Copper end use trends

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measures to encourage the greater use of energy efficient mortgages (EEMs). Such mortgages allow people to purchase or refinance their principal residence and incorporate the cost of energy efficiency improvements into the mortgage.

Of course, consumers can currently invest in energy efficient technology (or anything) using mortgage funds. However, the EEM is an important concept. This is because it may offer funds above a usual individual mortgage limit. Therefore, this additional money can provide guaranteed funds to grow demand/the efficiency market.

On 6th August, Xstrata reported H1 profits were down 6.7% versus the same period in 2007. Revenues were 13% higher at $16.092 billion, after record first-half production in coking and semi-soft coal, ferrochrome, refined nickel, platinum, zinc concentrate and lead concentrate. The company expects second-half production to be even stronger, reflected in their decision to raise the interim dividend by 13% to 18c. per share. Xstrata remains bullish over demand prospects in China, with ongoing infrastructure development and urbanisation underpinning growth, adding "the Group is well positioned to enjoy margin expansion and improved profitability from the second half of 2008 and into 2009".

Salzgitter announced that it has increased its stake in Norddeutsche Affiniere, a German copper producer, whose subsidiaries Schwermetall Halbzeugwek and Prymetall achieved 2007 production of 239,000 tonnes and 62,000 tonnes respectively. The steel and technology company acquired a 5.8% stake in Norddeutsche on the 15th of July and yesterday increased this by a further 5% to 10.8% total.

The Florence, Italy, based KME Group S.p.A. announced revenues of €1,623 million for the first six months of 2008, down 12.2% on the same period in 2007. EBITDA was €64.4 million in the same period, down 15.8%. "The Group's profitability is lower than in the first six months of 2007, when market conditions were more favourable, but in line with the level achieved in the second half of 2007," said the company. Going forward, KME, a global leader in the production of semi-finished copper products, remains bearish about the demand outlook in Europe. The company also identified raw material prices, "which remain high and are characterised by high volatility," as a potential source of risk.

Chinese imports of unwrought and semi-finished copper products for the period January to July were down 12% y-o-y, to 1.51 million tonnes, according to preliminary data from Chinese Customs. The fall comes despite a 7% month-on-month increase in July, which was the result of a decrease in the price differential between Chinese and international copper prices. Scrap imports in the first 7 months of 2008 were up 14.5% y-o-y, to 3.42 million tonnes.

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."

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.

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.

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%).

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".

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.

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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.

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."

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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.

Copper and Brass Servicenter Association (CBSA) reported shipments increased by 1.5% month-on-month in July. The association said the increase was a surprise as July shipments historically follow the trend of the previous month. In July, copper and copper alloy shipments decreased by 2.8% year-on-year while average daily shipping rate went down by 7.2%. Total warehouse inventories dropped by 2.8%. The association also said that it is getting more difficult to search for 'positive economic news' as the months go by.

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.