Base Metals Handbook

Base Metals Handbook

BMH Base Metals Handbook The definitive reference source to the major base metals Edited by Martin Thompson Third edition

Cambridge England

Published by Woodhead Publishing Limited, Abington Hall, Abington Cambridge CB1 6AH, England www.woodheadpublishing.com Published in North America by CRC Press LLC, 6000 Broken Sound Parkway, NW, Suite 300, Boca Raton, FL 33487, USA First published 1993, Woodhead Publishing Limited This edition published 2006, Woodhead Publishing Limited and CRC Press LLC © 2006, Woodhead Publishing Limited The authors have asserted their moral rights. This book contains information obtained from authentic and highly regarded sources. Reprinted material is quoted with permission, and sources are indicated. Reasonable efforts have been made to publish reliable data and information, but the authors and the publisher cannot assume responsibility for the validity of all materials. Neither the authors nor the publisher, nor anyone else associated with this publication, shall be liable for any loss, damage or liability directly or indirectly caused or alleged to be caused by this book. Neither this book nor any part may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, microfilming and recording, or by any information storage or retrieval system, without permission in writing from Woodhead Publishing Limited. The consent of Woodhead Publishing Limited does not extend to copying for general distribution, for promotion, for creating new works, or for resale. Specific permission must be obtained in writing from Woodhead Publishing Limited for such copying. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation, without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. Library of Congress Publication Data A catalog record for this book is available from the Library of Congress. Woodhead Publishing ISBN-13: 978-1-84569-154-7 (book) Woodhead Publishing ISBN-10: 1-84569-154-7 (book) Woodhead Publishing ISBN-13: 978-1-84569-167-7 (e-book) Woodhead Publishing ISBN-10: 1-84569-167-9 (e-book) CRC Press ISBN-10: 0-8493-8781-7 CRC Press order number WP8781 Typeset by SNP Best-set Typesetter Ltd., Hong Kong Printed by Astron On-line, Cambridgeshire, England

Contents

Editor’s introduction The contributors Sources of data Index 1 The base metals markets 1.1 History and background 1.2 The LME: development and structure 1.3 The current position and the future 2 Aluminium 2.1 Resources and extraction 2.2 Consumption 2.3 The market 2.4 Appendix 3 Copper 3.1 Resources and extraction 3.2 Consumption 3.3 The market 3.4 Appendix 4 Lead 4.1 Resources and extraction 4.2 Consumption 4.3 The market 4.4 Appendix 5 Zinc 5.1 Resources and extraction 5.2 Consumption 5.3 The market 5.4 Appendix 6 Nickel 6.1 Resources and extraction 6.2 Consumption v

Contents

6.3 The market 6.4 Appendix 7 Tin 7.1 Resources and extraction 7.2 Consumption 7.3 The market

vi

Editor’s introduction The Base Metals Handbook was first published in 1993 and quickly established itself as a valuable and widely used reference book which was regularly updated. A new edition with mostly new authors appeared in 2001, and continuing changes and developments in the world of metals have now called for a further edition. The authors remain the same. The purposes of the Base Metals Handbook remain the same: to provide thorough yet compact descriptions of the metals. This includes their histories (which vary in length from a century or so to several millennia), where they are found and how they are extracted, what they are used for, how they are sold and what may be their prospects, both positive and negative. Included are mineral reserves, production processes, end-use consumption trends, trade patterns, and comprehensive tables of production, consumption, imports, exports, stocks, etc. and lists of mines, smelters and refineries throughout the world. In addition, there is a section on the development of the marketing of the metals, and the metal exchanges. The aim of the book, therefore, is to present both a comprehensive survey of the base metals, giving detailed descriptions of their various aspects, and at the same time to provide a comprehensive work for reference. While the book contains a substantial volume of data derived from a wide variety of sources, therefore, it is not its function to act as a substitute for these sources, but rather to set the information they provide in a wider context and attempt to explain its significance. The book will be of value to all those involved in the base metals whether as producers, consumers, brokers, traders, analysts, financial advisers or investors. It will also be of great interest to mining engineers and metallurgists, for whom it will provide a clear perspective on how their areas of expertise fit into the broader context of the markets as a whole. The Base Metals Handbook is divided into seven major sections. The first of these provides a general introduction to the history, structure and workings of the base metals markets, with particular reference to the London Metal Exchange (LME), and the subsequent sections are devoted to the six metals in turn. The contributors, who also wrote the 2001 edition, are all experienced metals market professionals and acknowledged experts in their respective fields: vii

Editor’s introduction

Christopher Green, former Chairman of the London Metal Exchange, and Barclays Metals Group, has contributed the section on markets; Angus MacMillan of Bache Financial has again written the chapter on aluminium; Phillip Crowson, former Chief Economist of Rio Tinto and Director of the LME, has written on lead, zinc and tin; and Peter Cranfield, former Market Research Manager of the Stainless Steel Materials Group of BHP Billiton, has written on nickel. As in the first edition of the Handbook, the copper section has been written by myself. Finally, I would like to thank Neil Wenborn of Woodhead Publishing for his support and advice in producing this edition. Martin Thompson

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The contributors

Martin Thompson (Editor) – Chapter 3 Martin Thompson retired as Commercial Adviser from Rio Tinto plc in 1999, having joined the company in 1968. Initially he was involved in iron ore and pyrites, but from 1976 onwards he dealt mainly with the base metals, specialising in copper. He has written regularly on the metal, and was co-author of The international copper industry (Woodhead Publishing, 2002); he also undertook an examination of an international trade dispute on behalf of GATT. He was Chairman of the British Copper Development Association, Vice Chairman of the European Copper Institute, and Chairman of the Statistical Committee of the International Copper Study Group. Previously he worked for Consolidated Tin Smelters Ltd, and the merchant bank N.M. Rothschild and Sons, in London and Rhodesia. Christopher Green – Chapter 1 From 1994 until his retirement in 2000, Christopher Green was Chairman of Barclays Metals Group, the Commodities Division of Barclays Capital; he joined the board of Barclays Metals Limited in 1991. Previously, he had joined Henry Gardner & Co. Ltd (part of the Amalgamated Metal Corporation) in 1958, Ametalco Ltd (an Amax subsidiary) in 1964, becoming a Director in 1970, responsible for all base metal physical trading and LME operations, and in 1976 Cerro Metals (UK) Ltd as Chief Executive to develop trading (primarily in copper) and also LME broking. Christopher Green served on the LME Committee from 1973 until 1982, being Vice Chairman from 1977 to 1981. In 1982 he became a Director of the LME’s then governing body, the Metal Market and Exchange Co. Ltd, and from 1987 to 1990 he was a director and Chairman of the London Metal Exchange Ltd, the new body formed to take over the running of the LME in the aftermath of the tin crisis. In 1999 he was made Copper Man of the Year by the Copper Club of the USA. He is a trustee of the Institute for ArchaeoMetallurgical Studies. Angus MacMillan – Chapter 2 Having spent time in the electricity and automobile industries, Angus MacMillan has worked for over two decades analysing the ix

The contributors

markets for base metals. For the past three years he has worked as Minerals Strategist with Bache Financial, the metals broker and a Category Two member of the London Metal Exchange. Prior to that he worked for consultants Brook Hunt, before which he spent nine years as Research Manager at Billiton Metals, a ring-dealing member of the LME. In this capacity he was responsible for writing and overseeing the production of research material on all the LME-traded base metals. Prior to this he worked for five years as Director, Metals Research with Shearson Lehman Brothers, where he was responsible for overseeing the output of a team producing research on a number of base metals, including some of the steel-alloying metals. His initial involvement with the metals industry began in the 1980s when he worked with Commodities Research Unit, specialising in the steel industry. Phillip Crowson – Chapters 4, 5 and 7 Phillip Crowson retired as Chief Economist of Rio Tinto (then known as RTZ-CRA) at the beginning of 1997. He had held the post from 1981, having joined the Economics Department of the RTZ Corporation in 1971. Until his retirement he was a director of several Rio Tinto subsidiaries, and he took an active role in many industry organisations, including the European Copper Institute (Chairman), and the Mining Association of the United Kingdom (President). He previously worked as an economist in the UK chemicals industry, for Distillers (1961–67), for BP Chemicals (1967–68), and for Albright and Wilson (1968–71). In 1964 he was seconded to the National Economic Development Officer (NEDO). Phillip Crowson was an Invited Director of the LME for 12 years until he retired in 2000. He edits the biennial publication Minerals Handbook and is the author of Inside Mining. The Economics of the Supply and Demand of Minerals and Metals, published by Mining Journal Books in 1998 and Astride Mining; Issues and Policies for the Mineral Industry (Mining Journal Books, 2003). He has written many published papers and articles on aspects of the mineral industries, including contributed chapters to several books, and he also lectures frequently. He recently edited Managing Metals Price Risk with the London Metal Exchange. He is an Honorary Professor at the Centre for Energy, Mineral, and Petroleum Law and Policy at the University of Dundee. He sits on the Editorial Advisory Boards of Natural Resources Forum and Raw Materials Report. Peter Cranfield – Chapter 6 Peter Cranfield is an independent consultant specialising in market research in the nickel and stainless steel industries. He worked for x

The contributors

Billiton for 21 years until 2003 in a number of roles, including strategic planning, commodities analysis and mergers and acquisitions. He played a key role in developing Gencor’s nickel strategy and in the Billiton merger with QNI and the subsequent business plans of the merged companies. Before that he was 12 years with Inco, the last six as Market Research Manager for Europe. He has an MBA from Warwick University and a B.Sc (Economics) from London University.

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Sources of data

The data contained in this handbook have come from a wide range of sources; some are standard works of reference, familiar to most analysts of the metal markets, while others are less well known. While the following list is by no means comprehensive, it does include the major publications used in the compilation of tables as well as data contained in the text.

• London Metal Exchange • CRU • World Bureau of Metal Statistics • Brook Hunt • International Aluminium Association • Aluminum Association • European Aluminium Association • Japanese Aluminium Federation • Car Manufacturers’ Institute • International Copper Study Group • International Wrought Copper Council • International Tin Research Institute • International Tin Council • International Lead Zinc Study Group • US Geological Survey • International Nickel Study Group • Inco World Stainless Steel Statistics • Billiton Nickel Information has also been gathered from a variety of individual company sources, as well as from press reports; sources included in particular are Metal Bulletin, American Metal Market, Mining Journal and Metals Week.

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Index

aerospace industry aluminium consumption, 2.2/1–8 Africa nickel, 6.1/4 tin, 7.1/7 Agricola Georgius De Re Metallica, 1.1/4, 1.1/7 alloys aluminium, 2.2/2 copper, 3.2/2 non-ferrous, 6.2/7 steel, 6.2/2–7 tin, 3/1, 3.2/2, 7.2/2, 7.2/8–10 zinc-based, 3.2/2, 5.2/10–15 alumina, 2.1/6–10 locations of major refineries, 2.4/1–7 refining, 2.1/5–10 aluminium aerospace industry, 2.2/1, 2.2/4 alloys, 2.2/2 atomic number, 2.1/1 atomic weight, 2.1/1 automobile industry, 2.2/1 Bayer process, 2.1/1 construction sector, 2.2/3 consumer durables, 2.2/3–4 consumption, 2.2/1–7, 2.4/20–21 density, 3.2/1 electrical engineering, 2.2/3 extraction, 2.1/1–32 major smelters, 2.1/10–31 market, 2.3/1–4 mechanical engineering, 2.2/1–3 melting point, 3.2/1 packaging industry, 2.2/1–3, 7.2/6–8 production of primary, 2.1/8–13 properties, 2.2/5 resources, 2.1/1–32 rival of copper, 3.2/14–15 transport sector, 2.2/1–4 uses, 2.2/1–7 Amalgamated Copper Company, 3.3/4 Anatolia, 1.1/1–3 Appert, François, 7.2/1 Association of Tin Producing Countries (ATPC), 7.3/10–11

Australia bauxite, 2.1/3–5 nickel, 6.1/3, 6.1/8–10, 6.1/18 tin, 7.1/6 automobile industry aluminium consumption, 2.2/1 lead, 4.2/2, 4.2/5–7, 4.2/9–10 nickel plating, 6.2/7 zinc alloys, 5.2/10–15 zinc galvanising, 5.2/1–11 backwardation, 1.3/1–3 batteries lead acid, 4.2/2, 4.2/5–11 bauxite, 2.1/1–6 Bayer process, 2.1/2 Bertier, P, 2.1/1 Bell, Alexander Graham, 1.1/5, 3.2/5 Betts process, 4.1/8–9 beverage cans aluminium consumption, 2.2/1–3, 7.2/6 bismuth, 4.1/8 boatbuilding industry aluminium consumption, 2.2/1, 2.2/4 Bolsover, Thomas, 3.2/4 Boulton, Matthew, 1.1/5 brass, 3.2/2, 3.2/4 zinc usage, 5.2/13–18 Brazil nickel, 6.1/5–6 tin, 7.1/7–8 Brearley, Harry, 6.1/2 British Metal Corporation, 1.2/8 bronze, 1.1/2–3, 3.2/3–4 zinc usage, 5.2/15–18 call option, 1.3/3–5 Canada nickel, 6.1/6–7 tin, 7.1/7 cash price, 1.2/2 chemical sector zinc oxide, 5.2/18–20 chemicals use of tin, 7.2/10–11 China nickel, 6.1/7–8

Index coffee houses, 1.2/1 Commodity Exchange Inc (COMEX), 1.2/6, 1.2/18–21, 3.3/9 copper markets, 3.3/1–2, 3.3/9 warehouses, 1.2/19–23 commodity markets, 1.2/1–12 communications copper replaced by fibre optics, 3.2/14–17 computers copper usage, 3.2/17 construction sector aluminium, 2.2/3 copper, 3.2/6–7, 3.2/13 lead, 4.2/12, 4.2/14–15 zinc galvanising, 5.2/3–10 consumer durables aluminium consumption, 2.2/3 contango, 1.3/1–3 copper alloys, 3.2/2 applications, 3.2/3–10 atomic number, 3.2/1 atomic weight, 3.2/1 chemical symbol, 3.2/1 closure of mines, 3.1/6, 3.1/22 construction sector, 3.2/6–7 consumption, 3.2/1–19 costs of production, 3.1/22–24 current consumption, 3.2/6–19 decorative qualities, 3.2/3–4, 3.2/6 density, 3.2/1 early applications, 3.2/3–4 electrical industry, 3.2/4–7, 3.2/16–18 extraction, 3.1/1–25 geographical distribution of deposits, 3.1/2–3 geographical distribution of refined production, 3.1/17 growth prospects for consumption, 3.2/16–18 history, 3/1–2 history of consumption, 3.2/3–6 history of mining, 3.1/3–6 international trade in blister, 3.1/16–21 international trade in concentrates, 3.1/8–10 international trade in refined, 3.1/21–22 location of mines, 3.1/2–3, 3.1/6–8 market, 3.3/1–9 melting point, 3.2/1 mine production, 3.1/6–8 miniaturisation, 3.2/16 modern applications, 3.2/4–8 origins, 3.1/1 plating, 3.2/4 prices, 3.3/4–7

pricing, 3.3/7–8 processing, 3.1/10–13 properties, 3.2/1–2 prospects for future production growth, 3.1/24–25 refined production, 3.1/17–19 resources, 3.1/1–3 rival materials, 3.2/13–16 roofing, 3.2/14 sculpture, 3.2/3–4 secondary production, 3.1/13–15, 3.1/17–18 stocks, 3.3/3–4 sulphides, 3.1/1–3, 3.1/10, 3.1/12 transport sector, 3.2/7 types of deposit, 3.1/1–2 warehouses, 3.3/1–3 water pipes, 3.2/14 world consumption, 3.2/6–13 Copper Exporters Incorporated, 3.3/4–5 Cornwall, 1.1/6, 3.1/3 Cuba nickel, 6.1/9 Darby, Abraham, 1.1/5 definitions backwardation, 1.3/1–3 contango, 1.3/1–3 delivery, 1.2/4–5 Edison, Thomas, 1.1/5, 3.2/5 electric vehicles, 4.2/8–11 electrical engineering aluminium consumption, 2.2/3 electrical industry copper, 3.2/4–7 electrolytic chromium coated steel (ECCS), 7.2/6–8 Europe nickel, 6.1/9–10, 6.1/15–16, 6.2/11 Exchange Control, 1.2/11 Faraday, Michael, 1.1/5, 3.2/5 fibre optics rival of copper, 3.2/15 Force majeure, 1.2/5 General Services Administration (GSA), 7.3/6 glass containers, 7.2/7 gold density, 3.2/1 Great Eastern, 1.1/8 Hall-Heroult process, 2.1/1–2 Hamburg Metal Exchange, 1.2/6 Harz Mountains, 1.1/7

Index Havana Charter on International Trade Organisations, 7.3/4–5, 7.3/7 hedging, 1.3/1–2 Imperial Smelting Process (ISP), 4.1/5–6, 5.1/6 Indonesia nickel, 6.1/9 International Copper Cartel, 3.3/5 International Lead and Zinc Study Group (ILZSG), 5.1/14 International Nickel Study Group (INSG) 6.1/7, 6.1/19, 6.2/2, 6.3/6 iron density, 3.2/1 melting point, 3.2/1 rival of copper, 3.2/13 Kuala Lumpur Tin Market (KLTM) tin market, 7.3/1–2 Latin America bauxite, 2.1/3–5 lead atomic number, 4/1 batteries, 4/2, 4.2/5–11 boiling point, 4/1 cable sheathing, 4.2/15 chemical applications, 4.2/11–13 construction industry, 4.2/14–15 consumption, 4.2/1–20 electrolytic refining, 4.1/8–9 extraction, 4.1/1–13 galena, 4.1/1, 4.1/4 gasoline additives, 4.2/13 Harris process, 4.1/7 history, 4/1–2 Isasmelt process, 4.1/6 Kircet process, 4.1/6–7 legislation, 4.2/9–10 market, 4.3/1–3 melting point, 3.2/1, 4/1 mining, 4.1/1–4 Port Pirie process, 4.1/8 price, 4.3/1–6 primary production, 4.1/9–15 production and consumption statistics, 4.1/9–23, 4.2/1–20 production processes, 4.1/3–9 properties, 4/1 pyrometallurgical refining, 4.1/7–8 QSL process, 4.1/6–7 refined production, 4.1/18–23 refining, 4.1/7–9 resources, 4.1/1–3 rival of copper, 3.2/13–14 roofing, 4/2 scrap, 4.1/13–17 secondary production, 4.1/15–18 smelting, 4.1/5–7

specific gravity, 4/1 stocks, 4.3/11–19 supply/demand balance, 4.3/8–11 uses, 4.2/1–16 London Clearing House, 1.2/14–15, 1.3/7 London Metal Exchange (LME), copper markets, 3.3/1–9 contracts, 1.2/16–19, 23 history, 1.2/1–12 LME SELECT, 1.3/6–7 price control, 1.2/12–14 structure, 1.2/14–15 tin crisis, 1.2/14, 7.3/2–3 tons, 1.1/6 warehouses, 1.2/19–23 Long Beach, 1.2/20–21 mechanical engineering aluminium consumption, 2.2/1–3 merchanting, 1.1/2–3, 1.1/7–8 Mesopotamia, 1.1/1 Metallgesellschaft, 1.1/7, 1.2/7–8 Metal Market and Exchange Company see London Metal Exchange metal trading, 1.2/1 history, 1.1/1–8 miniaturisation of copper, 3.2/16, 3.2/18 Ministry of Supply, 1.2/9–11 Mond, Ludwig, 6.1/1 Morse, Samuel, 1.1/8 Newcomen, Thomas, 1.1/4 New York Metal Exchange (Nymex), 1.2/6, 1.2/18–21 nickel Africa, 6.1/3–5, 6.1/12, 6.1/19 alloy steels, 6.2/2–7 Asia, 6.1/7, 6.1/15 Australia, 6.1/8–10, 6.1/18 Canada, 6.1/1, 6.1/6–7 castings, 6.2/7 consumption, 6.2/1–15 Cuba, 6.1/9, 6.1/14, 6.1/17, 6.1/19, 6.3/3 Defence Logistic Agency (DLA), 6.3/3 Eastern countries, 6.1/8–9, 6.1/17–18 Europe, 6.1/7–8, 6.1/18–19, 6.1/22 extraction, 6.1/1–22 Far East, 6.1/16–17 finished products, 6.2/2–7 future consumption, 6.2/12–15 history, 6.1/1–2 hydrometallurgical process, 6.1/11, 6.1/20 international trade, 6.1/9–10, 6.1/19 inventories, 6.3/6–7 Japan, 6.1/7, 6.1/16, 6.2/3, 6.2/5

Index nickel cont’d. LME, 6.3/10 market, 6.3/1–10 melting point, 6.2/1 new projects, 6.1/20–22 ores, 6.1/2 plating, 6.2/7 prices, 6.2/3, 6.3/7–10 properties, 6.2/1–2 pyrometallurgical process, 6.1/10–11, 6.1/20 resources, 6.1/1–9 Russian Federation, 6.1/7, 6.1/9, 6.1/19, 6.2/4, 6.3/1–3, 6.3/5–6 secondary production, 6.1/11–12, 6.3/4–6 smelter and refinery production, 6.1/12–18, 6.1/20–22 stainless steels, 6.2/2–6 substitution, 6.2/11–12 the Americas, 6.1/5–7, 6.1/12–14, 6.2/2–5, 6.2/8–11, 6.2/13, 6.3/3, 6.3/8 types of deposit, 6.1/2 USA, 6.1/3–7, 6.2/8–10, 6.3/1, 6.3/3, 6.3/8 use in non-ferrous alloys, 6.2/7 uses, 6.2/2–7 world mines, 6.1/2–9 world production, 6.1/3–9 world smelters and refineries, 6.1/12–22 official price, 1.2/4 offset hedging, 1.3/1–3 options, 1.3/3–5 packaging industry aluminium, 2.2/1–3, 7.2/6–8 tinplate, 7.2/5–8 paints zinc usage, 5.2/4–5 Paley report, 1.3/6 pewter, 7/1 Philippines nickel, 6.1/7 plastic containers, 7.2/7 rival of copper, 3.2/14 price discovery, 1.2/1–4, 1.2/17 protectionism, 1.2/7–8 put option, 1.3/3–5 quality requirements, 1.2/16–18 railway industry aluminium consumption, 2.2/1 Reconstruction Finance Corporation, 7.3/5

roofs copper, 3.2/14 Royal Exchange, 1.2/1 rubber manufacturing zinc oxide, 5.2/18–19 Saxons, 1.1/4 Secretan, Pierre, 3.3/4 Shanghai Metal Exchange, 1.2/19 Sheffield plate, 3.2/4 shot, 7.2/12–13 solder tin, 7.2/8–10 South America tin, 7.1/7–8, 7.1/11–16 Soviet Union see Commonwealth of Independent States Spelter, 1.2/2 stainless steel, 6.1/1–2, 6.2/2–7 consumption, 6.2/7–15 scrap, 6.1/11–12, 6.2/13–14, 6.3/4–6 substitution, 6.2/11–12 world producers, 6.1/3–9 steel alloys, 6.2/2 protecting with zinc, 5.2/3–10 Suez Canal, 1.2/2 superconductors copper usage, 3.2/17 Sydney Futures Exchange, 1.2/19 telecommunications copper cables replaced by satellites, 3.2/14 Timna, 1.1/2, 3.1/3 tin Africa, 7.1/7 alloys, 7/1, 7.2/1–3, 7.2/8–10 Association of Tin Producing Countries (ATPC), 7.3/10–11 atomic number, 7.1/1 atomic weight, 7.1/1 Australia, 7.1/6–7 boiling point, 7.1/1 Bolivia, 7.1/2, 7.1/8 Brazil, 7.1/6–8, 7.3/9 buffer stock, 7.3/7–10, 7.3/12 cans, 7.2/1–2, 7.2/5–8 chemicals, 7.2/10–11 China, 7.1/3, 7.1/5–6, 7.1/9, 7.3/14–15 Cornwall, 7.1/9 crisis, 1.2/14, 7.3/9–10 current market trends, 7.3/15–17 Defence Logistics Agency (DLA), 7.3/6 discovery, 1.1/2 extraction, 7.1/1–13 General Services Administration (GSA), 7.3/6

Index tin cont’d. history, 7/1–2 Indonesia, 7.1/3–5 industrial uses, 7.2/2–3 intergovernmental agreements, 7.3/3–11 international control, 7.3/3–11 International Tin Agreement (ITA), 7.3/5–6, 7.3/8–11, 7.3/15 International Tin Committee, 7.3/4–5 International Tin Council (ITC), 1.3/7, 7.1/2, 7.2/4, 7.3/5–10, 7.3/12 International Tin Research Institute, 7.2/11, 7.3/12 International Tin Study Group (ITSG), 7.3/4, 7.3/11 Kuala Lumpur Tin Market (KLTM), 7.3/1–2 major mining companies, 7.1/12–13 Malaya, 7.1/1 Malaysia, 7.1, 7.1/3–5 market, 7.3/1–17 melting point, 7.1/1 mining methods, 7.1/9–12 Nigeria, 7.1/7 Peru, 7.1/8 Portugal, 7.1/8 prices, 7.3/15–17 primary, 7.1/1–13 properties, 7.2/1–13 resources, 7.1/1–13 rival of copper, 3.2/13 Russia, 7.1/9 secondary, 7.2/1 shotgun pellets, 7.2/12 smelting, 7.1/13–15 solder, 7.2/8–10 South America, 7.1/7–8 South-East Asia, 7.1/3–5 stocks, 7.3/12–13 substitution, 7.2/6–8 Thailand, 7.1/3 the Americas, 7.1/7–8 tin plate, 7.2/1, 7.2/5–8 Tin Producers Association, 7.3/4 United States stockpile, 7.3/5–7 uses, 7/1–2, 7.2/1–13 world mine production, 7.1/1–9 world refined consumption, 7.2/1–18 world refined production, 7.1/13–16 world smelting plants, 7.1/14–15 tin free steel (TFS), 7.2/6–8 tinplate, 7/2, 7.1/1, 7.2/1, 7.2/5–8 competition from tin free steel, 7.2/6–7

world production, 7.2/7–8 transport sector aluminium consumption, 2.2/1 copper, 3.2/7 United States history of copper mining, 3.1/4–5 nickel, 6.1/12–14, 6.2/2–5, 6.2/8–11, 6.2/13, 6.3/3, 6.3/8 tin, 7.1/7, 7.2/7, 7.2/10–13 tin stockpile, 7.3/5–7, 7.3/12 warehouses, 1.2/19–23 copper, 3.3/1–2 water pipes copper, 3.2/14 Watt, James, 1.1/5 Zambia, 3.1/5–6, 3.3/2 zinc alloys, 5.2/10–13 boiling point, 5/1 brass and bronze, 5.2/15–18 Canada, 5.1/1–3 chemicals, 5.2/18–20 concentrates, 5.1/4–8, 5.3/1–6 consumption, 5.2/1–25 die-casting, 5.2/1, 5.2/10–15 dusts, 5.1/8, 5.2/5–6 extraction, 5.1/2–4 galvanising, 5.2/4–10 history, 5/1–2 Imperial Smelting Process (ISP), 5.1/6 leaching, 5.1/7 market, 5.3/10–12 melting point, 5/1 minerals, 5.1/1–2 mining, 5.1/2–4 oxide, 5.1/6–8 prices, 5.3/1–13 pricing, 5.3/6–13 processing, 5.1/4–8 production, 5.1/8–20 properties, 5.2/1–10 protecting steel, 5.2/3–10 refining, 5.1/4–8 resources, 5.1/1–2 scrap, 5.1/7–8, 5.1/14–16 smelting, 5.1/4–8, 5.4/5–7 St Joe Mineral Corp., 5.1/5 stocks, 5.3/12–18 uses, 5.2/1–20

1

The base metals markets

1.1 History and background 1.1.1 Early origins 1.1.2 Early metal trading 1.1.3 The not quite so Dark Ages 1.1.4 The Industrial Revolution 1.1.5 The merchants 1.2 The LME: development and structure 1.2.1 Development 1.2.1.1 The formation of the LME 1.2.1.2 The First World War and after 1.2.1.3 The Second World War and after 1.2.2 Price determination and control 1.2.3 The structure of the LME 1.2.4 Contracts 1.2.5 LME warehousing policy 1.2.5.1 Long Beach and Los Angeles 1.2.5.2 Warehouse charges 1.3 The current position and the future 1.3.1 Contangos and backwardations 1.3.2 Options 1.3.3 Long-term price stability – a more assured future?

1.1 History and background 1.1.1 Early origins The non-ferrous metals are so intricately enmeshed in virtually every aspect of present-day life, in all but the remotest corners of the globe, that it would be quite impossible for civilisation, as we know it in all its various forms, to survive without them. Modern humans as Homo sapiens have inhabited the globe for at least 300 000 years, but a mere blink in geological time. The early acquaintance with metals, no doubt in the form of native gold, detected as tiny glittering nuggets in river streams, may well date back tens of thousands of years. Similarly, native copper occurring in surface outcroppings of mineralisation will also have attracted human attention (when not distracted by the pressing needs of survival). Eventually people learnt that collected pieces of such metals could be easily hammered and fashioned, in the case of gold, into pleasing shapes and ornaments. But gold being so soft would have had no practical use for early people. Native copper, on the other hand, hardens under such hammering and working and gradually practical uses for this new material were also found. The chalcolithic (copper stone) period of human development gradually evolved. There was no significant growth in the practical use of metals until, slowly over thousands of years, humans learnt to control fire and to generate the high temperatures necessary to smelt copper from those same exposed areas of mineralisation which until then had yielded only native copper metal. Until quite recently it was thought that the cradle of metals’ usage originated in Anatolia (modern Turkey) and Mesopotamia (much of Iraq), the home of the highly sophisticated Hittite, Sumerian and later Babylonian civilisations. But even more recent archaeological evidence has emerged, indicating that early developments in the use of native metals, and eventually smelting, seem to have occurred in a variety of locations around the world and did not necessarily spread outwards from one single source. One place where there is no sign of early smelting is the area around Lake Superior in the USA. Here there is evidence that huge quantities of surface native copper were worked by the local peoples perhaps as long ago as 3000 BC. Even had there been any knowledge 1.1/page 1

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of smelting the surface deposits of naturally occurring metal were so extensive that there was perhaps no need. One of the most remarkable discoveries of early smelting was in 1965 at Timna in present-day Israel, just north of Eilat and west of the Wadi Arabah, which marks the border with Jordan. Excavations revealed evidence of primitive copper smelting operations originally dated to around 4000 BC. More recent research indicates the site may have been used for smelting as early as the 7th millennium BC. This area was also worked by the Egyptians in the late Bronze Age between 1000 and 2000 BC and later by the Romans. Other early evidence of copper mining and smelting some 6500 years ago has been uncovered at Rudna Glava in the Balkans. This is probably one of the sources of copper used by the Vinca people of that region, who made a wide variety of copper utensils, weapons and ornaments. A thousand years later Cyprus became a vital source of the metal which bears its name, in Greek cupros, in Latin aes cyprum. The island was occupied by many different peoples over successive thousands of years. The mines were worked steadily until the 4th century AD and finally, but briefly, again in the twentieth century. But it was the advent of the Bronze Age sometime between 4000 and 5000 years ago that rapidly promoted the manufacture and use of copper alloy artefacts and weaponry. Some of the early ‘accidental bronzes’ did not actually contain tin but antimony or arsenic no doubt derived from mixed orebodies. The true Bronze Age is, however, firmly associated with tin. Quite where the first tin came from is still a matter of conjecture. The most common source was certainly from alluvial deposits of cassiterite, the principal tinbearing mineral, found in the streams and rivers running down from granite uplands. Tin is not a widely occurring metal. Iberia, Italy, Saxony and rather later Cornwall may have been early sources of this metal. It is also quite possible that trade may have developed in tin from as far afield as Nigeria, South-East Asia and China.

1.1.2 Early metal trading The early history of serious metal trading almost certainly started with the Bronze Age. Demand for bronze burgeoned as soon as its remarkable properties had been recognised and developed. Today we can only speculate as to how such trade developed. But communications, in the broadest sense, were then, as now, the key. Early overland movements of goods of all descriptions, in the Near East for example, would usually have been by pack horses, mules, donkeys and camel caravans. Such caravans and similar movements would have needed armed protection and frequently would have 1.1/page 2

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paid tribute or taxes at different stages on their way to their ultimate destination. For countries with access to the Black Sea or bordering the Mediterranean, small coasters would have been the preferred method of transporting goods, especially metals such as tin and copper which occupy little space and are useful also as ballast. It is very likely that such coastal trade, rather like the inland caravans, would have resulted in goods changing ownership at many different trading centres or ports en route. Over centuries, patterns of trade will have so developed that the ultimate recipient of the metals may have had no idea as to its origins. Nor would the smelter and caster of the ingots have known the ultimate destination. Periodically, there were no doubt interruptions to supply, often through local wars or natural disasters. So trade was inevitably haphazard, unreliable and certainly risky. It is also germane to recall that, with few exceptions, the powers of the various civilisations which controlled such trade and which developed, expanded and eventually crumbled over the Bronze Age period and later, were usually centralised in a strongly hierarchical ruling elite or privileged priesthood highly dependent on toiling masses of indentured labour and supported, especially in areas such as mining, by vast armies of slaves. Early trade would have been conducted frequently by barter but there is ample evidence of various units of gold, silver and even lead for low values being used as a form of currency, along with precious stones, which in turn could also be used for profitable barter. Dependency on copper and bronze for a wide range of utensils, tools, weaponry and ornaments began gradually, from about 1500 BC onwards, to give way to the use of iron. The smelting of iron may have first been developed in Anatolia, possibly by the Hittites. It was certainly put to devastating effect by the warlike Assyrians who in turn gave way, after the ebb and flow of numerous battles, to the Babylonians. They were probably among the first to develop more sophisticated trading methods involving letters of credit and interest rate calculations. But the rise of the use of iron, as smithing and tempering skills improved, was increasingly in the forefront of new developments, especially in weaponry and tools. Usage of both copper and lead continued to flourish under the Romans, especially for roofing and pipes and various utensils. The more expensive bronze gradually fell out of favour but continued to be used for bellmaking and other decorative rather than practical purposes.

1.1.3 The not quite so Dark Ages Compared with the use of iron and early forms of steel, the principal non-ferrous metals tended to languish. Growth slowed. Leaping 1.1/page 3

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through the centuries, the collapse first of the incredibly long-lived Egyptian empire and the later retreat and fall of the Roman Empire led to the so-called Dark Ages. More than a thousand years were to elapse after the withdrawal of the Romans from Northern and Western Europe, including Britain, before non-ferrous metals were to regain some of the importance they had enjoyed during the Bronze Age. The centuries after the retreat of the Romans were not quite so dark as is often supposed and certainly not destitute of developments in mining. Among the Saxons there were mining specialists well versed in smelting and metal production and already exploiting deposits in their home and neighbouring territories. They brought their techniques to England during this period and redeveloped the tin and copper mines of Cornwall and Devon, and the lead mines of Derbyshire and along the Pennines. These had all been more or less abandoned after the retreat of the Romans. The old trading routes were gradually reopened, with tin and lead the principal products. But, until the beginning of the nineteenth century, the production of base metals across Europe was on a small and localised scale. Most deposits originally had surface manifestations, usually known to have been worked in Roman times and in some cases far earlier. Indeed the Romans themselves do not seem to have been prospectors. They seem rather to have been efficient exploiters and developers of already existing small-scale mining operations. A major problem in many mines was water and flooding of the workings. The Romans developed quite sophisticated methods of dealing with this and archaeological evidence of their ingenuity has survived to this day. But there were few situations where such methods were practicable. Indeed the Saxons in Germany used methods similar to those of the Romans until quite late in the nineteenth century. One of the most remarkable medieval scientific treatises, De Re Metallica by Georgius Agricola (the father of mineralogy), published in 1556 shortly after his death, describes several early methods of pumping out water; accompanying and fascinating woodcuts illustrate combinations of waterpower, hand-operated windlasses and treadmills turned by men and even goats.

1.1.4 The Industrial Revolution These practical but primitive methods of draining mines and thus allowing deeper workings did not begin to be superseded until 1712 when Thomas Newcomen, an ironmonger from Devon, designed and built the first so-called ‘beam engine’, effectively powered by steam, for pumping water out of mines. These engines were soon brought 1.1/page 4

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into operation throughout Britain and Europe. Mining was now possible on a far wider scale, especially for coal. A few years earlier, in 1709, Abraham Darby had already successfully experimented with coal’s derivative coke for the smelting of iron and had brought down the costs dramatically. James Watt some 50 years later famously set about improving Newcomen’s remarkable engine and in 1769 he and Matthew Boulton patented the world’s first true steam engine. There followed a succession of ingenious and practical industrial developments. By the end of the eighteenth century the Industrial Revolution was well underway with Britain leading the world. Steam power rapidly transformed all aspects of British ‘manufacturing’ and Britain’s resources in copper, lead and to a lesser extent tin were also now rapidly developed to feed the demand for engineering products needed for the new ‘Machine Age’. Centuries of cottage industry and rural tradition were rapidly swept away, but not without widespread social upheaval which brought in its wake frequent instances of violent resistance to change. The second half of the nineteenth century was a period of innovation, industrial development and change on an unprecedented scale. Initially, its development was slower on the European Continent. Germany was still a region fragmented into dozens of ‘principalities’. Eventually, the unifying forces of Prussian power and Bismarck’s realpolitik effectively welded Germany into one nation in 1871. From that moment Germany’s already developing industrialisation swiftly accelerated so that by the beginning of the twentieth century Britain had already been overtaken in the production of steel and chemicals and in the consumption of copper and zinc. The development of electric power and lighting was initiated by the ingenious experiments of the visionary Michael Faraday, a pupil of the remarkable Humphry Davy. Samuel Morse’s first telegraph line in 1844 led to a rapid expansion in demand for copper wire for this purpose, soon also for the transmission of electric power. Before long Alexander Graham Bell’s telephone and Thomas Edison’s electric light were beginning to penetrate into factories, offices and homes on a massive scale. Throughout most of the eighteenth and nineteenth centuries Britain, as earlier mentioned, had been at the forefront of innovation and industrial production. First the canals and then the railways were soon followed by the first iron-clad steamships. These transformed the methods of transportation of both goods and people. Along with these developments Britain’s consumption of copper, lead, tin and zinc had so dramatically expanded that its own mine resources were soon outstripped by demand. Already by the early 1.1/page 5

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nineteenth century Britain was importing increasing quantities of copper ores and concentrates from Chile, Cuba and Spain to feed the principal smelters in Swansea. By the middle of the century Britain’s copper mines, principally in Devon, Cornwall and Anglesey (Parys Mountain), were either worked out or unable to compete with cheaper imported raw material. UK copper production in the first decade of the century had been two-thirds of the entire world production, which was then estimated at a mere 12 000 tons. (Britain and later the London Metal Exchange used ‘long’ tons of 2240 lb until 1970, when the metric tonne of 2204.62 lb or 1000 kg was adopted.) By 1900 world mine production had rocketed to 494 000 tons but that of Britain had declined to less than 1000 tons. From being an exporter of surplus metal early in the nineteenth century, Britain had become a massive importer. In tin the picture was rather different. Annual Cornish production in the first decade of the nineteenth century averaged a mere 3000 tons per annum and a good deal of this was exported. By the end of the century, although Cornish production had doubled, imports had increased substantially to some 45 000 tons, mostly from Malaysia’s alluvial deposits but including 5000–6000 tons annually from Australia. Most of this material was processed in England and then re-exported to Germany, France and the USA. Only the Dutch were able to compete in the tin market. Their domestic smelters at Arnhem were fed with ores and concentrates from the islands of Banka and Billiton in the Dutch East Indies, now part of Indonesia. From the perspective of the interested observer at the beginning of the twenty-first century, the most astonishing aspect of the metal business a century earlier was the huge importance of lead and secondly zinc, which both far outweighed in tonnage terms the usage of copper. World production of lead at the beginning of the nineteenth century was already more than double that of copper, and this was still broadly the case even by the beginning of the twentieth century. Lead’s low melting temperature, easy castability and malleable properties encouraged its use, especially in Britain, for roofing, guttering, water pipes and sheet and pipe for the fastgrowing chemical industry. It was also virtually the only material suitable for sheathing power cables in the early days of electric power transmission. Apart from some deposits of calamine (a zinc carbonate), which had in earlier centuries been exploited and used in combination with copper to make brass, Britain had at this time no significant known deposits of zinc and was highly dependent on imports largely from Germany, Belgium and later Spain. Much of the physical trade in metals in the nineteenth century was focused on Britain as the rest of Europe lagged well behind. But 1.1/page 6

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1.1 History and background

Germany in particular stood out from the rest of Europe as having a significant mining and metallurgical history reaching back into preRoman times. This industry, especially in medieval times, had been particularly strong in precious metals, silver more than gold, as well as base metals, out of the Harz Mountains* controlled by the Hanoverians, and the rich Erzgebirge (literally ore mountains) of Saxony. Here, some 450 years ago, Georgius Agricola worked and studied ceaselessly on his great work De Re Metallica, referred to earlier. Silesia, which had been acquired by Frederick the Great even before the Seven Years’ War (1756–63), was to become an important source of the zinc-bearing mineral sphalerite later in the nineteenth century and onwards until the mid-twentieth century.

1.1.5 The merchants Much of the German trade in metals in the first half of the nineteenth century was fairly closely controlled by a number of banking families in many cases closely associated with the ruling dynasties. A classic example is the case of the private banking business of Liebmann Cohen which rose to prominence early in the eighteenth century. Much later, in 1881, the Frankfurt end of this business, which had prospered by concentrating on the metals and minerals business, was reorganised and renamed Metallgesellschaft. By 1914 it had so flourished that it had important branches in London (Henry Merton & Co.) and New York (The American Metal Company). Known as the ‘Octopus’ because its tentacles stretched throughout the Americas, the British Empire and Europe, it was typical, but on a grander scale, of the type of trading structure which became prevalent later in the nineteenth century. In the UK, copper production and trading in the nineteenth century were closely controlled by an association of Swansea smelters in South Wales, in which the ‘Octopus’ was also involved, where coal to fuel the smelters was abundant and where the port facilities were ideal for the importation of ores and concentrates. Lead and tin production similarly functioned very much like a loose cartel with the smelters, and in the case of tin the pewterers, controlling prices and production to keep a tight grip on the market. Zinc was mostly imported, initially from Germany and later also from Belgium and Spain, but again cartel conditions operated for much of the time. *The fabulous Rammelsberg mine in the Harz Mountains was originally discovered in the tenth century when a nobleman’s tethered horse pawing the ground disclosed a surface vein of rich silver ore. Rammelsberg continued producing silver and lead for over 1000 years and closed down finally only a few years ago. It is now a tourist attraction!

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Merchants played an important role not only in securing ores and concentrates from overseas for the domestic smelters, especially of copper from Chile, but as distributors for the resultant metal and products. Many of these merchants had good banking connections and maintained close international connections for trading purposes. But, whereas trade in the early part of the nineteenth century had been characterised by relatively stable prices, with Britain still a net exporter of copper, lead and tin, fundamental and far-reaching changes were already beginning to transform the pattern and pace of trading. As Britain soon became a major importer, the domestic smelters began to lose their close control over prices as their distribution networks became subject to growing competition from independent merchants and the agents of overseas producers. Secondly, the spread of the cable telegraph, first demonstrated in practice in the USA by Samuel Morse in 1848, was spreading rapidly. The fast packet steamers, which already in the 1840s had been bringing advance news and details of imminent shipments from Europe, the Far East and the Americas, were superseded by submarine cable links. The first to Europe were established in the 1850s. Isambard Kingdom Brunel’s SS Great Eastern laid the first rather fragile cable to the USA in 1866. Cable connections to India and the East followed in 1870 and to Valparaiso in 1874. The cable telegraph enabled details of shipments of metal or concentrate to be signalled days, weeks or months ahead of actual arrivals. Before this, metal trading business had been conducted by merchants and smelters’ agents very much on a prompt delivery basis as and when material actually arrived at the ports. The leading merchants and agents were mainly London-based but many of them also maintained branch offices in the leading industrial cities such as Birmingham, Glasgow, Manchester, Liverpool, Wolverhampton and Sheffield. Moreover, most of the domestic merchants were also stockists and handled a wide range of metal and metal products including pig iron. Obviously the quantities involved were minuscule in relation to today’s tonnages but the risks, although of a very different character, were certainly no less significant than today and possibly even greater. However, the margins of profit on which the merchants operated were also much larger, though a deal for 25 tons then would be the equivalent of 1000 tonnes today.

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1.2 The LME: development and structure 1.2.1 Development 1.2.1.1 The formation of the LME For hundreds, perhaps thousands, of years the various trades and businesses that catered for people’s physical needs and demands, at least in the major cities, had tended to cluster together. This was probably as true for the various city states of Sumerian and Babylonian times as it was for the City of London since the fourteenth century, where the names of some streets and lanes still carry a distant echo of the original trades once undertaken there. The Jerusalem Coffee House, first established in the seventeenth century, was the most prominent of a number of ‘coffee houses’ used by commercial interests, and was originally a meeting place for the many merchants engaged in Mediterranean trade. By the nineteenth century quite a number of the merchants meeting there were specialising in metals and ores with contacts throughout Europe, not just the Mediterranean area. Most actual business was more formally conducted in the neighbouring Royal Exchange where by the middle of the nineteenth century the metal merchants were already established in one of the so-called walks in the Exchange where they were accustomed to meet at 4 pm. A wide variety of metal products were dealt in, including tin and copper ingots, brass, lead sheet and shot. Dealings were chiefly for prompt delivery of physical material lying in particular warehouses, on quayside or ex some vessel just arrived in port. Much of the trade was in warrants or documents of title of various kinds, often with assay certificates attached. It is a remarkable feature of the non-ferrous metal trade, as true then as it is today, that certainly by the nineteenth century metal products could already be generally relied on to meet fairly uniform standards and to be of acceptable quality; this was less true of zinc, the quality of which was more variable. The determining factors were in those days far less precise and exacting than they are today but general expressions such as ‘good merchantable quality’ became part of standard dealing terms. The expansion of cable telegraph links, which were signalling information on arrivals often still some months away, naturally 1.2/page 1

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encouraged interest in forward dealing. All were keen to take advantage, as they judged it, either of current ‘low’ prices to secure material for future use, sales or distribution, or, in the case of producers and merchants, of ‘high’ current prices by securing forward sales at levels related to advantageous spot prices. Commission-earning brokers had already emerged late in the eighteenth century, and the importance of this species of trader grew rapidly as the nineteenth century advanced. Acting on behalf of both producers and consumers, the broker would negotiate specific deals on behalf of these clients with the import/export merchants and larger stockists. Moreover, as forward dealings grew, the merchants and brokers began to depend upon each other more and more. As forward dealing expanded, in line with the rapid improvement in communications, there developed a need to standardise terms and avoid the otherwise tedious necessity of finding specific buyers for the considerable variety of metal grades, ores and products regularly traded. The principal metals, as opposed to raw material and products already regularly traded by the 1860s, were Chile Bar Copper, Straits Tin and, rather more loosely defined, so-called Foreign Spelter.* Gradually there emerged recognised qualities and descriptions which could be relied on between merchants, brokers and customers alike. De Lesseps’ Suez Canal had opened in 1869 and the journey time for Straits Tin to reach Europe was reduced to about three months, roughly matching that for copper from Chile. Slowly, forward dealings began to be concentrated on three months ahead, but this did not become standard until 1888. The crucial point was that the merchants and brokers had gradually evolved, through their daily meetings and dealings, a rather rough and ready method of laying off or hedging most of the risk of adverse fluctuating prices, even if in so doing they were eschewing the possibility of fortuitous profit. Then, as today, one of the prime objectives of the true merchant or trader in physical metal, in contrast to the aims of the speculator, was to keep exposure to price risk to acceptable levels. The most urgent need was to lock in and secure profits and minimise where necessary any losses on the physical dealings. By the early 1870s the ranks of the merchants and brokers dealing in copper, tin, pig iron and, to a lesser extent, lead and zinc, had swelled. Dealing customs and practices had become pretty firmly established and daily business transacted between the merchants and brokers was also being regularly, though sometimes controver*The original word for zinc; of obscure derivation but probably indirectly linked to the word pewter, or in old French, espeautre.

