6 | SPOTLIGHT – COVID-19
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Pandemic affects 2020 copper usage forecast The latest ICSG Insight into the ‘Global Impact of COVID-19 Related Lockdowns on Industrial Uses of Copper and Recycling’ released in May says the first half of 2020 will be remembered by a strong deterioration in the downstream demand for copper.
Copper semis
Global GDP is expected to contract 3% after a forecast of growth over 3% in January by Intergovernmental organisations. The impact on copper demand only in Q1 2020 is revealed in the fall in use of copper wire rod, which represented 56% of all copper end uses worldwide in 2019. In Q1 2020 the Asia Pacific region was the most affected, with a 25% fall in sales of wire and cable. In the European Region and MENA, sales fell 6% in Q1, but Q2 expectations are pointing to a 2 digit annual contraction. In North America the first quarter was good with wire rod demand up 4%, but expectations were not so good for Q2. In Latin America demand fell 15% in Q1 via commodity price adjustments. China’s automobile production fell 45% y-o-y in Q1 2020, whilst electric grid investment fell 27%, air conditioner output fell 28%, and refrigerator output fell 20% respectively. In the period 1-10 May 2020, South Korean exports fell 46% y-o-y, and imports fell 37%. Japanese
imports of scrap fell 36%, and less fabricated copper products were exported in Malaysia, Russia and Spain in the first quarter. There was a contraction of 29% in Italian industrial production in Q1, followed by France (-16%), Germany (-14%) and Spain (-13%), with European copper use expected to fall in Q2 2020. Exports of fabricated copper and alloys fell in Q1 in Belgium, Poland and Germany. In the US, housing starts fell 9% in Q1 and in Q2 the fall might be in 2 digits, whilst household spending in transport fell 33% in Q1.
Other streams
Copper smelters out of mining countries are facing a massive shortage of concentrates in H1 2020. That eventually can be solved in part if concentrate stocks in South America are exported. Total y-o-y Q1 exports of copper concentrates fell from Chile (-8%), Peru (-10%), from Australia (-8%) and Brazil (-16%). Ports in Peru closed all of April, and not all mines operated at low capacity for stocks. Global trade of copper scrap fell 400 kt in Q1, but scrap availability fell 550 kt as lower prices hit smelter and fabricator demand. Traders of recycled copper, scrap and copper waste left the market when prices fell. Imports of copper scrap to China fell by 37% in Q1 on ports closures,
with Germany’s imports down 16%, and a 36% fall in Japan and Malaysia. Refined copper output produced from concentrates is sustaining the supply of refined copper in H1 2020. It will be difficult for global copper use to return to the 29.9 Mt reported in 2019. Preliminary estimates for the drop in 2020 global end use of copper are between -1,4 Mt and -2.7 Mt in the less optimistic scenario.
Upstream
The ICSG Secretariat Briefing Paper - No 18 (Insight) was released on 21 May entitled ‘The Impact of the COVID-19 Pandemic on World Copper Supply’. The April meetings of the ICSG were cancelled, so the spring forecast was deferred. The Insight is an update on the copper supply and demand impact and on ICSG’s last forecast made in October 2019. In summary, global mine production in 2020 is likely to be about 950,000 tonnes copper lower than the ICSG forecast in October 2019. World output is now expected to decline by about 3% compared to 2019. Global refined output will be approximately 1.1 Mt lower than the Group forecast in October. Consequently, world refined production is now expected to remain unchanged for the second consecutive year. www.icsg.org
Covid-19 impact webinars from CRU CRU Events published a series of pandemic webinars, aimed primarily at would-be World Copper Conference 2021 attendees, from April to early May. Chief Economist Jumana Saleheen delivered ‘Global pandemic triggers global recession’ on 6 April, then Principal Analyst Erik Heimlich presented on ‘Developments in copper supply’ on 23 April, before Director of Copper Research and Strategy Vanessa Davidson concluded with ‘Copper market outlook’ on 7 May: Jumana’s global macro-economic forecast observed that, as one third of the world’s population were put in lockdown in March, a sharp fall in demand and supply chain disruption ensued. Whilst China’s PMI has bounced back rapidly, China will not see demand in Q2 from the rest of the world (RoW). The US should see positive growth by Q4 of 2020, but the EU is forecast to take longer still to recover. The pandemic has halted a 126-month record US economic expansion, after around 33 states issued ‘shelter-in-place’ orders in March. A -0.2% change in GDP is forecast for 2020. The Eurozone was already vulnerable, and a -5.2% GDP contribution is forecast for Q2. In global automotive production, 2020 will see a 10 per cent fall, in a third year of decline. However (from 3rd Webinar), global copper demand from EV’s will rise from 417 kt in 2020 to 1.1 Mt
in 2025, and 2.5 Mt in 2030. Around 75% of this copper is in the vehicles. Erik’s presentation calculated a 22.2% fall in Chinese refined copper consumption in Q1, whilst the RoW is forecast to see an 11.9% fall in Q2. The supply of copper scrap has declined as prices have fallen, increasing demand for primary copper. As Covid-19 has limited scrap recycling rates (from 3rd Webinar), and imports are blocked, a 20 per cent fall in Chinese scrap use in refined production and semis is forecast this year (RoW 11%). Mining has allowed to continue in most lockdown countries except Mexico. Peru imposed an early lockdown, but this has impeded mining activity. As at 5 May (from 3rd Webinar), around 333 kt impact from mine disruptions, notably in Peru (c. 105 kt), had occurred since mid-March, and around 190 kt impact on smelter output, mainly due to the effect of smelter acid storage and shipping restrictions. Whilst countries like Australia, Kazakhstan and Mongolia had suffered only minor disruptions in the period, the estimated global production losses due to Covid-19 will add 3-4.5% of extra mine output disruptions in all of 2020, representing 600 kt in total. Project developments being put in stand-by will affect future supply. Vanessa’s webinar described the havoc caused by Covid-19. The typical seasonal pattern
Copper Worldwide Vol 10 No 2
whereby stocks are accumulated in the first few months of the year and then destocked is holding. Chinese cathode import premiums have already recovered to exceed 2019 levels. RoW refined copper demand is set to fall by 5.5% in 2020. Chinese demand fell by 22.2% in the first quarter, leading to an estimated annual 5% drop in 2020. Global refined copper consumption for 2020 is now thought to be 22 Mt, a 1.8 Mt reduction from CRU’s January estimates. Demand to 2025 will be lowered enough by the after effects of the pandemic to remove the possibility of supply deficits in the mid2020s. India is forecast to achieve robust consumption growth of at least 10% per annum from 2021 to 2024, whilst ASEAN will see 4% annual growth in the period. Chinese smelters remain vulnerable to mine closures in other parts of the world, as mining majors are reducing 2020 capex and ongoing projects are being delayed. Around 159 kt of price-related cutbacks to mine output have also been announced as at 5 May, and more are expected in H2, rising to an overall 340 - 445 kt level. A 5% reduction in global mine output is expected for 2020, and a 3% reduction in refined production (China -2.5%). There is a 700 kt drop to the 2024 output forecast. Whilst an 850 kt surplus of cathode is forecast for 2020, prices are likely to remain around US$ 5,000 per tonne. www.events.crugroup.com
