GFMS Thomson Reuter's closely watched annual base metals review and outlook contains some stark warnings for copper miners.

The industry has made progress to reduce costs – since the first quarter of 2014 average cash costs have dropped by $303 a tonne according to GFMS calculations.

Over the same period the price of copper is down by $998 a tonne. And since the end of the June quarter of 2015 (the scope of the report) copper is down another $1,000.

It seems unlikely that the pace of cost reduction can improve much from the relatively modest pace of the last few quarters

GFMS says at the August low of $4,888 a tonne (a six-year low visited again at the end of last month) 10% of the industry is losing money on a cash basis.

But consider total costs (a better proxy for sustaining production levels at mines) and 47% of the industry is unprofitable at a 2009 copper price.



While costs have been reduced by 8% since the start of 2014, in Q2 2015 cash costs for the industry actually creeped up fractionally over the first quarter.

The inability of copper miners to make deeper cutbacks was despite a 50% fall in the price of crude oil and a sharp depreciation of producer country currencies against the dollar (on average more than 15% says GFMS) over the period. The usual culprit when it comes to rising costs in copper mining – falling grades – were relatively stable.

And the outlook is not all that rosy for the cost curve to lower much more:

"While cash costs may benefit from the lag in the transmission of lower energy prices, it seems unlikely that the pace of cost reduction can improve much from the relatively modest pace of the last few quarters.

"If copper prices continue to languish, additional cuts in sustaining capital are likely in the coming months, which will clearly impact the future production profile. We expect noise levels to increase in the coming months as the industry announces cuts to mine production and capital budgets, but how much of that translates into mine closures and/or a meaningful reduction in volumes remains to be seen."

http://www.mining.com/copper-minings-deepening-costs-crisis/?utm_source=twitterfeed&utm_medium=twitter

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Alcoa Inc reported a smaller-than-expected quarterly profit, hurt by slumping prices for aluminum and other commodities and unfavorable foreign exchange rates.

"The biggest challenges were commodities prices being under pressure and the wide currency swings," Klaus Kleinfeld, Alcoa's chief executive officer told Reuters.

Alcoa's shares fell about 5 percent in extended trading.

Alcoa said last month it will separate into two companies. One will provide "value added" materials such as airplane and car parts to manufacturers. The other, "upstream business" will consist of Alcoa's traditional aluminum smelting operations.

One key question moving forward is how the two companies will divide debt and pension liabilities. Alcoa executives said during the conference call with analysts that the overall underfunded pension status is 78 percent and only the minimum payment is being made, so the unfunded status is not being significantly reduced.

Alcoa's third-quarter revenue slid to $5.6 billion, down 21 percent mainly due to closures of non-competitive facilities, Kleinfeld said. The decline in revenue was partially offset by a 10 percent increase from aerospace, automotive and acquisition growth, he said.

"For us, when you look at the upstream side, our revenues are down, but some of it is absolutely part of the transformation and it is a good thing," he said.

Net income attributable to Alcoa fell to $44 million, or 2 cents per share, in the third quarter ended Sept. 30 from $149 million, or 12 cents per share, a year earlier.

Excluding special items, Alcoa earned 7 cents per share.

Analysts on average had expected Alcoa to earn 13 cents per share on sales of $5.65 billion, according to Thomson Reuters I/B/E/S.

Benchmark London Metal Exchange prices fell to six-year lows toward the end of September, a nearly 20 percent drop from a year earlier.

The company believes global aluminum demand will grow by 6.5 percent in 2015 and will double during this decade, Kleinfeld said.

Alcoa lowered its forecast for the 2015 global aluminum surplus to 551,000 tonnes from its second-quarter estimate for a 762,000-tonne surplus.

It said it expects a aluminum market deficit in 2016, though it did not specify how much.

"On the value-add side, China does not play such an important role for us. Most of our business is in North America, Europe and developed countries," Kleinfeld said.

http://www.reuters.com/article/2015/10/08/alcoa-result-idUSL1N1282WL20151008

Commodities giant Glencore said on Friday it will cut 500,000 tonnes of zinc production, or around 4 percent of global supply, in its latest move to withstand weak commodities prices.

Zinc prices, which have fallen 30 percent since May to five-year lows, rallied six percent on the news, which follows recent cuts in copper output and could signal metal prices are nearing the bottom of the cycle, analysts said.

"Certainly for the markets they're dominant in, nickel and zinc in particular, it does raise the spectre of markets getting a bit more positive," said analyst Daniel Hynes of ANZ in Sydney.

