of Scrap and

Refined in China and in the Rest of the World?

Industrial use of copper 2007-2012: growing in China and in a few oil producing economies

Industrial copper and alloys fabrication reported by ICSG ex-China: down 27%.

Country 2007 2012 Oct* Growth SourceMt Mt %

China 6.3 11.31 79.5% ICSG

United States 2.94 2.17 -26.0% ICSG

Germany 1.85 1.52 -17.7% ICSG

Japan 1.75 1.33 -23.9% ICSG

Korean Republic 1.33 1.06 -20.2% ICSG

Italy 1.75 1.03 -41.2% ICSG

Taiwan (China) 0.85 0.71 -16.4% ICSG

Spain 0.34 0.32 -4.7% ICSG

Poland 0.34 0.23 -31.4% ICSG

France 0.54 0.19 -64.5% ICSG

Slovakia 0.02 ICSG

India 0.71 0.64 -9.6% Industry

Russian Federation 0.80 0.56 -30.2% Industry

Turkey 0.41 0.27 -34.0% Industry

Thailand 0.29 0.27 -5.6% Industry

Brazil 0.37 0.23 -38.4% Industry

Indonesia 0.20 0.22 8.5% Industry

United Arab Emirates 0.00 0.21 100% Industry

Saudi Arabia 0.19 0.21 8.4% Industry

Iran 0.19 0.20 7.5% Industry

Sample of Countries 21.1 22.7 7.4%

* 12 months before November 2012

Fabrication of Copper and Copper Alloyed Products: 2012 Versus 2007

million tonnes gross weight, other alloyed metals included

2008-2012 Change in Refined Copper Demand in Tonnes.

Countries With Growing Demand

3,643.2

162.8

56.2

53.9

44.0

38.9

20.0

14.1

12.0

4.6

1.1

0.2

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

China United Arab

TurkeyBrazil

IndonesiaIndia

North KoreaOthers 6/

MalaysiaPoland

PhilippinesPeru

-350

-300

-250

-200

-150

-100

-50

01

Rest of the World Canada South Africa BulgariaRussian Fed. Slovakia United Kingdom MexicoVietnam Greece Scandinavia 4/ EgyptRomania Australia Spain Korean Rep.Belgium-Luxembourg Italy Taiwan (China) FranceJapan United States Germany

Record contraction in Germany refined copper demand in 2008-2012 !

Record expansion in Chinese refined copper demand in 2008-2012 !

Refined

Demand Kt-Cu

Semis

Output Kt

Copper in All

Products Kt-Cu

China 959.44 1,247.91 1,284.33

Indonesia 29.01 26.74 26.59

Brazil 20.41 20.49 19.85

Thailand 14.74 15.05 17.01

Sweden 18.71- 15.03 16.46

Others * 10.79 10.79 10.79

Canada 9.39 9.45 10.21

Mexico 8.13 5.74 8.57

South Africa 16.50- 5.33 5.70

Rest of the World * 0.02 17.00- 16.51-

Finland 10.84- 5.63- 5.29-

Slovakia 5.00- 5.35- 5.35-

Poland 3.79- 5.85- 5.80-

Vietnam 8.99- 9.26- 9.26-

Egypt 13.88- 13.92- 13.92-

France 14.96- 16.30- 14.81-

United States 2.00 17.57- 19.89-

Italy 39.51- 26.29- 30.21-

Malaysia 18.98 32.85- 32.85-

Taiwan 24.71- 51.61- 49.12-

Japan 18.30- 65.04- 62.58-

Belgium 46.37- 70.55- 70.55-

Korean Rep. 31.60- 68.02- 81.21-

Russian Fed. * 62.59- 106.20- 112.80-

Germany 140.83- 134.07- 129.89-

Net Change

World Volumes 616.32 711.04 739.45

2012-2011 Growth in Copper Demand and Industry Use

The Short Term

Dynamics of Copper

Use in 2013.

In 2012 both the world

industrial use of copper and

the world demand for refined

copper increased...

... but demand for refined

copper and industrial use

falling in most of the

economies...

