LION CONSULTING ASIA LTD. EVERWELL RESOURCES LTD.

Transcription

1 LION CONSULTING ASIA LTD. EVERWELL RESOURCES LTD. Presentation by Michael Lion China and its effects on global scrap markets Metal Bulletin 11 th Asia Copper Conference Shanghai November 19th 2015

2 LION CONSULTING ASIA LTD. EVERWELL RESOURCES LTD. China- The pre-eminent metals consumer World s largest copper consumer Dominant copper scrap importer

3 LION CONSULTING ASIA LTD. EVERWELL RESOURCES LTD. Those who do not learn from history are condemned to repeat it A brief retrospective

4 IN-DEPTH ANALYSIS OF THE CHINESE SCRAP MARKET Latest trends and developments in international copper scrap trade Current financial and economic factors that influence copper scrap flows to China Commercial and regulatory influences on copper scrap flows to China

5 MAJOR SCRAP EXPORTS TYPES AND SOURCES Barley Berry/Candy Birch/Cliff Shelmo Scrapped vehicles Electrical/ Electronic equipment Construction/ Building demolition Industrial waste Druid Honey Enerv Motors

6 SCRAP SUPPLY MAINLY ORIGINATES FROM MATURE ECONOMIES Vast majority of exported scrap originates from mature economies. Reasons: Wealth accumulation Contracting manufacturing industries Advanced yard management Higher GDP per capita More consumption of consumer goods and more source of scrap Switched to highly service-based industries Reduced domestic demand for raw materials Developed collection points and scrap processing facilities Easily accessible transport links

7 GLOBAL IMPORTS OF COPPER SCRAP BY VOLUME ( ) Belgium 4% Hong Kong 2% Rep of Korea 3% Italy 2% Netherlands 2% Japan 2% India 2% Austria 1% United States 1% Taiwan 1% Germany 8% Other Countries 9% China 63% Data obtained from International Copper Study Group

8 DRIVERS FOR COPPER SCRAP IMPORTS Rapid Economic growth and high infrastructure spending High production/exports of secondary copper, as well as copper containing manufactured and semi manufactured goods China s current consumption of copper main sectors Transport/Railway Telecom and power network Construction Consumer products Industrial production

9 Main factors that may alter scrap flows to China General economic conditions Emerging market development and consumer wealth expansion Technology As emerging market industries develop cu scrap processing / re-melting becomes more sophisticated- will new state of art facilities in emerging countries impact high grade copper scrap flows? Industry The types of industries established in a market and plant locations e.g. automotive, electronics, will influence types of copper products being manufactured and will therefore influence the demand for certain grades of copper scrap such as brass mill grades

10 CHARACTERISTIC INFLUENCES OF EMERGING DOMESTIC MARKET ON SCRAP FLOWS Emerging markets: Local scrap generation in emerging markets exists but does not generate sufficient volume to feed overall scrap appetite Scrap collection at embryonic stage loop not yet closed Strong competitive advantage Low labor costs Energy conservation benefits Greatest need for raw materials to sustain growth Rationale: High growth of China will lead to significant expansion of domestic scrap arising in next to 5 to 10 years

11 Q SCRAP GENERATION EXPANSION IN CHINA WHERE REFINED USAGE IS INCREASING? Chinese major electronics and home appliances production (million units) Home refrigerator Air conditioner 160 Washing machine Colour television Copper scrap imports of China & Hong Kong (1000 tonnes) Scrap imports y-o-y % change Data obtained from China NBS, China Customs, UN Comtrade, ICSG

12 RECENT GOVERNMENT REGULATORY DEVELOPMENTS China Ongoing clampdown on excess/outdated both smelting and semis capacities Regulations regarding copper-financing; Chinese banks reduced LC issuance for some scrap importers as the regulators tightened rules governing metals-related trade Efforts to balance growth with environmental protection - case study: protests forced Chinese city to scrap copper refinery plant in Sichuan (July 2012) Potential for Green Fence 2?

13 Growth of planned new scrap capacity in China Year New primary smelter capacity New secondary smelter capacity New semis capacity (CCC & FRHC) New semis Capacity (SCR & ContiRod) Total Total Slower growth in new smelting and fabricating capacity in 2015 compared to 2014 Only CCC & FRHC wire rod technology can use scrap New smelting and semis capacity growth is severely primary/refined skewed A major smelting plant (300k tonnes/year) in Guangxi is seeking approval to upgrade to be able to use concentrates Data obtained from news, company reports, CNIA

14 Exchange and financial influences Arbitrage in markets Consistent, short-term influence of LME / SHFE / COMEX arbitrage differentials on scrap pricing (the LME price was consistently achieving premium over SHFE presently reversed) Arbitrage can determine quotational exchange selected Scrap premiums and discounts to terminal markets Currency arbitrage E.G. Asia/Pacific region US dollar denominated buyers Financial liquidity (E.G. Bank capital adequacy ratios), and interest costs (Central Bank / government policy initiatives) Speculative demand scrap as a cipher for futures trading Long term order books Link to raw material prices (oil price)

15 What does the future hold- China and Impact of other Emerging Markets China Continued high demand for most commodities despite short term slower pace the New Normal Expanding middle class consumption in tandem with domestic demand growth policies India and other developing Asian markets Opportunity to expand depends on greater regulatory flexibility and governmental policies Similar middle class affluence developments, low labor costs, but greater bureaucratic hindrances Constant global economic evolution continues as predominant influence on international scrap flows

16 Lion Consulting Asia Ltd Everwell Resources Ltd