"As for whether it's enough impetus for a more sustainable rally in metals prices, we do need to see one or two others join this move."

Glencore, the world's largest miner of zinc ore, said the cuts will shutter about a third of its annual output, mostly from mines in Australia, where 535 jobs will be lost, as well as operations in South America and Kazakhstan.

The move follows an array of measures the company announced last month to help it slash its $30 billion in net debt by a third, including lower copper production, suspension of its dividends and a sale of new shares.

Glencore said at current zinc prices it was better to keep its resources in the ground.

"Glencore believes that current prices do not correctly value the scarcity of our zinc resources," it said in a statement to the Hong Kong stock exchange.

The cuts will reduce the company's fourth quarter production by 100,000 tonnes. It had previously expected to produce between 1.52 million tonnes and 1.57 million tonnes of zinc this year.

Mine supply of zinc was already set to shrink this year due to the closure of MMG's huge Century zinc mine in Australia, which also accounts for about four percent of global supply, and Ireland's Lisheen, owned by India's Vedanta.

Prices of lead which is often mined with zinc also jumped by almost three percent.

"Glencore remains positive about the medium and long term outlook for zinc, lead and silver, however we are taking a proactive approach to manage our production in response to current prices," it said.

A Glencore spokesman in Australia declined to say how much the output cut would savein working capital or pay, nor how long it expected the cuts to last.

LME zinc jumped more than 6 percent and was up 5.8 percent at $1,763 a tonne at 0320 GMT, its largest single day gain in more than five years.

http://www.reuters.com/article/2015/10/09/glencore-zinc-idUSL3N1285EM20151009

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Energy and mining company Freeport-McMoRan Inc said the government of Indonesia has assured the company's local unit that it will approve the extension of operations beyond 2021.

The government is working on economic stimulus measures, including revisions to mining regulations, Freeport said.

Freeport mines copper, gold and silver in the Grasberg project in Indonesia, under a contract with the government.

http://www.reuters.com/article/2015/10/08/indonesia-fcx-idUSL3N1283E220151008

Global copper supply will be in deficit next year, down from a previously anticipated surplus following a string of production cuts and mine disruptions, the International Copper Study Group (ICSG) said in its latest forecast.

In a report published Tuesday, ICSG said there would be a 130,000 mt deficit in 2016 compared with a surplus of 230,000 mt it forecast in April.

It also reduced its estimate for this year to a surplus of just 41,000 mt against one of 360,000 mt in its April outlook.

"The revisions reflect substantial changes in market conditions since April 2015," ICSG said.

"Although a downward revision has been made to global usage in view of lower than anticipated growth in China, larger downward adjustments have been made to production as a result of recent announcements of production cuts," it added.

Several major copper producers have reduced mining output after a bearish year for the metal in which London Metal Exchange prices have fallen 16% year-to-date.

Prices have been hit by a slowdown in China, which accounts for 40% of global demand, and production overcapacity.

The ICSG said expected 2015 copper production would increase just 1% year-on-year, down from 7% growth in 2014.

"[Refined production] growth of around 7% in China will be partially offset by a decline in production in Chile, Japan and the United States," it said.

ICSG's revision follows similar moves across the industry, with Macquarie revising down 2016 supply of copper to a 272,000 mt deficit in its October 2015 Commodity Outlook.

But there is still debate about what copper's aggregate supply balance will look like in the next year. "Low oil prices and declining commodity currencies are helping to lower production costs, enabling some producers to delay making cuts," said Sucden's Quarterly Metals report this month, forecasting a 230,000 mt surplus in 2016.

http://www.platts.com/latest-news/metals/london/icsg-revises-down-copper-supply-forecast-expects-26232251

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Alcoa Inc said it had got a contract to supply titanium to Lockheed Martin Corp's F-35 Lightning II aircraft.

The contract has an estimated value of about $1.1 billion, the company said on Wednesday.

Alcoa said it would supply titanium for airframe structures for all three variants of the F-35 fighter jets over nine years, from 2016 to 2024.

http://www.reuters.com/article/2015/10/07/alcoa-contract-lockheed-idUSL3N1273GM20151007

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Noble Group's senior US metals traders Scott Evans and Jeff Romanek have left the company, four sources said on Tuesday, the latest in a string of high-profile departures as the Asian commodities trader battles weak metals and oil prices.

The departures come as Asia's biggest commodity trader seeks to shore up its balance sheet and reduce its exposure to capital-intensive operations like trading copper, and returns to its historic roots in aluminium and alumina. Both traders were hired as part of the company's recent years-long push into copper, zinc, lead and nickel. 

