H1 reports from China's metal companies have revealed difficult operating conditions as rising energy prices, investment in environmental protection and an increase in resource tax have squeezed margins. Shares in the metal index fell 58.6% in the first half of the year, underperforming the SSE Composite Index which saw a 48% decrease. Copper companies fared better than most as the copper price remained at historically high levels and prices of sulphuric acid - a byproduct of the copper treatment process - soared. Jiangxi Copper, China's biggest producer, reported strong results with a 55% surge in revenues year-on-year. Net profit grew at the slower rate of 32.8%, reducing the company's profit margin to 10.4%, from 12.1% in the first half of 2007. The company has a slightly bearish outlook for the rest of this year, as the continued slowdown in the global economy takes its toll on copper demand and the appreciation of the dollar puts downward pressure on copper prices. However, it suspects copper supply will remain tight, which should support prices on the downside. Yunnan Copper Company struggled in the first half as revenue fell 18.9% and net profit plunged 29.5% y-o-y. The companies profit margin was cut to 3.8%, from 4.4% in the first half of 2007. A 45-day machine overhaul was blamed for the poor sales figures as output remained flat, whilst high energy prices pushed up production costs. Tongling Nonferrous Metals saw similar problems to Yunnan as rising raw material prices and fluctuations in the copper price cut the gross margin in the firm's copper unit to just 0.59%. Company-wide results were improved greatly by the strong performance of sulphuric acid, where gross margin increased to 71.6%, bringing Tongling's profit margin to 2.9%, up from 2.0% in H1 2007.

Sumitomo Electric Industries, the Japan based wire and cable manufacturer, has announced plans to provide its newly-developed aluminium wire harnesses to Toyota, for use in the Yaris subcompact, from 2011. Although the new product in 20-25% larger than a conventional copper wire harness, it weighs roughly 40% less because aluminium is lighter, thus improving vehicle efficiency of vehicles. With the price of aluminium presently very low relative to copper, the new aluminium wire harness should also reduce costs.

"A decade ago, there were 1.1billion pounds of brass rod consumed in the United States. This year, it's projected to be about 600million pounds," said the President of Chase Brass. Recent years have seen increasing numbers of manufacturers of copper and brass product moving their operations overseas to low-cost locations such as China. A representative of the United Steel Workers union said, "We went through the 1980's and the 1990's recessions and never really felt it here, but for the last decade we've really felt it." According to the union, Chase has struggled to secure consistent supplies of scrap due to fierce competition from overseas. Chase claims that its Montpelier, Ohio facility is among the most technologically advanced and efficient brass plants in the world, but it has difficulty, "competing against Chinese brass facilities that are subsidised by that country's central government." Chase Brass is presently owned by KPS Capital Partners, a private equity firm, who bought the company last November.

Crane Group, an Australian non-ferrous metals and plastic products manufacturer and distributor, announced revenue for the year ended 30th June 2008 of AUD$2,352m, a year-on-year increase of 7.6%. Net profit after tax before significant items rose to AUD$63.8m, an improvement of 18.2% on last year, thanks to strong results from the firm's plastic piping and distribution arms, Pipelines and Tradelink. Crane Copper Tube, the Group's non-ferrous metals division, reported EBIT of AUD$4.0m compared with a loss of AUD$2.5m last year. Revenue was up 2% to AUD$142m as stronger export sales helped offset subdued demand from the domestic plumbing market, according to Crane Group. "The lean manufacturing programme progressively introduced at CCT over the past two years continues to provide benefits in both productivity and working capital efficiency," said the company.

Zhejiang Hailiang Co Ltd announced plans to build a high copper production line, with annual capacity of 71,000 tons, under the newly established Hailiang (Vietnam) Copper Co Ltd. The subsidiary will receive total investment of US$40m, which comprises US$32.69m cash capital and US$7.31m equipment capital. As well as transferring its domestic production line, which has an annual capacity of 35,000 tons, Hailiang will also upgrade the Vietnam facility, adding a further 36,000 tons to the new operation. The Hailiang (Vietnam) plant is expected to be operational within one year.