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sially, reported in the various financial journals and by the telegraph companies. The leading metal firms decided that they should look for their own premises. In 1869 The Lombard Exchange and Newsroom in Lombard Street was opened. Membership fees were levied in exchange for rudimentary facilities such as secure lockers and use of a copying press. The metal trade firms were not the sole occupants of the Lombard, for it was also used by shipping and insurance brokers and a number of small general merchants. The new rooms soon became too crowded and again the metal trade moved. The London Metal Exchange Company was formed, first to hire then manage a new trading room at 4 Lombard Court. On 1 January 1877 the new exchange opened for business. Soon afterwards a telegraph ticker was installed and in 1880 the first telephone. The London Metal Exchange (LME) was now an official, formal entity. In September 1882 the by now well-established LME, governed by the directors of the recently formed Metal Market & Exchange Company Limited and a committee of subscribers, moved into new, purpose-built premises in Whittington Avenue. A further 105 years were to elapse before there was any fundamental change to the LME’s governing structure, and two further changes in premises occurred culminating in the move to the present prestigious building in Leadenhall Street in 1995. Further structural changes to management were introduced in the year 2000. This is not the place for more than a broad-brush picture of the history of the LME and its progress and development over more than 125 years. Aside from its general interest, much of it is relevant to an understanding of today’s market. But, were the ghost of an authorised clerk from 1901 to visit the present Exchange premises he would be struck by the similarity in the methods of trading: namely, open-outcry trading by authorised clerks seated in a circle of curved benches with all bids and offers addressed to the entire ring. Ordinary clerks stand behind to relay orders and confirm at the close of each ring the deals done with each of their counterparties. He would of course be astonished at the array of electronic gadgetry and the virtual instant access to customers and clients in every corner of the globe. And he might deplore the change in sartorial fashion away from morning dress. The establishment of a formal market for trading in base metals, initially only copper and tin (pig-iron was briefly traded but does not concern us here), resulted in dramatic changes in the way in which the market, in the shape of the new LME, was perceived and used. The original moves towards more standardised forms of contract had arisen, we have seen, through the combination of rapid growth 1.2/page 3

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in consumption and imports; the dramatic impact of the cable telegraph in the transmission of information, in particular regarding advance news of arrivals; and lastly the greater volatility in prices resulting from these factors. There was a pressing need for a more efficient means to hedge attendant price risks. As the ‘market’ in this sense evolved, a natural accompaniment was far greater price transparency. This took the form of daily reports by the press, and more rapid and widespread dissemination of prices by cable telegraph resulted in domestic consumers and overseas producers being more keenly aware of what was ‘going on’ in the market place. Some of the merchants resented this greater transparency on the understandable ground that it increased competitive pressure and weakened their profit margins. But there was no going back! The City of London by the end of the nineteenth century was the international centre of world trade in banking, finance, insurance, shipping and commodities and stood head and shoulders above the rest of the world in the provision of a wide range of financial and trade services. Moreover it had already acquired an unrivalled reputation for reliability, speed of decision and action, prompt and efficient payment and above all probity. Britain’s merchant marine was supreme and its international connections through its far-flung empire gave it unrivalled access to a wide range of markets for manufactured products, raw materials and services. By the early 1880s reporting of ‘official’ prices based upon the close of the principal ‘rings’ in each metal had become precisely formalised and much the same system operates today. Previously, reported prices had been used as a basis for ‘negotiation’. But now ‘official’ LME prices were soon adopted by all sectors of the industry, both domestically and overseas, as the actual price basis for a wide variety of spot and long-term contracts. LME prices relate only to the particular quality of each metal traded on the Exchange and strictly apply only to those brands of metal approved by the Exchange authorities and lying in specific warehouses similarly approved and listed by the Board and Committee. Even in the early days of the LME, copper and tin were traded on an ‘in warehouse’ basis but lead and zinc, which despite their importance did not attain full ring-dealing status until 1920, were traded on a cost, insurance and freight (c.i.f.) or ex ship basis. The daily fluctuations in official prices were, as today, largely ironed out, so far as customers and producers were concerned, by sales geared to monthly averages of the official prices related to shipping or delivery months. However, there had always been a very substantial tonnage of metal dealt in at fixed prices for prompt or relatively short-term delivery.

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1.2 The LME: development and structure

The function of the London market for international price discovery was already firmly established in the period leading up to the First World War. Indeed by that time the international reputation of the LME was at an all-time high. Its activities in those days were as complex a mixture as they have ever been. Britain, with its huge merchant fleet, was a major carrier of metals and ores from all parts of the world, and a brisk two-way business was conducted with Europe and the USA. Merchants and agents were arranging shipping, insurance and finance for metals on a substantial scale and were closely involved with these other activities of the City. Already before the First World War the LME had achieved, by any conventional yardstick, all the attributes of a successful international exchange. It had liquidity, assisted too by lively but more modest speculative interests, and its prices were recognised worldwide as representing fair value (although, as we shall see, they did not go unchallenged). It was the prime international market for metal price risk hedging. Furthermore, it was a market which had grown up with physical delivery as an essential feature of its structure. The delivery function was naturally enough an exclusively British affair. Given the circumstances of the time it could hardly be otherwise. It must also be remembered that the London merchant community, largely as a function of Britain’s significant entrepôt trading activities, held substantial stocks in LME warehouses. For example, in the years immediately before the First World War, LME stocks of copper in warehouses at the principal ports were as much as 100 000 tons and those of tin 20 000 tons. These were massive holdings in relation to UK and other European consumption in those years and underline the importance of Britain’s then role as a delivery point for surplus tonnages of metal and a source of supply at times of shortage. Additionally there was no provision in the LME contracts for an LME member to declare force majeure. There were some ‘fail-safe’ mechanisms available for the relief of sellers in the event, for example, of major port strikes inhibiting physical deliveries, but fundamentally LME members were obliged to perform against their sales commitments or to repurchase whatever the cost in terms of price. The same obligation to perform applies to this day. Only in the most extreme of ‘squeeze’ situations is there provision under the LME Rules and Regulations for the Board to step in and make special arrangements where artificial situations or clearly manipulative manoeuvres are severely distorting market conditions. Even so the obligation of a member to deliver, buy back or borrow against a sale is not removed, only alleviated or very temporarily postponed. The power and wealth of the British Empire was at its height. Industrially, financially and from an international trading perspec-

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tive it had no equal. In those circumstances it is not surprising that the LME did not face any significant challenge to its supremacy. The New York Metal Exchange was formed in 1883 but seems to have been largely ignored by American producers and consumers. Nonetheless it seems to have staggered on, so to speak, until it was merged with a number of other exchanges in 1934 to form the New York Commodity Exchange (Comex), which will come into the story later. A Hamburg Metal Exchange, formed in 1910, was structured along very similar lines to the LME and even permitted forward dealing up to 12 months ahead. It seems to have been rather successful; especially because a substantial arbitrage business developed between Hamburg and London to the benefit of both Exchanges. But the First World War saw its closure and no serious attempt was made to revive it after the end of hostilities. Markets purely for copper were also formed in 1911 in Le Havre and Berlin. The latter seems to have had some shortlived modest success but Le Havre made no impact whatsoever.

1.2.1.2 The First World War and after The Great War of 1914–18 was a colossal drain on the resources of all the countries involved and it marked also the beginning of the decline of the nineteenth-century empires of which Britain’s was the greatest and most extensive. But the institutions of the City of London, of which the LME was a fully fledged member, continued to prosper. For the LME, however, the interwar period leading up to 1939 was one of great uncertainty, challenge and adversity. The war had imposed enormous difficulties on the operations of the market. Extensive controls had been introduced and for most of the latter part of the war the government imposed fixed prices for copper, lead and zinc. All stocks were requisitioned. Tin was brought under total control only in the early part of 1918. The Great War also precipitated far-reaching changes in the structure of the mining and smelting industries. Demand for copper for power transmission and for telegraph cables had for some years been expanding rapidly. To meet the colossal demands of war, a huge expansion in copper production had been undertaken in the USA; also, largely under American control, in Chile, Mexico and Canada. In zinc, European production facilities had been mostly destroyed and the USA had doubled its own production to meet demand. Australian production, most of which had been controlled by the Germans, was now exported to the UK and domestic smelting capacity was expanded. Canadian production was also stimulated by the war. New areas of production were opened up as the old European 1.2/page 6

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1.2 The LME: development and structure

sources became exhausted or were inadequate to cope with the new demands. The Great War also saw the dismemberment of Metallgesellschaft, the ‘Octopus’, referred to above. The British and American tentacles of this huge trading empire were seized and effectively handed over to the British and American shareholders and senior employees. Metallgesellschaft’s stranglehold on the international lead market was broken and its Spanish and Australian links for zinc supplies were severed. The interwar years were marked by successive boom and bust. A brief period of optimism in the immediate post-war period, fuelled also by some pretty wild speculation, soon came to an end and 1920–21 brought the first world depression. The massive increases in copper, lead and zinc production had led to a huge stock overhang; the tin market was overwhelmed with excess metal and scrap of all descriptions was being recovered from battle-torn Europe. Currency crises and fluctuating foreign exchange rates were frequent, the most vivid example being the utter collapse of the German mark in 1922. Currency fears massively increased the degree of speculation in all commodities and especially in metals. The return to a gold standard in 1925 brought increased stability. A massive economic boom, however, was already underway in the USA, spurred by huge construction and electrification projects and by demand for the increasingly popular automobile. The post-war overhang of stocks was soon eliminated. But problems lay ahead and the great stock market crash of 1929 undermined confidence at all levels of society and worldwide depression ensued. Runs on the banking systems, and suspension of the gold standard by the UK in 1931 and the USA in 1933, triggered a succession of devaluations and wildly fluctuating currencies. Protectionism reared its ugly head with new tariffs, import quotas and bilateral trading arrangements. A classic example was the creation, in 1932, of imperial preferences within the British Empire. These favoured Australian and Canadian exports of lead and zinc to the UK with duty-free status and such metal was able to command a premium equal to the new 10% duty levied on ‘foreign’ imports. The impact on trading in these metals was immediately detrimental. First, the duty was ‘ad valorem’, which made life pretty difficult in a market of volatile prices. Much of the lead and zinc imported had hitherto been physically tendered against the LME contracts on an ex ship basis. As a result of the new tariff none of the metal enjoying imperial preference was now offered through the Exchange. Turnover slumped. Later the duties were mitigated and amended to fixed rates. By 1939 they were 7s 6d (321/2 p) per ton on lead and 30s (£1.50) per ton on zinc. These duties persisted until long after the Second World War and lingered on until well after the UK joined 1.2/page 7

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the European Economic Community in 1973. As a result, Canadian and Australian lead and zinc were now offered direct to consumers and other merchants off the Exchange. This change in selling methods away from merchanting to agency operations had already been developing in copper. The larger and more powerful American producers, even before the First World War, had introduced the practice of selling directly to consumers via agents and used the merchants only in extremis. In the interwar years, all the major international producers of copper began gradually to adopt this practice and appointed agents, such as the British Metal Corporation, to sell direct to consumers on their behalf on a commission basis. Often the agents appointed were the same leading merchants who had previously dealt outright with the same producers and had hedged their own price risks on the Exchange. As a result of these changes in selling methods the LME’s physical delivery function was steadily but significantly reduced to that of delivery as a last resort. This process was accelerated by the fact that the LME copper contract was no longer reflecting buyers’ now more exacting needs. The decline in physical deliveries was, however, compensated for by a significant increase in hedging business. This was especially noticeable in lead and zinc dealings which, prior to 1920, had usually by-passed the Exchange. Both metals had formerly been tightly controlled by powerful syndicates, not least the aforementioned, now truncated, ‘Octopus’, Metallgesellschaft. The dramatic impact of the Great Depression on base metal usage is best illustrated by Western consumption figures for the years 1929, 1932 and 1936 given in Table 1.1. These figures speak for themselves and also highlight the fact that copper consumption had only recently overtaken lead and zinc. The figures for lead also illustrate the relative resilience of this metal in times of recession. Recovery from depression was slow in coming but gradually from 1933–34 onwards consumption picked up. Prices, however, did not follow suit and remained depressed for most of the period until the

Table 1.1 Western world consumption (’000 t)

Copper Tin Lead Zinc

1.2/page 8

1929

1932

1936

1890 184 1676 1417

880 105 1086 823

1750 156 1446 1490

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outbreak of the Second World War in 1939. The reason for this was not hard to find. The boom period leading up to 1929, apart from gobbling up the earlier excess stocks, had also stimulated increased production capacity at many new low-cost mines and facilities in many parts of the world. So even when consumption began to recover new production was ready to take advantage of any brief surge in prices. The interwar years were also marked by a dramatic increase in attempts to control market prices. A number of cartels, support programmes and schemes were launched with varying degrees of success.

1.2.1.3 The Second World War and after With the outbreak of war, indeed immediately upon Germany’s invasion of Poland on 1 September 1939, the British Government promptly requisitioned all non-ferrous metal stocks, and all dealings in copper, lead and zinc at the LME were suspended. The tin market was already effectively controlled by the then International Tin Committee, a forerunner of the later long-lived International Tin Council. The British Government through its Colonial Office was a participant in this tin support scheme, so dealings were allowed to continue until December 1941, when the Japanese bombed Pearl Harbor and the USA entered the war. Acquisition, allocation, distribution and control of stocks remained for the duration of the war with the Non-Ferrous Metals Control, which in turn came under the aegis of the Ministry of Supply. LME Board and Committee members who were not on active service continued to meet; and also to plan for a resumption of free trading at the end of the war. Their hopes were soon dashed. The Labour Government, elected immediately after the war, pursued policies appropriate, as it was thought, to a ‘planned’ economy. State trading was deemed a fairer and more reliable method of meeting the postwar needs of industry and of ‘stabilising’ prices. One of Government’s concerns was to conserve foreign exchange, principally US dollars, by concentrating on purchases in the Sterling Area, i.e. the Dominions and Colonies. State trading was, of course, a feature of all the ‘closed economies’ of the former Soviet Union (FSU) and its principal ‘satellite’ countries, e.g. Poland, Czechoslovakia (as it then was), Hungary, Bulgaria and Romania. Britain’s economy was not ‘closed’ at all, but a strict exchange control regime was in force. It is indeed salutary briefly to examine how state trading worked in practice. What were its limitations? Were there advantages? Licensing arrangements had been in force throughout the war and these were continued afterwards, 1.2/page 9

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ostensibly to ensure that supplies went only to those genuinely needing metal for approved manufacturing purposes. How to price the metals was the principal problem. During the war, fixed price contracts had been arranged by the Ministry of Supply with the principal Dominion producers. Similarly with the USA where price controls were also in force and where production in copper, lead and zinc had been hugely increased. The contracts with the Dominions came to an end in 1945, even before the war was over, and the Ministry of Supply thereafter relied on the huge stockpiles of copper, lead and zinc that had been accumulated. These were run down steadily but the last remnants were not finally disposed of until the 1960s by what was by then called the Board of Trade. Next, the Ministry of Supply had to compete for supplies with the buyers emerging from shattered Europe; and especially with the USA, where the economy was in strong recovery and wartime stocks had been eliminated. While world prices were rising, and with New York quotations the main price guide, the Ministry was frequently lagging in its purchases and losing out to overseas competition. It then faced criticism for rationing supplies and generated complaints from the ‘have nots’. Conversely, when world prices were sliding, the Ministry was invariably too slow in reducing its own fixed prices to UK consumers. These then complained they could not compete with overseas products. The prices being generated in the USA moreover were far from reliable. They were composed largely from reports from the major custom smelters, i.e. smelters who relied on purchased concentrates, and from the leading primary producers. US producers, especially of copper, were heavily integrated with downstream fabricating plants and, at least for their domestic market, maintained producer prices which remained fixed for long periods of time. In the 1930s, these producers had been instrumental in persuading the Engineering and Mining Journal (E&MJ), the leading American publication of its type and highly respected, to publish regular prices drawn and compiled from the producers’ own sales reports. These ‘weighted averages’ were reported by the E&MJ on a daily and weekly basis. They were effectively a direct reflection of the producers’ own wishes. But these published prices did not at all reflect what was going on at the margins. For, wherever fixed prices are reported, you can be sure that a ‘grey’ market will be operating either below or above those otherwise ‘reliable’ prices. It was not long before the Ministry of Supply threw in the towel on its fixed price policy and began to follow those New York market prices as published by the E&MJ which were allegedly related to the ‘world market’, as opposed to the more cosy US domestic pricing arrangements. This new ‘flexible pricing’ strategy ran into fresh dif1.2/page 10

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ficulties. The Ministry of Supply was inevitably in the business of holding substantial stocks of all the metals. Now it found itself with a much clearer exposure to price risk, losing money on its stocks when prices fell, scrabbling for supplies when prices rose and rarely finding the so-called New York prices relevant to actual purchase prices. Above all, fabricators, consumers and the important scrap trade were similarly exposed to the price risk on their stocks. They faced the ongoing difficulty of matching sales and purchases to avoid trading risks and were bereft of any means of hedging. In Government’s case it was the taxpayer who would have to pay for any losses at the Ministry of Supply. Industry enjoyed no such ‘luxury’. One of the principal official reasons for the refusal of the British Government to permit the reopening of the market was the fear that foreign exchange reserves would be endangered and that free market prices would be open to speculative manoeuvre. Following the Bretton Woods Agreement, it was also a period of fixed international exchange rates anchored to the now mighty US dollar, but there was still inadequate means of preventing weak currencies being traded at discounts in the unofficial offshore markets. The foreign exchange argument was less applicable to tin, however, since Malaya was part of the Sterling Area. By 1949 tin was back in comfortable supply and the September devaluation of the pound meant that there was no longer any ‘cheap’ unofficial sterling sloshing around in the international money markets. Discount sterling had been used to buy goods in the Sterling Area for export to the USA with payment in US dollars at the higher official exchange rate. This practice was called ‘shunting’ and thrived in the world of artificial, fixed rates of exchange if there were no adequate safeguards; and usually there were not. The tin market reopened on 15 November 1949 along with special regulations laid down by the Bank of England to grant approved merchants and dealers a degree of freedom from the exigencies of exchange control. Dollar receipts had to be declared and there were trading restrictions to safeguard against leakage of sterling earnings through the ‘shunting’ practice referred to earlier. Confidential monthly returns had to be made to the Bank of England and these arrangements came to be known as the ‘Metals Scheme’. In later years there came some relaxation in the strictures of this ‘scheme’ but it continued in force until exchange control regulations were finally scrapped in 1979 as one of the first acts of the new incoming Conservative Government under Margaret Thatcher as Prime Minister and Geoffrey Howe as Chancellor of the Exchequer. The ending of exchange control regulations was a necessary precondition for Britain’s economic rehabilitation and recovery from 1.2/page 11

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being the ‘sick man of Europe’, and it can be strongly argued that those 34 years of post-war exchange control did far more harm than good. With the advent of a Conservative Government in 1951, the pressure for markets in copper, lead and zinc to be opened up increased. But the decision to do so was slow in coming. Eventually the lead market reopened on 1 October 1952; zinc on 2 January 1953; and finally copper on 5 August 1953. The Ministry of Supply had by now been renamed the Ministry of Materials and, as each metal was freed, it terminated its contract arrangements with Dominion and other suppliers and abandoned the tedious licensing arrangements that had so restricted and hampered industrial usage. Price controls, licensing of metal usage, export controls (apart from some forms of scrap) and state trading with all its bureaucratic inflexibility and burdensome regulation were at an end. The markets and industry both in the UK and in Europe began to breathe more easily. At last the British metal trade was again able to make a positive contribution to the earnings of the City of London and add to the country’s invisible earnings. State trading had made no such contribution and had hampered rather than facilitated Britain’s post-war industrial recovery. As merchants, agents, brokers and LME settled down to free trade once more, there gradually issued forth a collective sigh of relief.

1.2.2 Price determination and control But there were soon fresh dangers looming for the reborn LME and the international merchant/broker community. Over the near 130 years of the LME’s existence old battles have been fought and refought often with new weapons but invariably on the same territory. The hoisted warning signs signalling some new conflict have never been banished from the field, merely lowered from time to time following each successive defeat, out of the line of vision. These recurring battles are inevitably over prices. Who or what should determine them? Governments, with wise administrators sitting in high places? The producers themselves? Or the free market with or without a formal market mechanism, such as the LME, matching buyers with sellers and a medium for physical deliveries in times of oversupply and a source at times of shortage? Where there is no identifiable transparent and independent marketplace, other price ‘benchmarks’ are sought. These may derive from prices quoted by the acknowledged market leaders or from compilations of reported prices published in leading trade journals such as the E&MJ or Metal Bulletin. 1.2/page 12

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As we have already observed, government-controlled and determined prices can only be effective within a totally enclosed economy and even then the long-term efficiency of such a system is highly questionable. A country such as the UK, significantly dependent on overseas supplies and export markets for its goods, has no hope of even short-term success. Intergovernmental coordinated activity in determining prices, however, has had some success. In the case of lead and zinc this took the form of tacit rather than overt support for producer cartels in the years before the First World War, but not since. Copper, and the later additions to the LME’s quiver of contracts, aluminium (1978) and nickel (1979), have never been the subject of governmental interference, except as a result of war, although stockpiling by governments, e.g. the USA, has had sometimes a dramatic impact on prices. European governments were however tacitly supportive of aluminium cartel pricing arrangements prior to the establishment of the LME contract and yearnings for a return to such a regime have been covertly expressed from time to time; but less so in recent years as competition laws have been strengthened. Tin is the metal that has been the subject of most governmental attention, ultimately with disastrous results (see Chapter 7). The history of some of the key attempts to influence and control prices in the major base metals, and their implications for the LME, is given in the chapters on the individual metals. However, a few further general observations may be pertinent and helpful in laying emphasis on various aspects of actual and attempted price controls dealt with in these succeeding chapters. As a general rule, the larger the scrap factor, as a proportion of old to new metal available to the market on an annual basis, the greater will be the difficulty of controlling general price levels. Lead has the highest annual proportion of scrap to new metal and, as a result, has been the subject only of desultory and temporary attempts at price control since the 1950s and not at all in the past 35 years or so. The very high annual recovery proportion of scrap lead can be largely attributed to the phenomenal growth and turnover in car and truck batteries since the 1920s. All attempts to dominate prices motivated by greed have ultimately failed. There have been occasions when shortlived success appears to have been achieved but this has invariably been succeeded by reversal. In such cases the market has usually been left in a worse state than before the ‘exercise’ was begun. Where, in the case of producer-inspired attempts at controls, ‘stability of price’ has been the objective, and the will of the free market has been ignored, the results have proved expensive; especially when the ‘stability’ sought has been at price levels above those the 1.2/page 13

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‘true’ market could bear. When producer prices have been established, and persisted in, below the level of the free market the results have been not just expensive but disastrous. The ‘cheap’ producer prices for copper during 1964–66, and the insistence of nickel producers in maintaining a relatively low price for nickel in 1969–70 when the ‘grey’ market was booming, are stark instances of this.

1.2.3 The structure of the LME The Tin Crisis of the 1980s (see section 7.3) dealt a body blow to the entire tin industry and there still linger on faint echoes of that damaging 29-year reign of interference with free market mechanisms. For the LME, the crisis caused a number of members to leave the Exchange. It was also the trigger for a series of radical changes to its management structure and operations. These had already been subjected to intense scrutiny from outside, not least because the Tin Crisis coincided with the imminent introduction of the Financial Services Act 1986. Earlier in 1985 the LME had already embarked on an examination of its structure with a view to changes. The Tin Crisis and the new financial ‘watchdog’, the Securities and Investments Board (SIB), since replaced by a more comprehensive body, the Financial Services Authority, dramatically influenced and accelerated this process. The old Metal Market and Exchange Company Ltd was involved in legal wrangles, so a new company, the London Metal Exchange Ltd, was formed to take over the running of the LME’s affairs. The Board of Directors of the new LME was now, for the first time, elected by its members, not ‘appointed’. The new company formally took over the assets and management of the former governing body on 31 July 1987. All the functions of the Exchange were as beforehand except for two features: the tin contract was still suspended; and a clearing system for all forward dealings on the LME had been smoothly introduced in May of the same year. Prior to this, and since 1877, all dealings between ring members, i.e. those authorised to sit in and transact business in the ring, had been conducted on a principal-to-principal basis with no settlement of commitments between members until the maturity date of each contract. Official dealings between the ring members were restricted to three months forward. However, the LME’s new clearing system, the mechanisms of which are operated by the London Clearing House Ltd (now LCH Clearnet Limited), differs remarkably from any other formal system. The LME’s arrangements worked out with the London Clearing House (LCH) ensure that no profits arising from forward contracts

1.2/page 14

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are payable until the due dates. Forward net losses on the other hand are covered by bank guarantees lodged with the Clearing House on behalf of each member. These are used to cover initial and adverse variation margin requirements. Initial margin is usually some 8–10% of the value of contracts and represents the likely maximum by which the price of a metal might fluctuate in the space of 24 hours. Adverse variation margin is the actual amount by which at any time during the currency of the contract a purchase or sale may have lost value. The cost of the bank guarantees can be kept very low because there should be no requirement for such guarantees to be drawn down, or ‘called in’, except in the event of a major failure, default or some undefined emergency. The principles of this system were worked out in consultation with trade and industry representatives. The system is highly acceptable to the industry because it means that the brokers are able to provide their customers with broadly the same credit facilities as before. Clearly, such credit facilities need to be appropriate to the financial standing of the customer, who similarly must assess the status and financial calibre of his or her broker. Members are also entitled to pay cash in lieu of extra bank guarantees. Since the LCH is forbidden under the rules to pay out any forward profits to members, this means the LCH can return a fair commercial rate of interest on any such cash lodged as security. The system has worked remarkably well. It has given confidence to the members who know that they cannot be damaged by the failure of another member since the LCH is standing as security. The strength of the new system has been welcomed by all. As a result, the ring and clearing membership now includes powerful banks and financial institutions. Other large investment-oriented bodies, namely the big funds, have also been attracted to the facilities of the Exchange. They appreciate the safety of the system and the volume and liquidity of the Exchange’s contracts. From time to time there has been criticism, levelled mainly by industrial users, at the influence on prices that the big funds have sometimes exerted. But on balance their presence has been benign. Above all they provide considerable additional liquidity to the market and this redounds to the advantage of the trade users. Moreover, with the introduction of the Clearing House the LME was able for the first time to determine precise turnover figures. In practice these now exaggerate the volumes since they take account of every single short-term adjustment. Although these are strictly turnover they may multiply the ‘real’ turnover, i.e. the volume of outside orders, by as much as three or four times.

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1.2.4 Contracts The LME has always been a trade-oriented market. While it has tolerated, indeed welcomed, the speculator, it has first and foremost sought to tailor its contracts to the needs of its industrial and trade customers. This has not always resulted in changes to LME contracts in a timely fashion. For example, there have frequently been arguments between members of the Exchange over the sometimes conflicting issues of quality and physical liquidity. The extremes of the two main schools of thought can be summarised as follows. There are those, usually producers and users of high-quality metal, who argue that LME contract specifications and deliveries should reflect only the best. The extreme opposite of this view is taken by those who believe that the LME’s contracts should be based on the lowest common denominator in terms of grades, and yet permit the higher grades also to be delivered at the same price. This theory holds that a wider range of qualities deliverable under any contract will improve liquidity and help prevent so-called ‘squeezes’ and price manipulation. The chief disadvantage of the ‘high-quality’ contract is that there may not be enough of it to meet both the physical requirements of industry and the needs of a marketplace such as the LME in times of shortage. In this case the price could be forced so high that prices become totally unrepresentative and industry grinds to a halt. In a sense this is what happened during the Secretan Corner (see 3.3/ page 4). The Chile Bar, admittedly, was of low quality but it was the only material permitted as a good delivery against the rather primitive LME contract at the time, and there was simply not enough of it. The Secretan Corner was so extreme that the LME widened the delivery options to permit delivery of other types of copper against a new contract for ‘Good Merchantable Brands’. These included, besides higher qualities, even lower grades down to 93% (the Chile Bar was 96% copper). The flood-gates were opened and the Corner was broken. The shift from an extremely narrow contract to an excessively broad one had served its purpose but in the longer run it paradoxically still left the market vulnerable to manipulation. In practice it made the LME’s copper contract even less representative of the mainstream tonnages of higher-quality copper which were being demanded by the rapidly growing electrical industry. It was not until 1963, ten years after the reopening of the Exchange after the Second World War, that a radical change was made to upgrade the quality of the LME copper contract specifically to the then principal internationally traded shape and quality, namely the wirebar. This was immensely successful but the LME Board and 1.2/page 16

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Committee at the time were clearly not convinced that it would be so, for they also launched simultaneously two separate contracts for cathodes and for fire-refined ingots. The cathode contract had modest success, but the fire-refined contract sank without trace and never actually traded. This lowest common denominator had, in practice, zero liquidity! The lesson also learned from this, but still not universally endorsed, was that a market primarily concerned with providing hedging facilities, a price discovery process and a delivery function of last resort needs liquidity. And ideally only one contract. Two contracts, unless one is totally ignored, will tend to split liquidity. These arguments and the opposing camps were still alive and well in the late 1970s and early 1980s, when production of wire rod was already rapidly shifting from the wirebar rolling mills to new continuous casting processes using high-quality – mostly primary – cathodes, not poorer-quality secondary cathodes. The first change in 1981 was a smooth transition, when the LME, somewhat arbitrarily but quite correctly, permitted selected brands of higher-quality cathodes to be delivered against the wirebar contract. This worked well until eventually it was found that wirebars were languishing in the LME warehouses and were debasing the contract. Also the wirebars were mostly either in a useless location where there were no longer rolling mills, or of an unpopular, uneconomic size (90 kg). High Grade cathodes stood at high premiums and were not being delivered to the market. In other words, the hybrid contract was turning back into a wirebar contract just when the physical trade was looking more and more towards cathodes for continuous casting. The argument then literally raged back and forth over various solutions. In practice the debate was between two, quite deeply entrenched, opposing camps: those who wanted a High Grade cathode contract with either the wirebars eliminated or trading on a separate contract, and the opposition who proposed a reversion to a standard ‘catch-all’ contract, where all qualities of cathode as well as wirebars and (unbelievable as it now seems) fire-refined copper could be delivered, all without any price differential. In the event a last-minute compromise was worked out. The decision was to create a new contract called Grade ‘A’ for all the highergrade cathodes plus the four main brands of primary wirebars. The remaining wirebars were lumped together with all cathodes to create a new Standard Contract without any price differential. The danger was that liquidity might be split between the two contracts. The contract was launched late in 1985. Fortunately, the Grade ‘A’ contract was swiftly adopted by the producers as their pricing basis. The Standard Contract eventually faded into oblivion. Many years later, 1.2/page 17

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the virtually obsolete wirebars were also eliminated, leaving the copper contract as pure Grade ‘A’ cathode as it is today. As we have noted earlier, the LME aluminium contract did not begin to function reliably or acquire substantial liquidity until it had been upgraded to reflect the mainstream internationally traded grade and shapes. Nor did it even begin to function confidently until the original lower-grade contract had been put to the sword. These two hard lessons had been learnt from the experiences in copper a few years beforehand. Two contracts in the same metal split liquidity and weaken both contracts. Such an arrangement appeals to no one other than the professional manipulator. Indeed there had been earlier messy examples of two-tier contracts in zinc, tin and silver many years beforehand but the appropriate lessons had not been drawn. The second lesson is that a low-grade ‘catch-all’ or Standard Contract does not attract liquidity, debases the pricing mechanism and becomes disengaged from the realities of the trade. If any LME contracts were to show signs of such disengagement from the realities of the physical trading world and the requirements of industry, then alienation of the trade from use of the market may follow. Industry needs to be able to rely on LME contracts. There is no other truly international realistic viable medium at present. Nymex, whose division Comex has historically traded base metals since 1933, has in practice only one workable contract and that is in copper. Even this one is not popular with industry because of its onerous clearing system. This is based upon the payment of cash for the settlement of initial and daily variation margin, although certain blue chip bills can be used for initial margin. It pays out all future profits immediately and this requires cash payment of future losses simultaneously. This is done on a daily basis. It is ideal for the speculator, but is distrusted by industry’s cash flow-conscious company treasurers. Nonetheless Nymex’s Comex division has managed to retain a firm grip on the pricing of copper and copper products in the North American domestic markets. This grip became firmly established following the gradual disintegration, over the period 1978–82, of the US copper producers’ fixed price selling policy and system. Until then its success had been based on active US merchant exploitation of the differentials between US producer and free market price levels, and the requirements of the scrap market. Arbitrage activity between the LME and Comex also used to constitute a significant volume of Comex’s turnover. This has suffered since the introduction by the LME of warehouses for copper in the USA. Nowadays the arbitrage has a more physical character to it, reflecting the occasional opportunities for profitable switching of 1.2/page 18

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metal between Comex and LME warehouses and trading these differentials between the two markets. Comex also introduced, some years ago, an automated electronic dealing system called ‘Access’ intended to operate outside the normal ‘open outcry’ floor trading hours. The object was to access trading activity particularly in the Far East and Australia when both New York and London are still ‘asleep’. To assist them in this Comex established links with the Sydney Futures Exchange. Usage of the Access system did not, however, develop as hoped. Historically, Comex also had contracts for lead, tin and zinc, but these fell into effective disuse after the Second World War. Indeed it is doubtful they enjoyed much usage even before the war. An attempt was made to reintroduce a zinc contract in the mid-1970s but this was not a success and died within two weeks. Successive attempts have been made at introducing an aluminium contract over the past 25 years but none of these has been successful, including the latest effort launched in 1999. For many years there has been a Shanghai market for non-ferrous metals. It is especially active in copper. But China has exchange controls in force. There is no free liquid foreign exchange market, so the Shanghai exchange is fundamentally a domestic market only. However it conducts its business by an electronic automated system. The upshot of all this is that for virtually all international base metal trade there is, as yet, still only one viable marketplace. On the LME today, the contracts in aluminium, copper, zinc and nickel are all highly successful and active. Lead, however, continues to suffer from its lowest common denominator contract; and no one seems to have the will to change it. But there is little doubt it could benefit from the use of realistic premiums to attract, at times of need, the higher grades of this metal. Tin, nowadays the weakest performer aside from aluminium alloy, is likely to fall more into the hands of the merchants than directly pleases the tinplate industry. Despite its higher value and important past, it is looking more like a minor metal! Moreover, with Singapore approved as a warehouse delivery location for tin in 2002 and more recently Busan and Gwangyang (South Korea) and Johor (Malaysia), the alienation and disengagement referred to above may be accelerated. This leads us on nicely to warehousing issues which have always attracted much attention, especially in recent years.

1.2.5 LME warehousing policy Prior to 1963 the LME’s approved warehouse delivery locations were exclusively in the UK. Viewed from the early twenty-first century, one wonders how the market could have functioned. But two world 1.2/page 19

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wars were one reason. Also, before the first, Britain was the centre of physical trade. Between the wars the financial and currency markets were in turmoil. So it is perhaps not so surprising that it took ten years from the reopening of copper in 1953 before radical change was deemed appropriate and European warehouses were developed. Copper was the first; the other metals later. The LME’s warehousing facilities on the European continent developed slowly at first but then spread with great rapidity throughout the major ports. Europe after all was a net importer of all the base metals, so LME prices could still be deemed representative of broadly c.i.f. values of physical metal. In practice there were always premiums for the better qualities, or at least since the mid-1970s. The first move outside Europe came, after some years of frustrating debate, with the establishment in 1986 of warehouse facilities in Singapore. Japan had been approached first, but for a variety of reasons, high tariff barriers being one, industry decided against. A few years later, however, the Japanese aluminium industry, which imported virtually all its needs, and where the duty was only 1% (now zero), agreed to warehouses strictly for aluminum only. The Singapore warehouse location was for all the base metals with the signal exception of tin. Singapore, after all, is virtually in the centre of an historic tin-producing area. Although Malaysian mine, or rather alluvial, production is now a mere ghost of what it was, neighbouring Indonesia, with the famous locations of Banka and Billiton, is still a major producer, as is Thailand. The LME’s original policy regarding overseas warehouse locations was that they should be focused on areas of significant net consumption of those metals approved for delivery. Singapore did not fit the criteria in respect of tin then; and, despite local increases in tin consumption, probably still does not. From Europe, Singapore (1986) and Japan (aluminium only in 1989), the LME warehouse system then spread in 1991 to the USA for all metals except copper. Locations were restricted to the industrialised areas of the eastern seaboard and the Mid West. Copper was excluded because it was feared that LME warehouses in the USA might damage the NY Comex copper contract and impact adversely on the active arbitrage business between the markets which provided valuable liquidity to both.

1.2.5.1 Long Beach and Los Angeles On 9 November 1994, the LME Board announced that LME warehouses for copper were to be established in the USA. The locations selected were on the East Coast, the Mid West and, far more controversially, on the West Coast at Long Beach and Los Angeles. 1.2/page 20

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1.2 The LME: development and structure

At this point it should be stressed that one of the prime reasons for spreading the warehousing network to the USA was that the LME should thereby gain further important, incremental and structural strength through delivery points in areas of significant net consumption. One of the LME’s long-term objectives has been to find user-friendly means of abating natural or manoeuvred squeezes. Warehouses in areas of significant consumption would allow local consumers and merchants in the USA the facility to deliver against the LME contract, especially at times of backwardation, without incurring the high costs and time delay of shipping to Europe or the even longer delay of shipping to Singapore. But the inclusion of Long Beach/Los Angeles was in reality a major blunder. Although the USA is a net consumer of copper, the chief areas of consumption are along the East Coast, in the Mid West and to a lesser extent to the South and South East. The major US primary producers and their smelters and refineries are located in the West, mostly in Arizona, New Mexico and Utah. Long Beach and Los Angeles on the West Coast were at that time important ports for frequent exports of copper from the USA to Japan, China, South Korea, etc. when the premiums in those locations are high. LME prices are the basis of all international copper contracts. Moreover the LME price has been historically and consistently higher than Comex. So, high premiums over LME in the Far East meant that LA/Long Beach was popular for exports to that region. For example the sea journey to Japan is only two weeks or less, but from Chile or Peru it is five weeks. Meanwhile the USA would also import copper from Canada; and from elsewhere, through New Orleans and via the main East Coast ports. The inevitable happened. Comex had approved warehouses located virtually next door to most of the US producers. Accordingly, Comex prices for copper had for years reflected values similar to ex refinery at producers’ plants. With LME prices at a significant premium over Comex, US producers and merchants could sell US producer metal on the LME and deliver to Long Beach more advantageously than to domestic customers in the Mid West. Metal already in the Comex warehouses was also taken out and delivered to LA/Long Beach. These two warehouses effectively captured copper that might otherwise have gone to the Far East; and much additional metal besides. By the end of 1998 total LME copper stocks were 635 525 tonnes and by the middle of the following year were well over 750 000 tonnes. Virtually half of that entire LME stock was in Long Beach and Los Angeles. Eventually, the LME took the unprecedented step of putting a ‘cap’ on further deliveries into these locations. A slump in world copper 1.2/page 21

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prices was already under way, and soon heavy production cuts and mine closures were being announced in the USA. Thereafter LA/Long Beach stocks began at last to be drawn down by domestic users as the cutbacks in US production began to bite.

1.2.5.2 Warehouse charges In the post-war period up until the mid-1970s, LME warehouse stocks in the four base metals then traded had never reached significant numbers. But following high prices for most metals in 1973 and the early part of 1974, stocks in most metals, but especially copper, rose to unprecedented levels. By 1978 warehouse stocks of wirebars and cathodes were not far short of 650 000 tonnes and the warehouses were earning considerable sums in rent; and when the metal eventually was delivered out of warehouse they earned more money on the redelivery charges. These surpluses of copper and other metals triggered competition among warehouses to attract metal to earn rent. Most of the metals are dense and heavy and take little space – aluminium being an exception. Charges for putting metal into warehouses were virtually eliminated as merchants forced the warehousemen to compete. These warehousing ‘games’ tended to die out in the early/mid-1980s as demand grew and warehouse stocks declined. Then in the early 1990s, following the collapse of the FSU there was a huge increase in exports of metal to the West, particularly aluminium, but also zinc, nickel and lead. There followed a vigorous expansion and commercial exploitation of LME warehousing facilities on an unprecedented scale. A competitive free-for-all developed over attracting metal to storage facilities. There has always been an ‘ebb and flow’ in the tonnages of metal in warehouse, but by the late 1990s warehouse owners and merchants were actively negotiating. In many cases the warehousemen agreed not only to waive all the ‘official’ delivery charges to inwarehouse but were also under pressure to subsidise road, rail and even ocean freight charges. These ‘subsidies’, often outright payments, were financed or defrayed by merchants and finance houses agreeing not to move metal out of the warehouses for such period of time as would allow the warehousemen to recover their ‘expenses’ through the rent earned. In addition, there grew up the practice – starting in the USA, but soon spreading to Europe – of sharply escalating the charges for taking metal out; far beyond real costs. As a result, the balance of advantage in LME warehouse deliveries is now heavily weighted in favour of those putting metal into warehouses at the expense of those taking metal out. In emulation of the example of LA/Long Beach, there also developed the practice of diverting 1.2/page 22

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surplus metal to other more remote and outlying European locations from which there was less likelihood of demand until stocks in more popular and convenient warehouses were exhausted. This ‘dislocation’ of stocks, plus the far higher cost of removing the metal from the warehouse and then transporting it to where it was really needed, had the effect of dramatically raising premiums to the fabricating industry. If the problem of hugely escalating premiums is not addressed, the danger arises of disengagement and alienation. The custom smelters and fabricators in all metals are the most important sources of regular day-to-day hedging liquidity for the LME. These regular users increasingly find themselves disenfranchised by a hedging medium the pricing basis of which has become, like some of the warehouses, seriously remote from the real physical world in which they operate. One method of solving this problem would be to change the rules of physical delivery under the LME base metal contracts from an ‘in warehouse’ to a ‘free on truck’ basis. Such a move would be in the long-term interest of most users of the market, and help significantly to realign LME prices for each of the metals with broad c.i.f. delivery values. Locational premiums for physical would remain and fluctuate as usual in accordance with supply and demand, but the damaging distortions arising from current warehousing practices and exorbitant ‘in to out’ charges would be largely eliminated. It is notable that the new Plastics contracts launched in the LME in May 2005 both feature physical deliveries on an f.o.t. basis.

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1.3 The current position and the future Despite the threat posed by ill-placed warehouse locations and high charges, over which the LME authorities have so far failed to act, the market’s relationship with the base metal trade is nonetheless as good as it has ever been. There are always disadvantages and difficulties experienced when, on occasions, free market prices go through bouts of fluctuating alarmingly and even irrationally. But as has often been said in other contexts, the alternatives are without question worse. Producers in particular now seem to have recognised this. Indeed, it is remarkable how the aluminium and nickel producers, so horrified at seeing their cherished and relatively stable producer prices first undermined and then destroyed, have come to terms with the LME. Both are today active users of the Exchange’s contracts and regularly participate in the LME discussions and decisions that concern them. Primary producers, with few exceptions, seem at last to have a far better understanding of the free market mechanisms than was the case 25 years ago. Forty years and more back in time there was not only widespread ignorance as to how they worked, but often implacable opposition to their very existence.

1.3.1 Contangos and backwardations Thirty years ago many of those working for producers even in the four long-established LME metals of copper, tin, lead and zinc believed that a contango market, i.e. when the forward price is higher than the spot or cash price, was an indication that the ‘market’ expected higher prices in the future! In practice it usually indicates an existing or worsening over-supply situation, and lower prices. Producers have also learned the most important lesson of all: that contangos naturally encourage hedge selling. In the past, many producers have made the mistake of succumbing to fabricator and merchant requests for early quotational periods on their long-term supply contracts during ‘contango’ conditions. Such early pricing allowed the fabricator to ‘earn’ part or all of the contango until they had to pay for the metal on arrival. Merchants were the educating force in this respect. But the impact of early pricing was to encourage hedge selling. Prices naturally became 1.3/page 1

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1 The base metals markets

more depressed, and would stay that way until demand improved or producers cut production in order to redress the over-supply position. The temptation for the producer was that merchants and fabricators would pay higher premiums for early pricing facilities. Unfortunately the hedge selling generated by early pricing tended to lower prices by far more than the premium gained. As a general rule today, producers, custom smelters and fabricators seek to align their quotational periods with expected months of arrival or even later. For, if a backwardation arises after a long period of contango, early quotational periods can be seriously harmful for both custom smelters and fabricators. To price metal on the basis of the LME average of the month before shipment during a backwardation results in buyers finding that they are paying the high cash price for metal which may not arrive for a further two months. And to find oneself having to hedge sell, in backwardation conditions, i.e. at a forward price lower than the spot price, is a quick way of losing large amounts of money. Producers have also become acutely aware that just as a contango encourages hedge selling and indicates an over-supply position, a backwardation indicates shortage; a tightness in supplies especially for prompt delivery. A backwardation, in effect, encourages hedge buyers and deters would-be hedge sellers. Furthermore, the speculators operating in the markets are equally acutely aware that a ‘long’ position taken in backwardation conditions gains value as it approaches the cash position. Similarly contango conditions erode the value of ‘long’ or bought positions especially over extended periods. These are, however, marginal concerns for the speculators whose principal aim is to anticipate major movements in market values. If they judge right they usually help to even out or correct imbalances in the market. If they are wrong the errors tend to accentuate volatility in the market. The fabricators and custom smelters, on the other hand, are usually working on narrow margins of profit. They usually have no desire to speculate. So any erosion of their profit margins through the adverse effect of contangos or backwardations is damaging and is to be avoided. On balance it can be said that fabricators and custom smelters favour contango conditions for they are usually accompanied by a reduction in volatility. Also they are ‘easier’ markets in which to trade and hedge against short-term accumulations of stock. Lastly, these two important participants in the hedging and price discovery mechanism of the LME are fundamentally interested in preserving their fabricating margins. They are usually as content with a price

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of copper at US$2200 as a price at US$3200. There may be some cash flow implications but not much more than that. The primary producer on the other hand is keenly aware of price levels. If, in copper, producers are breaking even at US$2200/t, any price higher than that is sheer profit. Accordingly, the primary producer is bound to favour a backwardation market, for this probably indicates a stronger and rising market, the opposite of that usual in contango conditions. And, if the prices are high, it is the prerogative of producers to sell forward on the market, to lock in advantageous prices, or to protect themselves against a later decline in prices by the judicious use of options; for details, see below. On balance, therefore, the healthiest and most ideal state of a market should, theoretically, probably be one with a modest backwardation. Such a market encourages the trade, as a whole, to be a hedge buyer. This helps to keep prices buoyant. The fabricator should be able to cope, even if slightly unhappily. But a steep and volatile backwardation is anathema to the fabricator, for in such conditions the fabricator’s own customers tend to retreat, live on their stocks and adopt erratic buying patterns. Moreover they can become disloyal and look hungrily elsewhere at the prices of competitors. Lastly, the end-users – the utilities, motor car manufacturers, big construction companies, manufacturers of heavy electrical equipment, high-tech and white goods manufacturers – are often very price conscious. Long-term price stability, preferably at the lowest levels, is their ultimate desire. In base metals, they have rarely enjoyed such conditions. Most of these firms, with the exception of the manufacturers of heavy electrical equipment, have in practice no loyalty to any particular metal. They certainly may have preferences, but ultimately their business is making goods where the metal components may be a minor item in the total value of the product. Their overriding interest is in reliable long-term supplies of the cheapest components that will perform efficiently and economically the function required of them in the end-product.

