The 2014 Metals Outlook: Copper

Australian Mining has investigated the current state of Australian metals and looks into how they will perform in the coming year. In the first of this five part series we look at Copper. 

Copper has an interesting future ahead in the coming years. 

Australian Mining has previously gone into detail about the future of copper, looking at it long term and how the sector will develop in the coming years. 

It sits in an interesting position of being a mature industry that still has a bright production future ahead. 

However growth rates are slowing, which is all part of the global shift, and in particular an Australian shift, from the ramp-up investment heavy construction phase into an era of production, just in time to utilise a predicted upswing in demand for copper. 

According to IBISWorld reports industry revenue is expected to increase by 5.1 per cent to $7.8 billion in 2013-14 as increased output is offset lower Australian dollar copper prices. 

IBISWorld explained that “industry revenue is expected to continue to grow over the five years through to 2018-19 reflecting increases in copper ore output, a decline in the value off the Australian dollar and rising US dollar copper prices”. 

It went on, going into greater detail, stating that “overall industry revenue is expected to grow by an annualised rate of 1.8 per cent over the five years from 2014-15 through to 2018-19, to total $8.5 billion”, which, despite being in growth, is a dramatic slow from the annualised growth rates of 7.5 per cent experienced between 2009-14. 

However in the short term it may be too soon for a surplus. 

According to French bank Natixis, if one goes only by the level of copper stocks held in exchange warehouses, which it defines as those belonging to the LME, SHFE and Comex, then it does look like the market is in surplus, as these stocks have risen by about 110,000 tonnes since the beginning of the year. 

“Anecdotal reports suggest that stocks of copper held at bonded warehouses in China peaked at somewhere between 1 million and 1.1 million tonnes in January, and have since fallen to a low of little more than 300,000 tonnes. Netting off 110,000 tonnes of higher exchange stocks versus 700-800,000 tonnes of lower bonded stocks suggests a substantial deficit,” it stated. 

IBISWorld also pointed to a coming decrease next year as mining shifts into its next phase, with “revenue expected to decrease by .02 per cent in 2014-15 as mine construction of expansion activities start to be ramped up,” adding that “during this mine expansion the focus off the industry is likely to be on construction activities rather than production, leading to a slight drop in revenue”. 

However this is only for the short term. Once these operations come online fully they are predicted to dramatically increase output. 

Next year will see the .02 per cent decrease, however the following year in 2015-16 revenues will leap at a rate of 4 per cent growth, expanding again the in 2017-18 period to 5.7 per cent. 

It is highly unlikely that the sector will ever see the annualised growth in revenue that it did in 2006-7, where it grew at a rate of 34 per cent. 

Yet, this increase in mine output will not be matched by smelting and refinery production, IBISWorld says, which will lift the exports of unrefined copper. 

“Exports of unrefined copper will expand strongly in 2016-17 due to the planned closure of GlencoreXstrata’s copper smelting and refining operations in Queensland. 

The forecast: Next year will dip for copper, but the metal will come back with strong growth and soon stabilise. 

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