Copper is an important industrial metal, and its consumption is closely related to economic growth. The development of strategic emerging industries such as the new generation of electronic information industry, new energy vehicles, high-end equipment manufacturing, energy conservation, and environmental protection will drive the continuous growth of the copper processing industry.
The upstream of the copper industry chain is mainly mining and waste copper recycling companies, the middle stream is copper concentrate roughing and waste copper refining companies, and the downstream is copper deep processing companies and application markets.
South America Has the Highest Copper Reserves
Global copper reserves are concentrated in South America. The data shows that Chile has the highest reserves of copper resources, with 20,000 tons, accounting for 30% of the world's total reserves; Australia has the second largest reserves, accounting for 13%; Peru third, accounting for 10%, and Mexico accounting for 6%. The latter were the US and China.
China's Copper Mines Rely on Imports
China's copper resources are significantly lower than those of South American copper-rich countries, so China does not have a rich endowment of copper resources. However, China is a major producer and consumer of copper materials. China must continue to import copper ore from countries with rich copper resources to produce and manufacture copper materials. In 2019, China imported 22 million tons of copper, a compound growth rate of 14.0% in the past ten years, and the growth rate has slowed down in recent years. In terms of import sources, Chile and Peru are among the countries with the richest copper reserves in the world, and their combined proportions are gradually increasing. In the first half of 2020, due to the spread of the new crown epidemic in South America, the operation of copper mines was greatly impacted, and the proportion of imports between the two countries declined.
Copper scrap is another major raw material source, and its recycling system is easily affected by the epidemic. Domestic copper scrap imports are in the adjustment period of policy change, and there are also uncertainties.
The Supply of Scrap Copper Is Restrained by Multiple Factors
The epidemic affects scrap metal recycling. Scrap metal recycling is an important part of all metal supply. The copper scrap added in the copper refining process accounts for 15% of the total smelted copper. Taking into account the copper scrap added in the processing link, the amount of copper scrap added in the refining and processing links accounts for 32% of the total copper supply. Since the outbreak of the domestic epidemic this year, various localities have adopted strict quarantine measures, and the recycling and dismantling activities of copper scrap have been suspended for about two months, resulting in a shortage of copper scrap supply.
The scrap copper import policy has been tightened. Imported copper scrap is an important supplement to domestic copper raw materials. In 2019, about 900,000 tons of old copper scrap was recycled in China, and 1.33 million metal tons of copper scrap were imported in the same period. Starting from the second half of 2019, the import of copper scrap and scrap requires approval, resulting in a sharp drop in the amount of imported copper scrap. From January to July this year, China imported 410,000 metal tons of copper scrap, a decrease of 49% over the same period last year. The document implemented on July 1 this year aims to convert the solid waste attributes of copper scrap into product attributes, but the implementation rules have not been issued for a long time. From 2021, China will completely ban the import of solid waste. Most foreign shipping companies are worried about the risks that the new policy may bring, which has curbed the import of scrap copper to a certain extent.
Copper Mine Production Costs Continue to Rise
The aging of copper mines has intensified and the grade of ore has declined. At present, about half of the world's copper mines are more than 50 years old. Excessive mining time has led to a gradual decline in ore grade. Since 1990, the average grade of global copper mines has continued to decline. In the case of a certain ore processing capacity, the gradual decline of selected grades may increase mining costs on the one hand, and on the other hand, due to the increase in impurities, more solid waste will be discharged, and the environmental carrying capacity will become higher, which will restrict the output of copper mines.
The proportion of land mining continued to increase, pushing up mining costs. As open-pit copper mines are gradually exhausted, more and more ore mining will be moved underground in the future. Relevant data shows that the total proportion of underground mining will rise from 22% to over 30% between 2017 and 2027. In 2019, Grasberg, the world's second-largest copper mine, shifted from open pit to underground due to the decline in grade. In March 2019, Chuquicamata, the main mine of Codelco, also started underground mining. Generally, underground mining is riskier and easier to interrupt, which may become a potential reason for the long-term rise in copper prices.
The price of bulk commodities has risen centrally, and there is little room for further decline. The current cash cost of copper mines is at the bottom range. The total labor cost in the production of copper mines accounts for 26%. The labor cost has risen sharply. Compared with the past 4-5 years, when the threat of strikes intensifies, companies often disagree with most of the salary increases proposed by the mining union. The total cost of electricity and fuel accounted for 19%. Since 2017, the price center of thermal coal and natural gas has risen overall, and the fluctuation of crude oil prices has increased, pushing up the energy cost center of mining companies. Taking into account the rigidity of wages, the possibility of decline in human costs is relatively small; As the price center of commodities such as energy has also risen systematically, combined with the steady upward trend of inflation, the cash cost of copper mines is at a relatively bottom.
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