1.3.2 Options Funds, speculators, especially the primary producers, but also endusers have made increasing use of the rapidly developing options market. Let us take a brief look at this complex subject. Options are an ancient instrument, but their use has become more sophisticated in recent years. The following is no more than a brief overview. There are fundamentally two kinds of option: the ‘put’ and the ‘call’. A ‘call’ gives the buyer the right, but not the obligation, to pur-

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1 The base metals markets

chase metal at a prearranged price – the strike price – for a specific date in the future. Such an option commands a premium which is paid to the seller or ‘granter’ of the option promptly at the time of purchase. A ‘put’ is the reverse of the ‘call’ and gives the buyer the right, but not the obligation, to sell at the agreed ‘strike’ price. The premium payable depends on three basic factors: 1 Duration of the option, i.e. does it expire in one month, three months or one year or more? 2 The volatility of the market. For example, if prices are fluctuating violently there may be a greater chance of the strike price being exceeded; either on the downside in the case of the ‘put’ or on the upside in the case of a ‘call’. The greater the volatility, the higher the premium. Also, in periods of high volatility the buyer of an option, especially a speculator, may be able to operate profitably in the market several times before the expiry date, buying or selling against the, as yet unexpired, option. In this event, the option acts as a ‘safety net’ in the event the speculations go sour. 3 The level of the strike price. For example, if a speculator buys a ‘call’ option, i.e. the right to buy, at a strike price significantly above the current market price for the prompt or expiry date of the option, then the premium will be cheaper than if the strike price is in line with current market conditions. This type of relatively simple option can also be used by producers wishing to protect themselves against a future decline in price by buying ‘puts’. In the event the market does the reverse and rises instead of declining, the producer simply abandons the put and enjoys the higher price, less of course the premium paid for the abandoned option, or series of them. Producers’ use of options, especially ‘puts’, is naturally far more active when prices are high. This was an important feature of producer activity and market volatility in the period 1991–97. During that time a type of option called ‘Asian’ enjoyed great popularity with primary producers of copper. The ‘strike’ prices of ‘Asian puts’ are often well below the current level of prices and are usually structured for 3-, 6-, 12-month or nowadays even longer periods forward. The strike prices are normally average prices for each month covered under the duration of the option. The ‘puts’ are then automatically exercised or abandoned on the basis of the LME official average cash seller’s quotation for each month. If the strike price is above the LME average, the producer receives the difference; if it is below, the option is abandoned. Sometimes, but this is rare, the strike price may be the average for a whole year; this is then compared against the LME official average 1.3/page 4

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price for the whole year and paid up or not as the case may be at the end of that year. The granters of such options, and the larger financial institutions that have had the lion’s share of such business, are effectively receiving a premium from producers in exchange for protecting or insuring them against a fall in price below a certain agreed average strike price level. The granters work with computer-controlled programs; in accordance with what is called the ‘delta’ factor, which is a mathematical calculation of the probability of the option being exercised, the granter will hedge on the conventional LME forward market a percentage of the option tonnage equal to the ‘delta’. Options granted at ‘strike’ prices which are a long way ‘out of the money’, i.e. a long way from being exercised, will entail a very low ‘delta’ percentage. But the nearer the market price approaches the ‘strike’ price, i.e. the closer the option comes to being ‘in the money’, so will the ‘delta’ hedge requirements increase. When the market price and ‘strike’ price are the same, the ‘delta’ hedge will be about 50% of the tonnage under option. There are of course other probability, volatility and risk factors that will vary the ‘delta’ factor, but the above is, at least, a rough guide to how these things work in practice. It could also be said that the granters of these ‘Asian’ options are, in practice, vicarious hedge sellers on behalf of the producer. At a relatively small outlay producers buy downside protection against a fall in the market. The risk has been transferred to the granter of the option and the consideration is the option premium. Many of these granters were put severely to the test in severe market conditions in 1993 and again in 1996. The volume of ‘delta’ hedge selling triggered by sharp declines in market values effectively ran out of control as the granters struggled to maintain their ‘delta’ selling programmes on a suddenly illiquid and unreceptive market. Many of the financial houses bearing the risk of these options lost considerable sums of money. The computer programs and calculations of the granters underwent radical revision. Asian ‘call’ options can and are used in a similar fashion by endusers who, at times of generally low prices, may wish to protect themselves against a severe upward movement in price. The hedging of the ‘delta’ risk then operates in reverse fashion. In practice, the end-users get the protection they want; but again the granter, in some cases the zinc smelter or nickel producer, bears the risk or shares it with option specialists.

1.3.3 Long-term price stability – a more assured future? The recent history of the base metal trade, that is the last 130 to 150 years, has covered a period of great volatility and violent clashes of 1.3/page 5

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1 The base metals markets

opposing interests. It has also been a period of phenomenal growth in the use and application of base metals. In the 1950s, Eisenhower, when President of the USA, commissioned from eminent academics a report on the outlook for base metals. It was called the Paley Report, after the professor of that name. It predicted that within the course of the twentieth century, at the then present rates of extraction and usage, humans would have exhausted most of the raw materials vital to an industrialised society. This gloomy prediction was echoed in the 1960s by a study put together by a distinguished group of economists, industrialists and other no doubt very wise men, the so-called Club of Rome. They similarly forecast that we would have exhausted all known reserves of most of the metals by the end of the century and that governments and society had better start doing something about it. Otherwise the collapse of civilisation, as we know it, was nigh! The opposite has been the case and ore reserves are today far higher than they were at the time of those reports. But growth in the use of metals is still taking place at a phenomenal rate. At the same time modern mining and processing techniques have become progressively more efficient. Miners are now able to extract valuable base metals and by-products from orebodies that, even 50 years ago, would not have been classified as ore at all. They would not have been economic. Nowadays, the ‘waste’ dumps surrounding old mines are being worked yet again to extract the valuable minerals that 50 years ago were too expensive or metallurgically too difficult to recover. Two world wars, the Korean and Vietnam wars and numerous other conflicts ravaged the twentieth century. The fall of the Berlin Wall and the collapse of the Soviet Union were the last major events to help break down the barriers between the West and the East. China has opened itself up to trade with the West and has enthusiastically adapted many of the techniques of capitalism in the course of its dramatic industrial growth in the past fifteen years. Against this background, the years since 1985 have actually seen a decrease in volatility of the base metal markets in relation to any comparable period over the past 150 years. The LME was founded in 1877, so that its members could cope better with the problems of volatility, by creating an efficient price discovery, hedging and delivery market. Today that market is even more efficient and very much more international in its reach and scope than it was one hundred years ago. It has survived the most extraordinary pressures and crises. Yet each time it seems to have emerged from running each gauntlet of fire more robust, more flexible and more liquid than ever before. The LME’s latest development is an automated trading system (ATS) which will function as an electronic means of trading LME futures alongside the current inter1.3/page 6

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1.3 The current position and the future

office and floor trading operations. The LME has gone dot.com; but only for those members authorised to trade. The first phase of the new electronic trading system named LME SELECT went ‘live’ at the beginning of 2001. The second and main phase was launched later the same year. Phase I was really a warming-up process for Phase II and allowed clearing members electronically to trade in all the base metals. But, while the trading itself is conducted in ‘real time’ all deals executed still have to be separately reported to the London Clearing House (LCH) for matching purposes. Phase II performs all these functions automatically, so that once deals have been confirmed on the electronic trading platform no further ‘work’ is required by the trading members. Input into the LCH and matching is wholly automated. The system is not intended to be a substitute for open-outcry trading on the floor of the LME. Indeed LME SELECT is available only to clearing members outside floor trading times. Ultimately, the aim must be to try to eliminate floor trading entirely. But this may be many years away. Even then, there may be serious difficulties in duplicating electronically the current openoutcry method of determining the crucial Official Prices published daily by the LME. The days of managed markets in the shape of the activities of the International Tin Council; the attempts to dominate and control copper prices successively between two world wars and afterwards; the period of split between the LME (the free market) and producer prices in copper and zinc and later aluminium; the ‘grey’ market in nickel and later the LME Nickel Contract and the producer price. All these battles and conflicts now seem far away and it is doubtful, but not inconceivable, that they could ever return. In recent years the producers and indeed end-users have grown steadily to appreciate the advantage of free market prices. And they have become far more responsive to the signals the markets throw out, however distasteful those signals may sometimes be. It is notable that copper, zinc, nickel and aluminium producers have all been far quicker to make that most difficult decision of all, namely to cut production at times of over-supply; whether or not assisted by governments, as in the case of the Memorandum of Understanding in Aluminium in 1993–94. The growth of intelligent use of the markets and of sophisticated option techniques by all sectors of the producing, processing and consuming industries is also helping to increase liquidity and reduce volatility. It has frequently been said in the past that the establishment and continued existence of the LME, still a true forward market, is the cause of volatility and not the cure. The history of the LME over 1.3/page 7

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nigh on 130 years and especially developments since 1985 refute that accusation. The free markets are at their most volatile when the base metal trade either ignores them, fights against them or worst of all tries to bypass them. The reality is that these markets respond best and yield the greatest benefits when properly used and respected. That must be particularly true of the relationship between the LME and the base metal trade. The outlook for the twenty-first century is, at present, good. Let it remain so.

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2

Aluminium

2.1 Resources and extraction 2.1.1 Bauxite 2.1.2 Alumina 2.1.3 Aluminium 2.1.3.1 Africa 2.1.3.2 Western Europe 2.1.3.3 Asia 2.1.3.4 Latin America 2.1.3.5 North America 2.1.3.6 Oceania 2.1.3.7 The Former Soviet Union 2.1.3.8 China 2.2 Consumption 2.2.1 Major end-use markets 2.2.1.1 Transport 2.2.1.2 Packaging 2.2.1.3 Construction 2.2.1.4 Other end-uses 2.2.2 Consumption trends 2.3 The market 2.4 Appendix 2.A.1 Western world alumina production (kt) 2.A.2 Western world aluminium production (kt) 2.A.3 Global consumption of primary aluminium (kt)

2.1 Resources and extraction The element aluminium (atomic number 13, atomic weight 26.97) is the third most common element in the earth’s crust, comprising some 8%. At present bauxite is by far the major source of aluminium, although some Russian metal is derived from nepheline. The term bauxite is used to describe ores that are sufficiently rich in aluminium hydroxide minerals and low in impurities to allow them to be converted to alumina. The alumina content of commercially exploited bauxite ores ranges from around 30 to 65% Al2O3. The name bauxite is derived from the town of Les Baux in France, where in 1821 the chemist P. Bertier discovered a material containing aluminium hydroxide minerals and impurities of iron oxide, silica and titanium. Well over 90% of bauxite is mined using open-pit methods, underground mining being restricted to karstic deposits in France and the former Yugoslavia. Lateritic bauxites, consisting mainly of alumina and trihydrate, are sedimentary rocks and low-silica igneous and metamorphic rocks. With the apparent exception of mainland North America demonstrated bauxite deposits occur in every continent, although the major deposits are found within a broad band, which spans the equator. On some surface deposits there is no overburden, while others may be covered to some depth by rock or clay. In deposits that are hardened blasting may be required to release the ore. Loosened ore is transported by road or rail to crushing or washing plants. Unlike the ores of other base metals, bauxite does not require complex processing because most is of an acceptable grade or can be improved by the relatively simple and inexpensive process of removing clay. Bauxite is washed, ground and dissolved in caustic soda (sodium hydroxide) at high pressure and temperature. The resulting liquor contains a solution of sodium aluminate and undissolved bauxite residues containing iron, silicon and titanium. These residues sink gradually to the bottom of the tank and are removed. They are known colloquially as red mud. The clear sodium aluminate solution is pumped into a huge tank called a precipitator. Fine particles of alumina are added to seed the precipitation of pure alumina particles as the liquor cools. The particles sink to the bottom of the tank, are removed, and are then passed through a rotary or fluidised calciner at 1100 °C to drive off the chemically combined water. The result is a white powder, pure alumina. 2.1/page 1

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Only bauxite ores with low-reactive silica (preferably less than 5%) are suited to the conventional Bayer process. Roughly speaking, it takes two tonnes of bauxite to make one tonne of alumina and two tonnes of alumina to make one tonne of aluminium. This latter process takes place in a smelter. The Hall–Heroult process used for smelting aluminium dates back to the latter part of the nineteenth century, when Hall in the USA and Heroult in France simultaneously, but independently, developed an electrolytic method for the production of aluminium, whereby aluminium and oxygen (the components of alumina) become separated. The process takes place in cells, more commonly known as pots, which are joined to form a potline. These pots contain a lining of either thick carbon blocks or a mixture of carbon and pitch, and an anode, which is either a pre-baked carbon block or a combination of unbaked petroleum coke and coal tar pitch, which is then baked using the heat of the pot. Alumina is placed in the pot containing a bath of molten cryolite (sodium aluminium fluoride) at a temperature of 1000 °C and a direct current of high amperage is passed along the potline from cathode to anode. During the course of the electrolytic process, oxygen is separated from the aluminium to become carbon monoxide or dioxide by combining with a carbon anode, while the aluminium becomes pure molten metal at the cathode, from which it is removed by vacuum siphoning. The electric current used can be from 50 000 amps up to 300 000 amps in the most modern smelters, but a voltage of just 4–5 volts is all that is needed. Pots are connected in a series, with the anodes of one attached to the cathodes of the next. Two technologies have been developed to accommodate this process. In the older Soderberg system, a single anode is continuously generated in each cell by feeding in a paste comprising petroleum coke and pitch, with the heat of the cell continuously baking the paste into carbon anode. An improved Soderberg system employs dry anode technology, which reduces anode consumption and improves environmental performance. In the more modern prebake smelters, multiple anodes are suspended in each cell. These anodes are produced at separate facilities, with new ones replacing spent ones and the latter being recycled. The amount of electrical power needed to produce one tonne of aluminium has fallen significantly through time. Latest figures from the International Aluminium Institute indicate that the average in 2003 was 15 202 kiloWatt hours, about half that required in the

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1930s. The most modern smelters use around 13 000 kWh per tonne, and as more are built the average will continue to fall.

2.1.1 Bauxite The production of bauxite takes place in a comparatively small number of countries and output is concentrated in but a few of these. Since 1960 Western world bauxite production has more than quintupled. In 1960 four countries – Jamaica, Surinam, Guyana and France – between them accounted for around 62% of Western production. Jamaica alone accounted for over-one quarter of the total, producing 5.8 Mt. Although a decade later Jamaica retained its position as the West’s major producer, with output in 1970 of 10.5 Mt, Australia had by then established itself in second place with an output of 9.3 Mt. During the 1960s both Surinam and Guyana had also greatly increased their output, and in 1970 between them these four countries produced almost 32 Mt, again around 62% of the Western total. By this time, however, France had been displaced from fourth place. Nevertheless, Western European production did grow markedly over the period, reflecting the expansion of mining in Greece and Yugoslavia, and by 1970 had reached 7.1 Mt compared with 4.03 Mt a decade earlier. During the 1970s the transformation of the industry continued apace, to the extent that by 1980 not only had Australia established itself as the leading producer, but its output exceeded that of all the South American countries put together, despite a marked improvement in Brazilian output. In that year the 27.2 Mt Australia produced accounted for over a third of the Western total, whereas South American production of 25.1 Mt represented 31%. It was also during the 1970s that Africa rose to prominence, almost entirely reflecting the tremendous build-up in output from Guinea following the development of the Kimbo and Boke orebodies. Between 1970 and 1980 Guinea’s production of bauxite rose from 2.5 Mt to 13.9 Mt, by which time it accounted for 94% of African output. The country had thus become the West’s second largest producer, and when its output was added to that of Australia, Jamaica and Surinam the total of 58 Mt amounted to 71% of Western output of 81.3 Mt. During the 1980s the trend towards greater concentration continued, such that by 1990 Brazil had displaced Surinam in fourth place, and the top four producers were responsible for 78% of Western output. Australia’s dominance was by now well established and the 40.7 Mt it accounted for 41% of the total 99.2 Mt. South America

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remained the second most important region, although its 26.4 Mt was only marginally higher than ten years earlier. Meanwhile, the expansion in African output continued, albeit at a rather more modest pace than during the 1970s. By 2000 Western production had reached 115.7 Mt, of which 81% was derived from these same four major producing countries. Australia again accounted for 44% of the total, while South America’s share rose to 31%, as a result of expansion in all the region’s producing countries, particularly Brazil and Venezuela, compared with 27% in 1990. Over this same period Africa’s proportion of output fell to around 15%, reflecting stagnating output in Guinea. The changing geographical pattern of production is the consequence of a number of factors, both geological and economic. The rapidly increasing demand of the early 1960s led to extensive exploration, which in turn resulted in the discovery of huge, high-grade deposits in Australia and Guinea. More recently, because of the everincreasing pressure on refineries to reduce costs, further advantages of these newer operations were widely recognised. Refiners found material with a high gibbsite content to be more efficient as feed for their plants and have, therefore, increasingly sought it. This factor has increased the demand for the Australian, Guinean and Brazilian types of bauxite, all of which are high-grade, largely trihydrate highgibbsite content ores. This trend has been to the detriment of Jamaican material in particular. A further consequence has been that, because the newer, more popular ores have been developed in very large deposits, not only has production become increasingly concentrated in a smaller number of countries but it has also been derived from a smaller number of larger mines. While this reliance increases the risk of supply interruptions, there is no doubting the economies of scale achieved by such operations. The ownership balance of the operations has also altered through time. Although the major transnational aluminium companies are still heavily involved in projects overseas, it has become more common for them to combine in international consortia (often with state involvement) rather than run operations alone. Examples of this type of management are to be found in all four major producing countries. In 2004 Western world production totalled 128.3 Mt, of which 92% was accounted for by the six major producing nations. Of these Australia was by far the largest contributor, its 53.8 Mt amounting to 42% of the Western total, followed by Brazil (16.1%), Guinea (12.2%), Jamaica (10.4%), India (7.3%) and Venezuela (4.2%) (see Table 2.1). 2.1/page 4

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2.1 Resources and extraction

Table 2.1 Western world bauxite output by major producing countries (kt) Country

1980

1990

2001

2002

2003

2004 (e)

Australia Brazil Guinea Jamaica India Venezuela Others

27.2 4.2 13.9 12.0 1.8 – 22.1

40.7 9.9 16.2 10.9 5.3 3.3 12.8

53.3 13.4 15.0 12.4 7.6 4.6 12.0

53.1 13.1 15.6 13.1 9.3 5.2 13.1

53.0 17.7 16.4 13.4 9.4 5.4 10.8

53.8 20.7 15.7 13.1 9.4 5.4 10.2

Totals

81.2

99.1

115.7

118.7

126.1

128.3

At present there are five bauxite mines operating in Australia, the largest being Huntly, which produced 18 Mt in 2004, making it easily the world’s single largest mine. In fact, Huntly alone produced more bauxite than any other single country apart from Brazil. Weipa, the country’s second largest mine, produced 12.6 Mt. Comalco is expanding capacity at Weipa to 13.5 Mt/a and it should achieve this level of operation in 2005. Brazil is the West’s second largest producing country, its output totalling 20.7 Mt in 2004. The bulk of this material came from the giant Trombetas mine, which produced 17.0 Mt or 82% of the national total. The mine is in the process of being expanded and the company announced that it intended to produce 17.4 Mt in 2005. Production will expand elsewhere in the country, following the announcement by CVRD of its intention to spend $83.2 million in 2004 to start work on the Paragominas bauxite mine, which will have an initial capacity to produce 3.5 Mt/a when it becomes operational in late 2006. The mine will supply feed for the expansion of the company’s Alunorte alumina refinery. Guinea, the third largest producer, mines bauxite at three locations, the largest of which by far is the Boke complex. In 2004 this produced 11.0 Mt, accounting for 70% of the country’s total output of 15.7 Mt. Sangdaredi, which was brought onstream in 1973, is by far the largest mine in the Boke complex and, indeed, output from the other mines is now believed to be minimal. In 2001 RusAl signed a preliminary agreement to develop the huge Dian-Dian bauxite deposit, but encountered problems obtaining the finance to do so. It is hoped that the deposit, which has known reserves of 550 Mt, will eventually produce 12 Mt/a. The Russian company plans to build an alumina refinery, deepwater port and railway at Dian-Dian, although the timing remains uncertain. Having already been awarded the contract to manage the Kindia mine, which produced 2.2 Mt in 2003, 2.1/page 5

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RusAl took a majority stake in the Alumina Company of Guinea, which operates the Fria Kimbo bauxite mine, which produced 2.5 Mt. Jamaica produced 13.1 Mt of bauxite in 2004, down slightly from the 13.4 Mt of a year earlier, reflecting marginal reductions at four of the country’s five mines. Indian production has increased significantly over the past two decades. About a quarter of the country’s output comes from a plethora of small mines. Nalco’s Panchpatmali mine is by far the country’s largest producer, accounting for over half its output. The company has plans to increase capacity from 4.8 Mt to 6.3 Mt, although the timing of such a development is uncertain. Elsewhere, the Orissa government has committed 150 Mt of bauxite reserves to Sterlite Industries for the bauxite/alumina complex it is constructing in the state. Venezuela only produced its first bauxite in 1987 but is now the West’s sixth largest producer, albeit some way behind India. All the country’s production comes from CVG-Bauxilum’s Los Pijiguaos mining complex, which has been expanded over the past few years. Elsewhere, Indonesian nickel and gold producer PT Aneka Tambang announced that it would undertake a feasibility study of the Tayan bauxite reserves in Kalimantan. The company is seeking partners to help finance development of the 108 Mt deposit. See sections 2.1.3.7 and 2.1.3.8 respectively for coverage of bauxite production in the Former Soviet Union and China.

2.1.2 Alumina As with bauxite the most notable feature of the alumina market has been the emergence of Australia as the dominant force, a status achieved despite the fact that it has consistently exported a large proportion of its bauxite production. Australian alumina production increased rapidly from a low base during the 1960s, such that by 1970 it stood at 2.2 Mt, which accounted for 12.3% of Western production. In just a few years it had overtaken Jamaica, Surinam, Canada, Japan and a number of European countries, although its production was still well short of that of the USA, which stood at 6.1 Mt or 34.7% of the total. Indeed, throughout the 1960s the majority of alumina production took place in those countries where it was consumed. At the beginning of that decade about 75% of Western alumina production was in the G7 countries. Since then this proportion has declined dramatically, and although the USA remains the second largest individual producing country, albeit now well behind Australia, at present less than 25% of Western alumina is produced in the seven major industrialised nations. In part this shift 2.1/page 6

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reflects the decline in the relative importance of these countries as producers of aluminium, but mainly attests to the preference of the industry to locate near to the sources of bauxite. Australia is of course the best example of this trend and by the late 1970s it had squeezed past the USA, despite the fact that production in the latter country had continued to increase. In the 1980s, however, US output started to decline and it was in this decade that Australia achieved the dominant position it retains today. In South America, both Brazil and Venezuela are examples of this trend towards locating near bauxite sources, and the production of ore and alumina have expanded in parallel. Taken as a whole, South American production growth has been almost as spectacular as that of Australia, and between 1970 and 2000 it more than tripled from 3.4 Mt to 11.5 Mt, despite the cessation of production in Guyana. Between those years the continent increased its share of total Western production from 19.5 to 27.0%. In contrast with the bauxite market, there has been no trend towards greater concentration of production evident in alumina. This largely results from the fact that the decline in importance of the USA has been mirrored by the rise in significance of Australia. Similarly Japan’s decline and that of the European countries has coincided with the noted emergence of Brazil and, to a lesser extent, Venezuela and the expansion of the Indian industry. Thus, in both 1970 and 2000 the four largest producing countries accounted for around 65% of total Western production (Table 2.2). In common with the bauxite market, alumina production has tended to become more concentrated inasmuch as a greater proportion of output is derived from a small number of large refineries. In 1980 51 Western refineries produced 29.4 Mt of alumina, an average output of 576 kt. At that time 25 refineries had capacities below 500 kt/year, while another 15 were between 500 and 750 kt/year.

Table 2.2 Western world alumina output by major producing countries (kt) Country

1980

1990

2001

2002

2003

2004

Australia USA Brazil Jamaica India Surinam Others

7.2 6.8 0.5 2.4 0.5 1.4 10.3

11.2 5.4 1.7 2.9 1.3 1.5 10.5

16.0 4.7 3.6 3.5 2.2 1.9 10.0

16.3 5.0 3.8 3.6 2.8 1.9 10.4

16.5 5.3 4.6 3.7 2.9 2.0 9.5

16.7 5.9 5.0 4.1 2.9 2.0 10.9

Totals

29.1

34.5

41.9

43.8

44.5

47.5

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Since the mid-1970s the trend in the geographical production has been away from the major metal consuming and smelting regions towards the major bauxite-producing countries. As with bauxite, production has become increasingly concentrated, and in 2004 the six major producing nations accounted for 76% of Western output compared with 70% in 1990 and 65% in 1980. It is no coincidence that Australia has emerged as the world’s major producer, given the dominance it enjoys in the bauxite sector. In 2004 it accounted for 35% of the Western world’s total output of 47.5 Mt. Australia is home to the world’s largest alumina refineries, and in 2004 three of the country’s six operational plants each produced over 3 Mt. The largest, Gladstone, produced 3.8 Mt, which was beyond its design capacity of 3.6 Mt/a. Pinjarra, the second largest refinery, produced 3.4 Mt, and Alcoa World Alumina and Chemicals (AWAC) recently received approval from the Western Australian government to expand capacity to 4.2 Mt/a. Work began in early 2004 and should be completed by the end of 2005. Although US alumina production has declined over the past two decades it remained the West’s second largest producer in 2004, albeit only just and with output well below that of Australia. Production was constrained in 2003 by Ormet’s decision to mothball its 600 kt/a Burnside refinery in late 2002 and keep it closed throughout 2003, although the impact of this was more than offset by increased output at the Sherwin and Point Comfort plants. In late 2003 Ormet announced that it intended to reopen Burnside, which accounted for the bulk of the increase in production in 2004. During the 1980s and 1990s Brazil greatly expanded its alumina production capacity, and by 2000 had become the West’s third largest producer. In 2004 its output of 5.0 Mt accounted for 10.5% of Western production. Output rose by over 20% in 2003, largely reflecting a sharp increase at Alunorte’s Barcarena refinery, where capacity was expanded from 1.6 Mt/a to 2.5 Mt/a, and by almost 9% in 2004. Sao Luis, the country’s second largest refinery, recorded small increases in output in 2004, while capacity was restarted at Saramenha. The further expansion of Barcarena to 3.0 Mt/a will result in output rising further in 2005. Despite being affected by Hurricane Ivan in September, Jamaican production continued to increase in 2004. There are three refineries in the country, all of which raised their output. The largest of these, Nain, has recently been expanded and is expected to produce at its full increased capacity of 1.65 Mt/a in 2005, having produced 1.58 Mt in 2004. India’s six refineries produced 2.95 Mt of alumina in 2004. Over half this total came from Nalco’s Damanjodi refinery, which produced 1.575 Mt. The company completed an expansion programme 2.1/page 8

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at the plant from 1.05 Mt/a to 1.575 Mt/a in 2001, and in early 2003 submitted a proposal to the government to expand capacity to 2.1 Mt/a, which was approved in October 2004. A programme gradually to expand capacity at Hindalco’s Renukoot refinery to 700 kt/a is ongoing and in 2004 it produced 660 kt compared with 620 kt in 2003. Indal’s Belgaum refinery achieved an incremental increase in output in 2004. Looking ahead, there are plans at various stages of development to build three greenfield refineries in India, although none are likely to see the light of day soon. Sterlite Industries begun clearing ground at the site of a 1.4 Mt/a refinery at Lanjigarh in eastern Orissa state although the timetable of the project is uncertain. Elsewhere in Orissa, plans by Indal to construct a 1.5 Mt/a refinery have run into several delays although the state government approved a revised rehabilitation package in October 2004. Timing, however, still remains uncertain. The third proposed project, by Gujarat Alumina & Bauxite to construct a 750 kt/a refinery in the Kutch region, was put on the back burner in 2003, after two US-based backers dropped out. Although a number of potential investors emerged in 2004 the selection process is still ongoing. All of Surinam’s alumina output comes from Suralco’s Paranam refinery, which produced marginally over 2 Mt in 2004 in line with a year earlier. In November 2003 Alcoa announced that it had started a 250 kt/a expansion of the plant, which will raise its capacity to 2.2 Mt/a by mid-2005. Although it has declined in recent years European production of 6.35 Mt in 2004 was by no means negligible, but was spread among seven countries each of which operates one refinery. Ireland was the largest producer, its Aughinish refinery accounting for all the 1.55 Mt. Spain’s San Ciprian refinery produced 1.33 Mt, in line with 2003, while Porto Vesme in Italy increased its production marginally to 1.06 Mt. Output in France, Germany, Greece and Turkey was little changed in 2004. Elsewhere, Venezuela produced 1.9 Mt in 2004. CVG Bauxilum’s Guided Puerto Ordaz refinery has expanded and reached capacity of 2.0 Mt/a by the end of 2004. A feasibility study is being undertaken with a view to raising capacity to 3 Mt/a by 2009. In Canada, Alcan’s Jonquiere refinery held output steady at 1.2 Mt in 2004. Guinea, which exports the vast bulk of its bauxite output, produced 778 kt of alumina at its Kimbo refinery, up from 732 kt in 2003. RusAl is undertaking a feasibility study for a $350 million project aimed at doubling the refinery’s capacity. In November 2004 Alcoa, Alcan and the government of Guinea signed a protocol for the joint development of a 1.5 Mt/a refinery. Completion of the feasibility study is expected by mid-2005. The refinery is expected to produce 2.1/page 9

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alumina by 2008, and it was noted that it could expand beyond its initial capacity. See 2.1.3.7 and 2.1.3.8 respectively for coverage of alumina production in the Former Soviet Union and China.

2.1.3 Aluminium A major feature of the aluminium market has been the geographical dispersal of production. In the early years of the industry production facilities were concentrated in the major industrialised countries, close to the major end-using markets. As late as 1980, North America and Western Europe accounted for almost 75% of Western world production. Since then, however, the pattern of production has altered markedly, such that these two regions now account for just over 50% of the total. As Fig. 2.1 illustrates, production in North America has actually declined in absolute terms between 1980 and 2004 (for reasons we will mention later), while the increase in output in Western Europe between those years has been rather modest. Conversely, production in all other regions has risen significantly. In part this trend has been influenced by the desire to be located near the source of raw materials, in particular alumina; this helps to account for the higher output in Australia and Latin America. In the case of the former the proximity of the burgeoning markets of SouthEast Asia proved an additional attraction.

7000 6000 5000 4000 3000 2000 1000 0 North America Western Europe

Asia

1980

Latin America

Oceania

2004

2.1 Regional production of primary aluminium (kt). 2.1/page 10

Africa

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This factor has also encouraged the expansion of the industry within the region itself, although another major pull in the case of countries such as Bahrain and Dubai has been the availability of cheap power. Indeed, Asian production fell sharply in the early 1980s following the contraction of the Japanese industry after the second oil-induced crisis, and it was not until 1994 that production exceeded its 1980 level. Growth has largely been driven by the expansion of the two Gulf smelters, although more recently India has increased in importance. African production expanded only slowly in the 1980s and the first half of the 1990s, but significant additions to capacity in South Africa and, more recently, Mozambique resulted in production rising strongly since then. In 2004, production of 1.7 Mt was almost four times its 1980 level. Figures from the International Aluminium Association (IAI) indicate that Western world production of primary aluminium in 2004 increased by 2.9% to 18.453 Mt, from 17.939 Mt in 2003. The average daily operating rate in 2004 rose to 50.4 kt, compared with 49.1 kt the previous year. As Fig. 2.2 indicates, production has fluctuated significantly over the past few years, reflecting a number of interruptions to supply, but even although a considerable amount of capacity remains mothballed the underlying trend since the middle of 2001 has been upwards. With the exception of North America, production increased in all of the IAI’s reporting regions in 2004, reflecting a combination of restarts and new capacity being brought onstream.

52 51

Initial problems in Pacific

50

Northwest of US

First phase of Mozal onstream Reactivation of capacity in Brazil

49

Strike at Becancour

Power-related closures in US and Brazil

48 47 46

Closure of capacity at Arvidaand mothballing of three potlines at Hannibal

Fur ther closures in the US + Auzat and Valco

45 44 43

1999

2000

2001

2002

2003

2004

Jan

Jul

Jan

Jul

Jan

Jul

Jan

Jul

Jan

Jul

Jan

Jul

Jan

42

2005

2.2 Western world production (kt/day). 2.1/page 11

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2.1.3.1 Africa The IAI figures show that African production totalled 1.711 Mt in 2004, up 19.8% from the 1.428 Mt of 2003. The increase reflected higher output in Mozambique, South Africa and Egypt, which more than offset the closure of the Tema smelter in Ghana. In Mozambique, BHP Billiton announced in September 2003 that the Mozal II expansion had been completed seven months ahead of schedule, raising the plant’s capacity to 545 kt/a. The company later announced that it had also brought the 135 kt/a expansion of its Hillside smelter in South Africa onstream several months ahead of schedule, raising the plant’s capacity to 665 kt/a. Both these expansions enjoyed their first year of full capacity operation in 2004. In late 2004 Alcan announced that it intended carrying out a second feasibility study on the Coega smelter project in South Africa, which it inherited when it took over Pechiney. Alcan has not apparently ruled out using the French company’s AP50 technology, but the new feasibility study will reportedly concentrate on using AP30/AP35. A decision on whether to proceed with the 660 kt/a project, in conjunction with the South African government and the Industrial Development Corporation, is now expected in the second quarter of 2005. The Tema smelter in Ghana has long been plagued by misfortune resulting from low water levels, and there appeared little relief in sight. Valco mothballed the last operating potline in May 2003 because of lack of power availability. At that time the company said it would consider reopening two of the plant’s five potlines at the end of the rainy season in September or October, but later noted that the rainy season could last through to November and there has been no change in the smelter’s status. Then, in January 2005, it announced that Alcoa and the government of Ghana had signed a memorandum of understanding to develop an integrated aluminium industry within the country. The agreement will result in the development of bauxite mining, alumina refining and aluminium smelting, as well as upgrading the country’s railway infrastructure. The memorandum calls for the restart of three of the five potlines at the mothballed Tema smelter. Feasibility studies are to be undertaken for an alumina refinery with an initial capacity of 1.5 Mt/a and the development of an adequate bauxite supply. Nigeria’s 193 kt/a Ikot Abasi smelter remained mothballed throughout 2004. The smelter was brought onstream in late 1997 but between then and mid-1999, when it closed, managed to produce just 40 kt of metal. Various attempts by the Nigerian government to dispose of its majority stake in the management company Alscon have ended in failure and the outlook for the smelter remains 2.1/page 12

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uncertain. In August 2004, RusAl announced that it was prepared to invest $100 million in refurbishing and modernising the plant if it could reach a deal with the government, but nothing has been heard since. Egyptalum announced in December 2004 that it has partially completed the expansion and upgrade of its Nag Hammadi smelter. The company is modernising the plant’s six potlines to raise output to 300 kt/a by 2007 from 200 kt/a in 2003. Two potlines have now been converted from Soderberg technology to pre-bake, with work on the other four to be completed in two years. The smelter produced an estimated 249 kt in 2004, and the company has targeted output of 250 kt in 2005 and 265 kt in 2006.

2.1.3.2 Western Europe Output in Western Europe rose to 4.295 Mt in 2004, an increase of 5.6% from the 3.996 Mt of a year earlier. A number of countries recorded marginal increases, notably in Norway and the Netherlands, while French output fell for the second successive year. In February 2003 Pechiney announced that it intended to close its 50 kt/a Auzat smelter in the French Pyrenees in the summer, noting that the plant faced a substantial increase in power costs after the existing contract expired in 2004. The company faced considerable opposition from its employees, but events overtook it in March, when electrical accidents resulted in the enforced closure of the smelter. In Norway, Hydro Aluminium completed the final phase of the 240 kt/a expansion of its Sunndalsora smelter in August 2004, three months ahead of schedule, raising capacity to 360 kt/a from 156 kt/a previously. Separately the company announced that it would close a combined 70 kt/a of capacity at its Ardal and Hoyanger smelters by the end of 2006, because the Soderberg technology employed by some potlines will not meet more stringent government emission targets. The company undertook intensive assessments before concluding that converting the old potlines was not economically viable. After the capacity is shut, Hoyanger will have a capacity of 172 kt/a and Ardal 54 kt/a. Previously Hydro had noted that it would close the 120 kt/a at Karmoy smelter by end-2009. It appears that Nordural of Iceland has overcome the problems it faced in obtaining power supplies to allow it to double capacity at its Grundartangi smelter to 180 kt/a. In 2003 the company signed agreements with Sudernes Heating Service and Reykjavik Energy, which will each build an 80 MW power plant to meet the expanded plant’s requirements. If things proceed on schedule, the expansion should be up and running at full capacity by 1 June 2006, according to the company. Originally Nordural had hoped to begin 2.1/page 13

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construction in 2004 and begin production in 2005, but the stateowned power company Landsvirkjun, which was to provide 47% of its energy requirements, said it could not begin construction of the necessary power plant until 2007. The company has plans to extend the smelter by a further 60 kt/a by 2009. In Greece, in December 2004 Pechiney announced it had entered into an agreement to dispose of a 53% stake in Aluminium de Grece, in which it held a 60.18% share, to Mytilineous Holdings. The deal is subject to the approval of the Greek Ministry of Development. Aluminium de Grece has plans to construct a 320 MW power station to supply the future needs of the 163 kt/a Distomon smelter and expects it to come onstream in early 2007. The long-term future of the plant had been called into question because a strengthening euro and rising energy prices had adversely affected its competitiveness. Distoman purchases power under a long-term contract, which expires on 31 March 2006. We note below Norsk Hydro’s involvement in a proposed 570 kt/a greenfield smelter in Qatar, in which the Norwegian company would have a 49% stake. It was assumed that this development would boost its presence in the global industry, but recent statements by the company raise questions about Hydro’s commitment to its German smelting capacity. The company announced that it was taking an after-tax writedown of 1.5 billion crowns ($244 million) against these plants because of their weakened competitiveness resulting from a stronger euro and higher power prices. Hydro owns 100% of the 220 kt/a Norf and 70 kt/a Stade smelters and has a 33% stake in the 130 kt/a Hamburg plant, all of which it acquired when it took over VAW in 2002. Negotations to renew power contracts that expire at the end of 2005 have led the company to expect higher prices thereafter. It noted that it ‘would continue to evaluate the future competitive position of its German primary aluminium plants’.

2.1.3.3 Asia Asia production continued to rise strongly in 2004. Output of 2.735 Mt was 10.5% higher than the 2.475 Mt of 2003, mainly reflecting expansions in Dubai and India and the restart of capacity in Indonesia. Asian output will continue to expand strongly over the next few years, largely as a result of the further expansions of capacity in Dubai and Bahrain. Dubai Aluminium produced just over 683 kt in 2004, compared with 560 kt in 2003, as a result of the ongoing expansion of its Jebel Ali smelter. The company announced that the expansion project that will boost the plant’s capacity to 710 kt/a is on schedule for completion by mid-2006. 2.1/page 14

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Malaysia’s national news agency Bernama reported in January 2005 that Dubai Aluminium had not withdrawn its support from a project to build a 500 kt/a smelter in Sarawak. This contradicts reports in 2004 that the company was no longer interested in being involved. The involvement of Dubai certainly makes the project more viable, although the 2007 start-up postulated by the Gulf International Investment Group looks optimistic. Speaking on the occasion of Dubal’s 25th anniversary, the company’s vice-chairman noted that he hoped the European Union’s 6% import duty, which the company has long lobbied against, might be lifted. Aluminium Bahrain (Alba) noted that it produced 530 kt in 2004, up from 527 kt in 2003. In January 2005 Alba reported that it expected to have its fifth potline operational by mid-2005, raising the capacity of its Knuff smelter to 830 kt/a when fully operational. The company expects to produce 750 kt in 2005. Plans to expand potline four by 23 kt/a were approved earlier and this should be onstream during 2005. Upon completion of these expansions the Knuff smelter will be the largest in the world outside Russia. The company noted that it had signed a long-term contract with Alcoa for the entire plant’s alumina requirements. Despite the expiry of a memorandum of understanding between the Bahraini government and Alcoa in April 2004 Alba has not ruled out the possibility of a sixth potline, noting that the parties were still talking. The addition of a further 307 kt/a of capacity would make Knuff the biggest smelter in the world bar none. In late 2004 Norsk Hydro announced that it intended to construct a greenfield aluminium smelter and dedicated gas-fired power plant in Qatar in a joint venture with state-owned Qatar Petroleum at a cost of $3 billion. Production is targeted to begin in 2008 and full capacity operation achieved the following year. The plant will have the capacity to produce 570 kt/a, although the site will be selected to accommodate a possible doubling of capacity. Alcan and the Oman Oil Company and the Abu Dhabi Water and Electricity Authority have signed an agreement for the development of a 325 kt/a greenfield smelter project in Sohar, Oman. In June 2004 Alcan announced that it was committed to taking a 20% stake in the project in the Sohar Aluminium Company, with the OOC and ADWEA each owning 40%. The smelter is to be built adjacent to the Sohar Industrial Area and will consist of a single potline employing Alcan’s AP35 technology, together with associated carbon and casting facilities and an 800 MW gas-fired power station. Final construction approval is expected in the second half of 2005, with construction beginning shortly thereafter. Full production is expected by 2008. In India, Hindalco completed the expansion of its Renukoot smelter from 242 kt/a to 345 kt/a in August 2003. The company then 2.1/page 15

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announced that it intended raising capacity to 360 kt/a by April 2005 by means of a debottlenecking programme. Indalco also has plans to construct a 200 kt/a greenfield smelter in conjunction with its Uktal alumina project, although the timing of such a development is uncertain. In October 2004 Nalco announced that it had completed the first phase of the expansion of its Angul smelter, raising capacity from 230 kt/a to 345 kt/a. The company had originally intended completing the expansion in December 2002, but pushed this back to late 2003, having already brought 50% of the cells into operation. The expansion was finally completed in October 2004. Shortly thereafter the company received permission from the government for a $1 billion investment to raise capacity at the smelter by a further 115 kt/a, as well as increasing alumina capacity to 2.1 Mt/a from 1.575 Mt/a, bauxite production to 6.3 Mt/a from 4.8 Mt/a and power generation to 1200 MW from 960 MW. The company expects these projects to be completed by the end of 2008. Also in India, Balco is in the process of expanding the capacity of its Korba smelter from 100 kt/a to 350 kt/a. In October 2003 the company announced it would complete the expansion by September 2005, but in January it was rumoured that it was running ahead of schedule and that the first metal could be poured in the first quarter of 2005. Indal intends to increase the capacity at its Hirakud smelter in Orissa state from 65 kt/a to 100 kt/a, through a combination of moving equipment from its closed Belgaum smelter in Karnataka, and raising the plant’s efficiency. The company has already raised Hirakud’s capacity by moving half of Belgaum’s 400 pots in 2002 and a further 58 pots in late 2003. The company is now awaiting environmental clearance before transferring the remaining pots from Belgaum, which it was forced to close in 1995 when the regional government raised power rates. Having been plagued by low water levels for a number of years, PT Asahan of Indonesia expects to produce about 13% more aluminium from its Kuala Tanjung smelter in the fiscal year ending 31 March 2005. Higher water levels in Lake Toba in northern Sumatra, the main source of water for the smelter’s hydroelectric plant, would allow the company to boost output to 234.6 kt from 207.0 kt in fiscal 2003/04 and 163.0 kt the previous year.

2.1.3.4 Latin America Latin America produced 2.356 Mt in 2004, up 3.6% from 2.275 Mt a year earlier, reflecting a combination of new capacity being brought

2.1/page 16

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Table 2.3 Brazilian aluminium production by smelter (kt) Company

Smelter

Alcan Aluminio

Aratu Saramenha P de Caldas Belem Sao Luis Sorocaba Sepitiba Bay

Alcoa Aluminio Albras Alumar CBA Valesul Brazilian total

2003

2004

Change

56.3 50.2 94.9 435.9 334.9 313.8 94.6

57.8 51.0 90.3 440.5 377.2 345.3 95.3

+2.7% +1.6% −4.8% +1.1% +12.6% +10.0% +0.7%

1380.6

1457.4

+5.6%

Source: Brazilian Aluminium Association.

into production in Brazil and higher output at Venezuela’s two smelters. The Brazilian Aluminium Association (Abal) reports that the country produced 1.457 Mt of primary aluminium in 2004, an increase of 5.6% on 2003. With the exception of Pocos de Caldas all the country’s smelters raised output, most notably Sao Luis, where output had been constrained by a power outage in 2003, and Sorocaba, following an expansion. Table 2.3 lists production by each of the country’s seven smelters. Work on the expansion of the Sao Luis smelter scheduled to start in July of 2004 did not begin until the final quarter. The $130 million investment by Alcoa will increase the plant’s capacity by 63 kt/a to 433 kt/a and will raise the company’s share of the plant from 54% to 60%. First production from the expanded capacity is expected in the final quarter of 2005. CBA, part of the Votorantim group, which has recently increased capacity at its Sorocaba smelter from 240 kt/a to 340 kt/a, plans to invest more than $500 million in increasing it further to 500 kt/a by 2009. As part of the project the company intends to construct an alumina refinery and three hydroelectric plants. The three power plants, scheduled for completion by the end of 2005, will enable the company to remain 60% self-sufficient in energy and competitive costs are estimated at $1100/tonne. Venezuela’s two smelters produced a combined 631.3 kt in 2004, an increase of 4.3% on the 605.5 kt of the previous year. Output at Venalum totalled 439.5 kt, up 1.4% from 433.3 kt in 2003, and was the third successive year it exceeded the plant’s nameplate capacity of 430 kt/a. The 210 kt/a Alcasa smelter, which has been plagued by technical and other problems, raised its output to 191.9 kt, which exceeded 2003’s production of 172.2 kt by 11.4%. It did so despite

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a labour dispute that resulted in lost production towards the end of 2004. It was reported in February 2003 that CVG and Pechiney were about to sign a contract for the French company to provide the cell technology for the construction of the long-awaited fifth potline at the Alcasa smelter. The project, which is underwritten by Glencore, will increase the plant’s capacity from 210 kt/a to 450 kt/a. Construction is expected to begin sometime in 2005. Production at Aluar in Argentina remained stable at 265 kt in 2004. The company has long-standing plans to expand its Puerto Madryn smelter, but these were put on hold during the country’s financial crisis, which delayed construction of a new power grid. Electro Ingeniera has been awarded a contract to construct and maintain a transmission line linking the national and Patagonian grids. The new line will not only reduce the operating costs of the smelter, but will also facilitate expansion plans. Plans to build a greenfield smelter in Chile ran into problems in 2003. Noranda has been promoting its 440 kt/a Alumysa project since the 1980s and recently revived its interest, having allowed it to lie dormant for many years. However, once again things have not gone smoothly, as the project found itself the subject of numerous environmental complaints. There has been no news of this project recently.

