Global copper production
Previously, we saw that copper inventories surged in China and on the London Metal Exchange (or LME) warehouses. In this article, we will analyze the supply side dynamics of the copper industry. Extracted copper has very low copper content and must be further treated to make it usable. The first step after copper extraction is called beneficiation.
Smelting is the next major step in copper’s production process. After the smelting process is completed, the copper content increases beyond 50%. Following the smelting process, the copper is melted and is cast as anodes. Anodes are then refined to produce high-purity cathodes. Analysts track the refined copper production numbers to understand how copper’s supply is shaping up. Globally, China has the largest copper refining capacity.
The above chart shows the trends in refined copper production. Global copper production increased 18% in January 2015 on a year-over-year (or YoY) basis. The copper industry was in a surplus last year, which means that production exceeded demand.
The surplus in the copper industry is negative for copper producers like Freeport-McMoRan (FCX), Southern Copper (SCCO), Glencore Plc. (GLNCY), and Rio Tinto (RIO). FCX currently forms 3.1% of the Materials Select Sector SPDR ETF (XLB).
As discussed previously, copper demand has been negatively impacted due to a slowdown in the Chinese real estate market. On the other hand, China continues to add fresh copper refining capacity, which would put further pressure on copper prices.
After Asia, Europe is the second biggest steel-consuming region. In the next article, we will analyze the demand indicators of the European economy.