Copper consumption to grow 4% annually through 2014—Fitch

The outlook for the base metals sector this year is stable as Fitch Ratings anticipates cautious spending and investment as well as improved profit margins.

Fitch Ratings forecasts that copper consumption will grow about 4% annually through 2014, based on a soft landing in China and a slow recovery in developed nations.  European copper consumption is expected to remain depressed through this year.

“Fairly balanced markets are expected for 2013, while 2014 could show better supply,” said Fitch analysts.

Copper supply is expected to grow at about 3% annually through 2014 as production recovers from 2011 labor disruptions and new projects ramp up, offsetting lower grades in older mines.

Additional mine production of about one million tonnes per year in 2013 and 2014 “from the ramp-up of new projects in Africa’s copper belt, expansion projects, and recovery from operating disruptions,” said Fitch. “In 2014, nearly all the mine production growth will come from new greenfield projects and these are subject to higher risk of production shortfall.”

“New production from Africa, where infrastructure is less developed, also faces a higher risk of shortfall particularly from power disruption,” the analysts advised.

Meanwhile, over the next 12 to 18 months, copper prices are expected to remain “well above the marginal cost estimated at $2.15/lb., and EBITDA margins for a medium cost producer should remain above 45%,” said Fitch.

The ratings agency expects costs to rise with lower grades, as well as higher taxes, treatment and refining charges, royalties, and wages. “In addition, new supply is being added at the higher end of the cost curve in the African copper belt.”

The analysts forecast that Chinese copper consumption is expected to grow about 6% in 2013.  “While urbanization trends will remain supportive of copper consumption, Fitch expects opportunistic destocking when prices are high.”


Demand for stainless steel is expected to be fairly flat in 2012.  Fitch expects stainless steel production to remain at current levels through this year, absent restocking through the supply chain.

“Fitch believes the nickel market will be fairly balanced through 2013 with NPI [Nickel Pig Iron] curtailments, but the market is at risk of oversupply.  There has been a dearth of additions to the project pipeline, which should result in tighter supply beyond 2017.”

The analysts predict nickel producers at average costs to earn EBITDA margins of 15% on average over the next 18 to 24 months.


Fitch expects excess zinc capacity to persist through 2013 with the likelihood of surplus production. “Longer term, closure of large mines reaching the end of reserves will help bring the market into balance,” said the analysts.

Zinc prices are expected to remain above a marginal cost of 70-cents per pound with EBITDA margins for average-cost producers of 20%, the analysts advised.

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