2.1.3.5 North America Although North America remains the single most significant producing region, output peaked in 1999. In the following year a number of producers in the Pacific Northwest of the US began to curtail capacity in response to sharply rising power rates and continued to do so in 2001. Although production picked up somewhat over the following two years it fell back in 2004. Not only did considerable smelting capacity remain mothballed in the Pacific Northwest of the US but also a number of other producers reduced their operating rates. Table 2.4 details the status of the ten smelters in the Pacific Northwest in early 2005. Some capacity is being restarted but as can be seen a number of smelters have gone for good, while the future of others remains uncertain. Alcoa announced that it intended to produce around 220 kt more aluminium in 2005 than in 2004. This would be achieved by restarting capacity at four North American smelters. Production would increase at Becancour, where the company was forced to idle two of the plant’s three potlines for more than four months from 7 July 2004 because of strike action. The two potlines were expected to be fully operational by April and the 2.1/page 18

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Table 2.4 Status of smelters in the Pacific Northwest of the USA Company

Plant

Capacity (kt/a)

Alcoa

Wenatchee

215

Intalco (Alcoa 61%)

Troutdale Ferndale

121 282

Columbia Falls

Columbia Falls

170

Golden Northwest

Goldendale

168

The Dalles Mead Tacoma Longview

83 212 73 204

Vancouver

116

Total

1656

Kaiser Port of Tacoma Michigan Avenue Partners

Vanalco

Half of the plant’s capacity reactivated in early 2005 Plant being dismantled Company reduced operating rate to 90 kt/a on 1 November 2003 One of five potlines operating. Take-or-pay contract has expired Trying to negotiate takeor-pay power contract with the BPA Ditto Indefinitely closed To be demolished Completely closed since February 2002. Final attempt by trustee to sell plant as a going concern ended in failure Completely idle since February 2001

Sources: Press reports, company data.

smelter was expected to produce 100 kt more in 2005 than in 2004, of which Alcoa is entitled to 75%. The company is also reactivating half the capacity at its Wenatchee smelter in the Pacific Northwest of the US, which had been mothballed since mid-2001, having reached a new contract agreement with employees in October 2004. The company started ramping up the plant in mid-December 2004 and that process should be completed in February 2005. The plant is expected to produce 85 kt in 2005. The ramp-up of 60 kt/a of capacity idled in April 2003 at the company’s two Massena smelters is also nearing completion, and this accounts for the remainder of the overall increase. Towards the end of 2003, Ormet announced that it would close two of the six potlines at its Hannibal smelter in order to free alumina for sale in the spot market, having restarted the 600 kt/a Burnside refinery in October. The plant was mothballed in February 2002, at which time the company was able to buy alumina more cheaply on the spot market than it cost to produce it. Rising alumina 2.1/page 19

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prices throughout 2003 persuaded it that operating Burnside was again profitable and, indeed, selling some of its output on the spot market was preferable to running the smelter at full capacity. In January 2004 the company filed for Chapter 11 bankruptcy protection in order to undertake a financial reorganisation, and in June of that year it curtailed another potline in view of an impending disruption to alumina shipments. As part of its reorganisation plan the companied asked for significant sacrifaces from its unionised workforce, which resulted in negotiations breaking down and a strike starting on 22 November. The company continued to operate the three active potlines using salaried staff, but was forced to close one of these in early December and the final two in mid-January 2005. Citing outdated technology and high production costs, Alcan announced in late 2003 that it intended to close its 90 kt/a Arvida smelter in Quebec province. The plant, which used Soderberg technology, was closed during the second quarter of 2004. The company noted that the smelter had the highest production costs of all its Quebec facilities, and that the appreciation of the Canadian dollar over the previous year had contributed to its decision to close the plant. The long-term future of Alcan’s 190 kt/a Sebree smelter and Century’s 235 kt/a Hawesville plant have been called into question after 2110/11, when power contracts with LG&E Energy Marketing expire. A Kentucky county court judge called a forum with elected officials, development officers, representatives from Big Rivers Electric Corp and aluminium industry officials to discuss the issue. Thousands of jobs in the state would be at risk if the smelters were forced to close. Big Rivers Electric is exploring options to ensure a future power supply, including the possibility of constructing a new coal-fired power plant. In March 2003, Alcoa announced that it had signed a memorandum of understanding with the Quebec provincial government to expand its Deschambault smelter. The expansion will increase capacity from 250 kt/a to 570 kt/a, and will be supplied with 500 MW of electricity from Hydro Quebec. Construction is scheduled to begin in 2006, with first production two years later. However, Alcoa suspended the modernisation programme at its Baie Comeau smelter in Quebec, pending further discussions with the provincial government. The company noted that, having reached an agreement in principle in 2002, it could not continue to invest in the project without a firm commitment on the part of the Quebec authorities, which had raised the question of possible energy restrictions. In January 2005 the Alouette consortium announced that it had began the start-up of the expansion at its Sept Iles smelter in Quebec. 2.1/page 20

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Alouette is adding 330 new reduction cells, which will increase capacity capacity from 245 kt/a to 550 kt/a. Full operation is expected to be achieved by September 2005. Elsewhere in Canada, it was reported that the district of Kitimat in British Columbia was forced to drop its legal action against Alcan following a Supreme Court ruling that it does not have legal standing to pursue the court action it initiated against the company. In that petition it was claimed that Alcan’s power sales from its Kemano power plant contravene the terms of its water licence that gives the company access to the most valuable public water sources in the province for the purpose of aluminium smelting. Alcan had been forced to curtail operations at the 275 kt/a plant in 2000 and 2001 because low water levels forced it to reduce electricity generation. Having mothballed 95 kt/a of capacity it restarted 60 kt/a in late 2002/early 2003, leaving 35 kt/a of older capacity shut and selling the excess power.

2.1.3.6 Oceania Production in Oceania has increased only marginally in recent years, and 2004 proved no exception. The region’s seven smelters produced 2.246 Mt in 2004, up 2.2% from the 2.198 Mt of 2003. The increase reflected the expansion of the Kurri Kurri and Tomago smelters in Australia and the return to full operation of the Tiwai Point plant in New Zealand, where output had been constrained in 2003. Comalco denied rumours that it intended to close its 330 kt/a Tiwai Point smelter because of rising energy prices, having been forced to reduce its operating rate by 30 kt/a following a spike in the power price in early 2003. The plant returned to full operation during the third quarter. The company noted that it was reviewing a range of options in regard to power supplies in order to keep the smelter competitive in the longer term, adding that closure of the plant was not an option under consideration. Until recently this smelter was located in the third quartile of the industry cash cost curve, but recent increases in power costs will have pushed it closer to the upper end. The only significant capacity increase planned in Australia in the near term is the ongoing 70 kt/a expansion at Tomago, which is scheduled for completion in 2006. A company named Aldoga proposed to build a greenfield smelter in Queensland in three phases of 210 kt/a each, but work was halted on the project in August 2004 and nothing has been heard of it since. As Table 2.5 illustrates, around 2.6 Mt/a of new capacity will be added over the four-year period 2003–2006. It may well be the 2.1/page 21

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Table 2.5 Base case additions to Western smelting capacity, 2003–2006 Country

Company

Smelter

Egypt Mozambique South Africa

Egyptalum Mozal BHP Billiton BHP Billiton

Nag Hammadi Maputo Bayside Hillside

55 270 20 135 480

2003–05 2003 2003 2003

Canada Total North America

Alouette

Sept Iles

305 305

2005–06

Brazil Venezuela Total Latin America

CBA Alcasa

Sorocaba Puerto Ordaz

110 240 350

2003 2006

Bahrain Dubai India

Alba Dubal Balco Hindalco Indal Nalco

Knuff Jebel Ali Korba Renukoot Hirakud Angul

320 175 235 100 35 115 980

2005–06 2003–06 2006 2003 2005–06 2003–04

Nordural Alcan Elkem Norsk Hydro

Grundartangi Vlissingen Mosjoen Husness Sunndalsora

90 40 58 30 190 408

2006 2003–04 2003 2003–04 2003–04

Tomago

Tomago

70 70

2004–06

Total Africa

Total Asia Iceland Netherlands Norway Total Europe Australia Total Australasia Total Western world

Capacity (kt/a)

Start-up

2593

Sources: Company data, press reports.

absence of greenfield capacity additions that has led some analysts to conclude that there will be a significant shortfall, as all the new capacity coming onstream in the period noted is in the form of brownfield expansions. Given the significant cost differential between adding to existing facilities and embarking on a greenfield project it is hardly surprising that producers have opted for the former route. Particularly so, when we remember that the planning for the projects given in the table was taking place during a period of depressed prices.

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2.1.3.7 The Former Soviet Union Following the break-up of the Soviet Union the widely held consensus was that much of the region’s old (by Western standards) smelting capacity would close. Indeed, during the early 1990s it looked as if this would indeed be the case, as a series of financial and logistical problems resulted in output dropping steadily. By 1994 production had fallen to 3 Mt from 3.5 Mt in 1988. However, 1994 proved to be the nadir and since then output has increased steadily, exceeding its Soviet levels for the first time in 2000. As indicated in Fig. 2.3, and detailed in Table 2.6 for the years 2001 to 2004, production has continued to expand steadily in recent years, reaching 4.1 Mt in 2004. In the early 1990s, when production was falling consumption was collapsing, with the result that a huge surplus became available for export. In the late 1980s the Former Soviet Union had around 750 kt/a available for export, but by the middle of the following decade this had risen to around 2.5 Mt/a. Looking ahead, there are ambitious plans in place to modernise and expand a number of FSU smelters (see Table 2.7). RusAl, for example, is spending around $350 million on modernisation programmes at its Krasnoyarsk and Sayansk smelters, which will raise their combined capacity by over 100 kt/a by 2006/07. The Sayansk project is due for completion by 2006 and will raise the plant’s capacity by 5.5% to 480 kt/a, while Krasnoyarsk’s capacity will rise Table 2.6 Aluminium smelter production in the FSU (kt) Smelter

Start-up

2001

2002

2003

2004

Bratsk Krasnoyarsk Sayansk Novokusnetsk Irkutsk Uralsk Bogoslovsk Kandalaksha Nadvoitsky Volgograd Volkhov Tayshet Total Russia Azerbaijan Tajik Zaporizhsky Total

1966 1964 1985 1943 1962 1939 1945 1951 1954 1959 1932 2003

915 856 407 282 272 85 175 70 72 145 22 0 3301 0 290 106 3697

916 865 414 288 276 92 183 71 74 148 22 0 3349 0 309 106 3764

931 903 459 296 282 103 183 71 76 151 23 5 3483 19 319 107 3928

955 929 482 305 288 125 183 72 77 156 23 11 3606 30 358 109 4103

1955 1975 1933

Sources: Company data, press reports.

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4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total output

Russia

Tajikistan

Ukraine

Azerbaijan

Consumption

2.3 Production and consumption in the Former Soviet Union (Mt).

by 9% to 989 kt/a by 2007. There are also plans to construct a 300 kt/a expansion at Sayansk. SUAL, meanwhile, has plans to increase the capacity of its Kandalaksha smelter from 70 kt/a to 318 kt/a. The first phase, to raise capacity by 30 kt/a, came onstream towards the end of 2003. It is planned to begin construction of the 218 kt/a KAZ-2 project in 2005. Further ahead the company has plans to build a greenfield alumina/aluminium complex in the Komi region, using bauxite from its Sredni Timan bauxite deposit. The company is seeking a strategic partner but noted that it would proceed with the project on its own if necessary. The intention is to construct a 1.4 Mt/a alumina refinery and a smelter of up to 500 kt/a capacity. SUAL is reportedly also considering building a 500 kt/a greenfield aluminium smelter in the Sverdlovsk region in eastern Siberia, noting that the region has a well-developed infrastructure, qualified manpower and an advantageous geographical position. The town of Krasnoturinsk, where the company’s Bogoslovsk smelter and refinery are located, is apparently being considered as a possible site. The key requirement, however, is access to power resources and the opportunity to conclude long-term power contracts at competitive prices. The company noted that the project should not be regarded as an alternative to its Komi or other projects. The Sumgait smelter in Azerbaijan, which was closed in 1995 and reopened briefly in 1999, reopened again in 2003, hopefully on a more permanent basis, and produced an estimated 30 kt in 2004. According to Azerbaijan’s Economic Development Minister, the 2.1/page 24

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Table 2.7 Probable/possible capacity additions in the FSU Company

Smelter

Capacity Status/Remarks (kt/a)

Rusal

Sayansk

315

Boguchany Krasnoyarsk region

500

Irkutsk

600

Irkutsk Murmansk Kazakhstan

300 300 500

Tajikistan

200

Kyrgystan Timan

? 313–460

SUAL

Bogoslovsk Bogoslovsk II

85 300

Kandalaksha 2 218 Sverdlovsk 500 Pavlodar/ Pavlodar 240 Corica AG Kazakhstan

Brownfield expansion scheduled to come onstream in 2006 and achieve full capacity the following year. Further expansion mooted by 2009/10 Greenfield, in conjunction with UES. Awaiting government approval. Construction could begin in 2006. Second phase being considered Feasibility study underway. Company received local approval after a series of hearings into the plant’s likely environmental impact. Construction could begin in 2006 Greenfield. Perhaps with Alucom Construction could begin in 2005 Smelter and associated 1.5 Mt/a refinery still on the drawing board. Location to be decided Company will help construct smelter over a five-year period in cooperation with Tajik government. Timing uncertain Construction could start in 2006 Feasibility study underway. Alcoa is a possible strategic partner. Construction of a 1.4 Mt/a alumina refinery could begin in Q2 2005 Modernisation of existing potlines by 2006/07 Part of Bogoslovsk complex. Associated 700 kt/a refinery mooted. Timing uncertain because of energy problems Construction to begin in 2005 Dependent on power availability First 120 kt/a stage to be completed by the end of 2007

Sources: Company data, press reports.

capacity of the smelter will be raised to 75 kt/a by 2006. The Dutch company, Fondel, which manages the country’s aluminium group Azeraluminium, plans to invest $50 million in upgrading the plant. It also intends to construct a new 100 kt/a smelter near the old one, with the first 50 kt/a stage expected onstream in 2005. Ukraine’s sole aluminium producer, Zaporizhsky Alyuminievy Kombitat (ZALK), increased its primary aluminium output by 1.2% in 2004 to 108.8 kt compared with 107.5 kt in 2002. In February 2005 shareholders approved a plan to issue Hryvnias 155.68 million ($29.37 million) worth of new shares later in the year to boost the 2.1/page 25

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company’s capitalisation to $58.7 million. The company intends to use the money to modernise and upgrade the smelter and reduce costs. The company has no plans to expand the smelter, but expects to see an increase in production of 1–2% in 2005. Tajikistan produced 358.1 kt of primary aluminium in 2004, an increase of 12.1% from the 319.4 kt of 2003. It is reported that Tajik Aluminium (TadAz), the country’s only producer, intends to increase output to 375 kt in 2005. The smelter, which is located near the capital Dushanbe, was commissioned in 1975 with a nameplate capacity of 517 kt/a, but has never operated at anything like this level. RusAl earlier stated that it would be interested in taking part in the long-delayed privatisation of the company and was ready to invest $160 million in a modernisation programme to raise the smelter’s output to 450 kt/a. In 2003, the Swiss company Corica AG purchased a stake in the Pavlodar refinery in Kazakhstan, pledging to construct a 240 kt/a primary aluminium smelter. According to the company, the first metal will be produced in 2007 and output will reach 125 kt in 2008 when the first of two potlines will be fully operational. No timetable for the completion of the second potline was mentioned. In late 2004 it was reported that RusAl plans to construct a greenfield aluminium smelter in the ex-Soviet state of Kyrgystan. The $2 billion project will be a joint venture with Russian electricity monopoly Unified Energy Systems, which will construct two hydroelectric power stations to provide power for the plant. No details were provided on capacity but the Kyrgyz President was quoted as saying that he hoped to sign an agreement in 2005 that would enable construction to start in 2006. Table 2.7 provides details of probable and possible expansion and additions to capacity within the Former Soviet Union by RusAl and other companies. The FSU is endowed with a very poor bauxite resource base. Despite this both Russia and Kazakhstan have established and indeed maintained significant alumina refining industries. Plants in the Urals and in Kazakhstan treat locally mined bauxites (although in both cases limited imported material has also been processed in recent years). Other Russian plants process nepheline or alunite for the recovery of alumina, the largest of which is Achinsk. The two Ukrainian refineries Zaporozhye and Nikolaev process bauxite imported from Western countries (usually Guinea, Jamaica, Brazil and Greece). Bauxite is mined at four locations in Russia, which between them produced 6.2 Mt in 2004. By far the largest operation is the Sevuralboksitruda mine in the northern Urals, which produced 3.5 Mt or over 56% of the total. SUAL, which controls the complex, has invested in its expansion in recent years, as it has in the Sredni 2.1/page 26

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Timan mine, with the result that output has increased at both. It is expected to increase further in the years ahead, particularly at Sredni Timan, which produced 1.5 Mt in 2004 and where capacity could reach 2 Mt/a by 2006. The intention is to raise capacity to over 6 Mt/a as part of the Komi alumina/aluminium project noted above. Kazakhstan is also a significant bauxite producer, with output of 4.7 Mt in 2004. Alyumini Kazakhstan operates the two mines, at Krasnoctyabrsky and Turgay, which produced 2.7 Mt and 2.0 Mt respectively in 2004. Production at both has increased in recent years, although we are not aware of any plans to raise it further in the near future. The Zeylik mine in Azerbaijan, which produces alunite rather than bauxite, would normally supply the country’s Ghyandia refinery, but has been closed for some years. As far as we are aware there are no plans to reopen it in the near future. Production of alumina in the FSU has also been increasing in recent years, reaching over 6.5 Mt in 2004. As indicated in Table 2.8, output has risen in all the producing countries in recent years. Russia is the largest producer, accounting for just over 50% of the total. Bogoslovsk has a nameplate capacity of 1 Mt/a, but data released by SUAL indicates that it has been operating above that rate since 2000. The company also owns the Uralsk and Pikalevo refineries, both of which increased output in 2004, albeit marginally so in the case of the latter. Production at Bauxitogorsk has fallen in recent years, and in August 2003 the company announced that it would cease producing smelter-grade alumina to concentrate on making specialised and higher-value products, although there is no indication that it has yet done so. Achinsk, which is owned by RusAl, is Russia’s second largest refinery, which produced 1.06 Mt in 2004. The company has invested in the plant in recent years and production has risen as a result. The same is true of the Nikolaev refinery in Ukraine, where RusAl is the majority shareholder. Output exceeded 1.3 Mt in 2004 as the result of a $50 million investment programme. Ukraine also produces alumina at the smaller Zaporozhye refinery, where output has also been raised in recent years, reaching 261 kt in 2004. Kazakh Aluminium’s Pavlodar refinery produced 1.465 Mt of alumina in 2004, compared with 1.45 Mt in 2003. Most of the plant’s output is shipped to Russian smelters, chiefly Bratsk and Krasnoyarsk. Capacity is being increased and should reach 1.5 Mt/a in 2005. The Ghyandia refinery in Azerbaijan raised its output to 300 kt in 2004, having restarted production in May 2002 after a short closure. Azeraluminium announced that it plans to raise output to 400 kt in 2005 and 450 kt in 2006. 2.1/page 27

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Table 2.8 Alumina production in the FSU (kt)

Russia

Ukraine Kazakhstan Azerbaijan

Plant

Start-up

2002

2003

2004

Uralsk Bogoslovsk Volkhov Pikalevo Bauxitogorsk Achinsk Total Russia Nikolaev Zaporozhye Total Ukraine Pavlodar Ghyandia Total FSU

1939 1943 1950 1959 1952 1973

679 1064 0 246 38 1035 3062 1126 225 1351 1416 100 5929

714 1078 0 249 47 1052 3140 1198 236 1448 1450 200 6238

721 1095 0 251 60 1060 3187 1302 261 1563 1465 300 6515

1980 1956 1964 1966

2.1.3.8 China In 2001 China displaced the USA as the largest producer of aluminium. Unlike the Former Soviet Union (FSU), where production is mainly concentrated in a small number of very large smelters, the Chinese industry is extremely fragmented. By Western (or FSU) standards there are currently few large smelters in China, and the majority of its output still comes from myriad small or very small plants scattered around the country. Only nine smelters produced 200 kt or above in 2004, while just 15 others produced over 100 kt. Until fairly recently it was very difficult to obtain information about the majority of the Chinese smelters, or have much confidence in that which was forthcoming. However, the flow of information has improved markedly of late and we are now able to construct a more accurate picture of what is happening in the sector, although keeping track of progress at the plethora of new smelter projects and expansions is an almost impossible task. Table 2.9 lists the country’s larger smelters as well as the major recent additions to capacity. During 2004 the Chinese authorities made it increasingly clear that they were serious about curbing this overheating sector and, indeed, output in that country was lower than was generally expected at the start of the year, largely reflecting the government’s determination to dampen over-exuberent investment in the sector as well as forcing the closure of old Soderberg capacity. To a considerable extent this policy reflects the fact that China is chronically short of power and for this extremely power-intensive industry to export ever-increasing volumes of metal is seen as tantamount to exporting scarce electricity. The year saw the closure of a consider2.1/page 28

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Table 2.9 Aluminium smelter production in China (kt) Company

Smelter

2001

2002

2003

2004

Chalco

Guizhou Qinghai Pingguo Shandong Zhenghou

242 208 134 55 45 684 119 145 88 43 111 110 55 100 123 – – – – – – 1857

238 246 137 60 56 737 136 237 158 110 111 107 56 98 125 – 55 55 80 – – 2317

232 260 137 45 56 730 200 250 205 115 163 110 120 135 108 50 57 210 300 – 10 2784

235 265 110 65 53 728 225 280 130 235 220 155 150 200 183 130 150 210 200 105 98 3161

3435

4382

5547

6560

Total Chalco Baotou Group Quintongxia Lanzhou Shangdian Wanfang Shanxi Guanlu Baiyin Nonfer. Liancheng Yunnan East Hope Henan Zhongfu Yichuan Power Xinfa Xiwang Zhaofeng Allstar Others Totals

Baotou Quintongxia Lanzhou Shangdian Wanfang Guanlu Baiyin Ibis Liancheng Yunnan Shangdong Henan Yugang Xinfa Zhaofeng Meishan Others

able amount of old capacity as well as the deferral of start-ups of new capacity because of power shortages and high alumina prices. Nevertheless, production in 2004 was 18.3% higher than a year earlier at 6.56 Mt. Production levels further forward will to a considerable extent depend on how successful the Chinese authorities are in their attempts to control toll smelting. Apparently approval for this activity will only be given to smelters with capacity over 100 kt/a, which limits the field somewhat given the plethora of small smelters that still continue to operate in the country, and smelters employing Soderberg technology will not be permitted to toll. Also, companies will not be granted new certificates until previously tolled metal has been exported, which it must be within one year, and no approval will be given to companies with idled capacity. Moreover, from 1 January 2004 the tax rebate of 8% on exports that had been in place was removed and a tax of 5% imposed. Clearly the Chinese authorities are serious about curbing the burgeoning growth in the sector, and are determined to weed out smaller, inefficient plants, particularly those using Soderberg technology. Nevertheless, there is no shortage of new smelting capacity either being brought onstream, 2.1/page 29

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waiting in the wings or being constructed to ensure that Chinese production continues to expand strongly over the next few years. In 2004 China produced an estimated 10.1 Mt of bauxite, almost all of it from mines owned and operated by Chalco. All of this material was consumed in the company’s refineries, and it also imported 882 kt of bauxite, an increase of 42.9% over the previous year. China is the world’s second largest producer of alumina (and its largest importer), with production of metallurgical grade exceeding 7 Mt in 2004 (see Table 2.10). That places it far behind Australia, which produced 16.7 Mt, but ahead of the US in third place, which produced 5.9 Mt. During the early 1990s Chinese alumina refineries operated at very low utilisation rates, reflecting technical difficulties associated with the type of production processes prevalent which, in turn, was dictated by the poor characteristics of Chinese bauxite and limited domestic supplies of higher-quality feed. While bauxite reserves are extensive, totalling in excess of 2000 Mt of recoverable alumina in some 200 outcrops, the vast majority are diasporic in nature, with high silica-to-alumina ratios. These poor (by Western standards) ore characteristics necessitated the development of relatively complex and energy-intensive hybrid processing routes. Chinese refineries predominantly use a combined Bayer-sinter (BSP) process although lime-sintering (LS) processing is also used at the Great Wall and Shandong refineries. The most modern plant (Pingguo) does utilise a high-temperature pure Bayer process originally developed to process diasporic Greek bauxite by Pechiney. Chalco has invested substantial sums in raising capacity at its six refineries in recent years. In 2004 they produced 6.8 Mt between them, an increase of 15.6% from 2003. All refineries recorded

Table 2.10 Chinese refinery output, 2000–2004 (kt) Refinery

2000

2001

2000

2001

2002

2003

2004 (e)

Change 2003/2004

Shanxi Zhengzhou Shandong Zhongzhou Guizhou Pingguo Bosai Others

1249 965 733 442 480 420

1318 1070 802 545 519 443

1249 965 733 442 480 420

1318 1070 802 545 519 443

1300 1270 850 800 655 440

1550 1400 1080 1000 860 910 55 165

+14.0% +3.7% +16.1% +14.9% +16.2% +44.4%

70

1360 1350 930 870 740 630 5 133

Totals

4289

5385

6018

7020

+16.7%

2.1/page 30

4697

4289

4697

2 Aluminium 700

2.1 Resources and extraction

2002

600

2003

500

2004

400 300 200 100 0 Jan.

Feb.

Mar.

Apr.

May

June

July

Aug.

Sep.

Oct.

Nov.

Dec.

2.4 Chinese monthly alumina imports (kt).

increases, most notably Pingguo where it rose by 44.4%. The company announced that it intends to increase output by 7.7% in 2005, which would take it to just over 7.3 Mt. Going forward, the company has ambitious plans to increase output further, most notably through the construction of two greenfield refineries in Shanxi and Guangxi provinces. The former, to be built in partnership with the Shanxi government and Luneng Power Group, would have a capacity of 1.0 Mt/a and could come onstream in 2006. The Shangdong Luneng Group will participate in the second project, which would have an initial capacity of 1 Mt/a but could be raised to 2 Mt/a. Provisional indications are that the plant could start up in 2007. Output will also expand at a number of small independent refineries and there are plans to construct several others. However, the National Development and Reform Commission has instructed provincial governments to curb blind investment in this sector, so the future of most of these projects is uncertain. Higher alumina production has failed to match the requirements of the smelting sector, necessitating the import of increasing volumes of alumina (see Fig. 2.4). Despite the strong growth in domestic alumina production during the second half of the 1990s, towards the end of the decade the gap between domestic requirements and supply widened, resulting in an increasing proportion being sourced offshore. This trend was maintained into the present decade, and in 2004 imports reached a record 5.875 Mt. China is the world’s second largest consumer of aluminium, having recently overtaken a stagnating Japan, and, as we have seen, in 2001 it displaced the US as the largest producer and is on course 2.1/page 31

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7000 6000 5000 4000 3000 2000 1000 0 1990

1991

1992

1993

1994

1995

1996

Production

1997

1998

1999

2000

2001

2002

2003

2004

Consumption

2.5 Chinese production and consumption of primary aluminium (kt).

to overtake as the largest consumer in the near future. In stark contrast to the FSU, Chinese consumption expanded strongly from a rather low base over the past decade or so. In 1990 the country consumed 860 kt, about two-thirds as much as Germany, and although this was sufficient to make it the world’s fourth largest consuming country, on a per-capita basis its consumption of metal was very low. This of course is still the case, albeit less so, but in volume terms consumption soared during the 1990s such that by 2000 it exceeded 3.3 Mt. In 2004 it expanded to just under 6.1 Mt. Production too rose strongly throughout the 1990s but, as Fig. 2.5 indicates, it struggled to match demand with the result that the country was a net importer of metal throughout the decade. However, this situation has since changed and in 2001 China became a small net exporter of metal to the West. Since then the volume of metal flowing to the West has risen significantly, and in 2004 it exported 1.406 Mt, an increase of 36.1% from 2003, and imported 698 kt, up 28.0%, making it a net exporter of 708 kt. Although demand is expected to continue to grow strongly the plethora of expansions and greenfield smelter projects currently under construction should ensure that the country continues to produce in excess of its domestic requirements in the medium term.

2.1/page 32

2.2 Consumption 2.2.1 Major end-use markets Aluminium is an extremely versatile metal, employed in a wide range of industries in a large number of applications. The key properties that make aluminium so popular are its lightness, resistance to corrosion, high electrical and thermal conductivity and the fact that it is non-magnetic and non-sparking. Also, the metal is malleable and therefore easily worked by the major manufacturing and shaping processes, namely rolling, extrusion forging and casting. In almost all its applications it is alloyed with other metals in order to increase its strength and machineability (see Table 2.11).

2.2.1.1 Transport Although the metal is widely employed in various aerospace (mainly airframes), rail (freightcars, coaches) and marine (hulls, propellers) applications, this sector is of course dominated by the automobile industry. It will be developments there that will largely determine the underlying rate of growth of aluminium use in the sector in the years ahead. Aluminium’s low density, high strength and durability are the properties that enable it to enjoy acceptability in such a wide range of applications, together with a move towards increased per-unit use at the expense of other metals and the upward trend in global vehicle production. Both factors will play their part in the metal’s greater acceptance in the future, although this will remain subject to cyclical influences. Its major attraction for vehicle manufacturers is its lightness, allowing reductions in vehicle weight that are required in the major markets (and increasingly in developing ones) to meet mandated, and increasingly stringent, fuel economy standards. Many manufacturers have switched to aluminium for cylinder heads, engine blocks, sumps and transmission casings, although not necessarily for all models. Aluminium currently has the highest consumption level of any base metal in the automobile industry and by far the greatest potential for future demand growth in absolute terms.

2.2.1.2 Packaging The vast majority of aluminium going into the packaging sector is employed in the form of cansheet, the other uses being foil and a 2.2/page 1

2.2 Consumption

2 Aluminium

Table 2.11 Major casting and wrought alloy series Alloy series

Major alloying element

Properties conferred

Disadvantages

Major endusing industries

100 1000

None

Relatively weak and soft

Electrical and chemical

200 2000

Copper

High corrosion resistance, high electrical and thermal conductivity, easy workability High strength

Aircraft, automobile

300 3000

Manganese

Loss of corrosion resistance Not heat treatable

400 4000

Silicon

500 5000

Magnesium

600 6000

Magnesium/ silicon

700 7000

Zinc (sometimes with magnesium)

Very high strength

800 8000

Various

Alloys developed for special applications including several tin alloys which have high fatigue strength

Combines moderate strength with good workability Lowers aluminium’s melting point without making it brittle Moderate/high strength. Very high corrosion resistance Medium strength, corrosion resistant and heat treatable

Construction, automobile (truck bodies)

Not heat treatable

Automotive, mechanical engineering

Not heat treatable

Packaging (cansheet) The most widely used alloy. Construction, transport and engineering Aircraft and other applications requiring high strength/weight ratios Very high stress engineering applications

(Casting alloys are 100 series, wrought alloys are 1000 series)

small number of food containers. Cansheet has a number of applications, but by far the most important is the production of beverage cans, although aerosol cans have also continued to increase in importance. There is considerable geographical diversity in the consumption of aluminium semis in the packaging sector, largely reflecting the differences in per capita beverage can consumption between one country and another. Although the metal will face 2.2/page 2

2 Aluminium

2.2 Consumption

increasing competition from steel (tinplate) and PET, there remains considerable scope for further growth, especially in a number of developing countries and Eastern Europe.

2.2.1.3 Construction To some extent the relative failure of aluminium to make significant gains in the construction industry can be explained by competition from a wide range of other metals and materials. Whereas in some of its other end-uses aluminium is virtually price inelastic in the short term, the same cannot be said of the majority of its applications in the construction sector where it can be easily substituted. This is the most diverse sector in which aluminium is employed and, in its various applications, it competes with timber, plastics, coated steels, lead, zinc, cast iron and concrete. Growth, particularly in the mature economies, is likely to remain modest and subject to cyclical influences.

2.2.1.4 Other end-uses Aluminium is used in a wide range of applications in the engineering and consumer goods sectors (see Table 2.12). In the electrical engineering sector it is chiefly used in the form of power cables, magnet wire and busbars. In mechanical applications its resistance to corrosion makes it popular in such applications as hydraulic systems, welded structures, bearings and heat exchangers. It is also used in consumer goods, such as white goods, garden furniture and cookware. The outlook for these other end-uses, taken together, is for reasonable growth, particularly in the developing economies.

2.2.2 Consumption trends Consumption of primary aluminium in the West increased sixfold between 1960 and the late 1990s. The impact of the two oil-induced recessions of the 1970s is obvious, as demand collapsed in 1974 and fell sharply again in the period 1980–82. For the three decades to 1990, including these two interregna, economic activity in the industrialised nations was generally synchronised, resulting in significant slumps and rebounds in aluminium demand in response to the marked changes in the level of economic activity during periods of recession and recovery. In the 1990s, however, economic activity became unsynchronised, with the result that demand continued to grow, albeit sometimes weakly, despite the fact that all the major industrialised economies 2.2/page 3

2.2 Consumption

2 Aluminium

Table 2.12 Major applications of aluminium semi-fabricated products Sector Transport Automobiles

Aerospace Rail Marine

Major applications

Competing materials

Radiators Engine components Body sheet

Copper/brass Cast iron Galvanised sheet/other coated steels Steel/plastics/ magnesium Composite materials Steel Steel Timber/fibre glass/ coated steels Brass/stainless steel

Structural components Commercial airframes Freight cars Coaches Boat hulls Propellers

Packaging

Beverage containers Food containers Aerosols Foil

Building

Cladding Roofing Window and door frames Fencing

Tinplate/plastics/ glass/composites Tinplate/glass Tinplate Plastic/paper Timber/coated steels/ plastics Timber/galvanised sheet/lead/copper Timber/PVC Timber/concrete/steel

Electrical engineering

Power cable and wire Busbars Transformers and generators

Copper Copper Copper

Mechanical engineering

Bearings Heat exchangers Hydraulic systems

Cast alloys Copper/stainless steels Steels

Household appliances

Refrigerators and freezers

Special steels/plastics/ copper Special steels/plastics/ copper

Air conditioning Cooking utensils Machinery and equipment

Irrigation piping Agricultural machinery Chemical appliances

Cast iron/steel/plastics Steel Stainless steels

experienced recession, or at least marked slowdowns, at some stage during the decade (see Fig. 2.6). Given that growth during the earlier period was taking place from a very low base at a time when the metal-intensive sectors of the industrialised economies were expanding rapidly, the rate recorded would have been unsustainable even if the oil shocks had not 2.2/page 4

2 Aluminium

2.2 Consumption

25

20

15

10

5

19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04

0

N. America

W. Europe

Japan & Australasia

Other

2.6 Western world consumption of primary aluminium (Mt).

occurred. Nevertheless, while the trends towards miniaturisation, material substitution and the thriftier use of metals resulting from more efficient methods of production and fabrication were all in place before then, there is no doubt that these processes were accelerated during the period of depressed economic activity that resulted from the jump in oil prices. It must also be remembered that as economies mature the service and high-technology sectors become more important and constitute an increasingly large share of GNP. Thus in a mature industrialised economy the metal intensity of growth will be lower than in an economy that is at an earlier stage of development. It is also worth noting that during the 1970s and, more particularly, the 1980s aluminium faced competition from a number of other metals and materials in several of its end-use sectors. Not only has the intensity of use in the major industrialised economies been constrained by changes in their pattern of economic growth and competition from alternative metals and materials, but primary metal has also faced increasing competition from its own remelted scrap. There are a number of reasons why recycling of aluminium has risen steadily through time: • the existence of a large aluminium scrap ‘reservoir’; • the enormous energy savings offered by recycling compared with primary smelting; • a number of aluminium products lend themselves to ‘closed-loop’ recycling, e.g. beverage cans and automobile castings; 2.2/page 5

2.2 Consumption

2 Aluminium

• increased environmental awareness, coupled with the active participation of the major aluminium producers in recycling programmes. Indeed, had it not been for the emergence of a number of economies outside the Organisation for Economic Cooperation and Development (OECD) area total Western demand growth over the past two decades or so would have been very slow indeed. It is worth noting that in the early stages of development an economy is able to make rapid gains in metal consumption as the intensity of use rises sharply. However, as economies mature the service and high-technology sectors become more important and constitute an increasingly larger share of GNP. Thus, in a mature industrialised economy, while metal intensity of use is higher the growth rate will be much lower than in an economy at an earlier stage of development. In 2004, the 16.0 Mt of primary aluminium consumed in North America, Western Europe and Japan represented 71.7% of total Western consumption, compared with 80.0% in 1990 and 85.7% in 1980. To a considerable extent growth of Western aluminium consumption over the past two decades or so has relied on the developing countries of Asia (see Fig. 2.7). Although the Asian financial crises caused a hiccup in 1998 the trend has otherwise been strongly positive. Initially South Korea and Taiwan made the running in the 1970s and early 1980s. In fact, in 2004 the former country was the West’s fourth largest consumer, albeit some way behind Germany. To all intents and purposes both South Korea and Taiwan are mature

2.5

2

1.5

1

0.5

19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04

0

S. Korea

Taiwan

Thailand

Indonesia

Malaysia

2.7 Aluminium production in selected Asian countries (Mt). 2.2/page 6

2 Aluminium

2.2 Consumption

industrialised economies, and in recent years countries such as Thailand, Indonesia and Malaysia have picked up the baton as consumption has expanded from relatively low bases. In 2004 all these countries enjoyed healthy growth. Indian consumption, which had grown steadily if unspectacularly throughout the 1990s and into the early years of the present decade, leapt sharply higher in 2003. The 38% increase moved it from being the West’s seventh largest consumer to its fifth largest, and ahead of Canada and France in a single bound. It retained this position in 2004, during which consumption expanded by a more modest 8%. Latest available estimates indicate that Western world consumption of primary aluminium rose by a healthy 6.1% in 2004, a similar rate of growth to that recorded in the previous year. Indeed, consumption of 22.2 Mt was a new record high. Consumption in North America continued to rebound strongly in 2004 and increased by around 7.7%, having risen by 2.8% in 2003, and at 7.17 Mt surpassed the previous peak of 7.1 Mt recorded in 2000. US consumption rose for the third consecutive year to a record 6.44 Mt, while Canadian consumption, which had fallen in 2003, rebounded although it remained below the all-time high recorded in 2000. Western Europe also made a positive contribution to Western consumption growth in 2004, recording a 5.1% jump to 6.8 Mt. Growth increased pretty much across the board, unlike the previous year when it had been distinctly patchy. Germany, by far the region’s largest consumer, increased its consumption by 4.4% to around 2.0 Mt, which was a very respectable performance considering it had grown by 13.3% the previous year. French consumption, which had stagnated over the previous three years at around 750 kt, rebounded by 7% in 2004 to a record 800 kt. Consumption in the UK peaked at 620 kt in 1995 and has been disappointing in recent years; the 390 kt recorded in 2004 represented stagnation from the previous year. Italy, which in recent years has nudged France into third place in the European consumption league, recorded its third consecutive year of sound growth in 2004, recording an all-time high of 990 kt. Meanwhile Spain, which during the course of the present decade has become Western Europe’s fourth largest consuming country, increased its consumption by 3% in 2004. Japanese consumption, which had fallen for the third consecutive year in 2003, as the economy remained in the doldrums and industrial output weak, rebounded by a respectable 3.5% in 2004 to just under 2.1 Mt. In fact, Japan’s highest ever consumption of 2.47 Mt occurred in 1996, which gives some idea of the prolonged economic malaise that has afflicted its economy. 2.2/page 7

2.3 The market Although it was by no means all one-way traffic the aluminium market enjoyed considerable success in 2004, recovering from eighteen months of weak prices (Fig. 2.8). While it can be argued that much of this strength was driven by speculative interest, there is no doubt that strong demand growth and a substantial drawdown in LME stocks were underpinning factors. Amid bouts of profit-taking along the way, which at times resulted in considerable setbacks, the LME three-month price ended 2004 on a high note, trading up to $1972 on the final day of the year. This was its highest level in almost nine years. As Table 2.13 indicates, LME stocks fell steadily throughout 2004, ending the year 732 kt lower than at the beginning. It is worth noting, however, that the rate of decline slowed sharply towards the end of the year. The other major source of visible stocks, the International Aluminium Institute (IAI), reported that stocks of unwrought metal held by producers within its reporting area (which excludes China and a number of old European Eastern Bloc countries) ended the year slightly higher, although this largely reflects a usual end-year accumulation and, indeed, we do not normally see huge changes in producer inventories. In any event, total reported stocks fell by 547 kt during the course of 2004. Changes in reported stocks bear little relationship to the market balances as noted in Table 2.14. In 2004, for example, the fall in reported stocks in Table 2.13 is considerably larger than the market deficit in Table 2.14. Similarly, the 1.75 Mt surplus accumulated over the preceeding five years is not reflected in the reported stocks. If the figures in the latter table are close to correct, the only conclusion that can be drawn is that a considerable volume of off-warrant metal is being held. To some extent the discrepancy in 2004 can be explained by the fact that a considerable volume of metal was imported into countries of the former Eastern Bloc prior to their accession to the European Union on 1 May, in order to avoid the 6% import tax that it would attract thereafter. However, this was a one-off phenomenon, and in any case the volume of metal these countries are believed to have accumulated only goes part way to explaining the discrepency. It must be said, however, that the aluminium market’s relationship with its fundamentals is notoriously obscure, leaving it susceptible to the influence of speculators for whom its high liquidity 2.3/page 1

2.3 The market

2 Aluminium

MAL3, Last Trade [O/H/L/C Bar] [MA 200] [MA 100] [MA 30] [FSI 14] Daily

16 Sep 03–03 Mar 05

Pr USD 1950 1900 1850 1800 1750 1700 1650

MAL3, Last Trade, O/H/L/C Bar 26Apr05 1830.50 1842.50 1827.50 1836.00 MAL3, Close (Last Trade), MA 200 26Apr05 1820.13 MAL3, Close (Last Trade), MA 100 26Apr05 1886.87 MAL3, Close (Last Trade), MA 30 26Apr05 1824.02 MAL3, Close (Last Trade), MA 10 26Apr05 1861.70

1600 1550 1500 1450 1400 RSI USD 60 40

05Jan 02Feb 01Mar 29Mar 26Apr 24May 21Jun

19Jul

20 16Aug 13Sep 11Oct 08Nov 06Dec 03Jan 31Jan 28Feb

2.8 LME three-month prices, January 2004–March 2005.

Table 2.13 Reported stocks of primary aluminium (kt at end of period)

1998 1999 2000 2001 2002 2003 2004

2.3/page 2

January February March April May June July August September October November December

LME

IAI unwrought

Total reported

636 775 322 819 1241 1423 1442 1394 1227 1148 1056 940 865 754 681 711 718 691

1682 1799 1787 1739 1660 1628 1685 1590 1536 1547 1739 1640 1665 1710 1658 1701 1674 1786

2318 2574 2109 2558 2901 3051 3127 2984 2763 2695 2795 2580 2530 2464 2339 2412 2392 2477

2 Aluminium

2.3 The market

Table 2.14 Western world supply/demand balance in primary aluminium (kt)

Production Net imports Total supply Consumption Balance Price

1999

2000

2001

2002

2003

2004

17 235 2 425 19 660 19 457 203 $1 528

17 668 2 300 19 988 20 420 432 $1 547

16 965 2 450 19 415 19 095 320 $1 445

17 522 2 750 20 272 19 743 529 $1 349

18 145 3 075 21 220 20 950 270 $1 431

18 650 3 520 22 170 22 350 (180) $1 715

Table 2.15 LME three-month price (period averages)

1999 2000 2001 2002 2003 2004

January February March April May June July August September October November December Annual average

$/tonne

Cents/lb

1362 1547 1454 1363 1567 1621 1704 1676 1744 1633 1682 1715 1715 1730 1782 1807 1854 1716

61.8 71.1 66.0 61.8 71.1 73.5 77.3 76.0 79.1 74.0 76.3 77.8 77.8 78.5 80.8 82.0 84.1 77.8

3500.0

2000 1800

3000.0

1200 1000

1500.0

800

($/tonne)

1400

2000.0

600

1000.0

400 500.0 200 0

M

n00 ar -0 M 0 ay -0 0 Ju l-0 Se 0 p0 N 0 ov -0 0 Ja n0 M 1 ar -0 M 1 ay -0 1 Ju l-0 Se 1 p0 N 1 ov -0 1 Ja n0 M 2 ar -0 M 2 ay -0 2 Ju l-0 Se 2 p0 N 2 ov -0 2 Ja n0 M 3 ar -0 M 3 ay -0 3 Ju l- 0 Se 3 p0 N 3 ov -0 3 Ja n0 M 4 ar -0 M 4 ay -0 4 Ju l- 0 Se 4 p0 N 4 ov -0 4

0.0

Ja

(thousand tonnes)

1600 2500.0

LME Stocks

IAI

Average Cash Price

2.9 Aluminium stocks and LME price. 2.3/page 3

2.3 The market

2 Aluminium

makes it particularly attractive. This was certainly the case in 2004, when aluminium attracted a high proportion of hedge fund buying that swept through the base metal complex. Against this backdrop, fundamental developments, such as they were, tended to take a back seat. As Table 2.14 indicates, the market was well supplied over the period 1999–2004, with the deficit recorded in 2004 dwarfed by the five preceding years of significant surplus. The fall in Western production recorded in 2001, which mainly reflected the slump in US output, occurred at a time when consumption was weak and net imports were rising. In fact, higher production and imports ensured that the market remained in surplus until 2004 despite three years of increasingly strong consumption growth. Table 2.15 gives details of its LME three-month price annually from 1999 and monthly for 2004. Figure 2.9 shows the relationship between the LME price and aluminium stocks.

