China's copper mine distribution and demand analysis
Copper (Cu) is one of the earliest metals used by mankind. It has a soft texture, good ductility, good thermal conductivity and electrical conductivity. It is widely used in cables, electronic and electrical components, building materials and various alloys. It is widely used in the world. The third largest metal after iron and aluminum.
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.
Copper prices are known as "Dr. Copper" and are an anchor that reflects the operating conditions of the macro economy. In the long run, the thesis that "copper prices are opposite to the dollar index" is mostly valid. Since 2011, with the interest rate hike in the United States, the US dollar index has weakened, economic growth has been weak, and copper prices have entered a long downward period.
The decline in copper prices inhibits investment in copper exploration. Copper prices bottomed out and rebounded. The copper price fell to a historical low of US$4,618/ton in March 2020, then bottomed out and rebounded and exceeded US$6,000/ton at the end of June 2020. In the short-term perspective, the decline in copper prices since the end of 2017 has come to an end; in the mid-term perspective, since the last wave of highs in 2011, copper prices have rarely experienced a strong rebound close to US$3,000/ton. How sustainable is this rebound? , What is the future space and how much benefit will the relevant listed companies benefit?
South America has the highest copper reserves, and China's copper mines rely on imports
The distribution of global resources is concentrated in South America. According to USGS data, in 2019, the world's recoverable copper reserves were only 870 million tons, Chile ranked first, with reserves of 200 million tons, accounting for 23.0% of the world's total reserves; Australia's reserves were 88 million tons, accounting for 10.1%; Peru’s reserves are 87 million tons, accounting for 10.0%; Mexico’s reserves are 53 million tons, accounting for 6.1%; followed by the United States (51 million tons) and China (26 million tons).
Thanks to the promotion and application of modern exploration and mining technologies and large-scale development technologies, the growth rate of global copper reserves in the past two decades (2000-2019) was 5.1%. Among them, Chile not only has the highest volume, but also has a growth rate of 4.4%. Peru and Mexico, also located in Latin America, had copper reserves of only 19 million and 15 million tons in 2000. After vigorous exploration and exploitation by the government, copper reserves in 2019 were respectively It accounts for 10% and 6.1% of the world, with a compound annual growth rate of 8.3% and 6.9%; the United States has large reserves, but the growth rate is slow, with a compound annual growth rate of only 0.7%; China’s compound growth rate is 2.0%, which is generally low.
In terms of location, the vast majority of super copper mines are located in Chile (five) and Peru (three). In 2019, the global copper concentrate output was 20.37 million tons, a negative growth of 0.3% year-on-year. In 2019, Chile ranked first in the world with 5.6 million tons of copper concentrate output, and it deserves to be a major copper mine. In 2019, the world's top ten copper mines produced a total of 4.96 million tons of copper concentrate, accounting for 24.3% of global output.
China's copper mines are concentrated in the northwest, east and northeast
Restricted by resource endowments, China’s copper mines have the characteristics of relatively scattered distribution, low grade, and difficult mining and selection. There are mostly small-scale mines and few medium- and large-scale mines. There are 2159 copper mining areas nationwide (statistics by the Ministry of Land and Resources in 2014) . There are only 18 copper mines with a scale of more than 10,000 tons:
From the perspective of geographical distribution, there are 6, 5, 3, and 3 10,000-ton mines in the Northwest (New Tibet), East China (Jiangxi, Huimin), Northeast (Black), and Southwest (Sichuan and Yunnan);
From the perspective of mine ownership, Jiangxi Copper accounts for 3 (Dexing, Chengmenshan, Wushan), Zijin Mining Group 4 (Zijinshan, Duobaoshan, Asher, Derni), and China National Gold Group 3 (Wunu) Getu Mountain, Hubei Sanxin, Jiama), Yuntong Group has 2 (Dahongshan, Lala), Tongling Nonferrous Metals (Donggua Mountain), Jinchuan Group (Longshou Mountain), Western Mining 1 ( Huogeqi), Lujiu Copper Mine (wholly privately-owned, 3). Jinchuan Group’s only Longshoushan copper-nickel mine and China National Gold Group’s Hubei Sanxin gold-copper mine are both associated copper mines, whose output is comparable to that of the main copper mine, and is also classified as a 10,000-ton copper mine sequence.
In 2016, the National Mineral Resources Plan (2016-2020) was jointly organized, compiled and implemented by the Ministry of Land and Resources, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Finance, Ministry of Environmental Protection, and Ministry of Commerce, which clarified nine major mining areas in the country.
Jiangxi’s copper reserves have been at the highest level in China for a long time. However, due to the continuous increase in mineral resources exploration and development constraints and the serious shortage of continuation bases, it is more difficult for existing mines to increase reserves and production. The growth rate of new exploration reserves is much lower than the consumption rate, and reserves are declining year by year. , Dropped from nearly 7 million tons in 2010 to 4.5 million tons in 2017, with a compound annual growth rate of -6.1%; Tibet discovered the Tiegelongnan copper (gold and silver) deposit in 2016, which is China’s largest single 10-million-ton copper The prospective resources of the ore deposit exceed 15 million tons, jumping to the province with the largest copper reserves in China.
The current problems encountered by Chinese mining are:
Insufficient resource reserves affect the service life of the mine. With the growth of mining years in China's 10,000-ton copper mines, resources will decline, and the minimum mine service life is only 5 years.
