NATIONALMULTICOMMODITY EXCHANGEOFINDIALIMITED

ReportonCopper

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Copper

TableofContents
OriginandIntroduction .................................................................................... 3 Propertiesofcopper............................................................................................ 4 MajorUsesofCopper ........................................................................................ 5 Substitution:CoppervsitsCompetitors ........................................................ 9 CopperProductionandUsage.......................................................................... 9 DomesticScenario ............................................................................................ 12 Futureoutlook ................................................................................................... 14 CopperStocksandPrices ................................................................................ 16 CopperExportsfromIndia.............................................................................. 17 NMCECopperPriceTrend ............................................................................. 18

Copper

OriginandIntroduction Copper (cuprum) has been known since prehistoric time. It has been mined for more than5000years.ItssymbolisCu. Oneofthefirstmetalsknowntohumans,freecopperwasprobablyminedintheTigris Euphrates valley as long ago as the 5th cent. BC Cyprus, from which the metals name originallycomes,wastheprimarysourceofcopperintheancientworld. Of all the materials used by humans, copper has had one of the most profound effects on the development of civilization. From the dawn of civilization until today, copper has made, and continues to make, a vital contribution to sustaining and improving society. Copper is ductile, corrosion resistant, malleable and an excellent conductor of heat and electricity. Alloyed with other metals, such as zinc (to form brass), aluminum ortin(toformbronzes),ornickel,forexample,itcanacquirenewcharacteristicsforuse in highly specialized applications. In fact, societys infrastructure is based, in part, on copper. Copperhasbeeninuseforatleast10,000years,yet,itisstillahightechnologymaterial, asevidencedbythedevelopmentofthecopperchipbythesemiconductorsindustry. Coppers chemical, physical and aesthetic properties make it a material of choice in a widerangeofdomestic,industrialandhightechnologyapplications.Itisusedfor conductingelectricityandheat; communications; transportingwaterandgas; roofing,guttersanddownspouts; protectingplantsandcrops,andasafeedsupplement;and makingstatuesandotherformsofart. Copper iswidelyused inthe electrical industry. Inaddition to many other uses,copper is used in plumbing and for cookware. Brass and bronze are two important copper alloys. Copper compounds are toxic to invertebrates and are used as algaecides and pesticides.Coppercompoundsareusedinanalyticalchemistry.

Copper OccurrenceofCopper Copper occurs naturally in the Earths crust in a variety of forms. It can be found in sulfidedeposits,incarbonatedeposits,insilicatedepositsandaspurenativecopper. Copper ore deposits are known in North America, South America, and Africa. Copper is obtained by smelting, leaching, and electrolysis of the copper sulfides, oxides, and carbonates.Copperiscommerciallyavailableatapurityof99.999+%. Copper also occurs naturally in humans, animals and plants. Organic life forms have evolved in an environment containing copper. As a nutrient and essential element, copperisvitalforhealth.Lifesustainingfunctionsdependoncopper. Propertiesofcopper Copper has a melting point of 1083.4 +/ 0.2C, boiling point of 2567C, specific gravity of 8.96 (20C), with a valence of 1 or 2. Copper is reddish colored and takes a bright metallicluster. It is malleable,ductile,and agoodconductor of electricityand heat. It is secondonlytosilverasanelectricalconductor.

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MajorUsesofCopper

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Electrical Copperisthebestnonpreciousmetalconductorofelectricityasitencountersmuchless resistance compared with other commonly used metals. It sets the standard to which otherconductorsarecompared. Copper is also used in power cables, either insulated or uninsulated, for high, medium andlowvoltageapplications. In addition, coppers exceptional strength, ductility and resistance to creeping and corrosion makes it the preferred and safest conductor for commercial and residential buildingwiring. Copper is an essential component of energy efficient generators, motors, transformers andrenewableenergyproductionsystems. ElectronicsandCommunications 6