2.3/page 4

2.4/page 1

Total Latin America

Total North America

Africa

India

Total Jamaica Surinam Venezuela Virgin Islands

Total Brazil Jamaica

Brazil

Total USA

Guinea Canada USA

Balco Hindalco

Suralco Interalumina Vialco

Glencore Alpart Jamalco

Aluminio do Brasil CBA Alcoa Aluminio SA Alumar Alunorte

Friguia Alcan Alcoa Kaiser Ormet BPU Reynolds

Table 2.A.1 Western world alumina production (kt)

2.4 Appendix

Korba Renukoot

Paranam Puerto Ordaz St Croix

Ewarton & Kirkvine Nain Clarendon

Saramenha Mairinique Pocos de Caldas Sao Luis Barcarena

Kimbo Jonquiere Point Comfort Gramercy Burnside Corpus Christi

541 1 225 2 300 50 500 1 500 4 450 5 675 150 450 263 1 240 1 630 3 733 1 300 1 508 950 3 758 1 880 1 700 584 11 655 190 450

2000 675 1 300 1 710 850 500 1 535 4 690 5 990 140 450 270 1 098 1 575 3 533 1 200 1 450 830 3 540 1 893 1 700 0 10 666 190 450

2001

700 1 300 2 000 1 250 80 1 650 4 990 6 290 124 500 300 1 286 1 600 3 810 1 270 1 430 900 3 600 1 900 1 825 0 11 135 190 500

2002

2004 732 778 1 300 1 300 2 300 2 300 1 250 1 250 0 600 1 700 1 750 5 250 5 890 6 550 7 190 124 124 640 640 300 300 1 342 1 394 2 300 2 548 4 706 5 005 1 129 1 263 1 528 1 576 1 040 1 250 3 697 4 089 2 004 1 970 1 840 1 900 0 0 12 247 12 964 190 190 550 660

2003

2.4/page 2

Total Oceania Total Western world

Total Western Europe Oceania

Total Asia Western Europe

Table 2.A.1 (cont.)

Australia

France Germany Greece Ireland Italy Spain United Kingdom

Total Japan Turkey

Total India Iran Japan

Total Alcoa Comalco Nabalco Pty Ltd Queensland Alumina Ltd QAL Worsley Alumina Pty Ltd

Alcoa of Australia Ltd

Pechiney DADCO Aluminium de Grece Aughinish Aluminium Ltd Eurallumina SpA Alumina Espanola British Alcan Aluminium Ltd

Eitbank (Govt)

Nippon Light Metal Showa Denko Sumitomo

Total Indal Malco (Sterlite) Nalco

Indal

CAP Gove Gladstone Worsley

Kwinana Pinjarra Wagerup

Gardanne Stade Distomon Aughinish Porto Vesme San Ciprian Burntisland

Seydisehir

Jajroum Shimizu Yokahama Kikumoto

Mettur Damanjodi

Muri Belgaum

1 865 3 700 2 500 15 715 42 492

97 290 387 55 925 2 007 0 340 290 240 870 175 3 052 609 790 630 1 450 1 022 1 103 250 5 854 2 150 3 300 2 200 7 650

2000

2 000 3 637 2 963 16 346 42 668

100 300 400 60 945 2 045 0 314 290 240 844 175 3 064 610 790 675 1 450 975 1 177 250 5 927 2 150 3 371 2 225 7 746

2001

2 000 3 600 3 150 16 650 45 000

100 365 465 60 1 500 2 715 150 375 300 250 925 175 3 965 640 800 750 1 450 1 000 1 370 250 6 260 2 150 3 475 2 275 7 900

2002

100 510 610 60 1 700 3 220 300 450 300 250 1 000 200 4 720 640 800 780 1 450 1 000 1 370 250 6 290 2 150 3 500 2 300 7 950

2004

2 000 2 000 3 600 3 800 3 200 3 200 16 750 16 950 47 069 48 892

100 400 500 60 1 700 3 000 300 450 300 250 1 000 200 4 500 640 800 780 1 450 1 000 1 370 250 6 290 2 150 3 500 2 300 7 950

2003

2.4 Appendix 2 Aluminium

USA

Cameroon Egypt Ghana Mozambique Nigeria South Africa

Africa

North America

Country

Region

Alcan Alcoa/Century Century Columbia Falls Eastalco Intalco Noranda Ormet

Golden Northwest

Kaiser

Alcoa

Total Africa

Alucam Egyptalum Valco Mozal Alscon Alusaf

Company

Table 2.A.2 Western world aluminium production (kt)

Alcoa Badin Evansville Massena Rockdale Wenatchee Massena East Troutdale Mead Tacoma Goldendale The Dalles Sebree Mt Holly Hawesville Columbia Falls Frederick Ferndale New Madrid Hannibal

Edea Nag Hammadi Tema Maputo Akwa Ibom Bayside Hillside

Smelter

150 60 270 128 230 170 125 35 168 39 165 75 140 215 235 150 165 278 224 230

95 189 156 54 0 178 506 1 178

2000

150 75 280 128 255 45 128 0 0 0 35 0 185 220 237 10 170 70 235 246

91 196 149 270 0 176 487 1 369

2001

180 60 210 128 264 20 130 0 0 0 20 0 190 222 237 50 177 110 236 268

72 198 129 268 0 177 528 1 372

2002

205 20 303 118 264 0 120 0 0 0 0 0 190 222 237 49 177 110 247 270

82 198 15 407 0 188 540 1 430

2003

205 0 303 101 264 0 105 0 0 0 0 0 190 222 244 34 177 90 247 161

85 215 0 545 0 185 678 1 708

2004

2 Aluminium 2.4 Appendix

2.4/page 3

2.4/page 4

Latin America

Region

Table 2.A.2 (cont.)

Argentina Brazil

Canada

Country

Alcoa Albras Alumar CBA

Aluar Alcan

Total North America

Alouette Becancour Reynolds Lauralco

Puerto Madryn Saramenha Aratu Pocos de Caldas Belem Sao Luis Sorocaba

Ravenswood Longview Vancouver Total USA Arvida Beauhamois Isle Maligne Alma Shawinigan Falls Grand Baie Kitimat Laterriere Total Alcan Sept Iles Becancour Baie Comeau Deschambault Total Canada

Ravenswood MAP Vanalco Alcan

Smelter

Company

262 50 57 95 369 371 240

167 204 60 3 683 240 49 46 0 88 192 275 215 1 105 244 380 412 233 2 374 6 057

2000

244 45 48 70 334 325 230

168 23 0 2 660 240 49 0 325 88 195 212 220 1 329 245 380 395 236 2 585 5 245

2001

265 50 52 88 416 371 249

170 20 0 2 692 240 49 0 410 91 215 175 225 1 405 245 390 430 240 2 710 5 402

2002

265 50 56 95 436 335 314

172 0 0 2 704 220 49 0 410 91 220 230 245 1 465 245 400 436 245 2 791 5 495

2003

270 51 58 90 441 377 345

172 0 0 2 515 160 49 0 410 91 220 240 245 1 415 245 250 440 245 2 595 5 110

2004

2.4 Appendix 2 Aluminium

Western Europe

Asia

France

Japan Turkey

Indonesia Iran

Bahrain Dubai India

Mexico Venezuela

Pechiney

PT Asahan Iralco Queshm Almadhi Nippon Eti Total Asia

Malco Nalco

Alba Dubal Balco Hindalco Indal

Total Latin America

Alcasa Venalum

Valesul

Auzat St Jean de Maurienne Lannemezan Dunkirk Total France

Knuff Jebel Ali Korba Renukoot Alpuran Hirakud Mettur Angul Total India Kuala Tanjung Arak Queshm Bandar Abbas Kambara Seydisenir

Total Venezuela

Sepitiba Bay Total Brazil Veracruz

45 132 45 219 441

510 528 98 248 18 29 30 226 649 191 120 0 20 7 62 2 087

94 1 276 61 158 411 569 2 168

45 134 45 237 461

522 535 65 251 18 30 30 230 624 209 120 10 22 7 62 2 111

80 1 132 42 160 412 572 1 990

45 134 45 239 463

517 536 95 263 18 35 31 237 679 163 120 10 40 8 63 2 136

93 1 319 34 171 435 606 2 224

12 140 45 243 440

527 560 98 315 12 50 32 290 797 195 120 10 50 8 63 2 330

95 1 381 13 172 433 605 2 264

0 143 45 240 428

530 683 98 342 0 52 36 323 851 227 135 10 70 8 63 2 577

95 1 457 0 192 440 632 2 359

2 Aluminium 2.4 Appendix

2.4/page 5

Region

Table 2.A.2 (cont.)

2.4/page 6 Hamburger Hoogovens Trimetals Hydro Pechiney ISAL Nordural

Germany

Greece Iceland

Elkem

Norway Sor Norge Hydro

Delfzjil Pechiney

Netherlands

Italy

Company

Country Hamburg Voerde Essen Norf Stade Total Germany Distomon Straumsvik Grundartangi Total Iceland Fusina Porto Vesme Total Italy Delfzjil Vlissingen Total Netherlands Mosjoen Lista Total Elkem Husness Ardal Sunndalsora Hoyanger Karmoy Total Hydro Total Norway

Smelter 125 86 151 212 70 644 163 168 58 226 43 149 192 109 193 302 121 88 209 119 205 154 72 270 701 1 029

2000 125 83 153 220 70 651 162 170 73 243 43 149 192 109 193 302 125 90 215 130 205 156 71 280 712 1 057

2001

130 83 153 220 70 656 164 174 90 264 43 150 193 105 187 292 130 90 220 130 205 157 70 290 722 1 072

2002

135 83 155 220 70 663 164 176 90 266 43 150 193 106 200 306 165 90 255 150 205 230 70 290 795 1 200

2003

135 83 153 220 70 661 164 176 93 269 43 150 193 112 234 346 188 90 278 160 215 310 70 295 890 1 328

2004

2.4 Appendix 2 Aluminium

Oceania

New Zealand

Australia

Bosnia & Herzegovina Slovenia Serbia-Montnegro

Granges Alcan Alcan

Sweden Switzerland UK

Total Western world

Total Oceania

Hydro Alcoa Boyne Comalco Portland Tomago

Anglesey

Alcoa

Spain

Kurri Kurri Point Henry Boyne Island Bell Bay Portland Tomago Total Australia Tiwai Point

San Ciprian Aviles La Coruna Total Spain Sundsvall Steg Kinlochleven Lochaber Lynemouth Holyhead Total UK Mostar Kidricevo Podgorica Total Former Yugoslavia

17 653

155 167 500 157 340 445 1 764 328 2 092

199 85 82 366 100 36 4 39 117 145 305 95 76 96 267

17 039

155 172 504 160 345 450 1 798 324 2 122

208 86 82 376 100 36 0 40 156 145 341 96 77 108 281

17 575

155 185 520 164 345 460 1 829 334 2 163

212 86 82 380 100 40 0 40 157 139 336 103 99 116 318

18 176

155 185 521 167 350 486 1 864 334 2 198

220 86 82 388 100 43 0 40 165 142 347 111 118 120 349

18 657

156 185 541 162 352 500 1 896 350 2 246

240 86 82 408 100 43 0 40 174 145 359 117 120 121 358

2 Aluminium 2.4 Appendix

2.4/page 7

2.4 Appendix

2 Aluminium

Table 2.A.3 Global consumption of primary aluminium (kt) 2000 Africa

2002

2003

2004

337

366

347

357

375

799 6 265 7 064

743 5 590 6 333

747 5 730 6 477

697 5 959 6 656

781 6 375 7 156

82 514 96 183 72 946

54 553 113 173 85 970

50 578 113 181 99 1 013

81 589 120 196 99 1 070

90 636 125 196 105 1 152

2 225

2 014

2 009

2 023

2 095

Bahrain Hong Kong India Indonesia Iran Malaysia Philippines Saudi Arabia Singapore South Korea Taiwan Thailand Turkey Other Asia

239 50 602 146 117 115 33 52 43 823 502 195 211 187 3 314

261 50 589 163 117 152 25 65 48 850 321 227 176 229 3 152

248 42 604 127 117 149 30 70 48 920 407 250 231 261 3 436

255 28 798 211 120 126 26 77 56 982 431 323 308 266 3 738

320 31 860 225 130 140 30 80 65 1 075 475 360 335 300 4 426

Austria Belgium Croatia Denmark Finland France Germany Greece Italy Netherlands Norway Portugal Serbia Slovenia Spain Sweden Switzerland UK Other Europe

168 341 28 41 39 780 1 632 205 780 161 253 78 16 89 526 147 156 576 20 6 036

201 327 38 44 37 746 1 580 218 756 155 232 67 18 116 508 119 161 433 27 5 782

208 333 41 56 32 762 1 690 220 850 155 246 78 23 76 533 127 152 428 34 6 044

242 323 28 60 29 754 1 915 243 956 153 246 72 33 87 596 126 168 380 44 6 455

255 355 29 63 31 807 2 011 256 994 161 260 76 35 92 614 133 177 393 46 6 789

2 11 78

2 12 88

2 11 105

2 17 103

2 18 113

Canada USA North America Argentina Brazil Mexico Venezuela Others Latin America Japan

Asia

Western Europe Albania Bulgaria Czech Republic

2.4/page 8

2001

2 Aluminium

2.4 Appendix

Table 2.A.3 (cont.) 2000

2003

2004

210 150 128 36 614

223 149 113 39 616

240 133 112 28 715

244 199 163 24 803

265 230 170 26 824

Australia New Zealand

346 42 388

317 41 357

299 50 349

329 55 384

332 55 387

3 375 22 682 75 4 154

3 640 22 786 50 4 498

4 150 22 990 50 5 212

5 054 22 1 000 30 6 106

5 968 22 1 030 35 7 055

20 310 25 078

19 019 24 151

19 613 25 171

21 176 27 403

22 162 28 929

Total Oceania China North Korea Russia Ukraine Western world Total world

2002

Hungary Poland Romania Slovakia East/Central Europe

Total Other

2001

2.4/page 9

3

Copper

3.1 Resources and extraction 3.1.1 Origins of copper 3.1.2 Types of deposit 3.1.3 Geographical distribution of deposits 3.1.4 History of mining 3.1.5 Geographical distribution and recent trends in mine production 3.1.6 International trade in mine production 3.1.7 Extraction and processing of copper 3.1.7.1 Pyrometallurgical process 3.1.7.2 Hydrometallurgical processes 3.1.8 Secondary production 3.1.9 Geographical distribution and recent trends in refined production 3.1.10 International trade in blister 3.1.11 International trade in refined copper 3.1.12 Costs of production 3.1.13 Prospects for production growth 3.2 Consumption 3.2.1 Properties 3.2.2 Alloys 3.2.3 Applications 3.2.3.1 Early history 3.2.3.2 Modern period 3.2.3.3 Birth of the electrical industry 3.2.4 Survey of current consumption 3.2.4.1 Current applications 3.2.4.2 Past trends in consumption 3.2.4.3 Geographical distribution and recent trends in consumption 3.2.5 Rival materials 3.2.6 Miniaturisation 3.2.7 Prospects for consumption growth

3.3 The market 3.3.1 Supply/demand balance of refined copper 3.3.1.1 Stocks 3.3.1.2 Copper prices 3.3.2 Pricing of copper 3.3.3 Metal exchanges 3.3.3.1 The LME 3.3.3.2 Comex 3.4 Appendix 3.A.1 The world’s major copper mines, 2004 3.A.2 The world’s major copper smelters, 2004 3.A.3 The world’s major copper refineries, 2004

3

Copper

No material has had a greater impact on the history of civilisation than copper. It was the first metal to be put to practical use; its impact was such that two stages in the early development of mankind have been named after it and its principal alloy. It is still the world’s third most used metal, and it is by far the most important metal in the generation and distribution of electricity, without which modern life would be inconceivable. Copper and gold were the first metals to be discovered, probably during the seventh millennium BC in the Near East. However, while gold is unsurpassed for ornamental purposes, it is of little use for practical ones. It was copper, which could be turned into weapons, tools and implements infinitely more efficient than those made before, that gradually brought the Stone Age to an end. This socalled ‘Chalcolithic’ or Copper Period, when humans first learnt to use metal, was followed by what has become known as the Bronze Age (bronze being copper with a small addition of tin), which became the key metal until the advent of iron. Although during the first millennium BC bronze lost some of its applications, particularly as a cutting edge to this much more plentiful metal, copper continued to be prized for its many qualities: the ease with which it can be worked or cast into all sorts of shapes and forms; its durability and resistance to corrosion; the variety of its alloys; its conductivity of heat; and finally its appearance; since all other metals apart from gold are grey or white, copper’s rich colour makes it by far the most decorative of the non-precious metals. However, it was only some 200 years ago that what was to prove to be the most important quality of this, the oldest of the industrial metals, became evident. Copper’s electric conductivity is much greater than that of any other metal available in quantity, and without the red metal the development of the electrical industry, and of the vast number of uses to which electricity can be put, would have been gravely hampered. The discovery of electricity has given copper its most important role since the ending of the Bronze Age. Although the world’s consumption of copper is exceeded only by that of iron and aluminium, compared with them it is a very rare element indeed, and keeping pace with the immense increase in demand during the last 100 years has presented the copper mining industry with a major challenge. So successfully has this challenge 3/page 1

3 Copper

been met that production surplus rather than shortage has often been the greater problem, one which has been exacerbated by insufficient market development. Even so, the rate of consumption of copper in recent years, both in the industrialised and the developing countries, confirms its continuing importance to modern technology as well as to its many older applications. The world’s first useful metal still has a leading role to play.

3/page 2

3.1 Resources and extraction 3.1.1 Origins of copper Copper is a relatively rare element, perhaps only some 0.005% of the earth’s crust, compared with 5% for iron and 8% for aluminium. Even today it is usually economic to extract copper only from sites where the metal is concentrated to at least 100 times its average abundance and until recently much higher concentration than this was required. Geological conditions that produce such concentrations are not common, but over the centuries people have learnt to recognise types of rocks where these deposits are more likely to occur. In nature, copper normally occurs chemically combined with other elements, in the form of minerals. The most common copper mineral is chalcopyrite, a sulphide of copper and iron containing roughly equal quantities of the three elements by weight. About half the copper in the world’s copper deposits probably occurs in this form. Bornite and chalcocite are two other important sulphides of copper. When copper mineralisation is exposed in the oxidising environment at the earth’s surface copper sulphides become unstable, slowly oxidise and finally break down. Copper released into solution at the surface may percolate down below the water table and form a layer of secondary enrichment on top of the primary copper sulphide minerals. Within this layer the copper grade can be significantly higher than the grade of primary copper mineralisation. On the surface copper sulphides generally have become partially or wholly oxidised to form highly coloured oxides and silicates, notably malachite, azurite and chrysocolla, and here copper can occasionally occur as native copper in metal form.

3.1.2 Types of deposit The principal types of copper deposit which are exploited are as follows: • Porphyry. Chalcopyrite disseminated in igneous (i.e. once molten) rock which has been forced towards the earth’s surface as a granitic magma from the layer of the earth’s molten interior lying immediately below its crust. Typically these deposits are 3.1/page 1

3.1 Resources and extraction

•

•

•

•

3 Copper

extremely large and low grade, but sometimes contain up to 2% copper or more. Common co-products or by-products include molybdenum, gold and silver. Sedimentary. Beds of shale or sandstone impregnated with copper minerals. The copper was concentrated in the rock either at the time it was formed or else introduced in solution after its formation. Smaller than the porphyry deposits, copper contents usually range between 2 and 4%. Silver and cobalt are sometimes produced as by-products. Massive sulphide. Layers or pods of sulphide minerals, usually formed by sub-marine volcanic activity. Copper occurs predominantly as chalcopyrite. Deposits are usually smaller than the sedimentary deposits and can contain up to 5% copper. Typical co/by-products include zinc, lead, silver and sometimes gold. Magmatic. Layers of massive or disseminated sulphides in igneous rocks. The sulphides have tended to collect by gravitational settling, while the rock was still molten. These deposits typically contain up to 0.5% copper. Nickel and cobalt are common by-products. Vein. Quartz-filled fractures containing copper sulphides, formed by the flow of hot aqueous solutions through a fractured rock. The mineralising solutions may have originated directly or indirectly from hot igneous rocks nearby, or at depth. These deposits are usually small; copper grades can vary considerably. There is a wide range of potential co/by-products including lead, zinc, silver, tin, tungsten and gold.

3.1.3 Geographical distribution of deposits The greatest concentration of copper deposits is in a band bordering a line of geological faults stretching along the western side of the Americas from Chile through Peru and Mexico, Arizona, New Mexico, Nevada and Utah in the United States, and British Columbia in Canada. These deposits are mainly porphyry and account for about half of the Western world’s mine production. Porphyry copper deposits also occur in the chain of islands along the south-western rim of the Pacific, notably in Indonesia. Papua New Guinea and the Philippines, and in a band running from south-east Europe through Iran to Pakistan. After the porphyry deposits in the Americas, the most important mining area for much of the last century was the sedimentary deposits of the copper belt in Central Africa. In 1980 the production of Zambia and Zaire (now the Democratic Republic of Congo) together represented more than 17% of Western world primary production, although today this has sunk to 4%. There are significant massive sulphide deposits in eastern 3.1/page 2

3 Copper

3.1 Resources and extraction

Canada, north-central USA, Spain, Cyprus, Namibia, South Africa and Australia. Magmatic deposits are found in the Sudbury area of eastern Canada. Among the Eastern countries, the Commonwealth of Independent States (CIS) has substantial porphyry deposits, Poland has large sedimentary deposits and China has some porphyry.

3.1.4 History of mining As mentioned previously, copper was probably first discovered to be a useful material in the seventh millennium BC, in the Near East. This would have been lumps of native copper, already in fairly pure metallic form. Many years were to elapse before, having learnt to melt and cast copper, humans discovered that certain rocks, if crushed and heated very strongly, could also produce the muchprized substance. Excavations at Timna, in what is now Israel, have established that copper ore was being smelted there in the fourth millennium BC, so copper mining, in the sense of extracting copperbearing ores from the ground, has been going on for over 5000 years. Under the Roman Empire copper production expanded considerably, much coming from Cyprus (indeed our word ‘copper’ comes from the latin word ‘cuprum’ which in turn is a shortening and corruption of ‘aes cyprium’ or Cyprian metal). Copper was also mined in Britain. However, probably the biggest mine in Roman times, and one which in the nineteenth century was again to be the world’s biggest copper producer, was the Rio Tinto mine in Andalusia in south-west Spain. Meanwhile, in parts of the world far distant from Europe, the production of copper was also in progress. In China, in particular, where copper mines were probably being worked in Honan Province as early as 2500 BC, the production and working of copper were well advanced, while in North America native copper had long been exploited in Keeweenaw peninsula in Upper Michigan. During the Middle Ages some German states became prominent in copper mining, and Sweden also became an important producer; however, by the early eighteenth century rising production from the Cornish copper mines, which had been known to the Phoenicians, enabled Britain to become the world’s leading copper producer, a position it was to retain until the middle of the following century. Even so, by the end of the eighteenth century British production was unlikely to have exceeded 800 t/year out of a total world output probably of not much more than 20 000 t. By 1857, when Chile at last overtook Britain, the two countries’ production figures were 24 000 t and 17 000 t respectively, against an estimated world total of 75 000 t. 3.1/page 3

3.1 Resources and extraction

3 Copper

The second half of the nineteenth century saw a number of radical changes in copper production. The most obvious was its size, which increased nearly tenfold to half a million tonnes/year by 1900. Its geographical distribution also altered drastically. British copper production, which had predominated for so long, shrivelled to insignificance, but elsewhere in Europe both Germany and, more particularly, Spain staged revivals (the latter through the reopening of the Rio Tinto mine) while overseas new countries and previously unexplored territories were coming into prominence. Japan, which had still been closed to the West in the middle of the nineteenth century, was producing nearly 30 000 t/year by the beginning of the twentieth, while Australia, Canada and Mexico were not far behind. Chile’s supremacy, however, was to be shortlived, for by 1890 its production, like the rest, was to be dwarfed by that of the USA. In the 1850s American copper production was still very small, but it started to rise with the discovery in 1881 of the huge seam of chalcocite at Butte in Montana, assaying 30% copper. The fast-rising demand for copper metal and the completion of the railroad across Arizona in 1882 provided both the incentive and the means for the development of the great deposits in the South-West. Production was aided by various innovations, including the concentration of ore, first practised at Morenci to counter falling grades. By the end of the century US annual copper production exceeded a quarter of a million tonnes. However, the most important innovation, and one that was to radically alter copper mining strategy in the USA and in many other parts of the world during the twentieth century, was yet to come. Up to then copper miners throughout the world had restricted their attention to rich lodes and veins of ore, which, although they were often discovered through their outcrops on the surface, usually had to be mined underground. Copper grades of such ores as were mined seldom fell much below 10%, and as we have seen, could be much higher. However, by the turn of the century there were increasing doubts as to whether the reserves of such high-grade and accessible ore would be sufficient to meet the demand for the metal which was growing strongly with industrialisation and electrification. In 1903 the mining of a very different deposit was started at Bingham Canyon near Salt Lake City in Utah. This porphyry deposit contained a little over 2% copper, ore that other miners would have discarded, but through the economies of scale, and by mining at a much higher rate than had been achieved elsewhere, the owners were able to produce copper at a very competitive cost. The fact that, like so many subsequent porphyry mines, it was open-cast, was a vital factor, since ore can generally be mined more cheaply by this method, and it made possible the introduction of mechanical 3.1/page 4

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3.1 Resources and extraction

shovels. It also required a new type of mill to handle the great quantities of porphyry ore. Bingham Canyon demonstrated that by mining low-grade ore in great quantity, as good or better results could be achieved than by mining much more limited deposits of high-quality material. With this example, a large number of massive porphyry deposits which had already been discovered in North and South America ceased to be mere geological curiosities and became potential mines. Many of the major mines developed since then have been of this type. One result of this has been to shift the emphasis in copper mining from underground to open-cast operations, which now account for more than half the copper mined. Also, the grade of ore mined has progressively decreased as mining methods have become increasingly efficient. The average grade tends to fluctuate in line with the copper price, since very low prices discourage the mining of very low-grade ore. Recently the average grade mined was in the region of 0.85% copper. One of the most important technological advances in mining, which coincided with the start of porphyry mining, was the introduction of the concentration of ores by flotation, which replaced the much less efficient concentration by gravity. This British invention gave further impetus to the mining of lower-grade deposits. Other innovations that have appeared include electric rail haulage underground, ever larger mechanical shovels, loaders and trucks, conveyor belts and crushing and conveying systems that can be positioned in the pit and shifted as required. At the same time as Bingham Canyon was being opened, copper mining was also starting in the Katanga province in the southeast of the Congo (then the Belgian and now the Democratic Republic). As with the South-West of the USA, initially prospecting was for precious metals, but instead large deposits of oxide ores containing up to 15% copper were discovered and the Union Minière was formed to exploit them. Oxide deposits were also found south of the border in the British colony of Northern Rhodesia (Zambia since independence) but these were generally lower-grade than the Congo deposits, and it was not until the 1920s that exploration and development of the orebodies, which were to make Zambia for a time the second biggest producer of copper in the world, began in earnest. With the exception of Chile, which was still the second biggest producer, the distribution of copper mining by 1950 had altered out of all recognition from what it had been 100 years earlier, and it had also changed quite substantially in the last 50. Of the total world production of some 2.5 Mt, the US contribution of 825 000 t dwarfed all others; Chile’s production was 363 000 t, Zambia 281 000 t, 3.1/page 5

3.1 Resources and extraction

3 Copper

Canada 240 000 t, Russia an estimated 218 000 t and Zaire 176 000 t. Britain, the largest producer a century earlier, produced nothing.

3.1.5 Geographical distribution and recent trends in mine production Copper mine production expanded apace during the 1950s, 1960s and early 1970s, reflecting booming consumption; by 1974 total world production was approaching 7.7 Mt with Western world output at 6.15 Mt. New porphyry mines in Indonesia, Papua New Guinea and British Colombia were opened, largely to supply Japan where demand for copper metal was rising steeply and domestic mine production was declining. However, the collapse in demand caused by the recession following the first oil shock, compounded by the falling intensity of copper usage, held Western world mine production back to little more than 6 Mt for the rest of the decade, and its recovery in the early 1980s was quickly snuffed out by the second oil shock. By 1986 mine production was still less than 6.4 Mt, and it was not until 1989 that Western world production again topped 7 Mt. The decade of the 1980s was a traumatic period for copper mines, many already financially weakened during the lean years of the later 1970s. After a brief recovery the price fell back in 1982 to a level well below the break-even costs of many mines and stayed there until its recovery in 1987. These years saw the closure of a number of well-known mines which had become uneconomic, particularly in the USA where average mining costs had reached a high level. Superior, New Cornelia, Silver Bell, Twin Buttes, Sacaton and Butte were among the casualties. Other mines cut back production and US mine production fell by one-third from 1.54 Mt in 1981 to barely 1 Mt two years later. Many believed that production would fall much further. Mining in the Philippines was also drastically curtailed by the low prices while Zambian output continued to be eroded by falling grades and chronic lack of finance. However, these reductions in output were balanced by increases elsewhere, notably in Chile where production rose by half during the decade, by expansion in Indonesia, Australia, Papua New Guinea, Mexico, the new Neves Corvo mine in Portugal, and after 1987 in the USA itself where some mines (notably Bingham) reopened and several surviving mines increased production. By 1989 US production was nearly back to its 1981 level. Leach production, described in 3.1.7, was a very important element in the revival of the US copper mining industry. As can be seen from Table 3.1, by 2004 Western world mine production had reached 11.93 Mt and world production 14.53 Mt. Chile was the largest producer with 5.41 Mt (having increased by 241% 3.1/page 6

3 Copper

3.1 Resources and extraction

Table 3.1 Copper mine production (’000 t) 1970

Western Europe Cyprus Finland Norway Portugal Spain Sweden Former Yugoslavia Other Total

1980

19.5 30.9 19.9 3.7 19.9 23.1 98.0 14.2 229.2

0.0 36.8 28.9 5.2 47.5 42.8 116.8 6.5 284.5

Africa Botswana Morocco Namibia South Africa Zaire/Congo Zambia Zimbabwe Other Total

0.0 3.2 22.8 144.2 387.1 684.1 23.0 18.3 1282.7

15.6 7.2 39.2 211.9 459.7 595.8 27.0 1.5 1357.9

Asia Burma India Indonesia Iran Japan Malaysia Oman Pakistan Philippines Turkey Other Total

0.1 9.7 0.0 1.0 119.5 0.0 0.0 0.0 160.3 31.1 14.8 336.5

0.1 27.6 59.0 1.0 52.6 27.0 0.0 0.0 304.5 21.3 1.8 494.9

North America Canada USA Total

610.3 1560.0 2170.3

716.4 1181.1 1897.5

Latin America Argentina Brazil Chile Mexico Peru Other Total

0.0 4.6 691.6 61.0 212.1 16.7 986.0

0.0 1.4 1067.9 175.4 366.8 5.2 1616.7

Oceania Australia Papua New Guinea Total

157.8 0.0 157.8

243.5 146.8 390.3

1970–1980 +/−%

1990

2004

1990–2004 +/−%

24

0.5 12.6 19.7 159.7 15.4 73.5 119.0 1.2 401.6

1.2 15.5 0.0 95.7 1.1 82.3 30.0 0.0 225.8

−44

6

20.6 13.8 32.5 196.8 355.5 496.0 14.7 0.1 1130.0

20.7 5.0 13.8 86.4 75.8 426.8 2.5 4.0 635.0

−44

47

4.4 51.6 169.5 65.8 13.0 24.3 13.7 0.0 182.3 39.8 0.1 564.5

31.8 30.0 843.2 190.0 0.1 0.0 0.0 15.0 18.0 46.0 1.0 1 175.1

108

−13

793.7 1625.0 2418.7

563.4 1 174.0 1 737.4

−28

64

0.4 36.4 1588.4 291.3 317.6 0.5 2234.6

176.4 98.7 5 412.5 399.5 1 035.5 1.8 7 124.4

219

147

327.0 170.2 497.2

854.1 173.4 1 027.5

107

3.1/page 7

3.1 Resources and extraction

3 Copper

Table 3.1 (cont.)

Western world total

1970

1980

5162.5

6041.8

5.6 40.3 10.7 18.0 82.9 32.0 925.0

10.8 62.0 11.5 16.2 343.0 28.0 980.0

Other countries Albania Bulgaria Czechoslovakia German DR Poland Romania USSR Armenia Georgia Kazakhstan Russia Uzbekistan China Mongolia North Korea Other

100.0 0.0 13.3 0.4

165.0 44.0 12.0 3.3

Total

1228.2

1675.8

World total

6390.7

7717.6

1970–1980 +/−% 17

1990

2004

7246.6

11 925.2

13.2 32.9 3.6 3.6 329.3 31.7 900.0

0.0 94.0

1990–2004 +/−% 65

531.0 15.0

295.9 123.9 12.0 2.0

17.7 12.0 461.8 630.0 82.8 612.5 132.4 12.0 1.2

36

1748.1

2 602.4

49

21

8994.7

14 527.6

62

Sources: ICSG, WMS.

since 1990), followed by the USA with 1.17 Mt. Peru is in third place with 1.04 Mt. Latin American, Asian and Oceanic production has increased since 1990 while African, North American and Western European output has declined. Among the other countries, whose statistics are sometimes far from certain, the production of the FSU has increased by 34% over the estimated 1990 figure, at last above the 1980 level; Chinese output has increased by 107% to 613 Mt, and Poland has also advanced by 61% to 0.53 Mt.

3.1.6 International trade in mine production For thousands of years copper metal was extracted from the ore by smelting at or near the place where it was mined. This was dictated by convenience, and by the greater cost of transporting ore, which consists more of waste material than of metal. Until the eighteenth century, therefore, countries’ refined copper production was generally similar to their mine production. However, by then the copper smelters of south Wales had achieved great expertise through processing the Cornish copper ore and were also able to use the local 3.1/page 8

3 Copper

3.1 Resources and extraction

coal for heating instead of charcoal. By the end of the eighteenth century, in addition to Cornish copper, they were also smelting virtually all the copper mined on the Continent, and in due course as Cornish and then Anglesey mine production declined, its place was taken by growing imports from Spain and Chile. Ambitions of mining countries to smelt their own production, encouraged by excessive terms charged by the Swansea smelters, eventually curtailed exports of copper ore to Britain, although the USA did not become the largest producer of refined copper metal until 1886. By 1930 nearly all the major copper-producing countries had smelting and refining facilities of their own, and today most copper ore mined is processed to refined metal either at the mine or at least in the same country. However, over a third of Western world mine production is exported in the form of concentrates, for smelting and refining in another country. With the passing of time several countries have followed Britain’s example, and have turned to imported concentrates as their own mine production has declined. While mines eventually become worked out, with good maintenance and modernisation when necessary many smelting and refining complexes can last almost indefinitely, with the great advantage over newly built rivals of being mainly amortised. Such ‘custom’ smelters, as plants that purchase feed are called, are found in many countries, notably South Korea, Spain, Germany, India, eastern Canada, Finland, the USA, Philippines, Brazil and above all Japan, which currently consumes nearly one-third of all exported concentrates (see Table 3.2). Smaller tonnages are imported by other countries. With the exception of South Korea, all the major custom smelters were founded on once significant domestic mine production which has since declined or even disappeared, and all are in countries with a substantial consumption of copper metal. One of the most important influences on the shape of international trade in copper has been the dramatic rise of Japanese consumption of refined metal, which between 1962 and 1973 increased from 301 000 to 1 202 000 t/year, and has exceeded 1.6 Mt/year, while its mine production barely exceeded 120 000 t/year at best, and has now almost disappeared. With long experience of copper smelting, a fear of becoming too dependent on metal imports, a tariff on refined copper imports, and no lack of mines and deposits round the Pacific Rim, the Japanese chose to expand their domestic production of copper based on imported concentrates. To ensure sufficient supplies of these they actively assisted the opening of new mines, while encouraging these and existing mines to sell their concentrates to them by offering terms which, often benefiting from the tariff premium, were highly competitive. The attraction of selling mine output overseas in concentrate form to existing smelters at relatively 3.1/page 9

3.1 Resources and extraction

3 Copper

Table 3.2 Trade in copper concentrates, 2004 (’000 t Cu contained) Exports

Imports

Germany Portugal South Africa Indonesia Papua New Guinea Philippines Turkey Canada USA Mexico Argentina Brazil Chile Peru Australia Romania Russia Mongolia Other countries

14 94 10 309 163 7 54 165 24 64 174 53 2166 482 371 16 84 126 8

Finland Germany Spain Sweden South Africa India Japan South Korea Philippines Thailand Turkey Canada USA Brazil Chile Russia China Other countries/In transit

159 342 203 107 19 146 1282 394 167 22 3 66 23 162 17 43 885 344

World total

4384

World total

4384

Sources: ICSG, WMS.

low smelting charges continues to restrict the construction of new smelting capacity by mines, and has tended to concentrate the production of primary refined copper metal to a limited number of countries (although copper extracted by leaching is usually also refined in situ, as explained in 3.1.7.2).

3.1.7 Extraction and processing of copper Two types of process are used to extract copper from ore and to produce copper metal: pyrometallurgy, in which the copper is separated from the other elements with which it has been chemically combined and turned into metal by heat (smelting); and hydrometallurgy in which it is separated by leaching. Sulphide ores, from which most primary copper today originates, are not easily leached, and so are usually smelted. Oxides are often leached.

3.1.7.1 Pyrometallurgical process This is the basic technique that has been used to produce copper from ore since the earliest times, and in its essentials has remained unchanged, although in many important respects it has been improved and elaborated in the last 100 years. Originally the ore was 3.1/page 10

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3.1 Resources and extraction

placed in a simple furnace, often lined with clay and fired by charcoal. After prolonged heating the molten metal would gather in the bottom, while the waste or ‘slag’ would rise above the copper and could be drawn off. Such primitive furnaces were in use in Japan as late as 1858. Today, however, the process is more complicated. After the ore has been mined as broken rock it is passed through a series of crushers by which it is reduced to about 25 mm in size, and then ground to the consistency of extremely fine sand. The next stage is concentration by flotation in which the ore is mixed with water and reagents and agitated in flotation cells. Here the tiny copper mineral particles, which after grinding can now be separated from the waste, float to the surface attached to the bubbles (having been rendered hydrophobic by the reagents) and are collected, while the waste remains in the solution and is subsequently discarded as tailings. By this means the copper, which may have represented less than 0.5% of the ore when mined, can be concentrated so that it constitutes as much as 40% or more of the material (called concentrate) produced by the concentrator. Typical copper contents of concentrate is around 30% in the dry state, with say 30% of sulphur and 25% iron; the actual contents will depend on the type of mineral being mined. The next essential stage is smelting, but in some processes this may be preceded by roasting in which the concentrate is dried and heated before being charged into the furnace. In a modern smelting furnace, as in the primitive ones, the copper and slag are drawn off separately, but in the former the copper is contained in ‘matte’ consisting of between 50 and 75% copper together with sulphur, iron and any precious metals. Although some reverberatory furnaces, in which the heat is provided by oil or gas, are still used, and there are also some electrical furnaces, the most modern plants usually have flash furnaces in which most of the heat is provided by the burning of the concentrate’s own sulphur content. From the furnace, the molten matte is transferred to a converter, another furnace in which air is blown through the matte, oxidising it and thereby removing the iron and sulphur. The resulting so-called ‘blister’ copper is usually between 98.5 and 99.5% pure. Precious metals enter the blister copper while most remaining impurities tend to vaporise. Next, the blister copper is remelted and cast into flat sheets of metal called anodes, of a shape suitable for the refinery. The process of remelting also serves to remove residual sulphur and oxygen. Sulphur dioxide (SO2) is generated in both the smelting and converting stages. Environmental regulations now usually impose strict emission limits on SO2, so nearly all of it is recovered from furnaces’ waste gases and converted into sulphuric acid in an acid plant 3.1/page 11

3.1 Resources and extraction

3 Copper

attached to the smelter. The smelting of one tonne of anode copper will typically have give rise to three tonnes of sulphuric acid. The disposal of this by-product acid is of considerable concern to a smelter, but usually it can be done at some net profit, while in those areas where copper is also produced by leaching, mines themselves provide a market for the acid, which plays an important role in the hydrometallurgical process (see 3.1.7.2 below). In the past copper was refined to its final state by fire refining, but today this last stage in its progress towards metal of sufficient purity for electrical applications is almost invariably by electrorefining. This consists of the transferring of copper from the anodes to thin sheets of pure copper (cathode ‘starter sheets’) hung alternately between anodes in a bath of electrolyte (an acidified copper–sulphur solution). Electric current is passed through the electrolyte and as the copper in the anode is electrochemically dissolved it goes to plate the cathode, while the precious metals, which are insoluble in electrolyte, can be collected later in the form of ‘slimes’ which are refined separately. Most remaining impurities are also insoluble, and are not transferred to the cathode. The result of this process is refined electrolytic cathode copper, assaying over 99.99% copper, in sheets weighing between 110 and 125 kg each, and ready to be cast into wire rod, billets, cakes or any other shape needed by the fabricator for the many applications for which the metal may be used. In addition to gold and silver, which are often present in widely varying quantities in copper concentrates, molybdenum is also sometimes recovered at the mine. Likewise, in some mines producing other metals, especially nickel and precious metals, copper itself may be a recoverable by-product.

3.1.7.2 Hydrometallurgical processes These processes are particularly suited to low-grade oxide ores that are not amenable to concentration by flotation; some sulphide ores are also treated hydrometallurgically. The most commonly used process today is solvent extraction, i.e. the leaching of the ore with sulphuric acid, after which the copper is extracted from the solution by electrowinning; the process is commonly called ‘SX-EW’. The material to be leached may be in a deep orebody (in situ leaching), but this is very rare. More common is dump leaching where the material to be leached may be low-grade ore or waste rock, often arising from previous mining activity, and is treated where it lies. In these cases no preparation of the ore is necessary. Alternatively the ore may be crushed to maximise copper recovery and then either heaped onto a specially prepared impervious pad (heap leaching) or placed in a vat (vat leaching). Also, high3.1/page 12

3 Copper

3.1 Resources and extraction

grade oxide ore may be ground, mixed with sulphuric acid in a tank and stirred (agitation leaching). Sulphide areas are normally heap or dump leached. A sulphuric acid solution is either sprinkled onto, or pumped into the ore, and is subsequently collected as copperbearing liquor. The cycle may take only days in the case of oxides, months or even years if sulphide ore is being treated, and recovery is likely to be 50–85% for sulphide ores and 90% for oxides. In the past, copper was recovered from the liquor by precipitation involving bringing it into contact with scrap iron to produce cement copper which can be flaked off the iron and collected. It typically contains 85% copper but with many impurities, and it requires treating in a smelter. Today this method is seldom used, most leached copper being recovered by solvent extraction by selective organic reagents, which extract only the dissolved copper from the leach liquor. The copper-laden organic solution separates from the leachate, by gravity in a settling tank, and is then mixed with sulphuric acid to produce a pure concentrated copper sulphate solution from which copper metal is won by electrolysis in a tank house. The principal difference between this process and a tank house for anode copper produced in a smelter in the pyrometallurgical process is that with electrowinning the copper is already in the electrolyte, so inert, i.e. non-dissolving anodes, usually made of lead alloy, are used. Cathodes similar in shape, and often in quality, to those resulting from the pyrometallurgical process are produced. Occasionally cathodes are melted and cast into wirebars, when further refining by fire is needed. Wirebars (oblong cake-shaped ingots) were for many years the normal shape in which copper was sold, since it was convenient for rolling into wire rod. The continuous casting of rod has made this additional stage after the tank house unnecessary, since continuous casting plants can accept cathode, and so little wirebar is now produced.

3.1.8 Secondary production Since the earliest times copper and alloy artefacts that through wear, breakage or obsolescence have become useless have been remelted and the metal reused, although superstition prevented the recycling of the massive remains of the Colossus of Rhodes for nearly 900 years after its destruction (their transport, at least according to tradition, required 900 camels). The stripping of the bronze tiles from the Pantheon’s dome in AD 631 and the sheathing from its portico 1000 years later also demonstrated that even after many centuries in the open air the metal is still well worth recovering (or, as in this case, looting). However, the durability of copper, and the technological stagnation that charac3.1/page 13

3.1 Resources and extraction

3 Copper

terised much of history until comparatively recent times must have meant that, in the normal course of events, relatively few copper articles were scrapped because of wear or obsolescence. During the last 100 years, however, production of refined copper from used objects (old scrap) has grown enormously, not only because of the great quantity of copper that is used but also because of the much shorter lifespan of many of the products of which it forms a part. Automobiles, ships, machines and appliances containing recoverable quantities of copper generally have limited lives, and now often become obsolescent before they are worn out, while the degradation of other, less durable, materials such as steel often places a further limit on their useful lives. The refining of scrap depends on its degree of impurity. Low-grade scrap (12–95% Cu) is usually resmelted in a blast or hearth furnace specially designed for treating secondary materials; it is then treated in a converter and anode furnace and electrolytically refined in a tank house. High-grade scrap that has been subject to some contamination by other materials will be treated in an anode furnace before being cast as anode and refined electrolytically. Both these categories of scrap are refinery feed and constitute secondary refined copper production. There are two other forms of scrap. The first is that of cathode-quality ‘new’ or ‘direct use scrap’, which is mainly waste from the fabricating process and is either melted down directly and reused, or cast into ingot form. The other is alloy scrap which is either used or unused alloy metal which is not re-refined to pure copper but instead blended with other metals and reused as alloy. Neither of these last two categories is refinery feed. The quantity of direct use scrap that is consumed is very much a function of the level of fabricator production; in 2004 it exceeded 3.7 Mt in Western countries. The level of consumption of old scrap, on the other hand, depends on a number of factors, of which the copper price is usually the most important. The recovery of scrap is often costly and labour-intensive and so it is sometimes kept off the market until the price rises. However, Fig. 3.1 suggests that the relationship between the copper price and the consumption of old scrap by refineries is not entirely straightforward. The natural trend in scrap usage is a gradual increase, reflecting the rising consumption of refined copper and the increasing quantity of the metal in circulation. While high prices, even if declining, will allow this growth to continue, low prices will inhibit it, although often only temporarily. Scrap is also in direct competition with blister copper as feed, and pressure on scrap supplies will increase if blister is in short supply. Increased industrial activity is likely to generate more secondary copper by the increased rate of replacement of machinery, vehicles, etc., which boom con3.1/page 14

3 Copper

3.1 Resources and extraction

2000

160

1800

140

1600

’ 000 t

1200

100

1000

80

800

60

600

40

400

20

200

0

Secondary refined production

95 19

19

85

0

19 75

US c/lb

120

1400

LME settlement price

3.1 Western world secondary refined production and LME settlement price (source: WMS).

ditions usually engender. High interest rates may force holders of scrap to liquidate their stocks. During the 1960s reported Western world secondary production rose to nearly 20% of total refined production, but since then it has fallen back as a proportion of the total, averaging 15% since 1975. One reason has been the serious overproduction of primary copper during most of the period 1970–83, which drove prices down and inhibited the generation of scrap. Another reason may well be the significant decline of the copper price in real terms during the last 35 years, matching a similar decline in the costs of primary production, which have not been matched by the cost of scrap recovery. Meanwhile, recovery of old scrap has been made more difficult, and expensive, by miniaturisation (whereby the quantity of copper used in many applications has been reduced), environmental regulations and the Basel Convention, which has seriously complicated the transport of scrap by classifying much of it as waste rather than material for recycling. International Copper Study Group (ICSG) statistics in 2003 showed global secondary refined production falling to below 12% of total refined production, an unprecedentedly low level, and although this clearly has been triggered by low prices, the level of recovery may also reflect the other problems facing the recycling of old scrap. The figures also suggest some decline in the total recycling rate for copper, including direct-use scrap. In the Western world, recycled copper represented over 41% of total consumption between 3.1/page 15

3.1 Resources and extraction

3 Copper

1965 and 1970, 37.6% in the 1970s and 1980s, and 36.4% between 1991 and 2004. Any decline in the rate of consumption of direct-use material may reflect improved manufacturing practices reducing the production of such scrap. As is to be expected, most scrap, both old and new, is recovered and used in the industrialised countries. Reported figures for 2004 are shown in Table 3.3. China is by far the biggest importer, while the USA, Japan and the UK are the major exporters.

