Copper Prices Will Remain Under Pressure Due To Macro Headwinds

By Marie Gabrielle Laguna

Copper Fails To Maintain Its Gains

Copper has lost its gains this year as inflation, interest rates, and energy costs continue to rise. The red metal’s short-term demand outlook remains bleak owing to recession fears, China’s slowdown, and slowing global manufacturing activity.

LME prices are now down approximately 30% from their peak in February, following Russia’s invasion of Ukraine, when the three-month LME copper price reached $10,580/t. Despite the fact that copper’s fundamentals appear to be supportive, the red metal has struggled to hold onto its gains as global slowdown fears stay high.

China Continues To Be A Major Question Mark

Covid-19 lockdowns in an already decelerated Chinese economy have persisted in dampening the red metal’s demand perspective, with the country’s property industry remaining a big question mark for the copper market in the future. For nearly two decades, the development of the property sector in China and the country’s rapid urbanization have been the primary drivers of growth in copper demand, which accounts for nearly a quarter of total demand.

The country’s GDP grew 3.9% year on year in the third quarter of 2022, faster than the consensus forecast of 3.3% YoY and 0.4% YoY in the second quarter, but real estate contracted 4.2% YoY due to unfinished projects that slowed activity in the industry from land bidding to housing starts. However, hopes have increased recently that new stimulus initiatives will boost demand for the red metal following moves to shore up the country’s property sector and ease Covid restrictions. The loosening of China’s Covid-related quarantine measures

shortens the quarantine period for incoming travelers and close contacts of those who test positive. Furthermore, secondary contacts will no longer need to be tracked down. The government also stated that it would increase vaccinations among senior citizens, though it refrained from issuing mandates to help raise inoculation rates.

Even so, while these policy changes are taking place, China is also experiencing the highest number of daily Covid cases since April. Beijing recently saw the country’s first Covid deaths in six months as the city tightened its restrictions. Guangzhou has sealed off its largest district as the number of reported crimes continues to rise. Reports of Covid protests in China will also likely harm general sentiment.

The recent relaxation of quarantine requirements is certainly a move in the right direction, but the market will almost certainly require further relaxation if this enthusiasm is to be sustained.

China has also recently introduced 16 property measures to assist the weak property sector. Some of these measures include debt extensions for the industry and lowering deposit requirements for homebuyers. These could possibly increase the use of industrial metals like copper. Civil and building construction accounts for about 23% of China’s copper end-use.

For the time being, the country’s uncertainty about Covid-19 restrictions weighs on demand for the metal.

Imports of both metal and ore fell to their lowest point in over a year in October, as factory activity slowed. Concerns about China’s economy are likely to continue to exert pressure on copper till the government eases Covid-19 restrictions further.

However, the Chinese government is likely to stick to its zero-Covid policy through the winter and will consider relaxing some of the restrictions after the National People’s Congress in March or April next year. Preferential policies on property developer financing might limit the growth of unfinished residential projects. China’s condition will probably get better but remain sluggish until 2023, with its zero-Covid strategy likely to stay in place until then. Caught Between Falling Demand And Shrinking Supply

Supply disruptions in South America remain a concern for copper. According to the most recent International Copper Study Group data, Chile’s mined copper production fell by 6% in 2022 through July due to low ore grades, labor issues, and water scarcity.

Chilean output fell by 1.84% year on year last year, to 5.73 million tonnes, the lowest since 2017. The country’s ore quality has also been steadily declining. Copper mining grades averaged 1.41% in 1999 but are now around 0.60%.

Protests by local communities in crucial mining areas in Peru have also continued this year. Recently, the Las Bambas copper mine in Peru, owned by Chinese miner MMG and accounting for 2% of global copper supply, has begun to reduce operations due to recent roadblocks. MMG cut its annual copper production forecast at Las Bambas to 240,000 tonnes in August.

Despite the high level of interruptions, global mine production grew strongly in the third quarter of this year. CRU predicts that global development will reach 3.2% year on year in 2022.

The ramp-up of Ivanhoe Mines’ Kamoa-Kakula mine in the Democratic Republic of the Congo, as well as Anglo-American’s newly-commissioned Quellaveco mine in Peru, are both contributing to the growth.

Imports of both metal and ore fell to their lowest point in over a year in October, as factory activity slowed. Concerns about China’s economy are likely to continue to exert pressure on copper till the government eases Covid-19 restrictions further.

Near-Term Headwinds But Upside Threats To Dominate Long Term

Recession fears, China’s slowdown due to Covid-19 constraints, and the Fed’s interest rate hike path will continue to drive copper’s short-term price outlook, but tightening supply must keep the red metal’s price support above $7,500/t through 2023.

Copper prices will stay under pressure until the global growth outlook improves. Tight supply will then become the market’s main focus, supporting prices above $8,000/t in the fourth quarter of 2023. †

Rise in European Demand Hits Coal Mining in Turkey

By John Edward

In the backdrop of the global energy crisis and supply chain disruption, coal mining in Turkey is having trouble keeping up with local and European demand.

