Copper prices threaten Zambia mining sector
Lusaka – Copper mining companies in Zambia, Africa’s top producer of the red metal, may be forced to review their investment if the price of the base metal continues to fall on the world market, industrial experts say.
Copper prices on the London Metal Exchange (LME) have dropped more than 30 percent in recent weeks and continue to trade below US$7 000 per tonne.
This has since fuelled concerns that the constraints affecting mining operations might affect profitability and render mining unsustainable, according to the Chamber of Mines, a consortium of foreign mining companies operating in the country.
In the week ending July 9, copper prices on the global market fell by more than 30 percent from a near two-week high in the previous session, as a stronger dollar weighed on the price and investors remained concerned about economic prospects in top metals consumer, China.
The dollar hit a four-week high against the yen and rose against a basket of currencies on the prospect of US jobs data later this week, fuelling expectations the Federal Reserve will scale back stimulus.
A stronger dollar makes dollar-priced metals costly for non-US investors.
Three-month copper on the LME traded down 0.49 percent to US$6 945 a tonne in official midday rings, bringing losses for the year so far to around 12 percent, and reversing the previous session's 3.4 percent rally, Reuters news agency reported.
A forecast from the VDA industry group of a fall in new car sales this year in Germany, Europe's largest auto market, did little to boost risk appetite for metals, although recent factory surveys showed that contraction across the euro area is stabilising.
Recent factory surveys from the US show that Britain and Japan were upbeat, but the latest reading from China showed factory activity slowed to multi-month lows as demand dried up from customers at home and abroad.
China is the world's top metals consumer, accounting for 40 percent of global copper demand.
“Concerns about China are worrying, especially as regards liquidity, (and) on the supply side things are improving. That said, metals have really priced in most of the negative news, so nearer term, we could see a bit of a short-covering bounce,” Karim Cherif, Credit Suisse analyst was quoted saying.
Markets awaited US non-farm payrolls data for June, which was due on July 12, for signals about the health of the world's largest economy and hints on when the Federal Reserve may begin to taper off its supportive bond-buying programme. On the plus side for copper, the premium for cash copper versus the three-month price rose to US$18, its highest point since mid-July 2012 ‑ which indicated a squeeze on near-term supplies. In Shanghai, meanwhile, copper drew some support from a flurry of demand for financing purposes in China.
Some trading companies have been importing metal before selling it onto the domestic market in return for cash, pushing up premiums for copper in bonded zone stores and underpinning prices.
Bonded copper premiums in China have soared to US$190-US$210 above LME copper prices from US$140-US$155 a month ago
Against this background, Emmanuel Mutati, the president for the Zambia’s Chamber of Mines, noted that: “Should the downward trend in copper prices continue, there invariably will be a need to review all aspects of operations of the mines (in Zambia).”
The multinational companies in the industry, however, have remained resilient and have since invested close to US$8 billion in the various old and new projects since the time of privatisation of the mines in Zambia in early 2000.
This has in turn raised the country’s copper outturn from a low 250 000 tonnes per annum in the 1970s to over 700 000 tonnes presently.
Zambia’s envisioned increase in copper production capacity to 1.6 million tonnes in three years would improve the country’s rating to fourth world largest producer from the present seventh position globally.
All the above attributes arise from the massive investment that the new mine owners have put into the old and new projects. With the oncoming of various projects and the investment ploughed into the industry, by 2016 copper out turn could increase to 1.5 million tonnes per annum spurred by various the new mining projects, Mutati said.
Consequently, companies might be forced to lay off labour, cut down costs including fuel and other lubricants to run the mines.
Key factors affecting the mines presently include insufficient energy and other related costs to sustain the mines.
Most of the mines assumed by the new investors at privatisation in the early 2000s are more than 80 years old. Coupled with old technology, the investors are left with no spare parts in some instances, thereby affecting their profitability, Mutati added citing the Mufulira Copper Mines, which has been operating for more than 80 years now.
Vedanta Resources ‑ owner of Konkola Copper Mines, Mopani Copper mine ‑ a unit of global commodity trader, Glencore and China Non-Ferrous Metals Africa Co-operation ‑ owners of Chambishi copper mines and smelter north of Zambia, are key players in the country’s copper industry.