3.1.9 Geographical distribution and recent trends in refined production In 1999 Chile overtook the USA as the largest producer of refined copper, after a massive increase in the former’s SX-EW capacity and cutbacks in the latter’s mine output owing to low copper prices (see Table 3.4). With further expansion in Chilean output and a cut in US output of nearly 40% the USA’s long pre-eminence among the producing countries is over. Western Europe as a whole produced over 1.8 Mt, largely from imported concentrates and scrap, and Japan produced nearly 1.4 Mt, almost wholly from these materials. China’s output exceeded 2.0 Mt. Russia, Poland, Canada and South Korea are major producers, the last named also depending heavily on imported raw materials. Meanwhile the two Copper Belt producers, Zambia and the Congo, have seen their total production fall from 886 000 t in 1980 to 408 200 t in 2004, and Taiwan has ceased production. Although they only accounted for 24% of the Western world’s mine production in 2004, the developed countries produced 48% of its refined production. This reflects not only secondary production, which is mainly found in industrialised countries where scrap is generated and imported in quantity, but also the treatment of imported concentrate and blister by custom smelters and refineries which are mainly found in the developed world (see Tables 3.2, 3.3 and 3.5). Production of refined copper in Eastern countries expanded sharply in the decade of the 1970s, with Poland increasing output nearly fivefold, China, it appears, by over 245% and the USSR by over 20%. Since 1980, with the exception of China, which has increased nearly sixfold, and Poland, by over half, production at best has increased only modestly.

3.1.10 International trade in blister In some cases smelting plants have been built without refineries, and their output is sold in the form of blister or anode to custom refineries. In addition, some electrowon cathodes require further 3.1/page 16

190 15 5 0 0 0 50 0 2

Asia Japan India Iran Malaysia Philippines Singapore South Korea Taiwan Thailand

15% 15% 0%

58 34 0 0 10 1 764 0 4 4

100% 0%

30 0

14% 3% 2% 0% 0% 0% 10% 0% 10%

0% 100% 1%

29% 100% 42%

100% 44% 0% 57%

88 174 0 369

Africa South Africa Egypt Total

Western Europe Austria Belgium France Germany Ireland Italy Netherlands Portugal Scandinavia Spain Switzerland UK Former Yugoslavia Other Total

Refined production from scrap Tonnage % of total production

Table 3.3 Secondary copper usage and trade, 2004 (’000 t Cu)

360 38

44

208

29

24 1095

29

6 183

50 199

28 5

11

139

33 51

22 5

62

39

26

46

51 93

Copper and copper alloy scrap Net exports Net imports

24

57 24 29 102 36 12 1089

482

20 36 57 234

Direct-use scrap Tonnage

0.0 12.2 70.7 142.2 52.2 43.5

329.6 0.9

31.2

31.2

7.2 1256.7

24.1 123.2 204.1 317.7 11.4 83.2 43.1 29.7 82.6 61.8 59.1 209.5

Exports

21.9 16.7 26.8 175.2 102.7 5.8

121.4 62.7

2.0

2.0

1.5 1074.2

109.3 43.2 1.5 77.9 100.4 9.4 10.8

75.3 216.3 65.3 363.3

Imports

3 Copper 3.1 Resources and extraction

3.1/page 17

3.1/page 18

Sources: ICSG, WMS.

13%

3131

1982

6 4

18 14 20

984

44 44

32 7 637

545 62 1

Total world

0% 0% 5% 28% 100% 23% 0% 11% 18%

3733

1165

66

1099

1455

2 90

3131

3131

3190

3

10

30

Copper and copper alloy scrap Net exports Net imports

2147

0 0 30 257 20 466 0 8 781

Other countries Czech Rep./Slovakia Hungary Poland Russia Ukraine China Kazakhstan Other Total

13%

0% 0%

6% 4% 10% 100% 11% 0% 100% 7%

10% 3% 7%

Direct-use scrap Tonnage

Others/In transit

1201

Total Western world

0 0

31 51 35 16 23 0 10 166

Americas Canada USA Mexico Argentina Brazil Chile Other Americas Total

Oceania Australia Total Oceania

5 0 267

Refined production from scrap Tonnage % of total production

Turkey Other Asia Total

Table 3.3 (cont.)

2852.2

6.4 3.5 79.2

20.5 14.2 31.8 2.8

2773.0

47.7 47.7

68.4 591.9 78.6 1.2 1.3 32.4 8.3 782.1

4.0 655.3

Exports

5000.5

3211.0

3190.0

12.3 6.1

2.6

1789.5

3.3 3.3

1.5 145.0

1.1

78.2 47.4 16.8

29.7 2.1 565.0

Imports

3.1 Resources and extraction 3 Copper

3 Copper

3.1 Resources and extraction

Table 3.4 Production of refined primary and secondary copper (including leach cathode) (’000 t) 1970

Western Europe Austria Belgium Cyprus Finland France Germany* Italy Norway Portugal Spain Sweden UK Former Yugoslavia Total * Includes East German production

1980

22.0 276.0 – 34.0 33.6 405.8 15.5 25.8 4.0 79.7 51.2 206.2 89.3

31.3 288.9 – 40.5 46.5 373.8 12.2 26.7 4.5 153.7 55.7 161.3 131.3

1243.1

1326.4

Africa Egypt South Africa Zaire/Congo Zambia Zimbabwe Total

1.8 75.3 251.2 580.7 29.5 938.5

2.0 147.9 279.4 607.1 7.1 1043.5

Asia Burma India Indonesia Iran Japan Oman Philippines South Korea Taiwan Thailand Turkey Total

– 9.3 – 6.0 705.3 – – 5.2 3.8 – 14.1 743.7

– 23.2 – 1.0 1014.3 – – 72.9 19.5 – 18.8 1149.7

North America Canada USA Total

493.3 2034.5 2527.8

505.2 1686.0 2191.2

Latin America Argentina Brazil Chile Columbia Mexico

– 18.6 465.1 – 53.7

10.0 – 810.7 – 102.8

1970–1980 +/−%

1990

2004

1990–2004 +/−%

49.7 331.9 – 65.1 44.0 532.9 83.0 36.5 0.1 170.6 97.3 121.6 151.4

88.0 397.3 1.2 78.7 2.0 652.6 30.0 35.6 – 228.4 296.6 – 35.0

7

1 684.1

1 845.4

10

11

4.0 133.0 173.2 478.6 24.4 813.2

4.0 87.3 10.0 398.2 7.2 506.7

−38

55

– 38.7 – 47.8 1 008.0 12.0 125.9 187.0 16.1 – 84.2 1 519.7

31.8 417.8 210.5 207.0 1 380.1 25.0 176.2 496.0 – 20.0 50.0 3 014.4

98

−13

515.8 2 017.4 2 533.2

527.0 1 306.0 1 833.0

−28

11.9 156.8 1 191.5 – 151.9

16.0 208.0 2 895.1 10.0 350.0

3.1/page 19

3.1 Resources and extraction

3 Copper

Table 3.4 (cont.) 1970

1980

1970–1980 +/−%

1990

2004

1990–2004 +/−%

Peru Total

36.2 573.6

224.8 1148.3

100

181.8 1 693.9

505.3 3 984.4

135

Oceania Australia Total

145.5 145.5

182.4 182.4

25

274.0 274.0

490.0 490.0

79

6172.2

7041.5

14

8 518.1

11 673.9

37

4.0 38.3 16.7

9.0 63.0 25.6

10.9 24.3 24.6

1.5 55.3

50.0 16.0 72.2 12.2 1075.0

95.4 27.8 357.3 65.0 1300.0

56.7 6.0 346.1 24.7 1 260.0

Western world total Other countries Albania Bulgaria Czechoslovakia Slovakia German DR* Hungary Poland Romania USSR Kazakhstan Russia Ukraine Uzbekistan Mongolia China North Korea

120.0 15.0

295.0 23.0

Total

1419.4

2261.1

World total

7591.6

9302.6

550.0

561.5 30.0

445.2 919.0 20.0 85.0 2.3 2 035.2 15.0

59

2 344.8

4 128.5

76

23

10 862.9

15 802.4

45

Sources: ICSG, WMS.

refining before they can be used as feed for continuous cast rod mills, etc, and they also can be included in the category of custom refinery feed. The trade in blister-type material is a good deal smaller than that of concentrates, because most smelting complexes include refining facilities. Up to 1990 the most important trade in this form of copper was between Zaire (as it then was) and Belgium; large tonnages of Zairean metal, much of it low-grade leach cathode, were for many years shipped to Belgium for further refining at the Olen plant. With the collapse of Zairean production, shipments ceased. Belgium, however, remains the major net importer of blister, followed by China, which has become a major importer of all copper raw materials, and the USA. Chile is the leading exporter of blister 3.1/page 20

3 Copper

3.1 Resources and extraction

Table 3.5 Trade in blister and anode copper, 2004 (’000 t) Net imports

Net exports

Austria Belgium Germany South Korea Thailand Turkey Canada Mexico USA China Other countries

15 276 12 53 6 24 71 49 105 112 8

Finland France Spain Japan Chile Peru Russia Other countries/In transit

25 6 49 3 366 28 19 235

Total

731

Total

731

Sources: ICSG, WMS.

and anode, as it is for concentrates and refined metal also (see Table 3.5).

3.1.11 International trade in refined copper Reported net exports in 2004 totalled nearly 6 Mt (see Table 3.6). As would be expected, the bulk of net exports (84%) comes from developing and Eastern countries with relatively low rates of domestic consumption. Chile completely dominates the export trade in refined copper, with over 2.9 Mt, accounting for 49% of all net exports, followed by the former USSR countries with 0.75 Mt; the sharp reduction of the latter’s consumption since the break-up of the Soviet Union and the desperate need for hard currency as well as the growing demand in Western Europe have generated a booming trade in Kazakh and Russian metal. Elsewhere Peru, Zambia, Australia, Poland and Canada are significant net exporters. Just as Japan leads the market for concentrates, so Western Europe leads the market for metal. A total of 40% of the total net exports was shipped to Western European countries, largely from Chile, CIS and Poland. Peru, Canada, Zambia, South Africa and Australia also delivered significant tonnages. After Western Europe, the USA is currently the largest importer, its need for metal from overseas having grown considerably with strong growth in domestic consumption coinciding in 1999 with a sharp decline in refined production owing to cutbacks induced by low copper prices. Canada, Chile and Peru are the principal suppliers. In fact, the USA has been a substantial exporter as well as importer of refined copper, since many of the American fabricating 3.1/page 21

3.1 Resources and extraction

3 Copper

Table 3.6 Trade in refined copper, 2004 (’000 t) Net imports

Net exports

France Germany Greece Italy Netherlands Spain Switzerland UK South Africa South Korea Taiwan Thailand Turkey USA Mexico Argentina Brazil China Others/In transit

536 458 118 684 48 42 6 208 4 437 680 220 217 689 33 5 132 1121 415

Austria Belgium Finland Norway Sweden Zambia Japan Indonesia Philippines Canada Chile Peru Australia Poland Czech Republic & Slovakia Kazakhstan Russia Others/In transit

53 229 28 34 46 385 114 41 151 235 2954 447 322 278 8 393 333 2

Total

6053

Total

6053

Source: ICSG.

plants are closer to east Canadian refineries than to the US copper producers in the south-western states. By 1999 exports from the US had fallen to 26 000 t, but by 2004 they had recovered to 118 000 t. Taiwan, with no domestic production, is a consistent importer; South Korea and China are the next biggest receivers. Japan, for long a major importer, with sagging consumption has recently become a net exporter.

3.1.12 Costs of production Mine costs, including the cost of smelting and refining, can be measured in a number of ways and comparisons between mines can be difficult when some mines have substantial by-products and others do not. Some assign costs pro-rata by revenue to each of the marketable products. The most common economic analysis of mine costs utilises the ‘cash break-even cost’ for creation of an industry cost curve. The cash costs of production before profit-related taxes, interest and capital charges are reduced by the value of by-products. The resulting ‘cash break-even cost’ gives an indication of the copper price at which each mine will start to lose money simply by remaining in operation, assuming production costs and by-product prices remain the same. For marginal mines, taxes on profits become irrel3.1/page 22

3 Copper

3.1 Resources and extraction

evant and lenders will willingly forgo interest if to do so would keep the mine, and therefore their hope of repayment, alive. At any given time there will be a wide range of cash break-even costs among the active mines. In real 1998 terms, over the last 35 years there has been a significant reduction in average costs. Median costs in 1969 were 96 ¢/lb, rising to a peak of 123 ¢/lb in 1975 before gradually falling to an estimated 57 ¢/lb in 1998. Costs did rise briefly with the copper price from 1987 to 1990 before continuing their downward trend. Of greater significance for the supply/ demand balance of copper, the real term costs for the least competitive 25% of mines (i.e. those most vulnerable to low prices) all exceeded 110 ¢/lb in 1969, 137 ¢ in 1975, dropped to 79 ¢/lb in 1986, and increased to 95 ¢ in 1991. These marginal mines subsequently lowered their costs to 79 ¢/lb in 1995 and 68 ¢ by the end of 1998. Several factors, both internal and external to the industry, contribute to changes in cost trends, not least the copper price. During the late 1960s and early 1970s the fast-rising consumption of copper demanded ever more mines, and the high copper price allowed much of this production capacity to be relatively high-cost. The high margins of even the highest-cost mines provided little incentive to minimise costs, and manning levels and wages, especially in North America, rose unchecked. Mines could afford to pay and high profitability discouraged management from risking strikes by resisting workers’ demands. The copper surplus and low prices of the late 1970s saw costs fall back, as some high-cost mines closed or cut back and others took steps to restrict costs. The high prices of 1979–80 briefly set costs rising again. From 1981, marginal costs declined with the copper price by 37%, reaching a low of 79 ¢/lb in 1986. This cost reduction was to a large extent achieved by the withdrawal, in many cases permanently, of high-cost production capacity. Most of these mines were in the USA and Canada, but closures also occurred in the Philippines, Australia and elsewhere. The other major factor was the reduction of costs in operating mines, both old and new. The virtual collapse of the copper market instilled a degree of caution in investment in new capacity which had been notably absent in the previous decade, and finance generally was made available only to smaller, low-cost developments and expansions of existing operations. A decline in the value of local currencies can result in a cost benefit to producers in those countries, as it did for Chile and Zambia during the 1980s. At the same time, the strength of the US$ made much of US production uncompetitive in the worldwide marketplace. The introduction of oxide waste leaching at higher-cost US mine/mill operations reduced overall costs for many of these mines, 3.1/page 23

3.1 Resources and extraction

3 Copper

at least in the short term; however, the lower SX-EW costs for most were only sustainable while material handling costs were attributed to the mill operation. Many followed Phelps Dodge’s example and effectively confronted the unions, forcing through not only sharp cutbacks in the workforce but also actual reductions in wages. In some cases, temporary measures were resorted to, such as ‘high grading’ or selective mining where higher-grade ore is systematically extracted, restricting the removal of overburden to the minimum and cutting back on plant replacement and even, in some cases, maintenance. All these temporary measures to reduce costs in due course have to be paid for. High grading must be followed by working below-average ore if the life of the mine is not to be seriously curtailed. Cuts in overburden removal must be made good if an open-pit mine is to be developed fully. And a return to high copper prices often encourages a return to high wage demands. The recovery of prices saw a gradual increase in break-even costs to 1990, but after 1990 cash costs and initially the copper price both moved down again. In fact, by 1998, marginal costs had dropped 28%, median costs by 32% and the real term copper price by a hefty 48%. In 1990, cash costs in the USA were similar to those in Chile; by 1998, Chilean costs had dropped by 22 ¢/lb, more than twice the reduction achieved in the USA. Most stockpiled waste for SX-EW treatment in the USA had been treated, and reserves of the associated mill operations were approaching depletion. The 1990s saw a change in direction towards large, low-cost open-pit mines with economies of scale. The extensive known reserves, favourable political climate and lower costs in Chile made it the country of choice for new developments. Six new Chilean mines, Escondida, Cerro Colorado, Candelaria, Zaldivar, Radomiro Tomic and Collahuasi, added nearly two million tonnes of low-cost copper capacity per year in the 1990s. A series of expansions at Grasberg in Indonesia added a further 600 000 t per year. The trend continues in the new millennium with the start-up of Los Pelambres in Chile, Batu Hijau in Indonesia and Antamina in Peru adding another 730 000 t capacity. The imaginative financing options available today and the low projected break-even costs have made these developments possible. That said, the mining industry has a dismal record of recovering capital costs. It must be remembered that break-even costs may give an indication of which mines might close, but can give no guarantee of a return on investment. Covering the cost of acquisition, start-up, infrastructure and sustaining capital may not prove to be easy for some of the mines developed over the last ten years.

3.1/page 24

3 Copper

3.1 Resources and extraction

3.1.13 Prospects for production growth In the past it has been suggested that the world’s reserves of copper may be inadequate to cover future demand. This is most unlikely. While the resource is, in theory, finite, in practice the chances of primary copper production declining owing to lack of new mineable orebodies are remote. Nor does it seem likely that the price of copper will rise significantly in the foreseeable future owing to companies having to resort to developing deposits that are very costly to mine. Reserves that are potentially economic to develop exceeding 300 Mt of contained copper have already been identified and more remain to be discovered. It is worth noting that the deposit that now supports the world’s biggest copper mine, Escondida, was found only in 1981. In the long run the rate of increase of production will, as ever, depend primarily on the rate of increase of consumption, although in the short term production and consumption seldom match each other, as the alternating supply surpluses and deficits demonstrate. In addition, new production capacity must not only cover increased consumption, it must also make good capacity that has been closed. However, scheduled increases in copper mine capacity between 2004 and 2008 amount to nearly 2.9 Mt/year, while exploration projects and possible expansions to existing mines which have been identified in recent years total more than 1 Mt/year potential capacity. If some of these will never be developed, this is most likely to be because they will not need to be, since enough cheaper capacity will have been found elsewhere. In addition, as explained previously, recycled copper can meet a large, and if necessary larger, proportion of consumption. While copper production will continue to be limited by demand, at present there is no reason to suppose that it will be limited by lack of available resources, at least in the foreseeable future, or that sufficient supplies will require much higher prices.

3.1/page 25

3.2 Consumption 3.2.1 Properties Copper is a brownish red colour when clean. It has a density of 8.9 g/cm3, compared with 2.7 for aluminium, 7.9 for iron, 11.3 for lead and 19.3 for gold. Its melting point is 1083 °C, compared with 327 for lead, 660 for aluminium and 1536 for iron. Its atomic number is 29 and atomic weight 63.54. Its chemical symbol is Cu, the abbreviation of its latin name, cuprum. Copper’s most notable quality, at least today, is its electric conductivity, which is far above that of the other base metals and iron, and is exceeded, marginally, only by silver. It should, however, be added that aluminium has a greater conductivity in relation to weight, since its conductivity is 65% of copper’s, but it is only 30% of its weight. Copper’s thermal conductivity is equally impressive, again considerably better than any other metal except silver (see Table 3.7). Generally, copper has very good resistance to corrosion, as its survival on buildings and in statuary for literally thousands of years has demonstrated. Exposed to the atmosphere over a long period it will, through oxidation, form a light green patina on its surface, but once this thin layer has formed it will protect the metal underneath indefinitely. It has good resistance to organic acids, and also to alkalis (except for ammonia), and can usually be buried underground or immersed in water without risk of corrosion. Copper’s suitability for electrical applications and piping is enhanced by the ease with which it may be soldered, brazed and worked and its good mechanical properties. It has excellent ductility, and can be easily forged, rolled and extruded, and drawn into very fine wire. It can be hardened and strengthened by cold forming, and made softer and more flexible by annealing. It can be mixed with a number of other metals to produce alloys with a wide range of properties and applications, and it has good electrodeposition characteristics. It is non-magnetic. Finally, in addition to its ease of working and mechanical properties, its colour, in both its pure and alloyed forms, has made it especially suitable for architectural, artistic and decorative applications, from domes to bracelets.

3.2/page 1

3.2 Consumption

3 Copper

Table 3.7 Electric and thermal conductivity (copper = 100)

Silver Copper Gold Aluminium Zinc Iron Lead

Electric conductivity

Thermal conductivity

106 100 72 62 29 18 8

108 100 76 56 29 17 9

3.2.2 Alloys Copper is as well known for its principal alloys, brass and bronze, as it is for itself. Bronze, the first, is primarily an alloy of copper and tin, the latter typically 3–6%, although a great variety of proportions have been used. Bronze is harder and stronger than unalloyed copper, which accounts for its widespread use before the introduction of iron. The addition of a small quantity of phosphor improves the resilience of the metal and a larger amount produces a very hard metal well suited for castings. The wood ‘bronze’ now covers alloys in which metals other than zinc predominate; aluminium bronzes are very corrosion resistant, manganese bronze provides high tensile strength and leaded bronze is used for bearings. A classic form of bronze is gunmetal, traditionally containing 10% of tin and 2% of zinc. Brass is basically an alloy of copper and zinc; in addition, small quantities (less than 5%) of other alloying metals are now often added to impart different properties. There are two main groups of brasses: those containing less than 37% zinc, which are best suited for cold working, and those containing more, which are highly ductile at hot working temperatures. The addition of lead improves machinability, manganese, iron and aluminium give greater strength and corrosion and wear resistance, and tin also gives greater corrosion resistance. Other alloys using newer elements have been developed in recent years, especially for high-conductivity copper. The addition of cadmium to copper increases its strength while only slightly reducing its electrical conductivity; beryllium, sometimes with nickel and/or cobalt, also gives greater strength and hardness; copper chromium is the most widely used high-strength, high-conductivity material, to which zirconium and magnesium may be added; and a variety of copper–nickel alloys combine strength with corrosion and biofouling resistance. 3.2/page 2

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3.2.3 Applications 3.2.3.1 Early history From the earliest days copper was put to a great variety of uses, the most important of which was originally as a sharp point or edge with which to pierce, cut or scrape. Large numbers of spear and arrow heads, swords, knives, axes and daggers dating from the earliest periods of copper’s use have been found as well as a great variety of domestic cutting implements. Of all copper’s many applications, this one, which was so crucial in leading mankind out of the Stone Age, would in fact prove to be the least durable, since the spread of the use of iron in the first millennium BC effectively displaced copper and its alloys as a medium for cutting. Nevertheless, for over four thousand years after its discovery copper, particularly in the form of bronze, was the most prized material for weapons and all forms of sharp implements. However, other applications for the red metal were developed from very early times, of which most have survived. Copper and bronze cooking utensils, plates, cups, furniture and mirrors became widely used, at least by the wealthy, and copper piping for water dating from the early third millennium BC has been found at Abusir in Egypt. In addition to its many practical applications, the decorative qualities of the metal must have been recognised immediately, and in addition to personal adornment this quality combined with its durability made it ideal for architectural use. King Solomon was certainly not the first to choose bronze for the doors of his temple, and many of the major buildings of the ancient Egyptians, Greeks and Romans were adorned, and even covered, with copper or its alloys. A notable example is the Pantheon in Rome, built early in the second century AD, whose huge dome and portico were sheathed in copper until it was looted centuries later, while its immense bronze doors, 12 m (40 feet) high, have survived in their original position for over 1800 years. Another age-old use for the metal has been sculpture. Carved wood covered by copper sheeting dating from before 3000 BC has been found near Ur, and bronze was the material used for what may well have been the largest statue of all time, the Colossus of Rhodes, built in 290 BC, and over 30 m (100) feet high. Its subsequent collapse was due to an earthquake, not structural failure. With the fall of the Roman Empire in the West in the fifth century AD a decline in most areas of civic life, science and the arts set in which was not to be effectively reversed for a thousand years. The so-called Dark and Middle Ages witnessed comparatively little in 3.2/page 3

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3 Copper

the way of new technology or artistic development, and saw the loss of much. Copper, brass and bronze found few new applications, although Bernini’s beautifully carved doors in the Baptistry at Florence demonstrate the superb use which some artists could still make of the metals. Two new applications of note, however, did emerge during the period. Bell making, which had started in China long before Christ, became an important outlet for copper as churches proliferated, and with the development of ordnance from the fourteenth century bronze and brass became the preferred metals for cannon; by the middle of the following century the Turks were building bronze guns weighing over 14 tonnes.

3.2.3.2 Modern period Eighteenth-century England saw the dawn of the Industrial Revolution, a development in which the manufacture of all sorts of goods proliferated, becoming concentrated in factories where machines driven by steam replaced manual labour. The key metal at this time was iron, from which the engines, machines and railways were principally made, but copper found a host of new outlets as components in machines and, in particular, steam engines where fireboxes, pipes, valves, cocks and gauges were often made of brass. The discovery and extraction of zinc as a metal simplified its production. Another important development was the invention (or rather, reinvention, since the process had been known to the ancient Greeks and Egyptians) of plating copper with a thin layer of silver. Thomas Bolsover patented the process in 1742. In due course Bolsover’s process of beating and rolling the metals together to form Sheffield plate, as it came to be called, was to be superseded by electroplating. Likewise, the invention of the die and mould process, by which copper and brass sheet could be pressed into a great variety of shapes, led to the mass production of copper saucepans, buttons and countless other objects. During the latter part of the eighteenth century another valuable application for copper was developed – the covering of ships’ bottoms with copper plates. Wooden sailing ships, especially warships, which could stay at sea much longer than their modern counterparts, were seriously hampered by the fouling of their bottoms by weeds and also, in the tropics, by damage by teredos (molluscs that bore into wood). Copper gave ships protection from both. The phrase ‘copper bottomed’ is still used as a metaphor for security.

3.2.3.3 Birth of the electrical industry Although the applications for copper, and for all metals then known, multiplied during the eighteenth century as invention followed 3.2/page 4

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invention and industrialisation in England and elsewhere gradually gained momentum, it was not until the 1830s that copper’s greatest role in modern times started to be revealed. Experiments with electricity had started in the previous century, and when the first electrical battery was built by Volta, copper was employed as an active element. However, it was Faraday’s discoveries of magneto-electric and electro-magnetic induction in 1831 that paved the way for the generation and transforming of electricity, turning it from a diverting phenomenon into a source of limitless and endlessly adaptable power. For this, copper was and remains the supreme material. As mentioned previously copper is surpassed only by silver as a conductor of electricity among the normally available materials, and by only a small margin. Its physical qualities make it ideal for drawing into wire and casting into electrical components, while its durability and resistance to corrosion contribute much to the safety of installations for what is, potentially, a lethal form of energy. Copper’s virtues were quickly recognised, and from the earliest times it was the normal medium for conducting electrical currents. The earliest practical application of electricity was signalling, and the electric telegraph installed by the London and North-Western Railway in 1837 was its first commercial use. Within 30 years a 4800 km (3000 mile) cable had been laid across the Atlantic and was operating effectively. The invention of the telephone by Bell in 1876 led to a vast increase in the miles of copper wire and cable devoted to communications, and the electric light bulb by Edison two years later opened up another immense market. Meanwhile the invention of the ring-armature dynamo in 1870 and the opening of the first commercial generating station in 1882 led to electricity becoming available over an ever-widening area. By the turn of the century high-voltage mains were proliferating, electric lighting for both buildings and streets had been introduced and electricity was driving trains, trams and road vehicles. It was also replacing steam as the principal source of power for industry. Although the internal combustion engine became the normal source of motive power in the air and at sea (replacing steam in the latter case), and has so far limited the application of electric power in road transport, in virtually all other areas the twentieth century saw a colossal increase in the use of electricity in the home, office and factory. The number and variety of appliances have been greatly increased by the revolution in communications technology brought about by the invention of the semiconductor and the integrated circuit, and although, individually, electronic installations require little copper, sheer weight of numbers, and their need to be connected to a supply of electricity, make them a significant outlet for copper. Meanwhile copper’s non-electrical applications continue. 3.2/page 5

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Waterpipes, roofing and decoration in buildings, coinage, armament, domestic utensils, ornaments and even sculpture still absorb copper, in widely ranging but generally increasing tonnages, as most of them have for thousands of years.

3.2.4 Survey of current consumption 3.2.4.1 Current applications World consumption of refined copper today exceeds 16 Mt/year, of which more than 12 Mt/year is in Western countries. A precise division of the total into the various applications is not possible owing to the commercial reticence of fabricators as well as lack of data and differing interpretations of the various categories, but there is no doubt that the biggest application, accounting for half or more of the refined copper and direct use scrap consumed, is electrical. Copper wire manufacture often represents a large proportion of a country’s total refined consumption and direct use of scrap, and in addition there is the manufacture of copper alloy wire and the host of electrical components such as plugs, sockets, switches and semiconductors, which also consume copper in pure or alloyed form. While the above relates to consumption of direct-use scrap as well as refined copper, several years ago over 70% of the refinery production in developed countries was reported to be being converted into wire. The ICSG’s division of consumption by end-use sector in three major copper-consuming areas in the Western world, applied to 2004 consumption (see Table 3.8), shows the largest by some way to be electric and electronic products and construction. The first includes power generation, communications, etc. and is particularly strong in Asian countries, where electrification is being extended, while growth in this area in Europe and, in particular, the USA is less. Electrical applications also play a prominent role in the construction sector; while the use of copper for plumbing and, especially, roofing, varies considerably from country to country, its use for electric wiring and copper or brass for electric fittings in new houses is universal. Indeed, as the use of electric appliances, television and computers increases, domestic and office wiring to power them becomes ever more extensive. Again, there is wide variation in the proportion of consumption devoted to this sector; it is high in Europe and the USA where water piping is usually of copper and where central heating is widespread, and especially in the USA where there was a high rate of construction for much of the 1990s, but much less in Asia where copper is not usually used for piping and where houses are often smaller. Air conditioning, however, 3.2/page 6

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Table 3.8 Applications Category

Principal applications

Europe

USA

Asia*

Weighted average

Electrical & electronic products

Power cables and generators, transformers, electromagnets, switch gear, motors, telephone wire, semiconductors.

37.5%

25%

50%

36%

Construction

Electrical wiring, central heating tubes, cylinders and boilers, air conditioning, plumbing, roofing, sprinkler systems, flashing and architectural metal work.

39.5%

43%

15%

35%

Transport

Vehicle wiring, radiators, heaters, and other components, shipbuilding, rail and aerospace.

7.5%

12%

15%

12%

Industrial machinery & equipment

Heat exchangers, condensers, gears, bearings, chemical engineering plant, pressure vessels, vats and meters.

9%

11%

9%

9%

Consumer & general products

Electrical appliances, computers, coins, chemicals, ordnance, utensils, ornaments and other consumer goods.

6.5%

9%

11%

8%

* India, Indonesia, Japan, Malaysia, Philippines, Singapore and Thailand. Source: ICSG.

has become a significant outlet for copper tubing in some countries. In transport, copper has a wide variety of applications. Its resistance to saltwater and biofouling ensures its continuing use in marine applications, including propellers and, in some cases, hull cladding. The use of electric trains, which made deep underground railways possible, has been spreading both above and below the surface for over a century, while a Boeing 747-400 airliner contains 4000 kg of copper, mainly with electrical functions. Electricity also accounts for the bulk of the copper used in an automobile, which in the USA currently exceeds 25 kg on average, and has been rising. The increasing number of electric appliances in even cheaper cars has done much to make good the loss of radiators to aluminium, while there are signs that a new lighter copper–brass radiator may be starting to regain some of this important outlet (see 3.2.5). Applications under ‘industrial machinery and equipment’ cover a wide range of components in a great variety of plant, while ‘consumer and general products’ include the infinite variety of appli3.2/page 7

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3 Copper

ances ranging from the complex, such as computers (which have boosted consumption) to the simple, such as coins, buttons or bracelets. In both these last sectors also, copper’s role is often electrical.

3.2.4.2 Past trends in consumption Estimates of production referred to above indicate Western world consumption being seldom if ever above 2000 t/year before the eighteenth century, and often, no doubt, well below 1000. As with production, consumption must have declined significantly with the collapse of the Western Roman Empire, and would not have recovered to any great extent until probably the sixteenth century. Although these tonnages appear minute in comparison with modern consumption, so was the population compared with today’s and so, in the pre-Industrial Revolution world, was industrial production. Greater demand and more efficient mines in Britain saw the total rise during the eighteenth century to over 10 000 t/year; by the 1860s it was approaching 100 000 t/year, receiving an unprecedented boost from the demand for electric power and communications. By 1913 it was around 1 million t/year, 2 million by the 1930s and 3 million by the 1950s. Consumption continued to increase at a brisk though uneven pace during the 1960s and early 1970s. The years after 1945 saw an extended industrial reconstruction and expansion in the developed countries, with heavy investment in capital goods and infrastructure, both of which absorb large quantities of metals. However, after reaching a peak in 1973, copper consumption declined sharply; it was only after five years that its upward trend was re-established, and then only briefly, for by 1982 it had lost all its recent gains (see Fig. 3.2). There were a number of reasons for this hiatus in the growth of copper consumption. The two oil shocks of 1972 and 1979 seriously restricted economic growth, on which consumption of copper and other industrial metals ultimately depends. Copper was also suffering severe substitution in several areas, which will be described in section 3.2.5. While many developing countries, crippled with debt, could not afford the capital and infrastructure investment that had boosted the developed nation’s copper demand in earlier years, in the OECD countries such expenditure was tailing off and was being replaced by less metal-intensive investment. Computerised stock control systems enabled inventories to be reduced to minimal levels. Finally, in many of its new applications copper was hit by miniaturisation, by which the quantity of metal used in each unit was

3.2/page 8

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3.2 Consumption

18000 16000 14000 12000 ’ 000 t

10000 8000 6000 4000 2000

Mine production

Refined production

00 20

90 19

80 19

19

70

0

Refined consumption

3.2 World copper production and consumption (source: ICSG).

reduced in order to save weight, space and money. Wires became finer, tube walls thinner and components smaller and lighter. In the early and mid-1980s a distinct change in the underlying trend of consumption growth, dating from the 1973 peak, was discerned, and widely accepted as being permanent. Adverse technical developments, it was believed, were taking a heavy toll on demand and the flattening out of the rate consumption was seen as reflecting the irreversible developments that were assailing copper: substitution, miniaturisation and less metal-intensive spending by the developed countries. This change in trend was seen as a fundamental change in direction rather than a fluctuation in a longer-term trend that was still largely intact; the medium-term trend in growth, which could be variously interpreted as little more, or less, than 1% pa, or even an actual decline, was projected far into the future. In retrospect, this apparently over-pessimistic view of copper’s prospects probably owes much to the confusing of the copper demand lost for technical reasons (i.e. substitution and miniaturisation), which is usually permanent, with that lost for economic reasons (i.e. recessions), which is not. The world recessions of 1975 and 1982 greatly reduced the capacity of most countries to invest, particularly in metal-intensive goods and infrastructure, and this was especially true of developing countries, on which the copper industry chiefly depends for growth in consumption and which were, and still are, often crippled by debt. The ending of the reces-

3.2/page 9

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sion and the return of reasonably good trading conditions allowed copper consumption to recover, sometimes quite dramatically, in both developed and developing countries. One aspect of this demand recovery has been its surprisingly good performance in most developed countries (see Table 3.9). The conventional wisdom was that many of the major industrial nations, with their industry, infrastructure and communications already in place, are effectively sated with copper and have little or no capacity to increase their consumption. As explained in section 3.2.4.3, this is by no means always the case and the OECD countries have, on average, increased consumption by nearly 1.5% pa between 1970 and 1999 (and 1.7% during the 1990s), although they declined by 6.2% by 2004. Even in an industrially mature country, industrial plant must be regularly updated if it is to remain competitive, and only when a country discards a significant part of its industrial production capacity (as has happened in Britain) will its copper consumption fall dramatically. Much of a country’s infrastructure will in time require renewal and modernisation; railways are an obvious example. The need for renewal of infrastructure is often particularly urgent in industrialised countries, where it may have been in place for a long time.

3.2.4.3 Geographical distribution and recent trends in consumption The developing countries, as is to be expected, have achieved much higher rates of growth, nearly 11% on average to 1980, 7.4% to 1999 and 5.1% to 2004. However, their individual performances have varied considerably. The outstanding countries have been South Korea and Taiwan, whose combined 1970 consumption of 16 600 t had increased tenfold by 1980 and nearly tenfold since. Other countries in Asia such as Turkey, Indonesia, Malaysia, Saudi Arabia and Thailand have also increased their consumption sharply in recent years. Not surprisingly, however, many developing countries, especially in Africa, have made so little progress with industrialisation and infrastructure that their consumption is negligible, and is likely to remain so for some time (Egypt is a notable exception). Also some countries in Latin America, notably Brazil and Argentina, which are potentially major consumers, have been subjected to severe financial problems which at times have curtailed their demand. Taken as a whole, Western Europe is the largest consumer of copper in the world, its consumption exceeding 3.8 Mt in 2004, 23% of total reported world consumption and 31% of the Western world (see Table 3.9). The largest individual country’s consumption is China’s, at 3.2 Mt; the country overtook the USA in 2002. In 1990 3.2/page 10

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Table 3.9 Consumption of refined copper (’000 t) 1970

Western Europe Austria 42.6 Belgium145.0 Luxembourg Finland 34.8 France 330.7 Germany* 695.5 Greece 11.6 Italy 274.0 Netherlands 39.2 Portugal 12.0 Spain 108.2 Sweden 86.9 Switzerland 48.1 UK 553.7 Yugoslavia 70.9 Other 10.3 Total 2463.5 Africa Egypt South Africa Zambia Zimbabwe Other Total Asia India Japan South Korea Taiwan Turkey Indonesia Iran Malaysia ) Philippines ) Saudi Arabia) Thailand ) Other ) Total North America Canada USA Total Latin America Argentina Brazil Chile Mexico Peru Venezuela ) Other ) Total

1980

1980–1990 2004 +/−%

1990–2004 +/−%

30.8 303.9

22.0 389.5

34.4 296.0

57.5 433.4 747.8 24.7 388.0 18.2 18.4 128.0 105.3 13.7 409.2 122.6 7.8 2809.3

87.0 477.6 1 027.8 53.7 474.8 23.1 24.5 146.1 117.2 3.5 317.2 92.9 9.0 3 265.9

12

116.1 550.0 1 108.3 118.4 714.9 55.0 1.6 331.0 188.7 5.7 260.0 20.0 4.1 3 804.2

18

4.2 67.6 8.0 13.7 2.5 96.0 −17

70.0 95.5 6.0 10.0 6.1 187.6

−1

84

338.5 1 278.6 939.5 690.1 254.2 165.8 120.0 175.0 46.0 185.0 240.0 41.0 4 473.7

66

12

293.5 2 420.0 2 713.5

16

5.1 35.0 0.3 3.0 4.1 47.5

8.8 89.9 2.2 7.5 7.4 115.8

50.1 820.6 7.5 9.1 13.5

912.8

77.2 1158.3 84.0 84.5 33.4 12.0 1.0 0.1 3.6 0.0 4.4 9.8 1468.3

229.0 1854.3 2083.3

208.6 1867.7 2076.3

29.0 69.2 20.6 54.0 4.0

52.5 245.9 42.9 117.0 19.2

2.0 178.8

10.8 488.3

12.0

1970–1980 1990 +/−%

14

144

61

132.4 1 576.5 324.2 264.7 103.1 49.3 40.0 48.5 16.3 49.2 52.2 41.9 2 698.3

0

180.6 2 150.4 2 331.0 25.1 128.7 45.2 127.2 30.0

173

16.0 372.2 −24

33.1 332.4 100.4 383.0 57.9 1.0 3.5 911.3 145

3.2/page 11

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Table 3.9 (cont.) 1970

Oceania Australia New Zealand Total Western world total

1980

1970–1980 1990 +/−%

105.6 0.5 106.1

128.4 1.3 129.7

22

120.0 4.7 124.7

5792.0

7087.7

22

8 888.1

1.2 34.5

7.0 55.0

10.1 32.1

57.0 90.0 23.0 76.0 23.0 985.0

88.6 123.0 22.0 210.8 80.0 1300.0

76.2

Other countries Albania Bulgaria Czech Rep. ) Slovakia ) German DR* Hungary Poland Romania USSR Kazakhstan Russia Uzbekistan China North Korea ) Other ) Total

180.0 ) 12.0 ) 387.2 ) ) ) 1481.7 2273.6

53

World total

7273.7

29

9361.3

1980–1990 2004 +/−%

−4

167.6 0.1 167.7

34

25

12 258.0

38

0.3 16.0 5.7 1.0

34.0 170.7 24.7 1 000.0

10.0 272.0 28.3

512.0 32.5 1 892.3 −11 10 780.4

1990–2004 +/−%

15

52.6 581.9 26.8 3 207.3 15.0 20.0 4 236.9 124 16 494.9

53

* Germany includes German DR consumption from 1990. Sources: ICSG, WMS.

China’s consumption was a mere 512 000 t. Next comes the USA with 2.4 Mt (down from 3.0 Mt in 2000) and Japan with 1.3 Mt (slightly less in 2000 and significantly below earlier levels). Overall growth in demand in the Western world has accelerated, from 22% between 1970 and 1980 and 24% in 1980–90; it rose to 35% in the period 1990–99, equivalent to 3.4% pa, but only by 2.3% during 1999–2004. As always, these average figures cover a great range of individual performances, but in spite of the serious currency problems that plagued several of the fastest-growing Asian economies, a serious decline in Japanese demand, and a recession in Europe, growth of copper consumption in Western countries during the 1990s was generally encouraging. Although Japanese consumption fell by 18%, other Asian countries’ demand grew by an average 123%, or 9.5% pa. With very strong US growth, North American demand rose by an average 3.8% pa and in Latin America, where economic devel3.2/page 12

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opment tends to be erratic, it grew by 9.5% pa. Although Western European consumption expanded by only 1.5% on average, this included a period of recession, and Germany, by far its biggest economy, was distracted by the reabsorption of its eastern provinces, while North America demonstrated that even mature economies can still increase their consumption significantly over an extended period. Developed countries’ consumption rose on average by over 1.7% pa between 1980 and 1999. Fortunes have been mixed since 1999. By 2004 most Western European countries were still showing a marked decline, or at least no significant increase, from 1999, although Italy and Spain both registered major increases (30% in Spain), so overall there was little change. In Africa, South African consumption rose by 25%, but most other countries declined. Japan’s demand barely rose, but elsewhere it was booming, with Thailand’s rising by 167% and Indonesia’s nearly doubling. In contrast, US consumption dropped by 19% (575 000 t), but in Latin America it was generally healthy enough, with a 9% rise overall. Total Western world consumption rose by 2.3%. Figures for Eastern countries are more uncertain, but it is estimated that it grew by an average 53% between 1970 and 1980, but declined by 11% by 1990 (including East German production). Fast expansion in China was more than offset by heavy losses in the USSR and Eastern Europe. With the exception of Poland these declines continued during the 1990s, and in the FSU states demand virtually collapsed, through lack of military consumption in addition to general industrial and economic chaos. However, in China demand forged ahead to 1.53 Mt in 1999. By 2004 it had more than doubled, to 3.21 Mt, making China the world’s largest consumer by far; while fast-increasing demand, in several countries, especially Russia (347%) increased demand in the ‘Other countries’ by 52% in five years. World consumption during this period is estimated to have increased by 17.7%.

3.2.5 Rival materials Throughout its history copper has suffered from the discovery of new metals and materials. The first, and probably the most farreaching, was iron which, during the first millennium BC, replaced bronze as the preferred metal for cutting and hence for weapons, tools, axes, knives and other implements. Its greater strength also made it more suitable for nails and needles and armour (which for centuries was a major application for metals). Of the other ancient metals, the comparative rarity of tin, its poor mechanical qualities in the pure state and the demand for it as an alloying agent restricted its role as a rival, but lead (also known to the ancients) was widely 3.2/page 13

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used for water piping and was also to become a popular material for roofing. Today, copper still has to contend with lead for roofing in some countries. Varying climatic conditions, availability and the innate conservatism of builders has resulted in different metals being used for this purpose in different parts of the world. In Britain, lead is the traditional metal for roofing, and the ‘leads’ has passed into the language as a term for a flat roof; copper is comparatively little used both from custom and the resulting lack of experience on the part of most builders in its usage for this application. It is also little used in North America for covering buildings, and in France zinc is the most popular metal for roofs. In Switzerland, on the other hand, copper’s durability and ability to withstand extremes of temperature has made it the first choice for roofing, and it is being increasingly used for this purpose in Germany, Scandinavia, Italy and elsewhere. It has been on buildings in Japan for centuries, and is still popular there. The ability of other metals and materials to displace copper on roofs is restricted, in those countries where it is well established, by the reluctance of architects and builders to desert a familiar material for a new one. However, this equally restricts the ability of copper to penetrate this market in countries where it is not well established in this use. Also in construction, the materials used in water piping tend to vary from area to area, again heavily influenced by custom and builders’ experience. Lead, which continued in use for centuries, has now been discredited as potentially toxic for drinking water supplies (some even ascribe the decline of the Roman Empire to the ill effects of its lead piping). Copper is widely used for this purpose; in Britain, in contrast to roofing, copper is now almost universally used for drinking water and hot-water systems. In this case it has regained much ground previously lost to cast iron and steel since its ease of working, corrosion resistance and thermal properties make it an excellent material for these applications. Although there have been a few isolated cases of water being poisoned by copper piping, these have been attributed to substandard drinking water being used, with chemicals in the water reacting with the copper. More recently, plastics have posed a major threat to copper and other metals used in domestic piping, both internal and external. They are now widely used in guttering, drainpipes, and in some drinking and even hot-water systems, and they still continue to threaten copper in these applications, although overall the metal seems to be holding its own fairly well in this sphere. In electrical applications, the first and greatest substitution of copper has been by aluminium which, while being a poorer conductor of electricity in relation to its area, is superior in terms of weight. This has made the newer metal the logical material for over3.2/page 14

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head power lines, which are the normal means of carrying electrical power supplies over long distances outside built-up areas; in consequence aluminium has made very significant penetration into this market, although statistics for later years suggest that this penetration has now stabilised, if not reversed. From around 15% in the mid-1960s, aluminium’s penetration of the cable market rose to over 30% in 1980 but had fallen back to 22% by 1987 and has not recovered since. Aluminium also made some limited penetration in domestic writing, but this has been halted and reversed by the metal’s inferior mechanical properties and the fact that in this case weight is irrelevant. Another important application in which copper has been to a large extent displaced by aluminium is in automobile radiators. For many years these were almost universally a preserve for copper, but over the last 20 years manufacturers in the USA, Europe and to a more limited extent in Japan have progressively substituted aluminium. Improved brazing techniques and the desire to save weight in vehicles, particularly during times of very high fuel prices, were factors in the substitution; so were good research, development and promotion work on the part of the aluminium industry, and, as so often, lack of it on the part of the copper producers and fabricators. New lighter copper–brass car and truck radiators have been introduced which are fully competitive with aluminium ones. In communications the greatest inroad by a material in what was exclusively copper’s domain has been made by the much-publicised development of fibre optics. These minute glass rods can carry a far greater number of simultaneous messages than a copper cable of the same diameter, a crucial factor in underground ducts where space may be critical. Hardly surprisingly, since 1985 fibre optics have captured virtually the whole of the telephone trunk line market from copper, another application permanently lost to a rival material. In fact, the bulk of copper in a telephone network is used not in the trunk lines connecting far distant exchanges but in the local networks and their connections with the individual subscribers. Neither of these are such obvious applications for fibre optics as are trunk lines, but the former at least is liable to be increasingly served by fibre optics in the coming years, as their relative cost declines; and even the latter, in cases where a great number of receivers in one building make it worthwhile. Another major loss by copper in telecommunications has been to new technology rather than a rival material. Satellites have replaced undersea cables, and radio microwaves have produced the cordless telephone, reducing the need for wired telephone extensions. Copper has also suffered or is facing substitution in a host of minor applications which together amount to a substantial annual tonnage. 3.2/page 15

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There has been a move away from copper in several currencies, notably in the USA (although the new Euro coins contain copper). Copper cooking vessels today, at least in the developed countries, are fairly rare except as decorations. A host of components and domestic appliances such as tap handles, hose connections and watering cans, which once were brass or copper, are now made of plastic which has the advantages, if not of durability, at least of lower weight and cost. Copper has also lost tonnage through the further replacement of the pure metal by copper in alloyed form. In electronics, hightemperature fabrication and performance requirements have led to the increasing use of alloys such as beryllium copper. Consumption of copper alloys in electronics in America is reported to have increased fivefold or more in the last 20 years.