...mainly in Europea

and

in North East Asia ex-China.

In 2013 we continue waiting for the recovery in the industrial

use of copper in North America. Only in Mexico copper use is growing.

United States of America:

Monthly Semis Output

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2010 2011 2012

Copper Wire Rod (sec>6mm)

Copper Alloys Plates, Sheets & Strips

Copper Tubes

Copper Alloys Bars & Profiles

Copper Plates, Sheets & Strips

Copper Bars & Profiles

Copper Wire - Other

Copper Alloys Tubes (Total)

Western Europe Copper and Copper Alloy Semifabrication Output

Annual Growth

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Copper Wire, RBS, PSS and Tube Copper Alloy Wire, RBS, PSS and Tube

In Europe both copper and copper alloy fabrication much more volatile and down in 2012.

EU-27 Refined Copper Demand 2012/2011 = -7%.

EU-27 Refined Copper Imports 2012/2011 : = - 11.8 %

EU-27 Fabricators Reporting Monthly:

Recent Trends, Kt.

0

50

100

150

200

250

300

350

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

2011 2012

Germany Italy Spain Poland France Slovakia

Copper-only semifabricated output growth remains strong in China,

but the Chinese industrial copper-alloy output is slowing. .

Official fabrication output growing fast in China, but copper content estimates showing low growth.

North East Asia: Copper and Alloys Semifabrication Output

Latest Monthly Data, Kt ICSG

0

200

400

600

800

1,000

1,200

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

2011 2012

China

Japan

Korean Rep.

Taiwan (China)

China Copper Content in Fabrication Output. Source: ICSG Consultants

-

2,000

4,000

6,000

8,000

10,000

2011 2012

Castings Copper Alloy Semis Copper Semis Copper Wire Rod

2012: 11.5 Mt Gross Weight

2012:

9.1 Mt

Copper

Content

China: Annual Growth of Industrial Use of Copper 2001-2011 %

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Copper Wire, RBS, PSS and Tube Copper Alloy Wire, RBS, PSS and Tube

In 2012 slow growth of wire rod and alloy output in China, output of copper-only rod/tube/plates down.

Meanwhile the Chinese refined demand including stocks increased > 12.1% = ~ 958 Kt in 2012. Why?

Annual Growth Fabrication of Copper and Copper Alloy

Products in China %

-10%

-5%

0%

5%

10%

15%

2011 2012

Copper Products

Copper Alloy Products

Copper Wire Rod

Apparent Refined Copper Use (Demand) in China and Rest of the

World Kt

7,888

8,846

11,945

11,666

- 5,000 10,000 15,000 20,000 25,000

2011

2012

China

Rest of the World

Average Shanghai port bonded stocks up by around 585 Kt last year. Down to just < 500 Kt by April 2013.

0

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Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12

LM

E R

efi

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d C

op

pe

r P

ric

e:

US

D p

er

To

nn

e

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FE

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s:

Yu

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on

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LME SHFE

Increased bonded warehouse inventories of refined copper in Shanghai: capital inflows in 2012

2010 2011 2012LME 7,939 8,823 7,949

SHFE * 60,895 66,052 57,348

CNY/USD 6.75 6.44 6.37

2010 2011 2012LME 7,939 8,823 7,949

SHFE 9,021 10,255 9,003

2010 2011 2012LME-SHFE 1,082.5- 1,432.2- 1,053.8-

LME/SHFE Refined Copper Import Profits in USD

* VAT, import duties and export taxes included

3 Months Shibor RMB 2012:

down from 6% to 4%

3 Months Libor USD 2012: < 0.5%

Refined Copper Bonded in Shanghai Warehouses

- Various Sources, Kt-Cu

0

200

400

600

800

1,000

1,200

2011 2012 Addition

A B C B1 B2

3. How Much Copper in Scrap Direct Melt

is Being Used by Chinese Wire Rod Plants?

China produced 5.8 Mt-Cu of copper wire rod in 2012.

Another 3.3 Mt-Cu used in copper semis, copper alloys and castings.