In an article for Middle East Eye, Naomi Cohen states that the ban on Russian oil coupled with remarkably cold winters across Europe, have forced the continent to turn towards traditional energy sources in an attempt to fight power shortages. In effect, this means that coal mining in Turkey is back on the agenda despite pledges to reduce reliance on the same.

Several European countries – including France, Germany, Austria, the Netherlands and Greece – are reactivating their coal-fired power plants. Poland is reviving its practically defunct coal production and even opening new coal mines. Concurrently, individual households which cannot afford more expensive heating options are turning towards coal furnaces.

With Russian coal no longer in the picture, there simply isn’t enough coal in Europe to meet this rapidly increasing demand. The continent is buying the mineral in bulk from non-European countries, thereby shaking up an entire industrial sector. In fact, sales by major coal producers – like Indonesia, South Africa and Australia – have broken records in 2022. Coal exports by Turkey, the 11th-largest producer of coal in the world, increased nearly seven-fold in May 2022 after the European Union announced a ban on Russian coal. Even this figure pales in comparison to the nearly 12 times increase of Turkish coal exports in August 2022

ZONGULDAK, TURKEY - APRIL 05: Coal is seen after being brought to the surface at a a small mine on April 5, 2017 in Zonguldak, Turkey. More than 300 kilometers of coal mineÕs riddle the mountains of Zonguldak. The coal-mining city in the Black sea region of Turkey was established in 1849 as a port city and mining hub. However the province with a population of more than 500,000 is facing an uncertain future. As the coal mining industry globally sees a steady decline, Zonguldak and surrounding towns are also at a cross roads with coal miner numbers dwindling from some 60,000 in peak years to now just over 6000 working in the city. Steady population decline, Turkeys current economic crisis, cheap coal imports from Columbia and Russia, as well as a series of mining disasters, such as the 2014, Soma mine fire, which forced parliament to adopt a new code to improve safety conditions, which raised some mine operating costs by 50 percent, have all contributed to a decline in profit and have pushed many mining companies into financial difficulty. However with TurkeyÕs Minster of Energy and Natural resources pushing new policies focusing on domestic resources and reducing TurkeyÕs energy import dependence, many companies and miners hope that they will see a revitalized industry in coming years. (Photo by Chris McGrath/Getty Images)

when Russia cut natural gas exports to Europe through Nord Stream 1. The effects of these unprecedented sales are sending shockwaves across a hitherto fading sector in the country, thereby triggering a potential supply and demand crisis. “All of our reserves are depleted,” claimed Erhan Altay of the sales department of the state-owned Turkish Coal Enterprises. The company mines the majority of Turkey’s lignite coal and has been scaling down its production over the past three years.

It is important to note that hard-coal production had been reducing for decades in Turkey. Much of the stock was kept in anticipation of a time when coal would be more scarce and valuable – like what it has become this winter.

Without any reserves to fall back on, Turkey is finding it difficult to meet rising demand. This is especially true because coal has been the country’s major energy source since 2018 despite lower production figures. The mineral accounts for more than a third of all electricity generation in the country – up from 23 per cent a decade ago.

Bridging the gap

Turkey has attempted to address this increase in demand by importing coal that is cleaner and of a higher calibre than local variants. However, rapidly rising European demand has caused coal prices to double, thereby pushing lower-income countries out of the market.

The Turkish Lira suffered a rapid fall in value this year. Thus, imported coal has become practically unthinkable as a cheaper energy alternative in Turkey. Even though local coal continues to remain available, it has become much more expensive.

This increase in demand, coupled with the energy crisis, has both coal mining companies and suppliers in Turkey scrambling for potential solutions. They have the onerous task of not only addressing the supply gap for their regular clients – including thermal power plants and the cement, iron, and steel industries – but also combating near-triple-digit inflation and soaring electricity bills. The latter especially has pushed more households towards coal.

In some cities, demand has increased by as much as 200 per cent, according to Mahmut Kayahan, assistant secretary of the Chamber of Commerce and Industry of Zonguldak – the province that holds all of Turkey’s hardcoal reserves. Since Turkish Coal Enterprises only serves the public sector, the country is increasingly being forced to turn towards private mining companies to meet the load.

Even though coal production figures have been down until this year, the Turkish energy ministry is trying to expand mining fields in an attempt to wean the electrical grid off coal imports. On this front, it is important to note that – due to high costs and shifting public opinion against coal-powered thermal power plants – only a handful of the 80 planned thermal power plants have been installed in the country.

Better days ahead?

The coal boom of 2022 might just make investment in the sector more attractive. Even though the cost of coal is increasing with inflation, revenues are increasing at an even faster rate. As an illustrative example, coal which previously sold at 2,000 Turkish liras ($107) per ton last year now sells between 4,000 and 7,000 liras depending on its quality, Kayahan told MEE.

Hard-coal mining needs heavy machinery and a significant number of personnel – costs that have multiplied this year. However, companies are still earning more than last year, he highlighted. Lignite mining, which is less costly, has

been “extremely profitable” according to Kayahan. “Most will invest it,” he said. “Where they invest the profit is left up to the manager’s initiative.” A few mining companies are planning ahead for the energy transition and exploring the possibility of branching out into cleaner alternatives, said Kayahan. While nothing currently binds their investments in Turkey, some private banks are still interested in keeping their money in the fossil fuel industry.