Difficulties securing raw materials led to a 0.5% y-o-y drop in output of refined copper, to 320,000t, according to the National Bureau of Statistics of China (NBSC). A downturn in demand coupled with increasing raw materials prices has produced very difficult operating conditions, with one Henan-based trader commenting that, "unless the Shanghai copper price recovers, the fall in Chinese copper output is likely to extend until September." Over the first eight months of 2008, refined copper output increased to 2.47m tonnes, or by 15% on last year. However, some are beginning to question China's ability to sustain the rapid rate of growth it has shown recently, leading to a drop-off in demand.

The International Copper Promotion Council (ICPC) is expecting Indian demand growth to be cut by almost half, to 8-9 percent this fiscal year, down from an average of 15% over the past two years. Strong industrial growth, residential construction and consumer spending have spurred on demand in Asia's third-largest economy, with copper consumption reaching 512,000t in 2007. However, rising inflation, and the subsequent hike in interest rates, looks set to cool demand growth this year. Industrial growth for June was reported at 5.4%, nearly half what it was in 2007. "The consumption of copper -based appliances in the white goods segment will slow down due to a reduced rate of growth in disposable incomes. This will also be a dampener on copper consumption," said a member of the ICPC in India. Ongoing government investment in power infrastructure and a growing emphasis on more energy-efficient appliances will protect demand, according to the ICPC, "partly cushioning the impact of a moderating economy."

In late August, Furukawa Electric announced they would be raising prices for enamelled wire as they try to offset the rising cost of energy and varnish, particularly for polyvinal formal enamelled copper wire (PVF). According to Furukawa varnish and energy costs have increased 40% and 80% respectively since fiscal 2004. Sumitomo Electric, Hitachi Cable, Unimac and Totoku Electric have all also announced that they are either negotiating price rises on future shipments or conducting studies into a price increase. However, slowing demand for electric wire and electronic parts may make any further price hikes difficult. An industry source commented that, "makers could only get a higher price for PVF."

Sark Wire Corporation, a wholly-owned subsidiary of Turkish based Sarkuysan, is to open a copper wire processing facility in Albany with investment of US$10m. The new facility will have capacity to process 30m lbs of copper per annum and is due to be fully operational in 2009, creating 30 new jobs.

The latest figures released on the Chinese Customs' website show imports of unwrought copper and semi-finished copper products in August fell 4% month-on-month, to 178,047 tonnes. The fall comes despite many traders predicting an increase as prices on the international markets fell relative to the SHME price. One analyst commented on the news that, "the Olympics probably depressed imports even though the narrowing of the spread should have supported them. Chinese stocks are low and prices in Shanghai are pretty firm so we could see a bounce in September."

Wolverine Tube, the Huntsville, Alabama based brass and copper tube manufacturer, reported a net loss of US$3.2m in Q2 2008, down from US$13.3m in the same period last year. Net sales were US$245.5m an 18% decrease y-o-y, with total volume of shipments down 30% to 46.5m lbs. Wolverine said, "The comparative decrease in shipments was due primarily to the company's withdrawl from the domestic wholesale plumbing tube business and closure of its Decatur, Alabama facility in late 2007." The gross margin was 3.2%, down from 5.1% a year earlier owing to lower production and shipping volumes, a result of the downturn in demand from the residential housing market.

On August 19th, Chinalco began work on its 300 ktpa copper semis facility in Kunming, Yunnan Province. The company's three existing processing sites, Chinalco Luoyang Copper, Chinalco Shanghai Copper and Chinalco Daye Copper Sheet & Strip, account for around 28% of China's total copper sheet and strip capacity, with a combined total of 130 ktpa, and 220 ktpa of expansions under construction. The new facility, with total investment of RMB2 billion, will comprise a 100 ktpa sheet and strip facility and a 200 ktpa wire and rod facility.

Kazakhmys reported H1 profits of US$610.5m, a 23.8% decrease on the same period in 2007, resulting from higher labour costs and a 9% fall in cathode output, to 174,300t, following harsh weather conditions in Q1. The group stated that, "copper output in 2008 will at least equal production from last year," implying a strong second half. The inclusion of profits from Kazakhmys' 25% stake in ENRC should also bolster H2 results. Kazakhmys intends to pursue synergy talks with ENRC, who operate predominantly in ferrochrome, iron and aluminium, despite a frosty reception so far, as ENRC reiterated that it would not offer Kazakhmys a seat on the board as they were, "both competing for deposits in the same region."