China Copper Wire Rod Output and Capacity Kt-Cu

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000

2009

2010

2011

2012

2013(f)

2014(f)

2015(f)

Production Capacity

Chinese wire rod capacity utilization ~ 50% !

2007 2012 Share 2012 % Growth 5 Years

Copper Sheet 325 506 5.5% 56%

Copper Tube 821 1,171 12.7% 43%

Copper Rod 132 163 1.8% 23%

Copper Alloy Sheet 401 578 6.3% 44%

Copper Alloy Tube 174 180 2.0% 3%

Copper Alloy Rod 431 438 4.8% 2%

Copper Alloy Wire 135 163 1.8% 21%

Castings 103 151 1.6% 47%

Wire Rod 3,398 5,848 63.6% 72%

China 5,920 9,198 100% 55%Source: BGRIMM 2013

Copper Content Kt-Cu

China: Industrial Use of Copper 2007-2012

Copper alloys output in China ~ 15% of all copper use!

ICSG Survey to Copper Wire Rod Plants in China. 60 plants surveyed directly+ 160 via phone/email : information on 220 plants. 128 plants reporting.

China Wire Rod Survey (Kt and %)

0

1,000

2,000

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4,000

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7,000

2010 2011 2012 2013 2014 2015

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%Wire Rod Output

Annual Growth

China Wire Rod Output 2012: 5.8 Mt.

Less direct melt scrap use observed in Chinese wire rod plants = new technology, quality control and inexpensive cathode.

-

100

200

300

400

500

600

700

2009 2010 2011 2012 2013(F)

China Direct Melt Scrap in Wire Rod Kt-Cu Survey Direct Melt Scrap in Wire Rod Kt-Cu

Copper direct melt from scrap: a falling share of all Chinese wire rod output...

3,500

4,000

4,500

5,000

5,500

6,000

6,500

2,009 2,010 2,011 2,012 2013(f)

China Direct Melt Scrap in Wire Rod Kt-Cu

China Refined Use in Wire Rod Kt-Cu

-15%

-10%

-5%

0%

5%

10%

15%

20%

2010 2011 2012 2013 F 2014 F 2015 F

China Survey: % Growth in Direct Melt Scrap in Wire Rod Plants

China Survey: % Growth in Refined Copper Use in Wire Rod Plants

China Survey 2012: % of Wire Rod Output by Technology

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012

Survey: SCR, CONTIROD Refined InputSurvey: FRHC Scrap InputSurvey: China lines CCC+Up-Casting

Imported wire rod production lines using only refined copper in China

and gaining market share from domestic production lines.

Output

Kt/year % # of Plants

>50 Kt 3965 75.0% 32

<50 Kt 1320 25.0% 84

All Reporting 5285 100% 116

China Wire Rod Survey

Industrial Concentration 2012

The direct scrap use in Chinese wire rod plants is expected to fall 4% in 2013.

Copper Wire Rod Plants capacity Survey: 9.2 Mt Capacity in 2012. 16 plants under construction in 2012 may add 3.8 Mt in 2013-2015.