Copper Copper plays a key role in worldwide information and communications technologies. ADSL (Digital Subscriber Line) technology allows for highspeed data transmission, including internet service, through the existing copper infrastructure of ordinary telephonewire. Copperandcopperalloyproductsareusedindomesticsubscriberlines,wideandlocal areanetworks,mobilephonesandpersonalcomputers. Semiconductor manufacturers have launched a revolutionary copper chip. By using copper for circuitry in silicon chips, microprocessors are able to operate at higher speeds, using less energy. Copper heat sinks help remove heat from transistors and keep computer processors operating at peak efficiency. Copper is also used extensively in other electronic equipment in the form of wires, transformers, connectors and switches. Construction Copper and brass are the materials of choice for plumbing, taps, valves and fittings. Thanksinparttoitsaestheticappeal,copperanditsalloys,suchasarchitecturalbronze, isusedinavarietyofsettingstobuildfacades,canopies,doorsandwindowframes. Unlike plastic tubing, copper does not burn, melt or release noxious or toxic fumes in theeventofafire.Coppertubesalsohelpprotectwatersystemsfrompotentiallylethal bacteriasuchaslegionella.Copperfiresprinklersystemsareavaluablesafetyfeaturein buildings. The use of copper doorknobs and plates exploits coppers biostatic properties to help preventthetransferofdiseaseandmicrobes. Copper roofing, in addition to being attractive, is well known for its resistance to extreme weather conditions. Major public buildings, commercial buildings and homes usecopperfortheirrainwatergoodsandroofingneeds. The telltale green patina finish, that gives copper the classic look of warmth and richness,istheresultofnaturalweathering. Transportation

Copper All major forms of transportation depend on copper to perform critical functions. Coppernickel alloys are used on the hulls of boats and ships to reduce marine biofouling,thereby reducing drag and improving fuel consumption. Automobiles and trucks rely on copper motors, wiring, radiators, connectors, brakes and bearings. The average automobile contains 2 km of copper and alloy cables, while the quantity of copper in cars can range from 20 kg for smaller cars to 45 kg for luxury and hybrid vehicles.1 Coppers superior thermal conductivity, strength, corrosion resistance and recyclability make it ideal for automotive and truck radiators. New manufacturing technologies, processes and innovative designs are resulting in lighter, smaller and more efficient radiators. Copper is also used extensively in new generation airplanes and trains. New high speed trains can use anywhere from 2 to 4 tonnes of copper, significantly higher than the1to2tonnesusedintraditionalelectrictrains. IndustrialMachineryandEquipment Wherever industrial machinery and equipment is found, it is a safe bet that copper and its alloys are present. Due to their durability, machinability, and ability to be cast with high precision and tolerances, copper alloys are ideal for making products such as gears,bearingsandturbineblades. Coppers superior heat transfer capabilities and ability to withstand extreme environments makes it an ideal choice for heat exchange equipment, pressure vessels andvats. The corrosion resistant properties of copper and copper alloys (such as brass, bronze, and coppernickel) make them especially suitable for use in marine and other demandingenvironments. Vessels, tanks, and piping exposed to seawater, propellers, oil platforms and coastal powerstations,alldependoncopperscorrosionresistanceforprotection. ConsumerandGeneralProducts From the beginning of civilization copper has been used by various societies to make coinsforcurrency. Today, countries are replacing lower denomination bills with copperbased coins, as thesecoinslast10,20andeven50timeslonger. 8

Copper In the United States, one cent coins and five cent coins contain 2.5% and 75% copper, respectively,whileotherU.S.coinscontainapurecoppercoreand75%copperface.1In the recently expanded European Union, the Euro coins, first introduced in 2002, also containcopper. Copper and copperbased products are used in offices, households and workplaces. Computers, electrical appliances, decorative brassware, and locks and keys are just someoftheproductsexploitingcoppersadvantages. In addition, in areas known to be copper deficient, copper is used by farmers to supplementlivestockandcropfeed. Substitution:Coppervs.itsCompetitors Withtherelativelyhighvolatilityofcopperpricesoverthelastseveralyears,increased attentionhasbeenpaidtotheissueofsubstitution. SomeofthesubstitutesareAluminium,Zinc,plastic,stainlesssteel,opticalfibreetc CopperProductionandUsage
Copper Production and Usage 2010 20000 18000 (in 1000 MT) 16000 14000 12000 10000 8000

