LME WEEK 2018 - INTERVIEW: Copper demand boom source of annual premium increases – Aurubis CEO Schachler
Major annual copper premium increases are coming as a result of booming demand for refined metal, Aurubis chief executive Jürgen Schachler told Fastmarkets.
Refined copper demand, driven by a global shift to increased electric connectivity is maintaining growth while higher environmental regulations pile pressure on smelter supply, he said in an interview during LME Week in London.
“We see much stronger demand for cathode globally, mainly driven by China at the moment,” Schachler said. “The general market will continue to grow by 2% plus, so we are very optimistic and very bullish on the future market.”
Aurubis, Europe’s largest copper smelting company - and the world’s largest consumer of copper raw materials - upped its annual refined copper premium by 12% to $96 per tonne for 2019 offers last week. The premium is now at a four-year high.
Key sectors of copper consumption are improving, Schachler said, noting the market for conductors in Europe has grown by 4% during the first half of the year in part due to a change in European Union cable fire resistance standards that came into effect in 2017.
Aurubis will also be processing more of its cathodes at the Deutsche Giessdraht 280,000 tonne per year rod processing plant, after it acquired Codelco’s 40% stake in January.
The two producers used to split cathode input 50-50. The acquisition means Aurubis will send more of its production there, leaving less available for customers.
China’s shifting position on scrap
2018 has been a year of disruption for the copper supply chain. China’s decision to limit or even ban lower-grade scrap imports continues to rock the market, Schachler noted.
“We see a changing of the flows and more [scrap] staying [in the market], on the other side more clean scrap is going to China when before it was available in Europe,” he said.
Aurubis plans to take advantage of the situation. The company’s copper scrap and blister input is up by 28,000 tonnes or 31% in the first three quarters of its financial year.
“The whole market is in imbalance and that’s something new that we are trying to optimize to our gain at the moment,” Schachler said.
For example, Chinese policies to ban the import of low-grade scrap by the end of the year have increased demand for cathode. Shanghai bonded copper stocks are at their lowest since February 2016, according to Fastmarkets’ assessment.
“Chinese buyers are looking for cleaner material and are asking for cathode as replacement for some of the scrap they are not importing anymore,” he said.
Copper concentrate benchmark to rise
Meanwhile, the global drive for improved environmental conditions puts Aurubis and other smelters in the crosshairs of regulators.
Chile’s two top refined copper producers, state-owned Codelco and Enami, are both racing to be ready in time for higher environmental standards for smelters there, which come into effect at the start of next year.
Investments in less environmentally damaging smelters and resulting higher costs of production should propel copper concentrate treatment charges (TCs) higher in the coming years, Schachler said.
The Metal Bulletin copper concentrates index came in at $86.40 per tonne / 8.64 cents per lb at the end of September, above the 2018 annual benchmark of $82.25 / 8.225 cents.
“Aurubis’ standards don’t come for free; it’s with higher investment and higher costs,” he said, adding that additional mine supply should combine with higher smelter costs to increase the annual TC benchmark next year.
Schachler has been quoted this year as saying Aurubis is open to further acquisitions; with inefficient smelters around the world prime targets. While the company is yet to secure a major deal, it is still on the lookout for prospects, the executive said.
“You need two to tango and at the moment nobody wants to dance with us, but we have the means and the knowledge and skills to upscale globally,” Schachler said.