Adding Value to Zambian Copper

Challenges & Opportunities in Copper Fabricating

Simon Payton Consulting for Nathan EME
Prepared for the Jobs, Prosperity and Competitiveness Project Supported by the World Bank, African Development Bank and DFID
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Simon Payton

Maximising the value of Zambias resources

The time is ripe for investors to consider processing the copper and add more value by selling finished products made in Zambia to the international market."
President Banda, Lumwana, 17 April 2009
Source: Reuters

The Copper Industry Value Chain

Structural Divides
Mining

Concentration

Producers
(Smelting)

Refining

Fabricators End Users

Wire Rod

Other Fabricating

Wire & Cable

Further Processor/End User

3

Market Access: Mining is bound to the location of deposits, fabrication to world manufacturing
6000

Mine Production, Refined Production and Refined Cu Usage 2008

All to Same Scale (Max 6MT/y)

6000

5000

5000

6000

4000

5000

3000

Germany
Mine Ref Prod Use

4000

3000

Russia
6000
Mine Ref Prod Use

4000

3000

Canada
Mine Ref Prod Use

2000

2000

1000

1000

2000

0 5000

1000 4000 0 3000 6000 2000 6000

5000

4000

USA
Mine Ref Prod Use

China
4000 3000

5000

S Korea
Mine Ref Prod Use

1000

0 6000

6000
2000

3000

5000

5000
2000

1000 4000

1000

4000

0
Mine Ref Prod Use

3000

Japan
Mine Ref Prod Use

3000

2000

2000
6000

Zambia
6000 5000

1000

1000
5000 6000

4000

3000

Peru
6000
Mine Ref Prod Use

5000

0
Mine Ref Prod Use

4000

4000

2000

3000

1000

Brazil
Mine Ref Prod Use

3000

India
Mine Ref Prod Use

2000

2000

1000

1000

5000

4000

6000
6000

Chile

3000

5000
2000

5000

1000

4000

4000

0
Mine Ref Prod Use

3000

RSA Australia
Mine Ref Prod Use

3000

2000

2000

1000

1000

0
Mine Ref Prod Use

Source: ICSG

A sense of proportion: See where the big margins (and the big risks) are.
Illustrative Wire Rod Fabrication Margin, compared with SXEW Cathode Production
(per tonne)

$
7000 6000 5000 4000 3000 2000 1000 0

Costs

Profit

Sources: Rod Industry; Mining Company ARs

Large Capacity Wire Rod Mill

Cathode from Ore

NB In Copper fabricating, metal value itself is a neutral straightthrough item, except for the financing cost of metal in work in progress (from receipt to customer payment) 5

The principal copper and copper alloy (semi)-manufactures:

Tube Rolled Sheet & Strip

Castings

Wire Extruded Rod and Profiles

Source: IWCC

What drives the copper fabricating industry?

Access to markets Access to raw materials
Copper Alloying materials Scrap metal

Access to capital (plant and equipment) Access to labour + Profitability

Access to Market: Semis industry responds to demand from the (complex) downstream value chain:
Semis
Wire Rod Wire Rod
Wire Drawing + Insulation

Intermediates

Components

Finished Product Mfr

Power Cable

Wire Drawing + Insulation + Cabling Set make-up Harness Assembly

Car Valve
Electrical Fitting

Extruded Rod
Rolled Strip Strip

Forging

Machining + Assembly

Presswork Coil Forming

(Plating)

Tube Tube

Tube
Castings

Air-Con
Tap Body
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SSA market represents <1% of global consumption of principal semis

kt 16000 14000 12000 10000 8000 6000 4000 2000 0
R od ns al M et si o Tu b e

RoW China Japan, SK, Taiwan N America Europe

Source: CRU 2008

ire

tru

le d

R ol

Zambia + SSA excl RSA RSA (est.)

30 90

A llo y

Ex

0 30

0 25

C u

0 10
Source: Trade data

A realistic appraisal of the current market

Market in Zambia and neighbouring countries (excl RSA) for fabricated copper products is currently miniscule Domestic and regional use of copper is driven mainly by demand from
utilities (power generation & distribution; telecommunications); construction (building wire) mining industry (cables; bespoke spares but OEMs importing parts)

Outside mining, there is a lack of manufacturing industry to offer a customer base on which to build a copper processing industry RSA is significant, largely self-sufficient market; net exporter More distant markets present logistical challenges (squeezing margins)

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Local copper cathode is available, but that may not be a big advantage
If copper cathode is sold to a local fabricator (with a saving on the cathode export freight cost) and processed for export, the freight cost is in effect transferred to the fabricators product, making it difficult to be competitive. The only gain is on the domestic market.

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Copper cathode is not the only requirement: scrap and alloying metals are very important for some products
Input
Cu Cathode
Cu & Brass Scrap Primary Zn

Melt Cast

Hot Form
Continuous Casting (& In - line rolling)

Cold Form

Semis (product)
Wire Rod

Billet Casting

Extrusion, Drawing

Brass Rod

Cu Cathode + Scrap + Alloying Metals

Slab Casting
Continuous Casting of Strip

Hot Rolling

Cold Rolling

Sheet, Strip

Cu Cathode + Scrap + Alloying Metals

Cold Rolling

Sheet, Strip

Cu Cathode + Cu Scrap Cu Cathode

Billet Casting

Extrusion

Drawing

Tube

Cast & Roll

Drawing

Tube

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The Copper Industry Value Chain in Zambia

Zambias current engagement

Producers

Mining

Concentration

(Smelting)

Refining

Fabricators End Users

Wire Rod

Other Fabricating

Wire & Cable

Further Processor/End User

13

Zamefa already uses Zambian copper

1967: GRZ co-founds Zamefa with PD (USA) and SM (Sweden); privatised 1996; now a successful producer of wire rod, wire and cable Part of General Cable Corporation Supplier of
copper wire rod (No 2 in SSA) low voltage cables: building wire; telephone wire

Expanding other product lines One of Zambias largest NTE exporters

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Given the challenges, how does Zambia score on the key factors ? (/5=good)
Zambia
Access to markets Access to raw materials 1.5

RSA
3

China
5

Copper
Alloying materials Scrap Access to capital (land, plant and equipment) Access to labour

4
2 2 2

4
4 3 4

5
5 3 5

Subjective scoring

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Opportunities to use more Zambian Copper

With Business as usual:
organic growth among existing operations (volume; product portfolio) small scale developments (cast-product foundries, non-industrial scale semis manufacture; both largely scrap based)

Greater potential exists if

More local and regional manufacturing industry is in place to create a customer base (e.g. El Sewedy Transformers, Ndola) Certain user markets are actively developed e.g. copper plumbing; The basic issues are fixed!

But RSA industry ready and waiting! (Potential partners in any Zambian growth.?)
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Conclusions
1.
2. 3. 4.

5.

Copper is mined where it is found. Copper is fabricated where there is good market access For further processing of copper, having a market is more important than having access to copper cathode Local & regional market currently limited in size by lack of manufacturing base; need to fill that gap and attract manufacturing investment With improved logistics a local industry could engage in RSA market (Zamefa already present), but existing industry in RSA has the complete product range and is very competitive Scope for development: Zambian cable product range and exports could grow; some room for small-scale developments as a growth basis.

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Key issues to address.

1. Is adding value to copper metal a priority for Zambian economic diversity ? 2. Developing a manufacturing base in Zambia, at the heart of the region 3. Improvements in competitive market access through better and faster logistics 4. The basics: finance, productivity, power quality .
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Thank You

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