The biggest challenge that the copper market is facing is the Chinese restriction on copper scrap, international commodities consultancy Core Consultants tells Mining Weekly.

“There is a reclassification of Category 6 copper scrap to a ‘restricted import good’ under the Chinese import restrictions. This means there will be a quota system in the third quarter of 2019,” says Core Consultants MD Lara Smith.

This directly translates to restrictions being imposed on scrap traders and users in China.

Smith states that the copper quota is expected to be far less, compared with the amount of scrap imported during 2018. “About 2.4-million tonnes of copper scrap was imported into China in 2018 which is an average of 600 000 tonnes a quarter. The third quarter quota for 2019, which is at 240 429 t, represents only 40% of the quarterly average imported during 2018.”

“China has, however, continued to limit scrap imports over the past few years and this could put a dent in the market, as copper scrap accounts for about 10% of China’s copper consumption.”

She adds that this could ultimately lead to potential copper price increases in the medium term as producers struggle to fill the gap created by the limited scrap imports.

“We expect copper prices to be between $5 900/t and $6 300/t for this quarter and it could rise to between $6 400/t and $6 800/t by the end of the year, which is the copper price that could lead us into 2020.”

In April last year, China announced plans to restrict imports of eight scrap categories, which includes metals such as copper and steel. These import restrictions were expected to take effect on July 1, 2019.

Smith says it is difficult to determine whether legislation has been successfully implemented, as there are ways of getting cargo through imports using incorrect labelling intentionally, and other illicit means, which are known to occur.

“Irrespective of how well legislation is implemented, there are ways to circumvent it. However, the way legislation affects the copper industry, directly or indirectly, will depend on how the quota plays out.”

Despite 53% of copper mine production taking place in South America, the continent contributes only 12% of refined production, compared with Asia’s 52% of refined production. Asia is, therefore, one of the most prominent regions for copper mining in the world, making any changes in legislation in China highly significant.

Projections

Smith notes that there was “a great start for copper” in the second quarter of this year, but the commodity tracked downwards in May and June.

“Many blame the Sino-US trade war, but Chilean smelter Codelco’s strike, unplanned cuts in European and African copper smelters, environmental clampdowns and a 40% drop in Grasberg mining production, in New Guinea, as the producer moves to underground operations, are all contributing factors.

“There is a drive for copper demand from the electric vehicle (EV) industry, yet this demand is expected to emerge only in 2025. In addition to the demand from the EV industry, there is a demand from China to fill the gap left by copper scrap. However, this will once again depend on the quota, and steady construction demand,” Smith mentions.

Meanwhile, the greatest challenge facing Africa’s competitiveness in copper production from Zambia is tax. Zambia’s 2019 budgetary changes include royalty rate increases, an import duty on concentrates, a 15% gold export duty and non-reclaimable sales tax.

“The estimated copper output for the remainder of the year is expected to trend at about 10% or lower. African copper supply, particularly in Zambia, is likely to always remain a swing producer instead of a mainstay in the copper market,” Smith says.

Along with the sale of assets, copper is a tough market in which to be competitive, particularly in Africa, because royalties and taxes are the greatest challenges, Smith concludes.