Yunnan Copper blamed lower copper prices, high energy and raw materials costs and a 45-day machine overhaul for a 29.5% year-on-year drop in profit, to RMB546 million (US$80 million), in the first six months of the year. "The sluggish economy led to a slowdown in copper consumption, causing a corresponding drop in cathode prices. Meanwhile costs of energy and raw materials increased in the first half year, which also curbed our profits," said the company. These results come in stark contrast to the 35% increase in H1 profit seen at Jiangxi Copper, another big Chinese smelter. Market sources put the difference down to the varying cost of copper production between smelters, as Yunnan's profits fell despite a 21.7% y-o-y increase in cathode output to 875,000t.

Higher sulphuric acid prices, up almost 200% on a year ago, to 1500 yuan per tonne, provided a big boost to China's largest integrated copper producer. Revenues contributed by sulphuric acid, a by-product of copper smelting, amounted to 1.66billion yuan in H1, a 521% increase year-on-year. Jiangxi Copper posted H1 net profit of 2.77billion yuan, an increase of 32% on the same period in 2007. The company expects demand for its products to slow in the second half of the year with global economic growth struggling to gain momentum. However, Jiangxi remain confident that copper prices will stay high as a result of, "the shortage of copper concentrates supply around the world and the downgrade of copper concentrates." Factors expected to put pressure on Jiangxi's profit margin over the second half of the year include falling smelter processing fees, as a result of global over-capacity and tight supply of concentrates, and a cut in output of semi-finished products due to China's ongoing power shortages.

Rio Tinto has announced bumper results for H1 2008, with net earnings up 113% on the same period last year, to a record US$6,914million. Results were boosted by higher sales volumes, particularly iron ore, and the first full 6 months to include Alcan. These gains were offset in part by lower copper product volumes, primarily due to lower grades at Kennecott Utah Copper. "The effect of price movements an all major commodities was to increase earnings by US$2,790 million," said the company, following new record price levels for many of its products in the first half, including copper at 20% higher than a year earlier. The company announced an interim dividend of US68c per share, an increase of 61% on H1 2007, and re-emphasized its commitment to, "increase total 2008 and 2009 dividends by at least 20% in each year".

The latest figures from the Copper & Brass Fabricators Council show US Brass Mill exports up 11% to 28,792,524lbs compared with the same period in 2007. Primary destinations for exports were Canada (41.2%), Mexico (31.9%) and China (6.1%). Imports of brass mill products, headed for the construction, automotive and electronics industries, were down 1.7% to 51,938,141lbs over the same period. The main sources of imports were China (22.8%), Mexico (21.1%) and Germany (13.6%).

Tokyo-based Kobelco & Materials Copper Tube (KMCT) announced plans to increase copper alloy tube output to 500tpm in the year April 2009 - March 2010, an increase of more than 170% on current production levels. At present, KMCT's plant in Hadano, Japan produces 180tpm of phosphor bronze tube, which serves the heat-pump water heater market. The firm cited growing demand from other end-use markets, as copper prices remain high, as the reason for the expansion. Copper alloy tube consumes 30% less copper metal than copper tube thanks to its thinness. The price of a copper alloy tube is higher than copper tube of the same weight, however, users can gain a cost advantage from lower copper consumption per metre.

BHP Billiton Limited, Australia's mining giant, recorded a 14.7% increase in profit for the 2008 fiscal year. The company's record US$15.39bn profit was slightly higher than expected, with most analysts predicting US$15.372bn. BHP said, "emerging economies continue to drive demand for commodities, [and] a slowdown in developed countries will have minimal impact." BHP achieved record annual production across seven commodities including copper. Underlying EBIT for the company's base metals unit increased by 16.2% y-o-y to US$7,989m. "Higher average prices for copper, lead, silver, molybdenum and gold increased underlying EBIT, partially offset by lower average zinc prices," said the company, adding that, "in the short term, we expect prices to remain high relative to historic levels, albeit with higher volatility." The final dividend for the year ended 30 June 2008 was US41c per share, bringing total dividend for the year, together with the US29c per share interim dividend in March, up to US70c per share, a 49% increase on FY2007.

Jiangxi Copper announced that it will, "cut the production of semi-finished products by 20-30% in August," following a request from the local authorities that it reduce its power consumption. The company has the capacity to produce 700,000tpy of refined copper and 370,000tpy of semis. The company said that it would "try to maintain normal production of refined copper," and that it would, "cut imports of refined copper as production of semi-finished products fell."