Mine Production

Refined Production

Copper Usage

20 09 F

19 95

19 97

19 99

20 01

19 93

20 03

19 89

19 91

20 05

20 07

Source:InternationalCopperStudyGroup

Copper AccordingtoICSGdata,therefinedcoppermarketbalancefor2009isexpectedtoshow a surplus of about 370,000 metric tonnes (t). A decline in production will not be sufficienttoovercomeweaknessinrefinedcopperdemand.For2010,alargersurplusof around 540,000 t is expected to develop as lower copper demand will encounter an increase in copper supply. Note that in developing global balances, Chinas demand is basedonapparentusage. ICSG recognizes that the global economic crisis has created a large degree of uncertainty in the global market, and although a recovery in the world economy is expectedin2010, it isstillunclearas to how it willimpactboththe supply and demand forrefinedcopper. Although world copper mine production in 2009 is expected to rise by 2.9% (450,000 t) to 15.8 Mt, its growth has been limited by operational constraints and temporary cuts that occurred during the year. Capacity utilization rates are expected to decline to around 80.5%, the lowest level since 1989. Preliminary projections are that mine production in 2010 will increase by 6.7% (1.1 million tons) to 16.9 Mt (7.5%) owing to new developments, rampup of production capacity, and a reduction in operational constraints. World refined copper production for 2009 and 2010 (adjusted for both feed shortages and production disruptions) is projected to remain relatively stable, decreasing by 0.8% in 2009 to 18.1 Mt and growing by 0.7% in 2010, to around 18.2 Mt. A shortage of concentrates in 2009 and 2010 based on projected production (adjusted for unanticipateddisruptions)isexpectedtorestrainthegrowthofrefinedproduction. Thecurrentglobaleconomiccrisishassignificantlyreducedworldrefinedcopperusage this year. ICSG expects world refined usage to decline by 1.6% in 2009 to 17.7 Mt. An averagedeclineof17%inthreemajormarketsthe UnitedStates,theEuropeanUnion, and Japan, is expected to be partly offset by a growth in apparent usage in China of about 26%. World usage without China is expected to decline by 12%. Most of Chinas apparent demand growth is attributed to an estimated 83% increase in net refined imports, a significant portion of which was believed to have added to unreported government stock and commercial inventories. Industrial demand growth, based on semimanufactureproduction,isbelievedtobecloseto11%.ICSGexpectsarecoveryin copper usage in most copper consuming countries for 2010, but lower industrial demand and partial drawdown of unreported inventories accumulated in 2009 is expectedtoreversethegrowthinapparentusageinChinaandleadtoanoverallglobal decreaseinusageofaround0.7%. 10

Copper In 2011 the market is expected to be more closely balanced as an increase in economic activity is expected to lead to stronger end use markets and the growth in refined productionisexpectedtomoderate.
3,537,455 Top 10 Copper Mine Producing Countries

4,000,000 3,500,000 3,000,000 (in tonnes) 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0

1,112,445

960,000

842,735

796,055

742,867

737,345

700,555

521,945
Po la nd

tr al ia

es ia

C hi le

bi a

te s

na

St a

In do n

us

Fe de

Za m

us si an

ni te d

an ad a

Pe ru

C hi

ra

tio

450,500

Source:Reuters;Year:2009

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4,245,950

Top 10 Refined Copper Producing Countries 3,165,515

4,500,000 4,000,000 3,500,000 (in tonnes) 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0

1,487,950

1,248,656

892,500

859,535

680,000

633,375

565,000

an y

U ni te R d us St si at an es Fe de ra tio n

G er m

Po la nd A us tr al ia

hi na

Ja pa n

C hi

In di a

Za m

bi a

le

510,085

Source:Reuters;Year:2009 DomesticScenario

India - Copper Mine Production and Capacity 70,000 60,000 (in tonnes) 50,000 40,000 30,000 20,000 10,000 0 Capacity Production 2008 57,256 36,756 2009 58,200 37,700 2010F 59,500 39,000 2011F 59,500 39,000 2012F 59,500 39,000