Location Year Capacity Company

Dongying, Shandong 2013 170 Hengyuan - Baichuan Group

Fuyang, Zhejiang 2013 30 SWCC Showa Cable Systems

Wuhu, Anhui 2013 150 Xinke Materials

Tongling, Anhui 2013 250 Tongling Nonferrous

Baoying, Jiangsu 2013 300 Hanjin Futai Copper - Jiaxin International

Bengbu city, Anhui province2013 120 Wuxi Lineo

Yingkou, Liaoning 2013 250 Amer

Huangshi, Hubei 2013 300 Daye

Baoying, Jiangsu 2013 300 Baosheng

Wuxi, Jiangsu 2013 320 Wuxi Lingfeng

Zhangmutou, Guangdong 2013 500 Amer

Jinzhou, Liaoning 2014 100 Huameida

Jinchang,Gansu 2014 300 Jinchuan

Changzhou, Jiangsu 2014 230 Jiangsu Newtimes

Ningbo, Zhejiang 2014 220 Ningbo Shimao Copper

Yixing, Jiangsu 2014 250 Jiangrun Copper

New Capacity End 2014 3790

New Wire Rod Plants Pipeline 2013-2014

Capacity Kt, Location and Company Name

New Wire Rod Expansion Projects Added in 2012

CONTIROD + SCR, Kt/Year

400

320

320

220

150

0 100 200 300 400 500

Zengcheng,

Guangdong

Liaocheng,

Shandong

Linyi, Shandong

Kunming, Yunnan

Zhuji, Zhejiang

Jia

ng

xi

co

pp

er

Xia

ng

ru

iSh

an

do

ng

Jin

sh

en

g

Ch

ina

lco

Ku

nm

ing

Ho

ng

lei

co

pp

er

Southwire Continuous Rod (SCR) Plant Capacity.

Operational 2009-2012 (Kt.)

0

0

0

0

0

0

0

0

0

0

0

0

60

80

100

150

200

220

220

250

300

300

370

480

0 100 200 300 400 500 600

Huayi

Yunnan Copper

Mahualong(Chaoyang)

Jinchuan

Tai-I Copper

Chinalco Kunming

Tianjin Huabei

Tiandilong

Changzhou Jinyuan

Jiangrun(Yida Copper)

Jiangxi copper

Walsin

New CONTIROD Capacity Operational 2009-2012 Kt

150 150

250

300320 320

400

0

50

100

150

200

250

300

350

400

450

Honglei

copper

Xinxing

Pipes

Amer Tianjin

TPCO

Xiangrui Shandong

Jinsheng

Jiangxi

copper

Foreign technology capacity ~6 Mt in early 2013 = 2.7 t Southwire CR+1.9 Mt CONTIROD+1.4 Mt in expansions.

Over 1 Mt of Chinese wire rod production capacity closed in recent years: mainly up-casting and CCC local Chinese technology.

China Wire Rod Plant Capacity: Closures pre-2013

Survey = 35 plants closed + 40 missing plants.

126

167

68 74 66

10050

50

150150

0

50

100

150

200

250

Before 2009 2009 2010 2011 2012

Assumed Closed N_A.

Confirmed Closures

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2009 2010 2011 2012 F 2013 F 2014F 2015 F

China Semis Output CNIA -Gross Weight China Semis Output BGRIMM - Copper Content

China All Copper Uses Estimate ICSG -Copper Content 2011 Survey to 95 Semis - Copper Content

China Wire Rod Output BGRIMM - Copper Content 2012 Survey to 118 Wire Rod Plants - Copper Content

Recent ICSG copper and copper alloy industry surveys in China:

slow copper use growth in 2012, plant managers expecting more fabrication in 2013 and 2014.

4. How Much Copper Scrap is Being Used in

Chinese Secondary Smelters and Refineries?

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Scrap Smelting

Capacity

2012 Scrap

Smelter Output

2012 Scrap

Refining Capacity

2012 Scrap

Refinery Output

Jiangxi Copper Tongling Group Shandong Dongying FangyuanGuangxi Nonferrous Hebei Jiangchang Copper Shandong JinshengTianyuan Copper Ningbo Jintian JinchuanDaye Non-ferrous Hefeng Copper XiangguangQingyuan Yuntong Qingyuan Smelter of JCC ShengzhouNingbo Jintian_yingtan Lanxi Zili Copper Yunnan CopperShanghai Dachang Jiangxi Jinhui Shanghai XinyeDongying Jinxi Wuhu Hengxin Group Guangzhou Zhujiang CopperDaye Dajiang Copper Tonglu Hengxin Tianjin DatongLuoyang Copper

ICSG Survey to Chinese Copper Scrap Smelters and Refineries : 2012

Smelters Refineries

53.0% 61.4%

Survey: Capacity Utilization 2012

ICSG survey covered ~90% of

China scrap smelter output.

•28 smelters: ~3,1 Mt/year capacity

•24 refineries: >2,8 Mt/year capacity.

•24 scrap smelters integrated with refineries.

•4 smelters send blister/anode to others for refining

•13 smelters are State Owned or SOE majority owned.