Evans joined 2-1/2 years ago from Goldman Sachs and Romanek followed from the Wall Street bank in April last year. A spokesperson for Noble declined to comment on the situation. The sources requested anonymity because they are not authorised to speak to the media. 

Mining and metals accounted for 20% of the company's $34-billion revenue in the first half of the year. Their exits reflect internal ructions as the trader pursues options, including selling core businesses, to boost market confidence after a bruising accounting dispute. The moves also underscore challenging market conditions for merchants as prices of industrial raw materials languish at six-year lows. 

Commodity traders carrying big inventory on behalf of customers have been hit by the unprecedented plunge this year in aluminium premiums, which are paid on top of the benchmark London Metal Exchange prices. In the second quarter, Noble's metals and mining segment swung to a loss before interest and tax of $50-million after an unprecedented drop in aluminium premiums. That compared with a profit of $102-million in the same period last year. 

The group reported net profits of $62.6-million, compared with $65.8-million a year earlier. In its earnings report, it said the copper business performed strongly due to strong customer growth and volumes amid broader copper market weakness. Overall volumes in copper grew 30% year-on-year in the first half.

http://www.miningweekly.com/article/nobles-us-metal-traders-leave-in-latest-senior-exits-sources-2015-10-07

KEY DEVELOPMENTS AND INITIATIVES:

Terms of a replacement Cobre Panama precious metals stream agreement finalized; capital costs estimate lowered

A revised precious metal stream agreement has been agreed with Franco-Nevada Corporation ("Franco-Nevada"). Under the revised agreement, it is expected that Franco-Nevada's initial contribution of between $330 million to $340 million will be paid to First Quantum during October. Additional details are contained in a separate joint news release.
The estimated capital cost of the Company's flagship project, Cobre Panama, has been reviewed in detail and reappraised. It is now estimated the total project cost will be $5.95 billion, approximately 7% below previous estimates with potential for further improvements.
Capital costs have been reduced due to better construction efficiency, continued optimization of detailed design and lower costs for equipment and bulk materials such as rebar and structural steel.
Overall the project is approximately 35% complete and experience to date allows greater confidence in forecasting total project costs. The project remains on track for process commissioning and first concentrate production in late 2017.
The port is now a fully operational and has received direct international shipments.
Early priority is being given to the completion of the power station taking advantage of virtually all required materials being available on-site. Mechanical installation works are progressing well.
Project costs incurred to date amount to $2.621 billion of which First Quantum's partner in the project, KPMC, has contributed $524 million. The remaining estimated costs to completion will be met by an additional contribution from KPMC of $666 million, $1 billion payable by Franco-Nevada under the precious metal streaming agreement and$1.663 billion by First Quantum.

Zambian power stabilizing; Sentinel anticipates commercial-level production by end of 2015

The Zambian power situation is stabilizing. Full power of 153MW is currently being provided to the Kansanshi mine and smelter and 55MW to the one power line currently connected to the Sentinel mine.
Sentinel's ramp-up to date has been affected by the limited power supply. Despite this, good progress has been made. Construction of the second power line connecting Sentinel to Lusaka West is complete and scheduled to be energized shortly. Once the second power line is connected and energized, Sentinel will be entitled to its full power requirement of 160MW. This will allow for the mine to ramp-up towards commercial-level production expected by the end of 2015.
ZESCO, the state-run power company, has requested the mining industry to use supplementary power for 30% of their requirements. Discussions are currently underway regarding the related tariffs for this supplementary power. The Company expects full production at both Kansanshi and Sentinel through the purchase and sharing of this power.
It is expected that the country's generating capacity will improve following the rainy season starting in November. In addition, approximately 400MW of new power generation capacity is expected online in Zambia in 2016 from projects nearing completion (300MW thermal and 100MW hydro).

Production and cost guidance for 2015 revised

Copper production for 2015 is now expected to be between 385,000 and 410,000 tonnes excluding Sentinel pre-commercial commissioning production of between 30,000 and 50,000 tonnes.
The C1 cost estimate is lowered to between $1.20 and $1.35 per pound.