The relatively backward technological equipment affects the economic benefits of the mine. The recovery rate is low, the dilution rate is high, and the ore recovery volume is relatively low, leading to higher costs; backward equipment not only causes low production efficiency, high material consumption, and capacity limitations, but also affects the recovery rate of beneficiation.
The fluctuation of copper prices in the cost range affects production stability. The average production cost of China's 10,000-ton copper mines is 33,000-35,000 yuan/ton, and the complete cost of new mines, low-grade mines, and heavy-duty old mines is about 38,000 yuan/ton.
Environmental issues are severe. The environmental protection problem of tailings has always existed. With a large area, the dust generated by the tailings with high winds can easily cause air pollution problems, and improper management can easily cause problems such as leakage and landslides. In addition, mining in mining areas will generate tens of thousands of tons per day. Long-term stacking of waste rocks with heavy metal elements can easily cause heavy metal elements to overflow with rainfall.
China's output is higher than the world's, and import growth slows
In 2019, the global output of mineral copper was 20 million tons, compared with 1.6 million tons in China. In the past two decades, the compound growth rate of China's copper production was 5.4%, higher than the global 2.2%, but the fluctuation of China's growth rate was greater than that of the world.
In terms of copper imports, China was 22 million tons in 2019, with a compound growth rate of 14.0% in the past ten years. The growth rate has slowed in recent years. In terms of import sources, Chile and Peru, as one of the countries with the richest copper reserves in the world, accounted for 35.2% and 27.0% respectively in 2019, and their combined proportions have gradually increased. 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 affected, and the proportion of imports between the two countries declined.
Steady growth in copper demand
Globally, the consumption of refined copper has grown slowly, with a compound growth rate of only 2.4% from 2000 to 2019, while China’s annual compound growth rate is as high as 10.5%, far exceeding the global level. The major global demand countries are ranked from highest to lowest in China, the United States, Germany, Japan, and South Korea. The proportion of China's demand is showing a gradual increase, from 12.7% in 2000 to 53.7% in 2019. Occupy half of the world.
At present, the sector with the highest downstream demand for refined copper in my country is electricity, accounting for 53%, followed by air-conditioning appliances, transportation (automotive), construction and electronics, accounting for 15%, 9%, 8% and 7% respectively.
Grid investment picks up, copper demand rises slightly
The power industry is the largest field of domestic copper consumption. Copper products are widely used in wires and cables, motors, power transmission and transformation equipment (high-voltage switches, transformers), and electrical accessories. In 2019, China completed a total of 485.6 billion yuan in power grid investment, exceeding the planned 450 billion yuan investment in 2019. In June 2020, the year-on-year growth rate of basic investment in power grids has turned positive, and power investment is showing signs of picking up; and as the new infrastructure medium and UHV projects are gradually launched, the demand for copper will be increased to a certain extent. It's bigger. We expect that the demand for copper for power grids will increase slightly from 2020 to 2022, the growth rate will be 1.2%/1.0%/0.8%, and the demand will be 686.5/6.93.4/6.99 million tons, respectively.
Demand for copper for air conditioning still has room for growth
In the home appliance industry, copper is mainly used in the electrical and thermal conductivity components of air conditioners, refrigerators, microwave ovens and other home appliances, among which air conditioners and refrigerators are the main products. Compared with the "one household, one" refrigerator, air conditioners have the attribute of "one household with multiple units", and each household can have two or more air conditioners. Considering that refrigerators in rural households are too saturated, demand for air-conditioning still has room for growth. We expect the growth rate of copper demand in the home appliance sector to be 2.8%/1.9%/1.5% in 2020-2022, and the demand will be 204.2/208.1/2 to 1112,000 tons.
In the transportation industry, copper is mainly used in the automotive sector
In December 2019, the Ministry of Industry and Information Technology of China stated that it is stabilizing market expectations and promised that the new energy vehicle subsidy policy will remain relatively stable and will not decline significantly; in 2020, it was announced that the subsidy will continue until 2022, and the decline will be slow every year. Compared with the sharp decline in subsidies in 2019, the policy in 2020 will be more moderate, the profitability of auto companies will rebound, and more high-quality models will be launched, which will benefit market growth. Therefore, we expect the growth rate of copper demand for new energy vehicles to be 42%/35%/38% from 2020 to 2022, the growth rate of copper demand for traditional automobiles is 3%/2.8%/3.4%, and the growth rate of total copper demand for automobiles is 6.9%/ 7.1%/9.2%, the demand is 1.01/108/118 million tons respectively.
In the construction industry, wires, cables, copper water pipes, gas pipes, etc. are the main products involved in copper consumption, among which the power supply equipment consumes more copper materials. Considering the completion of real estate development investment and the growth rate of completed housing area have turned positive, and real estate demand has recovered, we expect the growth rate of construction copper to be 2.2%/2.0%/1.7% in 2020-2022, and the demand will be 104.7/106.7/1086 million respectively Ton.
Based on the above, we estimate that the demand for refined copper in 2020-2022 will be 13,07/1340/1364 million tons, with a compound annual growth rate of 2.1%. Among the downstream, grid demand accounts for the highest proportion, and the recovery of grid investment and UHV projects have resulted in higher grid copper demand; demand growth for new energy vehicles is an important growth pole in the automotive sector, but the proportion is too small and contributes little to total demand growth .