Company and Location Kt-Cu

Jinchuan Nonferrous Metal Group, Gansu 200

Guangxi Nonferrous Phase II, Guangxi 200

Yunnan Copper, Guangdong 100

Xiangguang Copper, Shandong 100

Jinsheng, Shandong 100

Guangxi Nonferrous Phase I, Guangxi 100

Jiangxi Copper, Guangdong 70

New Scrap Smelt/Refinery Operational 870

Commisioned 2010-2012 and Operating

China Recent New Scrap Smelt/Refinery Capacity

60%65% 67% 67%

40%35% 33% 33%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012

Copper from Imported Scrap Copper from Domestic Scrap

• Selected Survey Findings:

• Main reason to invest: EIA approval easier vs. mine smelters.

• Chinese scrap smelters/refineries capacity utilization is falling.

• No more “Levy First and Refund Later”: higher scrap prices 2011-2012.

• New Encouragement: 50% VAT refunds to plants with 90% feed scrap.

• Expensive scrap = smelters/refineries profit margins squeezed.

• Small private smelters not profitable: output down -160 Kt in 2012

• More imports requirements: import license for scrap,

• supplier registration, pre-shipment inspection certificate.

• Slow port clearance for imported scrap = capital costs up.

• New scrap smelters close to disassembling yards and ports.

• Growing dependency to scrap imports. Mainly old scrap used.

• Mean %cu in scrap = 90-94%. (EU-27 EoW = 98%)

Plant, Location & Technology Capacity kt/a Operating

Jinsheng Copper, Sahndong NGL 100 2013

Shandong Dahai NA 200 2013

Shandong Xinze Smalter & Refinery 200 2013

Tongling Group NGL 120 2014

Jinchian, Fangchenggang, Guangxi AUSMELT 200 2014

Yantai Humon , Shandong NGL 200 2014

Tianjing Datong Ausmelt 200 2015

Total 1,220 3 Years

China Copper Scrap Smelters Pipeline 2013-2015

ICSG Survey to Chinese Copper Scrap Smelters and Refineries : The Future

The Plan:

“Development Plan for Renewable Nonferrous Metal Industry”

•By 2015, copper scrap to be 40% of China refined production.

•Top 10 cu scrap smelter output = 50% of China scrap smelter output. •

•Cu scrap smelter capacity = 80% in major industrial zones.

•

•6-8 new/expansions cu scrap smelters with 200 kt/y capacity each

•10 scrap smelters 50-100kt/y each in north, northeast, center and Yellow River Delta

•2 projects with capacity of 50kt/y each in Northwest China.

•Small blast <50t fixed reverberatory furnaces to be “rejected shortly”.

•Advanced inspection technology and equipment.

Small fabricators and smelters using copper and alloy scrap must close in 2015.

MIIT China, March 2013 Plants Affected: Scrap Smelters With Capacity <50 Kt and Direct Melt Scrap Capacity <20kt .

Chinese Secondary Smelters With 50 Kt/year or Less Capacity

0 10 20 30 40 50 60

Hefeng Copper

Ningbo Jintian_yingtan

Lanxi Zili Copper

Dongying Jinxi

Jiangxi Jinhui

Guangzhou Zhujiang Copper

Tonglu Hengxin

Luoyang Copper

Yunnan Copper

Scrap Smelting Capacity 2012 Scrap Smelter Output

Survey: Chinese Wire Rod Plants With < 20 Kt/Y Capacity

0

100

200

300

400

500

600

700

800

900

1,000

Wire Rod Capacity < 20

Kt./Year Surveyed

Wire Rod Output < 20

Kt./Year Surveyed

Direct Melt Scrap Use

Surveyed in Plants < 20 Kt

No significant impact to the Chinese demand for copper scrap and copper alloy scraps

5. Drivers of Current and Future

Copper and Alloy Scrap Markets

Most of LME refined stocks worldwide in hands of large trader owned

warehouses at the end of Q1-2013.

Source: Bloomberg and Hedge Funds Analysis

In the Short Term Copper Traders Positions and Control of Refined Stocks Impact the Scrap Market via Short Copper Price Movements

Stronger Chinese currency 2013= copper imports less expensive in CNY.