Management is employing a number of measures to enhance the Company's capital position and maintain financial stability

With borrowings at elevated levels during a period of development project expenditure, the maintenance of available project funding, the strengthening of the Company's balance sheet and further cost reductions remain key priorities.
Initiatives to strengthen and protect cash flow include:

in addition to the reduction in capital for Cobre Panama, other planned capital programs across the Company have been reduced or re-phased by approximately $700 million,
hedged approximately170,000 tonnes of copper production at an average price of $2.411 per pound ($5,316per tonne) over the balance of 2015 and well into 2016,
reduced the work force by 644 and lowered salaries by up to 20% which, when combined with a detailed review of all other operating costs, has led to annual savings of approximately $420 million, and
realized $215 million from the settlement of the ENRC Promissory Note with a further $85 million to be received in October.

A commitment to reduce net debt by over $1 billion through a combination of asset sales and other strategic initiatives by the end of Q1 2016.

http://www.first-quantum.com/Media-Centre/Press-Releases/Press-Release-Details/2015/First-Quantum-Minerals-Updates-on-Key-Developments-and-Actions/default.aspx?utm_source=Doctor+Copper&utm_medium=twitter&utm_campaign=Copper+Mining

One side-story to the biggest headlines in corporate Europe,Glencore PLC and Volkswagen AG, is a minor metal called cobalt.

Some analysts believe that the price of this metal, used in phones and car batteries, will rise when beleaguered commodity’s giant Glencorecloses down mines responsible for 5% of global supply as it seeks to cut costs. And some investors are betting that increased demand for electric cars in the wake of the Volkswagen emissions scandal will also boost cobalt.

To be sure, cobalt prices have yet to jump, not least as warehoused stocks of the metal are currently high and could dampen the effects of extra demand or supply cuts. And some market players also question the impact that Volkswagen’s troubles will have on demand for electric cars.

This small market, though, hovers in the shadows of giant metals like copper and aluminum and during a period of extreme volatility for this sector, cobalt’s story has been overshadowed.

“We’re positive about cobalt for next year,” said Vivienne Lloyd, a base metals analyst at Macquarie. “A lot of people were jumping up and down making noise about copper, and cobalt was kind of the side-story.”

The minor metal is currently trading at $28,000 a metric ton, down more than 40% from its 2010 peak of around $47,000 a ton. Like other metals, the price has fallen as more mines were created to cater for a big increase in demand that didn’t come.

Cobalt has often moved on speculation over whether its largest exporter, the Democratic Republic of the Congo, will ban the export of ores, as its government has sometimes threatened to do. The metal has also been hit by economic weakness in its top refiner China.

But more recently, the news seems better.

Early last month, Glencore said that it will suspend activities at two large mines, in the DRC and in Zambia, removing an annual 5,000 tons of cobalt from a market of roughly 100,000 tons. The Swiss-based trading giant, which recently saw its share price whipsaw on concern over its debt levels, is the largest provider of cobalt, producing roughly 20% of global supply.

On the demand side, the picture is also looking rosy for the metal, some analysts say.

Fitch Ratings believes that the Volkswagen emissions row could now be a game-changer for the global car market. Volkswagen’s shares have fallen 40% to trade below €100 ($112.65) a share following revelations on September 18 that the company installed software in 11 million of its diesel-engine vehicles in a bid to cheat strict U.S. emissions tests. Officials in several countries have called for investigations into the scandal.

http://www.wsj.com/articles/cobalts-luck-could-come-from-volkswagen-glencore-troubles-1444055689

Japan's Pan Pacific Copper expects copper prices to rise to $6,000 a tonne over the next 18 months, driven by global production cuts and demand growth in Asia, although any upside will be limited in 2015, its president said on Monday.

"Copper prices will continue to languish this year, hovering between the current level and $5,500 a tonne," President Yoshihiro Nishiyama told a news conference.

Copper prices hit a six-year low of $4,855 a tonne in late August amid fears over a slowing economy in top buyer China. Prices have since recovered to around $5,160 a tonne but are well below recent peaks above $6,300 in May.

Nishiyama said Japan's biggest copper smelter expected prices to recover from next year, led by a series of production cuts by miners including Glencore and Freeport-McMoRan , as well as solid demand in Southeast Asia and India.

The company forecast an average price of $6,000/T in the year to end-March 2017 and $6,700/T in the following year.

"We expect the market to hit the bottom this year or next year," Nishiyama said.

Pan Pacific, which also mines copper, is ramping up output of its new Caserones copper mine in Chile. The mine achieved full produciton in September and aims to produce 150,000 tonnes of copper concentrates next year, Nishiyama said.

Pan Pacific, 66 percent owned by JX Holdings and 34 percent by Mitsui Mining and Smelting, said it plans to cut its output of refined copper by 7.5 percent in October-March from a year earlier to 271,600 tonnes.