As a nation, Turkey wishes to be an active participant in the global transition to clean energies. However, it is still promoting domestic coal mining in Thurkey and seeking financing anywhere it can find it. “There was never a well-coordinated policy,” adds Tok.

Tok does not expect the current coal rush to last long term as financial and political pressure is likely to push private companies away from fossil fuels for good. However, as profits from fossil fuel rise and Ankara does not commit to distance itself from coal, short-term calculations might just win out.

“While there is a climate policy around the world that works against domestic coal mining and thermal power plants, Turkey is pushing in the opposite direction,” concluded Tok. †

Wobbly Coal Production Sparks Resilience for Coal Mining Jobs in the US

By Randy Molejona

The US Bureau of Labor and Statistics has released a report showing that approximately 381,000 people are employed in the coal mining industry. But with recovering economic growth, the number of employed coal miners has an enormous potential to increase.

In October 2022, the United States Energy Information Administration (US-EIA) released its annual coal report which showed a staggering 577 million short tons of coal production in 2021, generating around US$261 billion in terms of total economic activity brought by coal operators in the US. The state of West Virginia accounts for 13.6% of this national coal production.

According to West Virginia University, based on the fiveyear economic outlook from 2021 to 2025, around 99,000 additional jobs are estimated to be generated by the economic impact of coal production in the US. This number is separate from the 37,300 direct coal mining jobs that will be expected by the end of the year, garnering a total employment impact of 136,300 jobs in the coal mining industry. However, these figures do not necessarily mean that coal production has been stable throughout the years.

“Despite production declines in recent years, coal remains a very important part of America’s economy, as illustrated in our research. Coal continues to support a sizeable share of the nation’s economic output and thousands of high-paying jobs”, said Dr. John Deskins, Director of the West Virginia University Bureau of Business & Economic Research (BBER) reported by the West Virginia Coal Asso-

ciation back in September 2022. Improvement measures are being planned to increase coal productivity in the coming years. In fact, the domestic demand for US coal has already increased by 20 million short tons in 2022 compared to a significant drop during the pandemic. However, the US-EIA Annual Energy Outlook’s coal production forecast states that coal production is expected to fall by 50 million short tons in 2023.

This alleged decline in coal production does not necessarily translate to a broken promise in terms of employment when it comes to US coal miners. America’s Coal Associations assured that with the economic activity generated from previous years, there is enough avenue for the mining industry to leverage US$ 10.6 billion on national wages in the US with 29,674 jobs in West Virginia, 15,852 in Indiana, 13,735 in Texas, 13,418 in Illinois, 12,266 in Kentucky, 7,027 in Utah, and 3,895 in Montana.

“At a time when energy-driven inflation is weighing heavily on all Americans and electricity grids are being stretched to their limits, the coal industry’s significance has never been greater, providing high-paying direct and indirect jobs for Americans, economic benefits for communities across the country, the fuel for affordable and reliable energy, and metallurgical coal for steelmaking.”, remarked Rich Nolan – incumbent President of the National Mining Association.

In terms of employee compensation, both coal mining and coal-fired power generation are anticipated to give US$43.8 billion, this time including the highest average wages per year compared to all other industries. With this rate, the said industries are obliged to cut US$8.1 billion in order to pay for local and state tax revenues. According to the December 2022 issue of the Bloomberg Law, even though coal power plants are gradually shutting down due to the transition to renewable energy, projects involving the conversion of shuttered coal power plants into nuclear power plants through small modular reactors (SMRs) are now being seen as an alternative to maximize the sites and generate coal mining jobs.

“Coal plant sites have emerged as places to create jobs and avoid having to build as much new infrastructure. Nuclear developers could leverage existing coal plant land use, transmission lines, cooling water availability, and key permits to reduce costs and shorten construction timelines, reduce environmental impacts, and increase community support”, noted a November 2022 report from the Electric Power Research Institute.

The US Department of Energy Systems Analysis and Integration estimated that around 80% of the closed coal power plants can still be used as potential sites for the conversion to nuclear power plants. Additionally, each plant would produce an average of 650 permanent jobs which means this impact in employment could generate about 92% more in terms of local tax revenue compared to operating an actual coal power plant. Furthermore, an interesting trend in hiring activity for roles in the information technology (IT) sector is also beginning to emerge which could be the next best-paying job in the mining industry. Administrators and Architects for Database and Networks are some of the most popular roles, consuming 40.23% share in the hiring activity in the mining sector.

If the coal mining industry could adapt to the changing business climate of the energy sector, coal mining jobs could still be seen as valuable, as long as there is evident support to maximize the use of coal in the manufacturing of sustainable materials in the US. †

According to the December 2022 issue of the Bloomberg Law, even though coal power plants are gradually shutting down due to the transition to renewable energy, projects involving the conversion of shuttered coal power plants into nuclear power plants through small modular reactors (SMRs) are now being seen as an alternative to maximize the sites and generate coal mining jobs.