“Leveraged Chinese copper financing deals

sustaining $35-40 billions of $384 billions

China total short-term FX lending at April 2013”

Goldman Sachs.

China SAFE: regulations on border transactions,

to be implemented in June 2013.

Identifying activities with FX inflows

above normal export/import activities

•May 10 :

•SAFE request balance sheets and trading records,

•A-list or B-list firms by June 1, 2013.

•B-list firms to reduce balance sheet

•by cutting any capital inflow related trade activities.

Directly reduce scale of China’s FX loans •reducing the scale of letter of credit financing (bank loans),

•reducing the volume of funding available for copper financing

Raise banks’ FX net open positions •raising LC financing costs of funding copper financing.

•aims bank loan/deposit ratio of 75%-100%, •existing ratio >150%.

To avoid being categorized as a B-list

firm by SAFE •‘trade firms’ may reduce their USD LC liabilities

•in the near term,

•with copper financing likely impacted.

ICSG Refined Copper Market Forecasts 2013-2014

• Forecast Risks !

• Scrap/Mine/Smelter Supply Constraints • ICSG copper mine “disruptions allowance” =

• 520 Kt-Cu in 2013, 681 Kt-Cu in 2014

• Bingham Canyon and Grasberg Mines Closed (May).

• India smelters output slow: pollution and maintenance.

• Tighter AS, SO2 emission controls in Chile Smelters.

• Demand Uncertainty in 2013-2014 • Lower industrial output growth in China?

• Will China financial rule affect bonded stocks?

• Falling copper end use? Substitution to aluminum?

• China SRB and Other Govs market interventions?

•“Those who have knowledge don't predict. Those who predict don't have knowledge”. Lao Tzu

•ICSG World Copper Mine Production

• 5.2% in 2013

• 5.6% in 2014.

• ICSG World Refined Copper Production

• 4.3% in 2013

• 5.1% in 2014.

•ICSG World Refined Copper Apparent Demand

•0.3% in 2013 (industrial use up >3%? China up 5%?)

•3.9% recovery in 2014 ____________________________________________________

• ICSG Surplus 2013: 417 Kt-Cu

• ICSG Surplus 2014: 681 Kt-Cu

China Copper Industry: Number of Companies in 2012

Source: ICSG based in NBS and Antaike 2013

Copper Alloy Fabricators,

731,

26.6%

Copper Smelting &

Refining, 313,

11.4%

Casting Foundries, 101,

3.7%

Copper Mining

Companies, 293,

10.7%

Copper Fabricators,

1,312,

47.7%

China ongoing copper

industry integration

expected to

affect the scrap market.

wire rod and brass mills

consolidation

= less and bigger plants.

Less companies

controlling plants and

fabricators.

More centralized scrap

purchase systems?

OECD got rich and now is getting old. Will China get old before it gets rich?

Economic, demographic , electrification trends will shape copper and scrap demand.

Less OECD people

working or looking for work.

Chinese 15-60 years old population

fell -0.6 %/year in 2012.! NBS

China power grid plan:

One Asia = + copper use

In 2012 urbanization in China only 53% of population = USA 1920, Japan 1950

Population Without Electricity in the Developing World, MillionsSource: International Energy Agency 2009

0

50

100

150

200

250

300

350

India

Ban

glade

sh

Oth

er A

fric

a

Indones

ia

Nig

eria

Eth

iopia

Pak

ista

n

DR C

ongo

Mya

nmar

Tanza

nia

Ken

ya

Ugan

da

Sudan

Afg

hanis

tan

Moza

mbiq

ue

DPR K

orea

Nep

al

Mad

agas

car

Yem

en

Ango

la

Mal

awi

Burk

ina

Faso

South

Afric

a

Cam

bodia

Cote

d'Iv

oire

Zambi

a

Cam

eroon

Phili

ppines

Gha

na

Gha

na

Chin

a

Zimba

bwe

Res

t of D

evel

oping C

ountr

ies

Rural population in China > 600 million people

India/Bangladesh/Pakistan, Nigeria, Indonesia, Philippines, Malaysia, Thailand

to increase copper use in the medium term ... or before.

