Demand, inflation driving contract copper premiums, Aurubis CEO says: LME Week

The increase in copper premiums for 2023 European contracts came as no surprise to customers of German producer Aurubis, its chief executive officer said in an interview, citing the strength of demand as well as inflation-led costs

Speaking to Fastmarkets during the annual London Metal Exchange week, Roland Harings said that the hike in premiums to $228 per tonne from $123 per tonne in 2022 was driven by demand but also includes an embedded amount for additional energy, freight, wage and other inflation-driven costs.

“Our customers were not surprised when we informed them about the premium; they could see where spot prices already were, and stocks are historically low,” Harings noted on Tuesday, October 25.

A similar increase was made by Codelco, which made a premium offer in the low to mid-$230s per tonne to its key European clients for 2023 supply, up from $128 per tonne in 2022.

Harings said that, from a European perspective, copper demand has been healthy, particularly with the accelerated move into renewables and electric vehicles (EVs) that are metal- and specifically copper-intensive.

“I don’t see any fundamental reason for that demand to change; rather, the opposite. If you look at consensual demand forecasts for copper, they are in one direction – up. As people switch from fossil fuels to electricity, this growth will become more powerful,” he noted.

At the same time, Harings said that the cost and environmental implications of using fossil fuels today mean that many things that didn’t make sense before – such as decarbonizing the power supply – now do make sense, assuming the change is affordable.

“Who’s going to install a natural gas-fired heating system in their home now? You’d rather move to a heat pump system. This is the case across Europe because natural gas will certainly have a higher price point going forward,” Harings told Fastmarkets. “The order books for producers of heat pumps are through the roof, and they’re building new plants because they’re extremely optimistic,” he added.

The exception on the demand front is the building and construction sector, Harings said. That segment is suffering from higher interest rates and uncertainty over income that has in turn led to a decline in the rate of permission requests for financing and mortgages.

“It’s temporary. There’s so much uncertainty in the market – people don’t know what their energy bill will be, what their salaries are and what inflation will be – but this will eventually settle,” he said. “I’m more optimistic than two to three months ago, and I believe there’s a way through the current macro-economic uncertainty without too much damage,” he added.

Harings said the copper concentrate market remains well-supplied, with a surplus emerging as major investments in mining have come or are coming onstream.

“There’s good quality and quantity of concentrates, and we’re well-supplied. This will play out in the treatment charge [TC] and refining charge [RC] negotiations, and we expect higher TC/RCs next year than this year,” Harings added.

Fastmarkets’ copper concentrates TC index, cif Asia Pacific recently registered its fourth consecutive week of increases, with suppliers more willing to raise their prices.

China, United States

Meanwhile, Aurubis has minimal sales into China, giving it insulation from the slowdown there from a customer perspective, Harings said.

“It’s very hard to draw a conclusion about what happens in China – the zero-Covid policy continues, but Covid remains a loose cannon and we’re never sure where the virus will emerge,” he noted. “It’s really unpredictable how long the zero-Covid policy will continue because Covid will not go away and zero-Covid is not the solution. China cannot go on this way forever,” he said.

In the United States, Harings noted that the initiatives undertaken by the administration of US President Joseph Biden to develop independent supply chains for critical minerals including copper are higher on the agenda, with significant incentives for locally sourced materials.

“There’s an extreme push in this direction, and investment in the United States will continue. We are investing in Georgia and finding great support from the government – we’ve achieved full permitting already,” he said.

“You have to deliver on strict requirements, but it’s very predictable and secure. Our experience has been very positive,” Harings added.

The company’s new recycling plant in Georgia is under construction; and, despite a somewhat challenging inflationary and supply-chain environment, that project is on track for start-up in early 2024, Harings told Fastmarkets.

The plant will have an initial capacity of 90,000 tonnes of input material recycling capabilities for all materials, including electronic waste. Its development comes as recycling assumes an increasingly important role in the energy transition and as corporations focus on reducing emissions and creating a more circular economy.

“The United States is a large market, and I’m very positive about how we’ve executed there. The recycling materials are there. We have an active business there, buying recycling materials for our European smelters, but we have been approached by many of our clients in requesting more capacity,” he said.

“There is much more potential in the United States, and now we have a blueprint for investing in this area, so watch this space,” Harings said.

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