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India - Copper Refinery Production and Capacity 1,400,000 1,200,000 (in tonnes) 1,000,000 800,000 600,000 400,000 200,000 0 2008 2009 897,900 859,535 2010F 897,900 863,500 2011F 2012F

Source:Reuters Till 1997, state owned Hindustan Copper Limited (HCL) was the only Company producing primary refined copper in the country meeting 2530% of countrys refined copperrequirements,thebalancebeingimported. Presently, four major players with total installed production capacity of about 10 lakh tones of refined copper per annum dominate the Indian copper industry. The two private sector companies, viz., M/s Hindalco Industries Ltd. (Unit: Birla Copper) and M/s Sterlite Industries (I) Ltd., with production capacities of 5,00,000 tonnes and 4,00,000 tonnes per annum respectively, have set up shorebased smelters relying fully on imported concentrate as raw material. The fourth player, M/s Jhagadia Copper Ltd. with plant capacity of 50,000 tonnes per annum produces refined copper through the secondaryroute(i.e.byusingcopperscrapasrawmaterial). As a result of significant growth in refined copper production capabilities, India has become a net exporter of refined copper as opposed to its earlier position when bulk of itsrefinedcopperrequirementshadtobemetthroughimports.

897,900 Capacity Production 666,868

1,047,900 1,297,900 1,013,500 1,263,500

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Copper In India, there is undercapacity at the mining stage visvis the refining capacity. Hindustan Copper Limited being the only one in the country holding all operating copperminingleasesthispresentsavastopportunityforgrowth. Futureoutlook Indias GDP continues to grow at about 7% as the country moves towards joining the league of developed nations. Indian refined copper usage is expected to grow in line with the economy. However, the recent economic meltdown has slowed down the process. Global demand for metals continues to be strong and India is well placed to serve this growing demand. The industry faces challenges in terms of cost pressures and the ability to bring new capacities to production on time and within budget. The requirementofcopper,zincandaluminumiscloselyrelatedtoindustrialproduction. Brook Hunt, the UKbased global mining and metal industry consulting firm, forecasts that global industrial production will grow at an average of 2.9% per year over the period 20082020 which compares fairly well with the 3.2% growth averaged during the decade so far. It forecasts Chinese industrial production growth to average 11% during 2008 2020 which, while less than the scorching 14.7% growth achieved during 200007, is still a very high growth rate over a substantial base. Most economists agree on two forecasts one for the near term, and another going up to 2020. The near term forecast for 2008 and 2009 is that the developed economies, led by the US, will see a slowdown in growth. So, too, will the major developing countries. However, thanks to their higher growth rates over a significant base, the relatively better performing developing countries will mitigate the negative impact of the developed nations downturn. The longer term forecast for 20082020 is that of robust growth, led by emergingeconomiessuchasChina,India,BrazilandRussia. Coppersemiscanbedividedintothreemainproductgroups:copperwirerods,copper products and copper alloy products. The predominant intermediate use is the productionofwirerod,whichaccountedforoverhalfofthetotalusagein2007.Copper alloyproductsarenext,accountingforaround19%oftotaldemand.Thisisfollowedby copper tubes at approximately 11%. Coppers main enduses are in construction (35%), electric and electronic products (32%), industrial machinery and equipment (12%), transportationequipment(11%)andconsumerandgeneralproducts(10%). Brook Hunt does not expect any major threat of substitution away from copper during 20082020. It not only expects copper to retain its position in the existing applications, 14