2012 Chinese copper smelter investments = - 30%! World mine capacity plans delayed in 2012= 4 Mt.

Will copper miners deliver 2 Mt more mine capacity in 2013-14 ? Will China continue expanding smelting/refining capacity in 2013-2015?

World Copper Mine Capacity 2012 in Kt-Cu

and Plans 2013-2016.

19,81920,388

21,343 21,52322,218 22,550

00

112747

1,978

2,956

00

689

2,214

1000

18,000

20,000

22,000

24,000

26,000

28,000

30,000

2011 2012 2013 2014 2015 2016

Operating Developing Feasibility

China 2012 Fixed Asset Investment in Copper.

Annual % Growth. CNIA/Antaike

-40

-30

-20

-10

0

10

20

30

40

50

60

70

Copper Smelters Copper Semis &

Procesors

Copper Mines Copper Alloy Semis

& Procesors

~ 500 Kt old copper mine capacity in need of replacent by new capacity in 2011-2015.

Big hopes in new mine capacity mainly from small mines, but CAPEX not there yet !

Additional Copper Mine Capacity in Plans by Country 2012-2014 Kt

-100.0

-

100.0

200.0

300.0

400.0

500.0

Mongo

lia

Congo

Zambia

Aust

ralia

Peru

Brazil

Mexico

Canad

aChil

e

Botsw

ana

China

Rest o

f the

Wor

ld

2012 2013 2014

Role of Recycling on Chinese Demand for Copper: Selected Research Findings

ICSG Survey on Wire Rod Plants

and Scrap Smelters in China

•Wire Rod and Brass Mills •Copper wire rod output in China > 6Mt in 2013, ~93% refined copper.

Falling direct melt scrap in wire rod and brass mills output.

•Copper wire rod overcapacity now, more in 2014-2015.

•Scrap Smelters •Overcapacity in scrap smelters/refineries, more to come.

•Copper scrap smelters hardly profitable by small spreads.

• Imported copper scrap shortage 2008-2012 to continue.

•Slow growth in copper refined from scrap in China.

•China more dependent than ever on imported scrap. •Chinese old scrap availability remains constrained.

Role of China in the Global Copper Balance

• Tight global refined balance driving price volatility.

•China credit shortage = cathode use as collateral in Shanghai.

•Refined copper market in effective surplus in 2012.

•More mine supply boost global refined output (>20 Mt),

• but limited by shortage in scrap recycling and trade.

•China “Green Fence” affects availability.

•Scrap smelter capacity utilization may not grow.

•Chinese brass mills output fall = less alloy scrap demand.

• Limited alloy scrap use by scrap smelters and refineries.

•Slower investment flow to new Chinese smelters in 2012

• but more capital to copper alloy plants capacity.

Outlook 2013-2015 •Chinese smelters ands semis shortage of scrap to evolve with refined price and customs efficiency.

• New Chinese wire rod capacity in sight, but utilization rate not secured.

•Will mine supply deliver the additional 2 Mt in 2013-2014 if the price environment is less dynamic?

• Will Chinese smelting/refining capacity grow fast enough to match + 2 Mt of new global mine capacity?

•A recovery in fabrication in a industrial economy ex-China may tight the market, but where?

•Chinese investments in alloys plants instead of smelters: scrap availability a serious concern.

•Beyond 2015 the market to tight as mine investments are cooling now. Scrap traders to benefit.

Next ICSG Member Countries Meeting,

Copper Market Research Advances

and Refined Copper Market Forecast

To be held in Lisbon on 1-2 October 2013

in conjunction with the meetings of the

Nickel, Lead and Zinc Study Groups.

www.icsg.org

risopatron@icsg.org

• Copper and Copper Alloys Scrap Supply Survey in the European Union (EU-27) – 2013.

• Copper Wire Rod Plants and Secondary Smelters and Refineries Survey in China- 2013.

• mail@icsg.org