3.2.6 Miniaturisation It is probable that miniaturisation, in which the quantity of copper used in the manufacture of a given item is reduced, has been responsible for a greater loss of copper consumption than has all the substitution that has taken place in recent years. Technological advance, combined with the desire to save cost, weight and space, have led to miniaturisation in almost every application of copper where it could be achieved. Wire size is reduced wherever possible; tube walls are now as thin as is consistent with their function, as is the diameter, and in these two applications alone a huge reduction in the intensity of the use of copper has been achieved. The new copper–brass automobile radiators are 35–40% lighter than the old ones.

3.2.7 Prospects for consumption growth The greatest single factor in the rate of consumption of copper, as for other raw materials, is likely to remain the rate of global economic growth. The rate of growth will depend heavily on the economic conditions in the developing countries, particularly those in Asia, Latin America and Eastern Europe where desire for the standard of living of the industrialised countries already exists, but is far from being satisfied. China is an excellent (and large) example. These countries will provide most of the growth in consumption, either through their own fabricating industries or through imports. The second key factor is the level of intensity of use of copper under any given economic condition. This has fallen significantly during the last 30 years, as described above, through miniaturisation and substitution, as well as less metal-intensive investment in the 3.2/page 16

3 Copper

3.2 Consumption

developed countries; however, the strong demand in the USA owes much to the high rate of construction there. Most (but not necessarily all) of the substitution, and all the miniaturisation, can be expected to be irreversible. Where another material is found to be distinctly cheaper and/or better for a given application copper will be permanently replaced. However, there are cases that are not so clear-cut, or where a change in the nature of the application itself may again favour copper. In electric cables the advance of aluminium has been halted, and in some places reversed, in the face of opposition to overhead power lines on environmental, and possibly medical, grounds. If the latter were to be proved this could have a considerable effect on copper consumption. Apart from overhead cables, copper’s predominance as a conductor of electric power is likely to continue. In theory it could be challenged by ‘superconductors’, ceramics that at very low temperatures can conduct electricity much more efficiently than copper, but this challenge will remain theoretical until the formidable obstacles to developing a superconductor that can work at normal temperatures have been overcome. This seems unlikely in the foreseeable future. Paradoxically it is possible that superconductors could actually increase copper usage. Copper oxide is a constituent of hightemperature superconductors, and it may be used as a stabiliser. If the superconductor is cooled by liquid nitrogen, as it might be, copper could be needed for the cladding. Finally, superconductors could greatly reduce the cost, and therefore increase the use, of electricity and of copper itself. On the other hand, the development of a conductor requiring no stabiliser or coolant would seriously reduce copper consumption, and superconductor generators could also displace a lot of the metal. Otherwise, the prospects for copper in electricity generating, transformation and conducting are likely to be in line with those of electricity itself, which no one doubts are good. In telecommunications, the loss of copper cable to fibre optics will in part (and some would suggest wholly) be made good by the increase of communications networks of all sorts which advances in electronics have made possible, and which fibre optics have in many cases made much easier to install. All these systems need electric current and the plugs, cables, switches, etc. that go with it. Likewise the vast increase in computers has contributed to copper’s usage, even if the quantity in each unit is small. In automobiles, the loss of copper in radiators and through miniaturisation has also been balanced by the increase in electrical functions in many vehicles during recent years; obvious examples include windows operated by electric motors – once restricted to luxury models but now found in all but the cheapest. 3.2/page 17

3.2 Consumption

3 Copper

In construction, plastics may well extend their penetration, including hot-water systems. On the other hand, some increase in copper roofing is discernible in places, and the spread of air conditioning systems, as in Japan, is absorbing a significant quantity of copper. The increased use of domestic appliances of all sorts should help at least to maintain the quantity of copper absorbed in buildings and their furnishings. Among the other, less important, applications for copper, such as marine, chemical, nutritional, decorative, etc., no great overall change in either direction is particularly evident. In general, therefore, it is at present believed to be unlikely that copper faces any radical changes in its intensity of use from technical causes in the foreseeable future. While some further substitutioin will inevitably take place, there is no obvious new threat, and in most cases miniaturisation has already been taken as far as it can be. Meanwhile, the strong performance of copper consumption in industrialised countries in recent years (countries that had previously been supposed to be capable of little if any increase in demand) suggests that modern technology is, if anything, becoming more copper-intensive in some sectors. However, the rate at which these quantities will increase is a matter for debate, and, as always, the debate is heavily influenced by the present and the recent past. In 1985, forecasts for future growth in copper consumption were seldom much above 1% pa and some suggested an overall decline; this consensus reflected the preceding years of stagnation in copper demand. Since then it has grown by an average of over 3% pa and any forecast of less than 2.5% is regarded as conservative. Many, inspired by the trend over the last 30 years, look for an average growth rate of well over 3% pa. In spite of the boom in consumption during recent years, which has proved to be surprisingly durable, it is probably too soon to adopt the forecasts at the upper end of the scale. An important part of the growth since 1985 was making up for the lean years in the early 1980s when demand was held back by the world recession. In the USA the trend in demand for base metals has risen to 3.7% pa since 1991 compared with less than 1% between 1980 and 1991. Consumption of copper in all sectors has been upwards, with evidence of greater penetration by copper in consumer and general products (probably reflecting the rapid growth in information technology (IT) investment) and transport. However, there is as yet no firm evidence that this high rate of consumption is not simply cyclical but reflects a shift in the underlying rate of demand, and that US growth in demand will not retreat to its pre-1991 level; nor that this boom in consumption will spread to Western Europe or Japan. Nevertheless, the recent performance of copper demand in this most 3.2/page 18

3 Copper

3.2 Consumption

advanced of economies provides some grounds for optimism for the future of the metal in the developed economies, as well as elsewhere. In any event, past growth rates and trends can be misleading; rates are established between arbitrarily chosen dates and trends are regularly being redrawn. It could well continue at around 3% pa in the coming years, although this would presuppose generally good trading conditions, especially for the developing countries, and an absence of serious global recession. A further threat to copper could be described not as technological, nor economic, but emotional. In several countries, especially in northern Europe, environment activists have started to target copper as a threat to health and the environment on grounds that are not necessarily scientifically sound, but that already have had some influence on governments and local authorities. This lobbying could have a serious effect on copper’s prospects.

3.2/page 19

3.3 The market 3.3.1 Supply/demand balance of refined copper As with industrial raw materials, the demand for copper is heavily influenced by the level of global economic activity, and since this tends to be cyclical in behaviour, so the level of demand for copper is subject to periodic, and sometimes violent, fluctuations. In addition (as explained in section 3.2) demand may also be affected by technological developments and the level of capital expenditure. The changes in global demand for copper are no more easily foreseeable than are changes in the global economy. Since 1980 the copper market has seen both extreme surpluses and, more recently, a major cumulative deficit. These swings between over- and under-supply, while mainly caused by external factors, have been exaggerated by the inability (or unwillingness) of copper producers to adjust their output to changing levels of demand, particularly downwards. There are many factors that inhibit producers’ ability to adjust quickly to changes in demand, in either direction. Mines normally work as close to full capacity as they can, and so do not have spare capacity to bring on quickly when demand increases. A new mine is likely to take at least two years to construct, after the lengthy processes of defining the orebody and securing finance have been completed, and even expanding the capacity of an existing mine may take a comparable time; so new capacity is unlikely to appear quickly in reaction to higher consumption. Periods of surplus and low prices will restrict the development of the new capacity that will be needed when demand recovers. Likewise, because of the inevitable delay involved in increasing production, by the time new capacity which has been developed in reaction to a market deficit actually comes on stream, the circumstances that inspired its development in the first place may well have been reversed, and instead of relieving a shortage the new production may simply add to a surplus. Another important factor affecting producers’ reaction to changes in demand level is the existence of the terminal markets, the London Metal Exchange and Comex. Both these markets provide a means of disposal of any excess refined copper, provided it is high enough quality to be registered with the exchange. The physical metal is delivered to one of the exchanges’ authorised warehouses and can 3.3/page 1

3.3 The market

3 Copper

be sold at the current LME or Comex price as the case may be. These exchange warehouses (described in section 3.3.1.1) provide the North American and European and some Far Eastern refineries with a nearby delivery point for metal that cannot be sold to consumers, and a source of supply to consumers when producers are fully committed. While these terminal market stocks serve to cushion the effects of both over- and under-supply, they deny the producers both the discipline of seeing their production remaining unsold if the market does not need it, and the encouragement of a tight market when consumption recovers. Both will tend to delay producers’ reactions to changing market conditions. Other factors contribute only to the tendency to over-produce, which has regularly plagued the copper industry. There is a natural reluctance on the part of mining companies to close mines; indeed, no viable mine has ever been closed voluntarily. Those that cease production have done so either because their economic reserves are exhausted, or they are making unacceptable losses, or strikes, terrorism or some other event beyond the control of the owners has led to enforced closure. The actual process of closing a mine can be very expensive, especially in North America where substantial compensation to the workforce and remedial work on the mine’s environment may be required, while the subsequent restarting of a mine that has been temporarily suspended will be difficult unless the workforce is still available and the plant has been fully maintained. In some countries, notably Zambia, the national economy may be so heavily dependent on its copper exports for foreign exchange that production will continue unabated regardless of heavy losses. Finally, profitable co- or by-products may allow a mine to continue producing copper in spite of very low prices. During the earlier years after the Second World War the strong growth in copper consumption was able to absorb the periodic surpluses without much delay, and the industry continued confidently to develop large new mines. However, the hiatus in sustained demand growth between 1974 and 1983 imposed a drastic readjustment on the industry, although it was not until the 1980s that mine closures on a scale large enough to clear out the excess capacity took place. Since then, unusually large tonnages have been lost to strikes, accidents and civil unrest. Even so, in spite of booming consumption, by 1983 sufficient stocks had been amassed to allow for seven consecutive years of supply deficits totalling 1.5 Mt, without any very serious shortage of physical metal developing: proof enough of the sluggishness of the industry’s self-regulatory process.

3.3/page 2

3 Copper

3.3 The market

3.3.1.1 Stocks In addition to official LME and Comex warehouses, stocks of copper are held by producers, consumers and merchants, and at any given time substantial tonnages will be in transit. The terminal market stock levels are reported daily, but information on producer and consumer stocks is by no means complete and that on merchant and transit stocks even less so. Much of the reporting is delayed, and it is estimated that at times as much as 30% of total stocks are not reported promptly. In consequence, the LME and Comex stock movements are closely watched as a barometer for the global stock position. In the short term this can be misleading, since a backwardation (cash metal at a premium above the forward price) may develop for purely technical market reasons and this will encourage those holding stocks to ‘lend’ them to the market by putting them on warrant, selling them for prompt delivery and simultaneously rebuying metal at the lower forward price. Likewise withdrawal of exchange stocks may simply be a transfer from one, highly visible, inventory to another, perhaps unreported, one. However, in the longer term the exchange stocks do reflect changes in global inventory levels, as Fig. 3.3 shows, and they act both as a reserve and as a market of last resort. It is probable that, aside from the fluctuations caused by changes in the supply/demand balance, the underlying trend in global stocks has declined, and that in any given market balance the stock level is likely to be lower than it would have been in 1980. There are a number of reasons. The abandonment of the wirebar stage in most refineries owing to the introduction of continuous rod casting has

140 120

80

−1000

60

US c/lb

100

’000 t

1000 800 600 400 200 0 −200 −400 −600 −800

40 20 1970

−1980 Stock change

0 1990

2000

LME settlement price

3.3 Western world supply/demand balance and LME price (source: Rio Tinto). 3.3/page 3

3.3 The market

3 Copper

reduced stocks at refineries, and possibly at fabricators. Computerisation has improved inventory control and reduced the level of stocks needed. High interest rates at times have increased the need to minimise stocks, while experience of actual shortage of metal is now rare. No significant stockpiles of copper held by governments remain (up to 1974 the USA held nearly 230 000 t). Finally, neither the LME nor Comex now accept lower-grade metal, which in the past increased exchange stock levels. It appears that between 1987 and 1990 the Western world survived on total stocks amounting to no more than six weeks’ consumption, and sometimes falling to less than five. While these are historically low levels, and since then stocks have risen, there has been little evidence of consumers suffering from lack of metal under these conditions.

3.3.1.2 Copper prices Before the formation of the LME and Comex, and in some cases afterwards as well, the copper price was generally established by negotiation between the producer and merchant or consumer. Prices in Britain appear to have fluctuated mainly between £70 and £100/t in the latter part of the eighteenth century, rising to nearly £200/t during the Napoleonic Wars, but falling back to only £43/t in 1886. In the following year, Pierre Secretan of La Société des Metaux started his celebrated attempt to corner the copper market (the ‘Secretan Corner’), and the price was to touch £105/t before extra supplies, attracted by the high price, in 1889 finally overwhelmed his efforts to maintain the price. The price, which since 1877 had been established at the LME, sank to £35/t. This was the first of a series of schemes to control the international price of copper. All of them failed through their inability to control all sources of supply and, usually, through trying to maintain a higher price than the circumstances of the market justified. At the turn of the century an attempt at a cartel by the Amalgamated Copper Company, the owners of Montana and other US mines, raised the price to over £70/t, but this scheme foundered like its predecessor as other producers raised their output. The First World War brought prices averaging over £130/t during 1916–18, but by the mid-1920s it was half this sum and so another cartel, Copper Exporters Incorporated, was formed in 1926 by American, Chilean, Belgian Congolese, Spanish and German producers, who together accounted for some 95% of world production. They dealt directly with consumers, and by keeping supplies deliberately short they achieved an average LME price in London of £84/t in 1929; but once again shortage and high prices drew out supplies from sources, often of secondary copper, which were beyond the cartel’s control. Its 3.3/page 4

3 Copper

3.3 The market

collapse was speeded by the onset of the Depression and in 1930 LME Standard Copper fell to its all-time low of £25/t. The formation of yet another cartel, the International Copper Cartel, in 1935 coincided with the recovery of demand through rearmament; its members’ decision to restrict production helped to create another shortage, followed, as before, by higher prices, a surplus and price collapse. During the Second World War the LME was closed and copper kept at £61/t by the Government. It was not reopened for copper trading until August 1953, by which time the post-war boom and the Korean War had raised the price to around £250/t. The following years saw considerable fluctuations in the price until 1961 when yet one more effort to control the price was made by the Central African producers and Chile. They fixed their price at £234/t which, a rarity among cartel prices, proved to be too low, and in spite of upward adjustments the higher prices obtained by other producers brought the members back to the LME price in 1966. Since then there have been no more concerted attempts at price control, although periodic ‘squeezes’ on the cash position and specific dates remain a feature of the market. The price remained high until 1970, but thereafter, apart from sharp but brief recoveries in 1973–74, and 1979–80 the price remained generally depressed until the second half of 1987, since when it has usually remained relatively strong, averaging 122.6 ¢/lb between 1988 and 1990, although in real terms less than two-thirds of its value in 1979–80, and half its 1966 value, as the relative costs of production have declined. In 1991–97 it averaged 106.0 ¢/lb, which included 1995’s peak of 133.2 ¢/lb (see Fig. 3.4). The relative firmness of the price in these years in part reflects another instance of price manipulation, ascribed to unauthorised operations by a dealer in Sumitomo Corporation, Yasuo Hamanaka, who is said to have supported the cash price by holding large long positions and options. In June 1996 he abandoned his defence of the price in the face of heavy speculative selling, and the cash price fell by 23 ¢/lb (27%) in six market days, declining further before making a partial recovery by the end of the year. Sumitomo claimed to have lost $1.8 billion as a result of this unauthorised trading, and this exposed the market to unprecedented attention, including an official inquiry into the LME, which, however, escaped very serious criticism. The ‘squeezing’ of the cash price was facilitated by the large short positions created by producers hedging their production by forward sales and buying options (a fairly recent development), which have to be covered by buying in before their due date. Although the copper price steadily recovered during the 12 months following its collapse, surging production resulting from the period of high prices, and faltering consumption in Europe, Japan 3.3/page 5

3.3 The market

3 Copper

300

250

US c/Ib

200

150

100

50

0 1960

1970

1980 Money terms

1990 2005 terms

2000

3.4 LME settlement price in money terms and real 2005 terms.

and the ‘tiger economies’ in Asia combined to produce a growing surplus and a shrinking price; the LME settlement reached 61.5 ¢/lb in March 1999. However, even under these adverse conditions consumption remained relatively healthy, averaging nearly 4% even during the four years of surplus, and in the year 2000 a deficit reappeared. As so often, this was followed in 2001 by a surplus, steeply rising stocks and falling prices, but stocks peaked in Spring 2002, fell steadily in 2003 and precipitately in the first half of 2004; meanwhile the price rose uncertainly until mid-2003 when it took off and reached 148.8 ¢/lb by the end of 2004. As in any free market, in the long term the price will achieve an average level that will maintain supply and demand in adequate overall balance. However, the irregular growth of both production and consumption and the frequent delays in the former’s reaction to the latter result in alternating supply surpluses and deficits and the consequently wide fluctuations of the price. These shorterterm price movements do not necessarily mirror the current supply/demand balance, since they are governed not by supply surplus or deficit but by availability, i.e. by the perceived level and accessibility of stocks. If these are satisfactory the price may continue to fall even if there is a serious supply deficit, as in 1984, while the price may rise with a surplus, as in 1974, until stocks are 3.3/page 6

3 Copper

3.3 The market

believed to have reached a level which will ensure sufficient availability. The correlation of price behaviour with the supply/demand balance is further complicated by the market’s ignorance of the actual state of the balance at any given time, owing to the delay in the publication of production and consumption statistics, and to the incomplete information on stocks. Market sentiment is also heavily influenced by current forecasts for consumption and production, which often prove to be inaccurate. Other factors, some outside the industry, also influence price behaviour: the level of speculative interest; hedge selling by producers; concentrations of outstanding options, which have to be covered; the movements of other base metal prices, and sometimes precious metals as well; and also, on occasions, stock market movements. Copper is not traded in a vacuum, and a change in the sentiment in other markets, especially LME metals, can influence the price, largely through the medium of speculators. The LME and Comex markets are linked (with some elasticity) by arbitrage (in July 1993 the currency of the LME official quotations changed from sterling to the US dollar).

3.3.2 Pricing of copper In the past copper was sometimes sold by primary producers at their own quotations, sometimes at a very different level from the metal exchanges’ prices. This was the case in the USA until quite recently, but today nearly all copper is sold on the basis of the LME quotations (or in the USA, Comex), with premiums in the case of refined metal and discounts in the form of smelting and refining charges in the case of concentrates and blister. Copper concentrates are subject to a ‘treatment’ (i.e. smelting) charge levied per tonne of concentrate and a refining charge per lb of copper that will be paid for, being slightly less than the actual copper content to allow for loss in the smelting and refining processes. Charges may also be made for deleterious impurities in the concentrates, and precious metals, if present in significant quantities, will be paid for, subject to deductions and, sometimes, refining charges. Concentrates may also be ‘toll’ smelted, whereby their copper content is not sold outright to the smelter but is returned to the mine as refined copper after payment of the treatment and refining charges. The level of these charges varies considerably according to market conditions, type of ore and contract, but usually fluctuates within a range of around 15–30 ¢/lb of payable contained copper. Blister, when sold internationally, is subject to a refining charge only, with a very small deduction to the copper content. The 3.3/page 7

3.3 The market

3 Copper

160 140 120

US c/Ib

100 80 60 40 20 0

1970

1980

1990

2000

3.5 LME settlement price: annual high, low and average.

refining charge is likely to be in the $150–240/t range. Precious metals will be paid for as in concentrate contracts. Refined copper is usually sold on the basis of the LME quotation flat if the metal is ‘on warrant’ in an LME warehouse. However, most metal is sold directly by producers on the basis of LME or Comex quotations plus a premium. For annual sales in or to Europe, and most annual export sales elsewhere apart from North America, the LME settlement price is used plus a premium, which is fixed each October by Codelco and used by most producers for the following year. Codelco’s premium for Europe in 2004 was $60 per tonne in Europe (with valuation over a period), while in Asia it was usually $5–10 higher. Delivery basis is the buyer’s port. East Coast US premiums above Comex are generally in the 2.75–3.75 ¢/lb range, but rose to over 8 ¢/lb in 2004.

3.3.3 Metal exchanges Except in North America, where the Comex price is used, copper in all its forms is usually sold at a price based either directly or indirectly on the quotations of the LME (see Fig. 3.5). Chapter 1 provides more information on the LME and Comex.

3.3.3.1 The LME The LME first operated as an exchange in 1877, trading copper and tin. By then Britain could no longer boast the largest mine production of copper, but still smelted more of it than any other nation, and just retained the lead over Malaya in tin mining. Of more lasting 3.3/page 8

3 Copper

3.3 The market

importance, London was the undisputed commercial capital of the world and a great entrepôt for commodities of all sorts, with the necessary ancillary services such as banking, shipping and insurance readily available. Well over a century later, the LME is still recognised as the most important reference point for copper prices, and its claim to be an international market has, if anything, been strengthened by the relative decline in domestic production and consumption of non-ferrous metals, since, unlike Comex, it is not overmuch influenced by market conditions in its host country. Quotations extend to 63 months ahead.

3.3.3.2 Comex The New York Commodity Exchange (Comex) was formed in 1933 and in some respects is similar to the LME. It has current delivery month and forward quotations, market stocks in warehouses, standard contracts, daily sessions of open outcry (although they are continuous), and its quotations are also used for valuing imports and exports in the United States and Canada. However, there are a number of differences. It has forward quotations up to 24 months ahead; it has a cash clearing system (book profit and loss on open forward positions must be settled daily); and it is primarily a domestic market for North America rather than a global market whose quotations are used worldwide.

3.3/page 9

3.4 Appendix Table 3.A.1 The world’s major copper mines, 2004 Area

Mine operator/owners

Source

Est. annual capacity (’000 t)

Total (’000 t)

Botswana Phoenix/Selkirk Selebi North Selebi-Phikwe

Tati Nickel Mining Co. Botswana Copper Botswana Consolidated

Concs. Concs. Concs.

9 5 15

29

Congo Dikulushi Kamoto/Dima Kolwezi Lonshi

Anvil Mining Iscor/Gecamines Gecamines First Quantum

Concs. Concs. Concs. SX-EW

16 35 25 30

106

Morocco Guemassa

BRPM/ONA

Concs.

7

7

Ongopolo Ongopolo Ongopolo

Concs. Concs. Concs.

7 15 14

36

Anglo American Impala Platinum Rio Tinto/Anglo American Anglo American

Concs. Concs. Concs.

6 7 80

Concs.

13

Various

Concs.

11

117

Barrick

Concs.

4

4

J & W Investments China’s Non Ferrous/ Anglo American Metorex/ZCCM Metorex/ZCCM Konkola Copper Mines Mopani Copper Mines Konkola Copper Mines

Concs. Concs.

6 25

SX-EW Concs. Concs. Concs. Concs.

16 5 80 94 140

Africa

Namibia Kombat Otjihase Tschudi/Tsumeb West South Africa Black Mountain Impala Platinum Palabora Rustenburg/ Amandebult Small mines Tanzania Bulyanhulu Zambia Baluba Chambishi Chibuluma South Chibuluma West Konkola Mufulira Nchanga

3.4/page 1

3.4 Appendix

3 Copper

Table 3.A.1 (cont.) Area

Mine operator/owners

Source

Est. annual capacity (’000 t)

Nchanga TLP Nkana South & Central Small mines

Konkola Copper Mines Mopani Copper Mines

SX-EW Concs.

100 100

Various

Concs.

5

571

Various

Concs.

4

4

Zimbabwe Small mines Total Africa

Total (’000 t)

874

Asia Burma Monywa

Ivanhoe Myanmar Mining Enterprise No. 1

SX-EW

33

Hindustan Copper

Concs.

12

Hindustan Copper Various

Concs. Concs.

23 6

Concs.

270

Grasberg/Ertsberg

Newmont/Sumitomo Corp/SMM Freeport/Rio Tinto

Concs.

560

830

Iran Miduck (Meydouk) Sar Chesmeh Sar Chesmeh Sungun (Songong)

National Iranian Copper National Iranian Copper National Iranian Copper Ahar Consolidated

Concs. Concs. SX-EW Concs.

25 150 12 30

217

Pakistan Saindak

MCC

Concs.

15

15

Philex Mining Corp.

Concs.

22

22

Turkey Asikoy (Kure) Cakmakkaya (Murgul) Cayeli Ergani

Etiholding KBI Inmet Mining Corp. Ber-oner

Concs. Concs. Concs. Concs.

8 10 40 4

62

Vietnam Sin Quyen

Vimico

Concs.

1

1

India Khetri/Kolihan Chandmari Malanjkhand Small mines Indonesia Batu Hijau

Philippines Santo Tomas 11/Padcal

Total Asia

3.4/page 2

33

41

1 221

3 Copper

3.4 Appendix

Table 3.A.1 (cont.) Area

Mine operator/owners

Source

Est. annual capacity (’000 t)

Breakwater Resources Noranda Taseko Mines Teck Cominco Imperial Metals Corp. Japanese Consortium Inco Northgate Exploration Falconbridge Agnico Eagles Mines Aur Res./Novicourt/ Teck Imperial Metals Corp./ Sumitomo Corp. Boliden Westmin Falconbridge Falconbridge Hudson Bay Various

Concs. Concs. Concs. Concs. Concs.

4 8 7 175 37

Concs. Concs. Concs. Concs. Concs.

104 33 47 10 35

Concs.

17

Concs. Concs. Concs. Concs. Concs.

14 7 30 42 12

Concs. SX-EW Concs. Concs. SX-EW Concs. SX-EW SX-EW Concs. SX-EW

94 31 280 90 55 45 8 50 70 400

SX-EW Concs. SX-EW Concs. Concs. SX-EW SX-EW SX-EW Concs.

8 120 47 10 95 25 22 75 18

Concs. SX-EW Concs.

120 77 6

Concs. SX-EW

170 25

Total (’000 t)

North and Central America Canada Bouchard-Herbert Brunswick Gibraltar Highland Valley Huckleberry Inco Mines Kemess South Kidd Creek La Ronde Louvicourt Mt Polley Myra Falls Raglan Sudbury Area Mines Trout Lake/Flin Flon Small mines USA Bagdad Bagdad Bingham Canyon Chino (Santa Rita) Chino (Santa Rita) Continental East (Butte) Johnson Camp Miami Mission Complex Morenci Pinto Valley Ray Ray Robinson (Ruth Mine) Sierrita Sierrita Silver Bell Tyrone Leach Small mines Mexico Cananea Cananea Charcas La Caridad La Caridad

Phelps Dodge Phelps Dodge Kennecott (Rio Tinto) Phelps Dodge Phelps Dodge Montana Resources Nord Resources Phelps Dodge Grupo Mexico Phelps Dodge/ Sumitomo BHP Copper Grupo Mexico Grupo Mexico Quadra Mining Phelps Dodge Phelps Dodge Grupo Mexico Phelps Dodge Various Grupo Mexico Grupo Mexico Industria Minera Mexico Grupo Mexico Grupo Mexico

582

1 543

3.4/page 3

3.4 Appendix

3 Copper

Table 3.A.1 (cont.) Area

Mine operator/owners

Source

San Martin

Industria Minera Mexico Minerales Metalicos del Norte Various

Concs.

20

Concs.

7

Concs.

6

Santa Barbara Small mines

Est. annual capacity (’000 t)

Total North and Central America

Total (’000 t)

431 2 556

South America Argentina Bajo el Alumbrera Brazil Jaguarari Sossego Chile Andina Candelaria Carmen de Andacollo Cerro Colorado Codelco Norte Codelco Norte Collahuasi Collahuasi Dos Amigos El Abra El Bronce de Atacama El Soldado El Soldado El Teniente El Teniente El Tesoro/Leonor Escondida Escondida Ivan/Zar Las Luces Lomas Bayas Los Bronces Los Bronces Los Pelambres Mantos Blancos/Santa Barbara

3.4/page 4

Xstrata/Wheaton River/ Northern Orion

Concs.

190

190

Caraiba CVRD

Concs. Concs.

25 80

105

Codelco Phelps Dodge/ Sumitomo MM/ Sumitomo Corp. Aur Res./CMP/Enami BHP Billiton Codelco Codelco Anglo American/Mitsui/ Falconbridge/Nippon Anglo American/Mitsui/ Falconbridge/Nippon CEMIN Codelco/Phelps Dodge Nittetsu/Errazuriz Anglo American Anglo American Codelco Codelco Antofagasta Hldgs BHP/Rio Tinto/Japan Escondida BHP/Rio Tinto/Japan Escondida Milpo Las Cenizas Faconbridge Anglo American Anglo American Antofagasta/Nippon Mg/ Mitsubishi Materials Anglo American

Concs. Concs.

218 239

SX-EW SX-EW Concs. SX-EW Concs.

21 129 572 425 406

SX-EW

64

SX-EW SX-EW Concs. Concs. SX-EW Concs. SX-EW SX-EW Concs.

10 224 25 67 8 430 8 93 990

SX-EW

150

SX-EW Concs. SX-EW Concs. SX-EW Concs.

14 9 60 197 28 360

Concs.

43

3 Copper

3.4 Appendix

Table 3.A.1 (cont.) Area

Mine operator/owners

Source

Mantos Blancos/Santa Barbara Manto Verde Michilla Ojos de Salado Quebrada Blanca

Anglo American

SX-EW

60

SX-EW SX-EW Concs. SX-EW

60 53 20 75

Salvador Salvador San Jose (Socavon) San Jose (Socavon) Zaldivar Zaldivar Small mines

Anglo American Antofagasta Hldgs Phelps Dodge Aur Res./Pudahuel/ Enami Codelco Codelco Punta del Cobre Punta del Cobre Placer Dome Placer Dome Enami and others

Concs. SX-EW Concs. SX-EW Concs. SX-EW Concs.

66 24 40 8 2 134 75

5 407

Colombia El Roble

Minas el Roble

Concs.

3

3

Billiton/Noranda/Teck Mitsubishi Minera Corona Phelps Dodge Doe Run CORMIN Grupo Mexico/Marmon Phelps Dodge BHP Billiton BHP Billiton SPCC SPCC Various

Concs.

310

Concs. SX-EW Concs. Concs. Concs.

30 95 17 9 185

Concs. SX-EW Concs. SX-EW Concs.

90 40 130 56 25

Peru Antamina Cerro Corona Cerro Verde Cobriza Condestable (Mala) Cuajone Tintaya/Chabucas Tintaya/Chabucas Toquepala Toquepala Small mines

Est. annual capacity (’000 t)

Total South America

Total (’000 t)

987 6 692

Western Europe Cyprus Tamasos

Oxiana Res./Hellenic

SX-EW

6

6

Finland Pyhasalmi

Inmet Mining Corp.

Concs.

15

15

Portugal Neves Corvo Panasqueira

Somincor Beralt Tin & Wolfram

Concs. Concs.

90 1

91

Sweden Aitik Boliden mines Storliden

Boliden Boliden North Atlantic

Concs. Concs. Concs.

60 11 14

85

3.4/page 5

3.4 Appendix

3 Copper

Table 3.A.1 (cont.) Area

Mine operator/owners

Source

Former Yugoslavia Cerovo Majdanpek Veliki Krivelj

RTB Bir RTB Bir RTB Bir

Concs. Concs. Concs.

Est. annual capacity (’000 t)

10 65 35

Total Europe

Total (’000 t)

110 307

Oceania Australia Cadia Hill/Ridgeway Cobar (CSA Mine) Eloise Ernest Henry Goonumbla (North Parkes) Mount Isa Mount Lyell Mt Gordon (Gunpowder) Nifty Olympic Dam Olympic Dam Osborne Reward (Thalanga) Scuddles (Golden Grove) Starra (Selwyn) Small mines Small mines Papua New Guinea Ok Tedi

Newcrest Mining Glencore/Mt Lyell Almag Resources Xstrata Rio Tinto/Sumitomo

Concs. Concs. Concs. Concs. Concs.

75 24 17 104 38

Xstrata Sterlite Birla

Concs. Concs. Concs.

204 25 50

Birla Western Mining Western Mining Placer Pacific Sterlite Normandy Poseidon

SX-EW Concs. SX-EW Concs. Concs. Concs.

28 240 10 42 20 20

Selwyn Mines Various Various

Concs. Concs. SX-EW

24 6 10

937

PNG Sustainable Development/ Inmet/PNG Govt

Concs.

195

195

Total Oceania

1 132

Total Western world

12 783

Other countries Bulgaria Assarel Medet Chelopech Elatsite Small mines

Asarel Invest Co. Navan Resources Elatsite Copper Co. Various

Concs. Concs. Concs. Concs.

53 9 40 3

105

Macedonia Small mines

Bucim

Concs.

12

12

Poland Lubin

KGHM

Concs.

160

3.4/page 6

3 Copper

3.4 Appendix

Table 3.A.1 (cont.) Area

Mine operator/owners

Source

Est. annual capacity (’000 t)

PolkowiceSieroszowice Rudna

KGHM

Concs.

180

KGHM

Concs.

220

Romanian Govt

Concs.

5

Romanian Govt

Concs.

12

Deva Mining Complex

Concs.

10

Aleksandrinskaya Mining Co. UGMK UGMK Norilsk Norilsk Uralelektromed Solnechny Mining Norilsk Uralelectromed/ Svyatogor/Ivdel

Concs.

15

Concs. Concs. Concs. SX-EW Concs. Concs. Concs. Concs.

20 80 20 15 35 11 430 38

Romania Balan/Ursului/Fundu Moldovei Moldova/Forimunda/ Sasca Rosia Poieni Russia Aleksandrinsky Dombarovsky Gaj (Gaisky) Kola Peninsula Murmansk Safyanvskaya Solnechy Taimyr Peninsula Tarnyerskoye/ Shemurskoye/ Severnoye Uchalinsk

Total (’000 t)

560

27

Concs.

55

Concs. Concs. Concs.

8 8 10

Small mines

UGMK/Bashkortostan State Urupsky Mining Svyatogor Mining EAM/Cheremshanka/ Niizhnu Tagil/Elitakov Various

Concs.

10

755

Armenia Agarak Kajaran Small mines

Comsup Chronimet/Comsup Various

Concs. Concs. Concs.

6 13 12

31

Georgia Madneuli

Georgian Govt

Concs.

14

14

East Point Holding Samsung Samsung Samsung Samsung Leninogorsk Combinat KazMinCo

Concs. Concs. Concs. Concs. Concs. Concs. Concs.

35 230 25 40 40 10 40

Samsung Samsung

Concs. Concs.

5 40

Urupsky/Bykovsky Volkovskoye Vysokogorsky Plant

Kazakhstan Boshtchekul Dzhezkazgan Irtysh/Belousov Itauz Kounrad/Sayak Leninogorsk Nurkazgan/ Samarskoye Shatyrkol Shemonaikhinsky

3.4/page 7

3.4 Appendix

3 Copper

Table 3.A.1 (cont.) Area

Mine operator/owners

Source

Est. annual capacity (’000 t)

Zhaman-Asibat Zhezkent Ziryanovsk

Kazakhmys Samsung Ziryanovsk Lead

Concs. Concs. Concs.

10 110 10

595

Mongolia Erdenet Erdenet

EMC EMC

Concs. SX-EW

140 2

142

Uzbekistan Almalyk

Almalyk Mining

Concs.

100

100

Concs. Concs.

10 10

Concs. Concs. Concs. Concs. Concs. Concs. Concs. Concs. Concs. Concs. Concs.

20 8 20 8 20 130 20 8 20 9 7

Shizishan Tongkuangyu/ Hujiayu/Bizhigou Tonglushan Tongshankuo Yimen Yongpin Yushan/Dongxian Various mines SX-EW plants Small mines

Tongling Baiyin Non Ferrous Metals Jaingxi Dabaoshan Mining Yunnan Copper Yunnan Copper Daye Iron Ore Co. Jiangxi Yunnan Copper Shenyang Copper Jinquan Non Ferrous Jinchuan Non Ferrous Shikoushan Mine Bureau Tongling Zhingtiaoshan

Concs. Concs.

9 35

Daye Daye Yunnan Copper Jiangxi Jiangxi Local Govt Various Various

Concs. Concs. Concs. Concs. Concs. Concs. SX-EW Concs.

12 8 20 15 8 48 50 102

597

North Korea Sangnong

KZIG

Concs.

4

4

China Anqing Baiyin Chengmenshan Dabaoshan Dahongshan Dayao Daye Dexing Dongchuan/Tangdan Huanren Jinquan Lala Copper Shikoushan

Total other countries Total world

3.4/page 8

Total (’000 t)

2 942 15 725

3 Copper

3.4 Appendix

Table 3.A.2 The world’s major copper smelters, 2004 Area

Smelter operator/ owners

Principal raw material

Est. annual capacity (’000 t)

Total (’000t)

Botswana Selebi-Phikwe

Botswana Consolidated

Concs.

26

26

Congo Luilu Shituru

Gecamines Gecamines

Concs. Concs.

30 30

60

Namibia Tsumeb

OMPL

Concs.

50

50

South Africa Palabora Platinum plants

Rio Tinto Various

Concs. Concs.

135 16

151

First Quantum/ Glencore/ZCCM Vedanta/ZCI/ZCCM Mopani Copper Mines

Concs.

160

Concs. Concs.

200 14

Africa

Zambia Mufulira Nkana (Rhokana) Nikana Cobalt Plant Total Africa

374 661

Asia India Birla Ghatsila Jhagadja Khetri Sterlite

Birla Group Hindustan Copper Swil Ltd Hindustan Copper Vedanta

Concs. Concs. Scrap Concs. Concs.

250 17 70 31 210

578

Indonesia Gresik

Mitsubishi/Freeport

Concs.

245

245

National Iranian Copper Industry Co. National Iranian Copper Industry Co.

Concs.

40

Concs.

200

Scrap Concs. Concs. Concs. Concs. Concs.

2 300 36 96 306 348

Concs. Concs.

470 263

Iran Khatoon Abad Sar Chesmeh Japan Ashio/Tochigi Besshi (Toyo) Hitachi/Ibaragi Kosaka Naoshima Onahama Saganoseki Tamano

Furukawa Sumitomo Metal Mining Nippon Mining & Metals Dowa Mining Mitsubishi Materials Mitsubishi Materials Dowa/Furukawa Nippon Mining & Metals Hibi Kyodo

240

1 821

3.4/page 9

3.4 Appendix

3 Copper

Table 3.A.2 (cont.) Area

Smelter operator/ owners

Principal raw material

Oman Sohar

Oman Mining Co.

Concs.

35

35

Pakistan Saindak

Saindak Metal

Concs.

18

18

South Korea Onsan 1 Onsan 11

LG/Nippon LG/Nippon

Concs. Concs.

210 250

460

Philippines Isabel (PASAR)

Glencore/Local Group

Concs.

250

250

Thai Asset Man./Thai Film Ind./Aker Kvaerner

Concs.

40

40

KBI

Concs.

42

42

Thailand Rayong Turkey Samsun

Est. annual capacity (’000 t)

Total Asia

Total (’000t)

3 729

North and Central America Canada Flin Flon Horne Kidd Creek Sudbury (Copper Cliff) Sudbury (Falconbridge) USA Garfield Hayden Hurley Miami Mexico Celaya La Caridad San Luis Potosi Toluca

Hudson Bay Noranda Falconbridge Inco

Concs. Concs. Concs. Concs.

90 190 145 135

Falconbridge

Concs.

20

580

Kennecott (Rio Tinto) Inco Phelps Dodge Phelps Dodge

Concs. Concs. Concs. Concs.

320 210 190 180

900

Cobre de Mexico Grupo Mexico Industrial Minera Mexico Cobre de Pasteje

Scrap Concs. Concs.

34 400 36

Concs.

60

Total North and Central America Brazil Camacari

3.4/page 10

530 2 010

Caraiba Metais

Concs.

220

220

3 Copper

3.4 Appendix

Table 3.A.2 (cont.) Area

Chile Altonorte (La Negra) Chagres (Disputada) Codelco Norte El Teniente (Caletones) Paipote Las Ventanas Salvador (Potrerillos) Peru Ilo La Oroya

Smelter operator/ owners

Principal raw material

Est. annual capacity (’000 t)

Noranda Anglo American Codelco Codelco

Concs. Concs. Concs. Concs.

290 160 515 400

ENAMI ENAMI Codelco

Concs. Concs. Concs.

95 130 200

1 790

SPCC Doe Run

Concs. Concs.

315 70

385

Total South America

Total (’000t)

2 395

Western Europe Austria Brixlegg

Montanwerke Brixlegg

Concs.

85

85

Belgium Beerse Hoboken

La Metallo Chimique Umicore

Scrap Scrap

150 35

185

Finland Harjavalta

Boliden

Concs.

160

160

Germany Hamburg Huettenwerke Kayser

Norddeutsche Affinerie Norddeutsche Affinerie

Concs. Scrap

450 180

630

Spain Huelva

Atlantic Copper

Concs.

320

320

Sweden Ronnskar

Boliden

Concs.

240

240

Former Yugoslavia Bor

RTB Bor

Concs.

170

170

Total Western Europe

1 790

Oceania Australia Mount Isa Olympic Dam Port Kembla

Xstrata Western Mining Furukawa/Nittetsu/ Nissho Iwai/Itochu

Concs. Concs. Concs.

250 235 140

625

3.4/page 11

3.4 Appendix

3 Copper

Table 3.A.2 (cont.) Area

Smelter operator/ owners

Principal raw material

Est. annual capacity (’000 t)

Total Oceania

Total (’000t)

625

Total Western world

11 210

Other countries Armenia Alaverdi

CJSC

Concs.

12

12

Bulgaria UM Pirdop

Umicore

Concs.

210

210

Hungary Csepel

Hungarian Govt

Concs.

4

4

Poland Glowgow 1 Glowgow 11 Hutmen Legnica

KGHM KGHM ZHPMN KGHM

Concs. Concs. Scrap Concs.

220 180 9 90

499

Romania Baia Mare Zlatna Zlatna Zlatna

RBG Phoenix Zlatna Metallurgical Zlatna Metallurgical Zlatna Metallurgical

Concs. Scrap Concs. Concs.

35 10 40 13

98

Slovakia Krompachy

Montanwerke Brixlegg

Scrap

25

25

Kyshtym Refinery Kirovgradsky JSC Krasnouralsk (Svyatogor) UGMK Norilsk Norilsk Pechenganikel Severonikel

Concs. Scrap Concs. Concs. Concs. Concs. Concs. Concs.

50 50 70 40 100 400 40 60

UGMK

Concs.

110

920

Kazakhstan Balkashmys Dzhezkazgan

Samsung Samsung

Concs. Concs.

200 215

415

Ukraine Pancomm

Pancomm

Scrap

18

18

Russia Karabash Kirovgrad Krasnouralsk Mednogorsk Nadezhda Norilsk Pechenganikel Severonikel (Kola Pen.) Sredneuralsky (SUMZ)

3.4/page 12

3 Copper

3.4 Appendix

Table 3.A.2 (cont.) Area

Smelter operator/ owners

Principal raw material

Est. annual capacity (’000 t)

Almalyk Mining and Metallurgical Combine

Concs.

115

Concs. Concs. Scrap Scrap Concs.

85 35 10 20 10

Scrap Concs. Concs. Concs. Concs. Concs. Concs. Concs.

60 150 30 10 400 10 60 100

Concs. Concs. Concs.

120 20 160

Concs. Concs. Concs.

10 20 30

Concs.

12

Xichang Yantai Yunnan Zhongtiaoshan (Houma) Small plants

Local Govt Local Govt Local Govt Nanfeng Medicine Dongchun Bureau of Mines Tianjin Copper Plant Daye Non-Ferrous Metals Dongfang Copper Corp. Local Govt Jiangxi Copper Corp. Houtoushan Huludao Zinc Tongling Non-Ferrous/ Sharpline International Jinchuan Non-Ferrous Jinfeng Copper Co. Tongling/Sumitomo Corp./SMM/Pingguo Aluminium Local Govt/Jiangxi Kunming Liliang Shenyang Xinxing Copper Shuikoushan Mining Bureau Local Govt Jinpeng Non-Ferrous Local Govt Zhongtiaoshan Non-Ferrous Metals Various

Concs. Concs. Concs. Concs.

10 50 230 70

Concs.

11

1 723

North Korea Hungnam Nampo

North Korean Govt North Korean Govt

Concs. Concs.

40 40

80

Uzbekistan Almalyk China Baiyin Changzhou Chizhou Chongqing Dadong Datong Daye/Hubei Dongfan Fuchunjiang Guixi Houtoushan Huludao Jinchang (Tongling 11) Jinchuan Jinfeng Jinlong Kangxi (Liangshan) Kunming Shenyang Shuikoushan

Total other countries Total world

Total (’000t)

115

4 119 15 329

3.4/page 13

3.4 Appendix

3 Copper

Table 3.A.3 The world’s major copper refineries, 2004 Area

Refinery operator/ owners

Process

Principal Est. Total raw annual (’000 t) material capacity (’000 t)

Congo Shituru

Gecamines

FR

EW 100 copper

Egypt Cairo

General Metals

FR

Scrap

South Africa Impala Platinum Marikana Metal Sales Palabora Rustenburg/ Amandelbult

Impala Platinum Ltd Western Platinum General Metals Rio Tinto Anglo American

EW EW FR Electrolytic EW

Zambia Bwana Mkubwa Chibuluma South Mufulira Nchanga TLP Nkana (Kitwe) Nkana Slag Dumps/ Chambishi Cobalt

First Quantum Minerals Metorex/ZCCM Mopani Copper Mines Konkola Copper Mines Konkola Copper Mines ENYA Holdings

EW EW Electrolytic EW Electrolytic EW

Africa

Zimbabwe Alaska Refinery Eiffel Flats

100

4

4

Matte Pt ores Scrap Anode Matte

7 2 7 140 11

167

Leach Leach Anode

40 16 265 100 200 15

636

15 6

21

Anode Leach

Mhangura Copper Mines Electrolytic Anode Rio Tinto Mining EW Cu/Ni Matte

Total Africa

928

Asia Burma Monywa

Ivanhoe Myanmar/ Mining Enterprise No 1

EW

Leach

33

33

India Birla Ghatsila Jhagadia (Gujarat) Khetri Sterlite

Birla Group Hindustan Copper SWIL Hindustan Copper Vedanta

Electrolytic Electrolytic Electrolytic Electrolytic Electrolytic

Anode Anode Scrap Anode Anode

250 17 50 31 250

598

Indonesia Gresik

Mitsubishi/Freeport

Electrolytic Anode

245

245

National Iranian Copper Industry Co.