Copper butalsotoregainsomeofthemarketsharepreviouslylosttoaluminum.In2007,global refinedcopperconsumptionincreasedby3%to17.94 milliontonnes.Between2002and 2007,demandgrewataCAGRof3.6%. According to Brook Hunt, global refined copper consumption to increase by 3.5% per annum during 20082020 rising by some 10.2 million tones to a total of around 28.2 million tones in 2020. Up until 2003, Chile was the largest producer of smelted copper. Thereafter, China has become the leader. In 2007, China continued to occupy the no.1 slotwithamarketshareof18.7%.BrookHuntestimatesthatrapidexpansionofChinas smelting industry will lead to its share rising to around 20% in 2008 with further annual increases right up to 2011, when it will account for 21.5% of global smelter productioncapability. BrookHuntsforecastsforglobalcoppersmeltercapacityare: 2008:17.1milliontonnesperannum,up4.7%from2007; 2009:17.8milliontonnesperannum,up4.1%; 2010:18.3milliontonnesperannum,up2.7%;and 2011:18.5milliontonnesperannum in2011,upby1.3% and flattening out at this level thereafter. The contribution to global smelter capacity from Russia and the CIS is expected to remain between 35%36% throughout the forecast period, i.e. 200820. Growth in smelter capacity is expected in China, Africa, India, Malaysia, Brazil, Finland, Kazakhstan, Bulgaria, Slovakia and Poland. In 2007, China was also the worlds largest producer of refined copper with a global market shareof19.2%;followedbyChile(16.2%),Japan(8.7%)andtheUSA(7.7%). Countries comprising Russia and the CIS accounted for 31% of the overall market. BrookHuntsforecastsglobalcopperrefinerycapacity(excludingSxEwcopper)at: 2008:23.2milliontonnesperannum,up4.8%from2007; 2009:24.5milliontonnesperannum,up5.5%; 2010:25.7milliontonnesperannum,up4.8%; and maintaining this level thereafter up to 2020. Refinery capacity is expected to increase in China, India (where Sterlite is raising capacities), Africa, Brazil, Finland, Kazakhstan, Bulgaria and Poland. In the next two years, i.e. 2008 and 2009, copper refinerycapacities areforecasttogrowbynearly2.9milliontonnes. 15

Copper Indian copper consumption increased in 2007 by 18% to 540,000 tonnes the fourth consecutive year of doubledigit growth. The growth of copper wire rods was particularly strong thanks to Indias ongoing urbanisation, significant infrastructure development and relatively healthy export markets. These growth factors are expected tocontinueduring2008. CopperStocksandPrices During 2007, some 950,000 tonnes of mine production was lost due to disruptions in supply. Even so, the growth in refined copper production exceeded that of refined copper consumption. Consequently, inventories rose marginally from 39 days in 2006 to 42 days in 2007. However, in the backdrop of rising demand, this small rise in inventory did nothing to dampen prices. In fact, prices remained firm increasing from an average of US$6,729 per tonne (or US$3.05 per lb) in 2006 to US$7,124 per tonne (US$3.23perlb)in2007 In 2008, Brook Hunt forecasts overall stocks to rise to 44 days of consumption, which is still significantly below the normal level of 6065 days. This would be more or less a balanced market with a somewhat tighter supplydemand position than what was historicallythecase. DuringJanuary 2008 to March 2008,copper pricesaveragedUS$7,710per tonne, versus US$5,940pertonneduringthesameperiodin2007.Overthebalanceofthe year,Brook Hunt expects prices to average $7,440 per tonne US$7,885 per tonne in the first half, and US$7,125 per tonne in the second half. For 2008 as a whole, prices are expected to averageUS$7,506pertonneup5.4%from2007.

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CopperExportsfromIndia CopperOresandConcentrateExport Year 200304 200405 200506 200607 200708 Source:MinistryofMines

Export(intones) 300 18990 44645 565

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Copper

Rs per Kg 450 400 350 300 250 200 150 100 50 0 May 4 2005 Aug 27 2005 Dec 23 2005 Apr 20 2006 Aug 11 2006 Dec 6 2006 Mar 31 2007 Jul 23 2007 Nov 17 2007 Mar 12 2008 Jul 10 2008 Nov 6 2008 Mar 5 2009 Jun 30 2009 Oct 23 2009

NMCECopperPriceTrend

Copper Price Trend

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