Copper miners confident of life beyond China

Copper miner Sandfire is confident it could find buyers for its products outside of China if Australia's biggest customer decided to add copper to its blacklist of Australian products (reports The Australian Financial Review).
6th November 2020
Resources Rising Stars

Copper miner Sandfire is confident it could find buyers for its products outside of China if Australia's biggest customer decided to add copper to its blacklist of Australian products (reports The Australian Financial Review).

Chinese media speculated this week that Australian copper could be hit with the sort of restrictions that have already hit Australian barley, lobsters, wine and coal exports this year, although there has been no confirmation of any policy change.

The speculation came after a fortnight in which copper stockpiles surged to the highest levels since July on fears that coronavirus lockdowns in Germany, France and the UK could crimp the global economy and therefore demand for copper, which is ubiquitous in manufacturing.

About 93 per cent of Sandfire's product was sent to China in fiscal 2020, with the rest going to the Philippines and Japan.

''Should it be required, Sandfire is confident in its ability to increase sales contract volumes to existing and also new copper concentrate customers in non-Chinese markets,'' said the company on Tuesday.

Sandfire added that it had the financial resources to weather a storm, with $398 million of cash and no debt.

Australia is the world's third-biggest copper exporter, delivering about 5 per cent of the world's seaborne copper.

About half of Australia's copper goes to China, with the Department of Industry putting the face value of annual sales to China at $3.7 billion, ahead of Japan, Malaysia, Taiwan and South Korea.

OZ Minerals mines copper in South Australia and managing director Andrew Cole said in August he was closely watching trade tensions between Australia and China in case they spread to copper.

Mr Cole then said OZ was deliberately maintaining a diverse customer base to reduce its vulnerability to any policy shocks. But he added that unlike coal, China did not have a significant copper industry of its own.

''China doesn't have many copper natural resources to exploit so they have to buy it in, so unlike wine where they produce some locally, unlike coal where they have vast amounts of brown coal, I am less concerned about China potentially impacting the copper side of the industry," he said on August 19.

Copper is considered to have the best prospects of almost any metal in the future given many of the world's biggest mines are past their peak production and new supplies are often found in challenging jurisdictions like the Democratic Republic of Congo and Mongolia, where Rio has struggled to establish the Oyu Tolgoi mine.

The conductive, malleable nature of copper means it is required for most consumer electronics, and the metal is also expected to enjoy strong demand from electric vehicles in the future.

"With China's continued build out of their copper smelter capacity, they are hungry for copper supply,'' said Mr Cole in August, in reference to copper's strong future prospects.

The China speculation comes after a stellar seven months for Australian copper miners, who have been able to operate near full speed while their major rivals in South America have been hampered and delayed by major coronavirus outbreaks.

Copper prices slumped from about $US2.80 ($3.97) per pound in late January to about $US2.10 per pound in late March on expectations the pandemic would crush the global economy and therefore demand for metals like copper, which are synonymous with global economic growth.

But the setbacks at South American copper mines – which are easily the world's biggest producers – sparked a perverse price rally for the red metal to two-year highs of up to $US3.15 per pound on October 21.

Copper was fetching $US3.04 per pound on Tuesday.

BHP and Rio Tinto's Escondida copper mine in Chile is one of the world's biggest producers of the red metal, but will operate below full capacity for two years as part of efforts to limit the spread of the pandemic.

While OZ and Sandfire export their copper in intermediate products, BHP produces the finished product – sheets of copper metal – from its Olympic Dam mine in South Australia.

Newcrest Mining also produces copper as a byproduct from its Cadia mine in NSW, while Glencore is also a copper producer in Queensland.

 

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