The reduction is due to maintenance at its Saganoseki Smelter in November and a fire in September at its Tamano Smelter which forced it to halt operations for 40 days.

Copper demand in Japan is expected to pick up in the January-March quarter, PPC director Takayasu Kashimura said.

Pan Pacific will begin negotiations soon on copper processing fees and premiums for Chinese buyers to secure metal for 2016.

Nishiyama said he did not expect a major fall in the fees from this year's $107 a tonne or 10.7 cents a pound due to a recovery in spot prices.

Global miners pay treatment and refining charges (TC/RCs) to smelters to convert concentrate into refined metal. Higher fees are typically seen when concentrate supply rises or available smelter capacity thins.

"As for China premiums, we believe we don't have to make a big cut from this year's $115 a tonne," Nishiyama said, citing recent spot premiums at $110-120.

http://www.reuters.com/article/2015/10/05/pan-pacific-copper-idUSL3N1250KQ20151005

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Aurubis, the world's largest copper recycler, will reduce its refined copper premiums charged to buyers for 2016 to $92/mt, a drop of $18/mt from 2015, spokeswoman Michaela Hessling said in an email Friday.

The premiums are paid as a differential to prices on the London Metal Exchange and represent a 16% drop, following a year hit by sluggish Chinese demand and overproduction in mines.

The announcement comes 10 days before LME week, when Codelco, the largest global producer of copper, is expected to release its premiums.

Most of Europe's copper supply comes through long-term contracts.

"Europe is driven by these long-term contract premiums," said one trader. "They determine a lot of what happens in the spot market."

http://www.platts.com/latest-news/metals/london/aurubis-european-copper-premiums-down-16-hit-26227955

lead and zinc, often called sister metals because they tend to be found in the same deposits and are as often as not mined in tandem.

Zinc's "supercycle" price peak of $4,580 per tonne, basis three-month metal on the London Metal Exchange (LME), came in November 2006 while lead's peak of $3,890 followed a year later in October 2007.

Neither made it back to those lofty heights in the Chinese infrastructure-fuelled boom that followed the Global Financial Crisis of 2008-2009.

And since then the two sisters have done little more than trudge sideways in well-worn ranges until joining in this year's broader sell-off.

Such an uninspiring price performance has left the two being dubbed the ugly sisters, to be played off against each other in one of the LME Street's favourite relative-value plays.

That relative value trade has recently been turned on its head with lead re-establishing a premium over zinc for the first time since June of last year.

The premium itself is still small and tentative. As of Thursday's closing evaluations zinc ($1,687.50) was once again just out in front of lead ($1,649.00).

And the relationship looks set to remain confused and confusing since the turnaround has been driven by confused and confusing visible stock movements.



SMOKE...

In large part the collapsing zinc premium over lead has reflected collapsing sentiment towards the galvanising metal relative to its battery-dependent sister.

The new negativity has been caused by a rapid build in LME zinc stocks from 430,800 tonnes at the start of August to 617,325 tonnes in the middle of September.

That was thanks to the "arrival" of 228,225 tonnes of zinc at LME warehouses in New Orleans, long the black hole for surplus zinc stocks.

Suggestions that some of this metal may have been offloaded by Glencore as part of a broader debt-reduction strategy has reinforced the apparently bearish message that there is a lot of zinc inventory around.

But in truth these "arrivals" are almost certainly not "arrivals" at all but rather metal that was moved earlier this year to off-exchange storage now coming back into LME-registered sheds.

The zinc market is paying the collective price for taking at face value the steady drawdown in stocks in the first half of this year, driven by 286,500 tonnes of "departures" from New Orleans.

Sentiment, in other words, is being driven by what is largely storage arbitrage, irrespective of whose metal it is.

LME lead stocks, by contrast, seem to paint a more bullish picture. Over the same six-week period that zinc stocks ballooned lead stocks fell by around 50,000 tonnes and they are still sliding.

Moreover, the ratio of cancelled lead stocks, meaning those that are earmarked for load-out, stands at 25.6 percent. The ratio in LME zinc stocks is just 10.4 percent.

Alas, however, lead stock movements are no more "real" than those of zinc.

Rather, they denote nothing more than the latest skirmishing in the ongoing LME warehouse wars, the fight for inventory between different warehouse operators.

A mass raid on lead stocks earlier this year saw some relocated to South Korea and some to the Dutch port of Vlissingen with the apparent beneficiaries Metro and Worldwide Warehouse Solutions respectively.

http://www.reuters.com/article/2015/10/02/zinc-lead-ahome-idUSL5N1221ZZ20151002

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