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Copper mine production to remain unchanged in 2019 amid lower Indonesian output

Copper mine production in 2019 is expected to remain unchanged as additional production from major mining projects will be offset by a significant decline of Indonesian copper output, according to the International Copper Study Group.

The May 13 International Copper Study Group, or ICSG, report said additional output from Cobre Panama, the expansion of the Toquepala project and the commissioning of a few smaller-sized mines would be offset by weaker Indonesian output after the transition of Grasberg to an underground operation and the Batu Hijau mine to its next phase of development. Lower Zambian copper production due to regulatory issues and tightened tax policies would also weigh on output this year.

The organization expects copper mine production to grow by 1.9% in 2020 as the sector starts recovering from the factors weighing on 2019 output.

Meanwhile, ICSG sees refined copper production rising 2.8% in 2019 and 1.2% in 2020, indicating a deficit of about 190,000 tonnes and 250,000 tonnes for the two years, respectively.

"In 2019, expanded electrolytic capacity in China, the ramp-up of electrowinning output in the Democratic Republic of the Congo and the recovery from 2018 operational issues or maintenance at smelters in Australia, Brazil, Indonesia, Poland, among others, will largely offset lower anticipated production at some plants in China and Europe due to planned maintenance shutdowns and lower output in Chile and Zambia due to operational issues at smelters," the ICSG said.

Meanwhile, from an ecological point of view, analysts at Sanford C. Bernstein said every tonne of copper mined and used in the global economy can reduce carbon dioxide emissions by 150 tonnes to 1,000 tonnes. "The move from a high CO2-emitting economy to a more sustainable one is, in many ways, simply the shift from a carbon economy to a copper economy," the analysts wrote in a May 14 note.

"The delivery of the green economy and the decarbonisation of the global economy will have a material impact on the economics of several commodities from lithium, to cobalt, nickel and, of course, copper," the analysts added.

The London-based broker quantified both the amount of copper production and the price impact in order to achieve governments' CO2 emission targets under the 2015 Paris Agreement on climate change, saying this would require copper production to grow between 3.1% and 5.8% per year until 2030.

In order to encourage investment in new capacity, copper prices need to lie between US$8,300 per tonne and US$11,100/t in order for the mining sector to reinvest cash flows, the analysts noted. Investors should be willing to pay between 0.8% and 5.5% more for copper miners for every 1% reduction in CO2 emissions, the analysts wrote, referring to pure-play companies such as First Quantum Minerals Ltd., Antofagasta PLC and Ivanhoe Mines Ltd.

Meeting the Paris Agreement pledges requires between 11 million tonnes and 72 million tonnes of incremental copper production in the next 11 years in addition to the normal industrial demand for copper.

Meanwhile, the Metals and Mining Research team at S&P Global Market Intelligence said May 14 that it expects copper prices to remain volatile through the June quarter after the U.S government increased tariffs from 10% to 25% on approximately US$200 billion worth of Chinese imports, which include copper-containing goods such as electrical machinery.

Analysts at S&P Global Market Intelligence reduced the Chinese refined demand growth forecast for 2019, from 4.2% to 3.8%, expecting copper consumption of 11.6 Mt of copper this year.

"There is lower Chinese demand for refined copper imports. Customs data shows that copper cathode imports into China have reversed from 17% year-over-year growth in 2018 to a 0.6% year-over-year decline in the first quarter of 2019," commodity analyst Keval Dhokia wrote in the report.