EW

Iran Sar Chesmeh

3.4/page 14

Leach

12

3 Copper

3.4 Appendix

Table 3.A.3 (cont.) Area

Refinery operator/ owners

Process

Principal Est. Total raw annual (’000 t) material capacity (’000 t)

Sar Chesmeh Copper Complex

National Iranian Copper Industry Co.

Electrolytic Anode

250

262

Japan Besshi (Toyo/ Niihama) Hitachi/Ibaragi Kosaka/Akita Naoshima/Kagawa Onahama/ Fukushima Saganoseki/Ooita Tamano/Okayama

Sumitomo Metal Mining Electrolytic Anode

300

Nippon Mining & Metals Dowa Mining Mitsubishi Materials Mitsubishi Materials/ Dowa/Furukawa Nippon Mining & Metals Hibi Kyodo Smelting

Electrolytic Electrolytic Electrolytic Electrolytic

Anode Anode Anode Anode

180 72 225 258

Electrolytic Anode Electrolytic Anode

270 228

1 533

South Korea Changhang Onsan 1 Onsan 11

LG/Nippon Mining LG/Nippon Mining LG/Nippon Mining

Electrolytic Anode Electrolytic Anode Electrolytic Anode

60 220 230

510

Oman Sohar

Oman Mining

Electrolytic Anode

33

33

Philippines Isabel

Glencore/Local Group

Electrolytic Anode

200

200

Thai Asset Man./Thai Electrolytic Anode Film Ind./Aker Kvaerner

40

40

20 22 100

142

Thailand Rayong

Turkey Denizli Duzce Sarkuysan

ER Bakir Bakirson Sarkuysan Electrolytic

Electrolytic Anode Electrolytic Anode Electrolytic Anode

Total Asia

3 596

North and Central America Canada CCR Sudbury Sudbury EW Timmins

Noranda Inco Inco Falconbridge

Electrolytic Electrolytic EW Electrolytic

Anode Anode Matte Anode

360 140 9 147

USA Amarillo Bagdad Chino El Paso Garfield

Grupo Mexico Phelps Dodge Phelps Dodge Phelps Dodge Kennecott (Rio Tinto)

Electrolityc EW EW Electrolityc Electrolityc

Anode Leach Leach Anode Anode

450 31 55 415 300

656

3.4/page 15

3.4 Appendix

3 Copper

Table 3.A.3 (cont.) Area

Refinery operator/ owners

Process

Principal Est. Total raw annual (’000 t) material capacity (’000 t)

Indiana Johnson Camp Miami Miami Morenci Pinto Valley Ray Reading Sierrita Silver Bell Tyrone Leach Warrenton White Pine Small plants

Essex Group Nord Resources Phelps Dodge Phelps Dodge Phelps Dodge/Sumitomo BHP Copper Grupo Mexico Reading Industries Phelps Dodge Grupo Mexico Phelps Dodge American Iron & Metal Considar Various

FR EW Electrolityc EW Electrolityc EW EW FR EW EW EW FR Electrolityc EW

Scrap Leach Anode Leach Anode Leach Leach Scrap Leach Leach Leach Scrap Anode Leach

18 8 172 50 400 8 47 70 25 22 75 35 68 10

2 259

Mexico Cananea La Caridad La Caridad Refineria Mexico Refinery Celaya

Grupo Mexico Grupo Mexico Grupo Mexico Cobre de Mexico Cobre de Mexico

EW Electrolytic EW Electrolytic Electrolytic

Leach Anode Leach Anode Scrap

77 330 25 150 30

612

Total North and Central America

3 527

South America Brazil Camacari Chile Carmen de Andacollo Cerro Colorado Chuquicamata Codelco Norte Collahuasi Dos Amigos El Abra El Soldado El Teniente El Teniente Fire Refinery El Tesoro/Leonor Escondida Ivan/Zar Las Ventanas Lomas Bayas Los Bronces

3.4/page 16

Caraiba Metais

Electrolytic Anode

Aur Res./CMP/Enami

EW

Leach

21

BHP Billiton Codelco Codelco Anglo American/ Falconbridge/Mitsui CEMIN Codelco/Phelps Dodge Anglo American Codelco Codelco

EW Electrolytic EW EW

Leach Anode Leach Leach

129 700 425 64

Antofagasta Hldgs/AMP BHP/Rio Tinto/Japan Escondida Milpo ENAMI Falconbridge Anglo American

EW EW EW EW Fire Refining EW EW

Leach Leach Leach Anode, EW cathode Leach Leach

EW Electrolytic EW EW

Leach Anode Leach Leach

220

10 224 8 8 170

93 150 14 335 60 28

220

3 Copper

3.4 Appendix

Table 3.A.3 (cont.) Area

Refinery operator/ owners

Process

Principal Est. Total raw annual (’000 t) material capacity (’000 t)

Mantos Blancos/ Santa Barbara Manto Verde Michilla Quebrada Blanca

Anglo American

EW

Leach

60

Anglo American Antofagasta Hldgs Aur Res./Pudahuel/ ENAMI Codelco Codelco

EW EW EW

Leach Leach Leach

60 53 75

EW Leach Electrolytic Anode

24 140

Soc. Punta del Cobre Placer Dome

EW EW

Leach Leach

8 134

2 993

Phelps Dodge SPCC Doe Run BHP Billiton SPCC

EW Electrolytic Electrolytic EW EW

Leach Anode Anode Leach Leach

95 290 70 40 56

551

Salvador Salvador (Potrerillos) San Jose (Socavon) Zaldivar Peru Cerro Verde 1 Leach Ilo Copper Refinery La Oroya Refinery Tintaya/Chabucas Toquepala Total South America

3 764

Western Europe Austria Brixlegg

Montanwerke

Electrolytic Blister

80

80

Belgium Beerse Hoboken Olen

La Metallo Chimique Umicore Umicore

Electrolytic Blister EW Electrolytic Anode

40 40 345

425

Cyprus Tamasos (Skouritossa)

Oxiana Resources/ Hellenic Metallurgy

EW

6

6

Finland Kokkola Pori

OMG Kokkola Boliden

EW Leach Electrolytic Anode

15 125

140

Norddeutsche Affinerie

Electrolytic Anode

180

Norddeutsche Affinerie KM Europa Metal

Electrolytic Anode FR Scrap

385 90

Europa Metalli

FR

Sitindustrie

Electrolytic Anode

Germany Huettenwerke Kayser Hamburg Osnabruck Italy Fornaci di Barga Lucca Pieve Vergonte (Novara)

Leach

Scrap

655

24 30

54

3.4/page 17

3.4 Appendix

3 Copper

Table 3.A.3 (cont.) Area

Refinery operator/ owners

Process

Principal Est. Total raw annual (’000 t) material capacity (’000 t)

Norway Kristiansand

Falconbridge

Electrolytic Matte

40

40

Spain Barcelona Huelva

La Farga Atlantic Copper

FR Scrap Electrolytic Anode

20 320

340

Sweden Ronnskar

Boliden

Electric

Anode

240

240

Former Yugoslavia Bor

RTB Bor

EW

Scrap

170

170

Total Western Europe

2 150

Oceania Australia Mount Cuthbert Nifty Olympic Dam Olympic Dam Port Kembla Port Pirie Townsville

Matrix Metals Birla Western Mining Western Mining Furukawa/Nittetsu/ Nissho Iwai/Itochu Pasminco Xstrata

EW EW Electrolytic Anode EW Leach Electrolytic Anode

6 28 240 10 120

EW Leach Electrolytic Anode

4 275

Total Oceania

683 683

Total Western world

14 648

Other countries Bulgaria Pirdop

Umicore

Electrolytic Anode

45

45

Poland Glogow 1 Glogow 11 Legnica

KGHM KGHM KGHM/Polska Miedz

Electrolytic Anode Electrolytic Anode Electrolytic Anode

195 195 95

485

Romania Baia Mare Zlatna

RBG Phoenix Zlatna

Electrolytic Anode Electrolytic Anode

45 40

85

Russia Kyshtym Monchegorsk Murmansk SX-EW Norlisk Refinery Novgorod

Russian Copper Co. Severonickel Norilsk Norilsk Russian Copper Co.

Electrolytic Electrolytic EW Electrolytic Electrolytic

3.4/page 18

Anode Matte Leach Matte Scrap

80 100 15 330 40

3 Copper

3.4 Appendix

Table 3.A.3 (cont.) Area

Refinery operator/ owners

Process

Pyshma Refinery Yuzhuralnikel

Uralelectromed Yuzhuralnikel

Electrolytic Anode Electrolytic Scrap

340 18

923

Kazakhstan Balkash Refinery Dzhezkazgan Refinery

Samsung Samsung

Electrolytic Anode Electrolytic Anode

185 250

435

Mongolia Erdenet

EMC

EW

2

2

Ukraine Artemov Pancomm

Tracko/Slavhandel Pancomm

FR Scrap Electrolytic Anode

35 30

65

Almalyk Mining and Metallurgical Complex

Electrolytic Anode

145

145

Baiyin Nonferous Metals Baotou Huading Copper Local Govt Local Govt Nanfeng Medicine Dongchun Tianjin Copper Plant Daye Non-Ferrous Local Govt Local Govt Jiangxi Copper Corp. Huludao Zinc Corp. Tongling/Sharpline

Electrolytic Electrolytic Electrolytic Electrolytic FR Electrolytic Electrolytic Electrolytic Electrolytic Electrolytic Electrolytic Electrolytic Electrolytic

Scrap Blister Anode Scrap Anode Anode Anode

80 20 40 10 20 10 34 150 35 30 400 80 100

Jinchuan Non Ferrous Tongling/Sharpline/ Sumitomo/Itochu Corp. Ningbo Jintian Copper Local Govt/Jiangxi Luolang Copper Local Govt Shanghai Dachang Shanghai Xinye Various Taichang Copper Local Govt Local Township Shenyang Construction/ Shenyang Smelter Jinpeng Non Ferrous Local Govt Yunnan Copper Ind.

Electrolytic Anode Electrolytic Anode

150 160

Electrolytic Electrolytic Electrolytic FR Electrolytic Electrolytic EW Electrolytic Electrolytic Electrolytic Electrolytic

Anode Blister Scrap Anode Leach Anode Blister Scrap Anode

60 18 50 20 65 60 58 35 45 10 100

Electrolytic Anode Electrolytic Anode Electrolytic Anode

100 10 250

Uzbekistan Almalyk Refinery

China Baiyin Baotou Changzhou Copper Chizhou Chongqing Dadong Datong Daye/Hubei Fuchunjiang Guangzhou Zhujiang Guixi Huludao Jinchang (Tongling 11) Jinchuan Jinlong (Tongdu) Jintian Kangxi (Liangshan) Luolang/Henan Meizhou Jinyan Shanghai Dachang Shanghai Xinye SX-EW plants Taichang Wuhu Wujin Xinxing Yantai Yubei Copper Yunnan

Principal Est. Total raw annual (’000 t) material capacity (’000 t)

Leach

Anode Anode Blister Anode Scrap

Scrap

3.4/page 19

3.4 Appendix

3 Copper

Table 3.A.3 (cont.) Area

Refinery operator/ owners

Process

Zhangjiagang Zhongtiaoshan (Houma) Zhongtiaoshan (Yanqu) Small plants

Tongling Non Ferrous Zhongtiaoshan Non Ferrous Metals Zhongtiaoshan Non Ferrous Metals Various

Electrolytic Scrap Electrolytic Anode

100 100

Electrolytic Anode

40

Electrolytic

North Korea Nampo Tanchon (Hungnam)

North Korean Govt North Korean Govt

Electrolytic Blister Electrolytic Anode

Total other countries Total world

3.4/page 20

Principal Est. Total raw annual (’000 t) material capacity (’000 t)

8

2 448

40 25

65 4 698 19 346

4

Lead

4.1 Resources and extraction 4.1.1 Resources and reserves 4.1.2 Mining and concentrating 4.1.3 Smelting 4.1.4 Refining 4.1.4.1 Pyrometallurgical 4.1.4.2 Electrolytic 4.1.5 Mine production 4.1.6 Secondary production 4.1.7 Refined production 4.2 Consumption 4.2.1 Overall trends 4.2.2 End-uses 4.2.2.1 Batteries 4.2.2.2 Pigments and chemicals 4.2.2.3 Gasoline additives 4.2.2.4 Rolled and extruded products 4.2.2.5 Cable sheathing 4.2.2.6 Other uses of lead 4.2.3 Regional trends in consumption 4.3 The market 4.3.1 Ores and concentrates 4.3.2 The pricing of lead metal 4.3.3 Lead metal supply and demand 4.3.4 Stocks of lead metal and prices 4.4 Appendix 4.A.1 The world’s lead mines in 2005 4.A.2 The world’s primary lead smelters in 2005 4.A.3 The world’s lead refineries in 2005

4

Lead

Lead is a darkish grey, soft and relatively heavy metal. It has an extremely low melting point of 327.3 °C, a boiling point of 1740 °C, and weak inter-atomic bonds. Any stresses applied to it at normal temperatures are relieved by permanent deformation of the metal. Its consequent malleability makes it an ideal building material. Lead’s high density (its specific gravity is 11.34 and it is placed in group 4 of the periodic table with an atomic number of 82) makes it particularly useful for sound insulation and radiation shielding. Lead is also very suitable in applications that call for resistance against corrosion, particularly in acidic and neutral atmospheres as well as sulphuric acid. When exposed to air lead reacts with the carbon dioxide present to form a layer of lead carbonate that is insoluble in the atmosphere. This strongly adherent barrier is extremely durable in all types of conditions. Lead’s mechanical properties can be improved by alloying it with small amounts of other metals to enhance creep resistance, tensile strength and resistance to fatigue. Alloys of lead and antimony produce a harder metal, but lead’s weight and softness are inappropriate for engineering applications. Lead is a toxic substance and can be a potential health hazard. Legislation governing mining, smelting, refining and uses of lead has become ever more prevalent on many continents. The legislation attempts to regulate the levels of lead in air, water and soil and its possible effects on humans. In consequence the use of lead has all but disappeared in a host of products, despite its attractive qualities. Lead was one of the first metals to be discovered and used by humans. Although much evidence of lead’s most familiar use in ancient times, lead piping, can be found in archaeological sites across the Roman Empire, findings also imply other uses and date much further back. One of the earliest known lead artefacts, a lead bobbin, was unearthed in Merv, Turkmenistan and is attributed to the fifth century BC. Lead specimen figures, associated with the ancient city of Abydos near Troy, also indicate an early use of lead, around the third century BC. There is evidence that lead was used as coinage by the Chinese about 2000 BC, and it is suggested that the Assyrians used lead sheet to retain soil moisture in the Hanging Gardens of Babylon. The Egyptians had some use for lead in pipes, but primarily used it to make solder and glaze pottery. It was the Romans who seriously 4/page 1

4 Lead

developed the use of lead piping, to carry or contain water, in elaborate viaduct and bath systems. Their practical experience in using lead gave the Romans an insight into its useful properties, which allowed them to form lead into tubes of various diameters and to use molten lead as a welding agent. The Romans referred to lead as ‘plumbum’, which denoted water conductors or spouts. The word plumbing and the chemical symbol of Pb obviously derive from Latin roots. Construction, where lead’s malleability and longevity are valuable attributes, has also played a major role in the evolution of lead. Lead was widely used as a building material in medieval times, and lead roofs were built in the fifteenth and sixteenth centuries, some of which are still standing. Other uses have also developed as civilisation advanced. In the fifteenth century Gutenberg used a lead/tin alloy to cast type for his printing press, and lead retained this use until superseded by computer-typesetting in the late twentieth century. Many of lead’s uses have a more recent origin. These included sheet for cable sheathing and oxides for paint and pigments. The growth of the automobile industry caused the greatest expansion of lead production, from the late nineteenth century onwards, both for lead-acid batteries and for gasoline additives. In the twenty-first century lead’s use in batteries remains important, with strong uptake expected in telecommunications for the provision of uninterruptible power supplies (UPS) for critical Internet applications such as online banking. The earliest records of lead mining date back to Phoenician times, around 2300 BC, when mines in Sardinia and Cyprus and the Rio Tinto deposits in Spain were developed. Lead and silver mines were also exploited in Laurium, Greece and in Britain. Mining then declined for centuries but revived during the Middle Ages at several European locations. Perhaps the oldest mine still in existence until the late 1980s was the Rammelsberg mine in Goslar, Germany, a deposit that had been mined for over 1000 years. In North America, the Aztecs mined lead in Mexico while in the US the Missouri belt lead deposits were established much later, in 1720.

4/page 2

4.1 Resources and extraction 4.1.1 Resources and reserves Lead constitutes around 0.002% of the earth’s crust. Its deposits have mainly been formed volcanically although it is also found in zinc deposits formed in marine sediments. As only the 34th most abundant element it lies, in rank, behind iron, copper and zinc. Its density in igneous rock ranges from 5 to 20 parts per million. The world’s identified resources of lead total more than 1500 million tonnes, but the vast majority are not economic. The estimated reserve base is 140 Mt, of which 67 Mt are regarded as presently economic reserves. Australia accounts for 22% of those reserves, China for 16%, the USA for 12%, Kazakhstan for 7%, Peru for 5% and Canada for 3%. The remaining 35% is spread across the rest of the world. Lead differs from many metals in that over half of the reserves are in developed countries. In addition to the world’s unmined reserves there is a large stock of previously mined lead still in use. A total of roughly 250 Mt of lead has been mined over the past 200 years, and much of that could be recycled for further use. The majority of lead ore deposits contain galena sulphide, which is associated with other sulphides such as sphalerite, pyrite, chalcopyrite and other sulfosalts. These sulphides or sulfosalts may be mined to recover or yield by-products or co-products, most frequently those of copper and zinc. Galena or lead sulphide is regarded as the essential commercial source of lead ore. Cerrusite or lead carbonate and anglesite or lead sulphate, and pyromorphite are also exploited at facilities such as the Zeida mine in Morocco, but these are less important sources. The carbonate and sulphate are regarded as weathered progressions or products of galena and are generally found nearer to the surface. Galena, in most cases, is resistant to weathering and is found in outcrops. Lead ore is largely found in five geological classifications of deposits: stratabound sedimentary, volcanic sedimentary, replacement, veins and contact metamorphic deposits. Stratabound deposits are considered to be the most productive sources of lead ore. They are largely found in limestones and dolomites, where they occur in reefs, in areas where there has been minor jointing, where breccias have collapsed and where there are changes in facies. These are known as sedimentary structural 4.1/page 1

4.1 Resources and extraction

4 Lead

features. Stratabound deposits are situated in such areas as the Upper Mississippi Valley district, south-east Missouri, the MissouriOklahoma-Kansas district, Pine Point in Canada, eastern Tennessee and the Laisvall deposits in Sweden. Some of the largest lead orebodies are found in volcanic sedimentary deposits. These are areas or belts that have experienced excessive metamorphosis. They contain large sulphide bodies that are interlayered by sedimentary or volcanic rocks. Pyrite, galena, sphalerite and chalcopyrite are normally found mixed in the ore. Also contained in the ore are smaller amounts of carbonate minerals. Volcanic sedimentary deposits are found in Bathurst, New Brunswick; the Sullivan mines in Kimberley, British Columbia; Kidd Creek in Ontario, Canada; Broken Hill and Mount Isa, Australia. The third major type of deposit is the replacement deposit. Deposits of lead are found in irregular hydrothermal deposits, and more often in carbonated rocks but also in metamorphic rocks or quartzite. The ore is localised in a structure of bodies called ‘mantos’, which are either tabular or cylindrical These bodies cross the bedding or are irregular branching bodies interlaying the bedding. Examples of such bodies exist in the Tintic district of Utah, the Eureka district in Nevada, the Leadville and Oilman districts in Colorado, Cerro de Pasco in Peru, the Silver Lead district in central Mexico and Tsumeb in Namibia. The most commonly known, and the first ore deposits to be mined, were veins. Veins are located in faults, joints or any number of formation contacts. Local concentrations of ore are found among a cocktail of barren, or gangue, minerals that have been formed into pod-shaped deposits, better known as ‘shoots’. These range in size from 1 to 10 m (3 to 30 feet) wide, up to 90 m (300 feet) horizontally, and their vertical length can go into hundreds of metres. Lead mining in ancient times was largely from such deposits in Europe, but deposits of this type now retain small commercial value. They are, however, a source of lead as a by-product from silver mines in Idaho, Africa, and Central and South America. Only a small percentage of North American deposits are of the vein variety. The last classification of deposit, contact metamorphic, is the least lead-rich. As with veins, the mining of such deposits is usually as a by-product of other, richer concentrations of elements. Contact metamorphic deposits are found near the geological formations of igneous intrusions. These intrusions are formed underground by cooling magma, which displaces the surrounding rock and, therefore, either creates the deposits or rearranges mineral-rich rocks so that the lead minerals within them are more concentrated. Deposits range in size from small veins to large pods. Examples of such deposits occur in Kamioka and Kuroko in Japan. 4.1/page 2

4 Lead

4.1 Resources and extraction

Although lead may make up a relatively small percentage of the earth’s crust the orebodies are generally concentrated into fairly rich deposits, which justify mining operations. Modern technology theoretically allows deposits containing 1% or more to be viable operations. Because of lead’s low prices relative to the costs of extraction and processing, however, most deposits with low lead concentrations are now only worked where there are economic concentrations of associated metals such as zinc, copper and silver. The only true lead operations, mined specifically for their lead content, are Broken Hill in Australia, the Missouri belt in the USA, the Black Mountain mine at Aggenys in South Africa and, most recently the Cannington mine, also in Australia. At these deposits the lead content outweighs that of zinc and copper in importance, although Cannington is rich in silver. Many of the other widespread mining operations exist solely as a by-product of zinc, copper, silver and fluorspar. One such example is the Hecla mine of Lucky Friday in the USA.

4.1.2 Mining and concentrating Lead and zinc are both mined by predominantly underground methods, a reflection of the nature of lead/zinc ores and the geological/geographical environments in which they are found. The depth and formations of nearly all lead and lead/zinc ore deposits normally preclude open-pit mining. Where ore outcrops near the surface, mining may initially be through open-pit methods. That may then give way to underground techniques as mining deepens and the ore becomes less accessible without the extensive removal of overburden. Most mines, however, start off as underground operations, and they remain so throughout their lives. About 85% of all mines producing lead ores are solely underground operations. They account for over three-quarters of the total milling capacity. A further 8% use a mixture of underground and open-pit methods, and these provide almost 12% of the global milling capacity. Typically, open-pit mines treat more ore than underground operations, and their average milling capacity tends to be higher. They may account for only 8% of the number of mines producing lead, but they have almost 14% of the milling capacity. Their higher throughputs do not necessarily make them any lower cost per tonne of metal than underground operations, although their costs per tonne of ore milled are usually much lower. In an open-pit mine the ore is exposed by blasting the overlying surface and then shattered by the use of more explosives. It is then scooped up mechanically to be transferred for concentration. Cominco’s Red Dog mine in Alaska, which is by far the most 4.1/page 3

4.1 Resources and extraction

4 Lead

significant lead-containing orebody developed in the 1990s, is a prime example of open-pit mining. The Kidd Creek mine in Ontario, Canada, is an example of an operation that has used a combination of open-pit and underground mining methods. Various systems are used to extract the ore in underground mining. The room and pillar system is used in the lead–zinc mines of Missouri where the flat or sloping orebody is accessed by vertical shafts and then excavated into chambers with pillars of waste rock left for support. The shrinkage system, or shrinkage stoping, refers to ore mined in flat or inclined cuts leading progressively upwards from a haulage level. Cut-and-fill and square set systems are usually only used in the high-grade silver–lead–zinc mines owing to the higher costs incurred using these methods. Over the past 25 and more years there has been strong pressure to reduce mine costs. Mechanisation has played an increasingly important role not only in increasing efficiency but also reducing labour requirements. Current practice at low-cost mines is to break up the ore on the mine face using self-propelled vehicles, jumbos, that apply percussion drills on the face of the rock. Following the drilling, load-haul-dump (LHD) vehicles haul the ore to shafts, using a combination of LHD units and sub-level tracks. Once the ore is brought to the surface or loaded from the open-pit mine it undergoes various processes prior to smelting. It is first crushed and ground using a combination of jaw and gyratory crushers. Rod mills are often used in the first step of grinding to ensure the galena is not over-ground. Bars, screens, classifiers and conveyors then sort the material into fine ore storage bins. Disseminated lead or lead–zinc ores are concentrated after being crushed and ground to produce feed of the right size, the texture of fine sand. Ball mills then further grind the ore using hydrocyclones to prepare the feed for flotation, regrinding and selective flotation. Lead–zinc– copper–silver–gold ores are normally passed through this process to produce around 75% of lead with small percentages of zinc content. The modern technique of flotation remains the major method used to recover lead and zinc concentrates. Most lead, zinc and copper mills have two or more stages of flotation cells. One commonly used method is differential flotation. A slurry of ground ore is poured into the flotation cells where air is blasted across the ore suspended in water containing pine oil and other chemical ore reagents. These reagents mark desired minerals in the slurry so that air bubbles selectively attach themselves and take them to the surface; meanwhile the wet rock sinks to the bottom of the tank. The froth at the surface is then skimmed off using filters so that the galena and any other minerals present can be separated. This process allows 4.1/page 4

4 Lead

4.1 Resources and extraction

the simultaneous production of concentrates of lead, zinc and copper.

4.1.3 Smelting Following the preparation of the ore, it is then smelted. The first smelting stage is removing the sulphur from the concentrate. This is normally done by roasting and sintering in a Dwight Lloyd sintering hearth to form sinter, a porous mass of lead oxide, metallic lead and oxides of other metals and silicates, a suitable feed for the blast furnace. This is achieved by placing moistened thin layers of concentrate, flux and returned sinter over the continuous grate of the sinter machine. It is then ignited from above. Once alight a thicker layer is spread on top, and air is forced up from below and through the grate to maintain the combustion. As the charge on the grate moves, the majority of the sulphur is converted to sulphur dioxide, which is then usually dispatched to an acid plant for conversion into sulphuric acid. The sintered or graded product is then smelted in conjunction with coke, fluxes and dross in a lead blast furnace to produce impure lead bullion, slag and fume. The graded sinter is fed into the top of the blast furnace while heated air is forced through the furnace from just above the hearth. As the charge passes down through the furnace the coke partially burns and releases carbon monoxide and carbon dioxide. The lead oxide in the sinter reacts with the carbon monoxide present and is reduced to molten metal, bullion, which collects below on the hearth. A layer of slag forms above, which is removed via tap holes. Zinc contained in the ore gathers in the slag while any copper, iron, cobalt or nickel present combines with the sulphur to form a matte, which is then tapped from the front of the furnace for further treatment. The lead bullion produced contains metallic impurities, which can be removed by further treatment in a drossing kettle. Here the bullion is kept just above its melting point and metallic impurities are drawn to the surface by agitating the molten metal. A scum, called dross, forms on the surface and can be skimmed off. If sulphur has been added to the melt then most copper still present will be removed at this stage, but other impurities such as gold and silver remain. The lead bullion may then be considered of pure enough quality to be used without any further refining. In order to achieve purer lead grades, however, refining is necessary. The impure lead bullion is cast into ingots or moved to kettles to be transferred to the refinery. The blast furnace method is the traditional method of smelting. This process has been modified by the development, and introduction, of the Imperial Smelting Process, or ISP. Although primarily 4.1/page 5

4.1 Resources and extraction

4 Lead

aimed at zinc smelting, the benefits for lead smelting lie in the fact that complex mixed lead and zinc ores do not have to be separated in the sintering or smelting stage. The ISP was first introduced in the late 1950s with major plants, established in the 1960s and early 1970s, implementing the process. Both conventional sintering with blast furnace smelting and the ISP method are shaft furnace processes. They account for around 90% of all lead processing. The ISP method sinters the bulk concentrates, which are reduced in the blast furnace in order to recover both lead and zinc simultaneously. It is a process more commonly used for zinc production, hence its proficiency and more common usage in smelting mixed lead–zinc ores where the two metals cannot be completely separated by froth flotation. Because the ISP is more costly than other methods of producing zinc several Imperial Smelting Furnaces have been shut down in recent years. The second major impact on the smelting process was the introduction of new systems that eliminate the sintering stage, enabling direct smelting of lead concentrates. Direct smelting units include Isasmelt, Outokumpu, Kivcet, QSL (Queneau-Schuhmann-Lurgi) and Kaldo (top-blown rotary converter). These five processes are all designed to perform the roasting, sintering and smelting in a single furnace and use either flash smelting, a bath or a combination of both. The processes were developed to reduce energy requirements and limit environmentally damaging emissions from the works. The potential to achieve those objectives was more feasible at the roasting and smelting than the refining stage. The first of the five to be commissioned was the Kaldo process developed by Boliden at its Ronnskar works, which has been in operation since 1976. It uses a combination of both flash and bath smelting. The Isasmelt bath smelter is currently installed at Xstrata’s Mount Isa site in Queensland, Australia, following the construction of a demonstration plant evaluated between 1983 and 1985. The Outokumpu lead flash smelting process is based on the company’s technology originally developed for smelting copper sulphide concentrates. Outokumpu tested the method at a pilot plant at Pori in Finland in 1981. The Kivcet process, a project developed at the Ust-Kamenogorsk Lead-Zinc Combine in Kazakhstan in association with Cominco, uses a continuous flash smelter. It is unique in that a large portion of zinc plant residues are treated in addition to lead concentrates and other lead-bearing metals, and was modelled on the feed required by Cominco’s Trail smelter. A pilot plant was tested at UstKamenogorsk and is now used there commercially, and a subsequent plant was built by Italy’s Nuova Samim (now Glencore) at Porto 4.1/page 6

4 Lead

4.1 Resources and extraction

Vesme. This KSS (Kivcet-Samim-Snaprogetti) plant has a capacity of 100 000 tpa and was fully operational until recently, but not without experiencing major problems in mid-1989. After evaluating the Kivcet technology in commercial practice Cominco eventually closed its conventional lead smelter at Trail in 1997 and started up the new Kivcet smelter. QSL technology too has had its difficulties, and continues to be plagued by problems. Between 1981 and 1986 a 40 000 tpa pilot plant was operated by Germany’s Berzelius Metallhuten GmbH. In 1989 Cominco commissioned a 160 000 tpa plant at its Trail operation in Canada, but it closed in March 1990 following mechanical and metallurgical problems. The plant was never reopened and the company subsequently decided to build a new smelter using Kivcet technology as detailed above.

4.1.4 Refining There are two major processes available for further refining: pyrometallurgical or electrolytic. The pyrometallurgical technique is a process that removes one or more elements at a time, whereas the electrolytic process removes these elements simultaneously. While refining can produce lead of a minimum purity of 99.97%, the majority of refiners produce 99.99% and some, such as the UK’s Britannia Refined Metals, produce 99.9999%.

4.1.4.1 Pyrometallurgical The pyrometallurgical process is the more widely used and starts with the removal of antimony, arsenic and tin by oxidation. This is called the softening process, which is carried out in a reverberatory furnace. Two other processes, which exist to remove impurities, are continuous softening and the Harris process. The softening process involves melting the lead and then forcing hot air through it to induce preferential oxidation or surface oxidation of the tin, arsenic and antimony present. These oxides are then skimmed off along with some lead oxide. The Harris process bases itself on an understanding of a number of metallurgical properties. These are lead’s high density, which ensures that molten lead will move downwards through most liquids, the preferential solubility of some metals in zinc rather than lead, and the different melting temperatures of lead and zinc. In the first stage of the Harris process, melted bullion is added to a molten flux of sodium hydroxide and sodium nitrate or other suitable oxidising agents and it sinks to the bottom of the kettle. To overcome this either a rotary stirrer is used to mix the bullion and flux 4.1/page 7

4.1 Resources and extraction

4 Lead

together continuously or the lead is repeatedly removed from the base of the pot and sprayed back on the top of the flux through which it will pass. After a couple of hours of mixing, oxidation occurs and the impurities separate from the lead to suspend in the alkali flux in the form of sodium antimonate, arsenate, stannate and zinc oxide. Silver and gold or bismuth, however, may still be contained in the softened lead. During the second stage, the temperature of the melt is then lowered below 419.5 °C, at which the zinc, which holds most of the gold and silver because of their greater solubility in zinc, solidifies into a crust and is removed. There are alternative processes used for desilvering – the Port Pirie and Parkes processes. The Port Pirie process is based around a cylindrical pipe. Molten lead is poured into the top of the cylinder and makes its way downward, returning up a concentric inner pipe. Zinc is fed into the stream of molten lead and the two metals mix. The temperature at the top of the outer cylinder is maintained at 650 °C while that at the base of the cylinder is kept at 318.2 °C, the freezing point of the lead/zinc mixture. As the stream of metal flows down the outer tube it cools, separating the zinc, which floats upwards, along with the silver and gold. With further additions of lead and zinc the hot zone becomes saturated with zinc. This molten zinc, which contains the silver and gold, being less dense, floats to the surface of the liquid lead, and is then removed leaving the lead in the inner tube free of the precious metals. After desilvering the molten lead still contains some zinc. There are three methods that can be used to remove the zinc: oxidation, preferential oxidation using gaseous chlorine in a reverbatory furnace, and vacuum distillation. The latter process is more commonly used. Lead is melted in a large kettle, under a vacuum maintained by a watercooled lid, and subsequently removed as the zinc distils from the lead and condenses onto the underside of the cold lid.

4.1.4.2 Electrolytic The pyrometallurgical processes do not remove one major impurity – bismuth – which is particularly prevalent in Canadian lead ores. The most efficient method used to remove bismuth has been the well-established electrolytic process called the Betts process. Huge anodes of bullion are placed in a cell consisting of an electrolyte of acid-lead fluorosilicate and thin cathode starter sheets of high-purity lead. When a current is passed through the electrolyte lead is deposited on the cathodes while the impurities chemically bond with the electrolytic solution. The lead deposits, however, still contain tin and a small amount of antimony, which are removed 4.1/page 8

4 Lead

4.1 Resources and extraction

either by oxidation or selective oxidation. In the 1950s an alternative to the Betts process was introduced, using a sulphamate electrolyte, which proved superior to that used in the Betts because of its simpler preparation. Cominco’s Trail, Glencore’s San Gavino and Doe Run’s La Oroya are examples of significant plants that use electrolytic refining.

4.1.5 Mine production With a few exceptions, as in the Missouri lead belt, most lead is mined in association with zinc. Its economics are closely intertwined with those of zinc, and of silver, its other main co-product. Global production peaked in 1973 at almost 3.7 Mt, with output of 2.65 Mt in the Western world. The subsequent decline reflects both the decreasing attractiveness of lead relative to zinc, a strong growth in recycling and secondary production, and the collapse of the former USSR. The trough was reached in 1993 at a global output of almost 2.7 Mt. Subsequently the opening of some lead-rich mines led to a recovery to over 3 Mt in 1999–2000. Output fell back in the 2001–02 recession, but revived to almost 3.1 Mt in 2003–04. In the Western world output fell to just below 2 Mt in both 1994 and 1995, and climbed to almost 2.3 Mt in 1999. It has since dropped back to just under 2 Mt. Figure 4.1 plots annual output for the world, and for the Western world, for the period from 1960 to 2004.

4000

World 3500

3000

’000 t

2500

Western world

2000

1500

1000

500

0 1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

4.1 Lead mine production, 1960–2004 (source: ILZSG). 4.1/page 9

4.1 Resources and extraction

4 Lead

The 27% fall in mine output between 1973 and 1993 inevitably involved some significant changes in the geographical location of production. Not all countries, or even mines within the same country, were equally affected. Table 4.1 shows the full distribution of mine output for every third year from 1976 to 2003. Over thirty countries on every continent are involved in mining lead. Since 1980 there has been a significant reduction in the number of producing countries and an increase in concentration. In response to poor market conditions mines nearing exhaustion closed down, and high-cost operations left the market. Exploration and mine development have been focused on deposits that contain high values of zinc and other metals, rather than lead. Because of low prices relative to costs it has generally been more economic to expand mining facilities then to invest in greenfield operations. The ‘winners’, therefore, have been those that benefited from economies of scale. Table 4.2 shows the changing shares of the top ten producing countries over the period since 1977. They accounted for 90% of total global production in 2003, a significant rise from the 76% of 1977. The rankings of the leading countries have changed considerably over the period. The share of the top three countries has risen from 44% in 1977, when the USSR was the world leader in mine production, to 67% in 2003. The USSR has, of course, dropped out of the ranking as the economic and social problems since the Communist regime ended continue to affect both the Russian Federation and CIS countries. Kazakhstan is the most significant producer, but its output fell from 144 000 tons in 1979 to 44 000 tons in 2003. China ranked seventh in 1977 (4.1%), but has since moved onward and upward to third place in 1990 and to the leading position in 2003 with 959 000 tonnes (31%) of total global output. Its production reportedly peaked in 1997, but then fell back substantially before jumping in 2003. Some confusion continues to surround the accuracy of official figures as the economics of mining are significantly different in China from in the West. Two causes of uncertainty are the scale of mining and the low barriers to entry in China. There are many small mines beside the larger enterprises, so the possibility of under-reporting the national total is high. Also producers enter and leave the industry much more easily than in the West if the opportunity cost is not favourable. The labour force quickly switches between mining and other occupations, such as farming, if relative prices are encouraging. The Chinese government is addressing these problems by restructuring industry in a more organised fashion, and by attempting to improve the health and safety standards and environmental performance of small mines. 4.1/page 10

4 Lead

4.1 Resources and extraction

Table 4.1 World lead mine production 1976–2003 (’000 t) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Europe Austria Bosnia Bulgaria Czechoslovakia Denmark Finland France Germany Greece Hungary Ireland Italy Macedonia Norway Poland Portugal Romania Russian Federationa Spain Sweden UK Yugoslaviab Yugoslavia FR Total Europe

5 – 110 5 27 1 28 38 28 1 32 32 – 4 72 – 36 600

5 – 108 3 32 1 30 33 22 1 69 28 – 3 57 – 34 590

4 – 95 3 27 2 6 30 19 1 39 16 – 4 45 – 27 575

6 – 97 3 18 2 3 26 20 – 35 16 – 4 51 – 34 580

2 – 60 3 24 2 2 18 26 – 33 16 – 3 50 – 36 270

1 – 41 – – 1 2 7 32 – 40 14 – 4 47 0 16 42

– – 32 – – – – – 20 – 54 14 29 3 55 – 24 25

– 2 32 – – 2 – – 19 – 45 12 28 2 55 – 17 16

– – 14 – – 0 – – 16 – 57 3 24 – 51 – 19 14

– – 17 – – – – – 2 – 50 5 5 – 42 – 16 24

67 82 7 123 –

75 84 5 130 –

73 80 4 113 –

87 76 4 115 –

74 85 1 88 –

50 87 1 74 –

24 113 2 – 3

23 109 2 – 14

51 107 – – 4

2 51 – – –

1298 1310 1163 1177

793

459

398

378

360

216

Africa Algeria Congo Kenya Morocco Namibia South Africa Tunisia Zambia

2 0 – 67 0 46 11 15

4 4 – 111 0 42 9 17

5 4 – 105 0 125 5 24

4 1 – 107 0 123 3 22

2 – 1 69 27 90 2 14

1 – 1 71 21 76 1 10

1 – – 70 21 96 3 0

1 – – 77 18 83 1 –

1 – – 82 12 75 7 –

0 – – 41 16 40 6 –

Total Africa

141

187

268

260

205

181

191

180

178

102

Americas Argentina Bolivia Brazil Canada Chile Guatemala Honduras Mexico Nicaragua Peru USA

33 19 23 243 2 – 21 161 1 171 573

32 16 28 342 0 0 16 161 0 184 543

33 12 19 341 2 0 15 168 – 176 528

29 6 17 285 3 – 21 203 – 216 424

29 12 14 367 1 – 11 171 – 161 394

24 21 7 276 1 – 9 165 – 218 477

10 20 1 171 1 – 3 170 – 233 370

13 19 9 186 0 – 6 174 – 258 459

14 10 8 149 1 – 5 138 – 271 458

12 10 11 81 0 – 9 142 – 308 458

4.1/page 11

4.1 Resources and extraction

4 Lead

Table 4.1 (cont.) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003

Total Americas 1247 1322 1294 1204 1160 1198

979 1124 1053 1031

Asia China India Iran Japan Kazakhstan Korea, North Korea, South Myanmar Philippines Thailand Turkey Uzbekistan Other CIS

140 13 40 52 – 110 15 8 7 1 10 – –

155 14 15 47 – 100 12 7 3 9 7 – –

171 13 16 46 – 90 12 9 0 27 11 – –

231 26 21 50 – 80 10 10 – 29 9 – –

312 23 17 23 – 90 15 6 – 29 10 – –

352 25 17 18 144 12 3 – 17 12 – –

462 30 18 10 38 55 2 2 – 7 10 19 1

712 33 19 5 29 35 3 2 – 6 10 2 2

660 36 17 9 39 12 3 1 – 11 16 – 1

Total Asia

396

369

395

466

525

600

654

858

805 1100

Oceania Australia

381

402

438

474

457

579

486

486

650

648

Total Oceania

381

402

438

474

457

579

486

486

650

648

World total of which: Western world

955 44 16 6 44 20 – 2 – 14 – 0

3463 3590 3558 3581 3140 3017 2708 3026 3046 3097 2395 2546 2555 2508 2322 2375 1997 2126 2236 1978

a

Prior to 1991 data refer to USSR. Former Federal Republic of Yugoslavia. Source: ILZSG. b

Australia has continued to develop its mining resources over this period, expanding from 414 000 tonnes in 1977, which represented 11% of total world production and placed Australia third in the world ranking, to become the dominant country at the end of the 1980s. It remained in the lead until overtaken by China in 2003. It then produced 648 000 tonnes, or just over one-fifth of the global total. The Cannington lead–silver mine, which opened in late 1997, accounts for over one-third of Australian output. Several Australian mines suffered from weak prices and a strong currency in the early 2000s, often accentuated by inappropriate hedging policies, and they were forced to reduce or temporarily suspend production. Hellyer closed in 2000 and Cadjebut in 2001. The Pillara mine increased production in 2001–02, but was suspended in 2003 when its operator went bankrupt. The new owners, Teck-Cominco, have 4.1/page 12

4 Lead

4.1 Resources and extraction

Table 4.2 Top ten principal lead mine producing countries, 1977, 1990 and 2003 1977 ’000 t USSR USA Australia Canada Peru Mexico China Yugoslavia Bulgaria Morocco Others Total

625 550 414 328 181 160 150 130 110 105 885 3638

% 17.2 15.1 11.4 9.0 5.0 4.4 4.1 3.6 3.0 2.9 24.3 100

1990 ’000 t Australia USA China Canada USSR Peru Mexico Yugoslavia Sweden S Africa Others Total

556 497 364 241 240 210 180 111 85 69 634 3187

2003 ’000 t

% 17.4 15.6 11.4 7.6 7.5 6.6 5.6 3.5 2.7 2.2 19.9 100

China Australia USA Peru Mexico Canada Morocco Sweden Ireland India Others Total

959 648 458 308 142 81 54 51 50 47 299 3097

% 31.0 20.9 14.8 9.9 4.6 2.6 1.7 1.6 1.6 1.5 9.7 100

Source: ILZSG.

not yet reopened it. The Broken Hill operations of the former Pasminco were sold to Perilya, and their output has dropped with the gradual exhaustion of the remaining ore. The aptly named Century opened in 2000 but operates below its design capacity. The USA maintained a high position throughout the whole period, first against the USSR and then from 1988 onwards versus Australia, and then China. Production in 2003, at 458 000 tonnes, is now below the 1977 level, although it represents a similar 15% share of the global total. Output fell during the 1980s as a number of operations closed, but began to recover with the opening of Cominco’s huge Red Dog mine in 1989, and during the 1990s with expansions in capacity at Doe Run and Red Dog. Doe Run’s output has fallen slightly since 2001, and the production of the relatively small Lucky Friday mine has halved. Canadian mine output totalled 342 000 tonnes in 1979, but fell sharply over the next twenty years to 161 000 tonnes in 1999 and then to 81 000 tonnes in 2003. The Pine Point mine closed in the 1980s. Output fell steeply in 1993 owing to the prolonged closure of the Faro and Sa Dena Hes mines, previously owned by Curragh Resources, combined with cutbacks by both Noranda and TeckCominco in the face of depressed market conditions. The situation improved temporarily in 1995/96, following the restart of the Faro mine, under new management, although the operation was subsequently closed again temporarily, and then permanently, as a result of continued low prices. Future production in Canada appears limited as mines approach the end of their lives. Heath Steele closed in 1999, Sullivan in 2001 and Polaris in 2002, leaving the Brunswick 4.1/page 13

4.1 Resources and extraction

4 Lead

mine as the only significant producer. Even that has a life expectancy of under a decade. Peru and Mexico have maintained their high ranking as producers throughout. In 2003 Peru produced 308 000 tonnes (9.9%), and Mexico 142 000 tonnes (4.6%). In both countries lead is often associated with rich zinc and silver values. Peru’s largest mine is Cerro de Pasco, followed by Atacocha, and Mexico’s largest producer is Naica. In both countries production is spread across many more mines than in any other country, except perhaps China. Mine production in Europe has fallen significantly since 1979, down 1 094 000 tons or 84%. This reflects the collapse of the USSR, and also the decline in mining in Bulgaria, Spain and Former Yugoslavia. Lead production has ceased completely in Austria, the Czech Republic, Slovakia, Denmark, Finland, France, Germany and Hungary. The only positive developments were an increase in mine production during the 1990s in Sweden at the Ammeberg and Laisvall mines, and the opening of the Galmoy and Lisheen mines in Ireland. These developments were mainly driven by zinc. Sweden’s output halved between 2000 and 2003 with the exhaustion of Laisvall, and Spanish production was hit by the closure of Los Frailes and Aguas Tenidas in 2001. The world’s 15 largest lead mines are listed in Table 4.3 with their production capabilities. Cannington is easily the biggest producer. The three largest mines account for roughly 17% of world

Table 4.3 Major lead mines Country

Company

Mine

Production capability (’000 t)

Australia Australia USA USA USA Australia Canada Australia Mexico Peru China Peru South Africa Ireland Sweden

BHP Billiton Xstrata Cominco Alaska Inc. Doe Run Inc. Doe Run Inc. Zinifex Brunswick Mining Perilya Peñoles Volcan State Atacocha Anglo American Boliden Lundin

Cannington Mount Isa/George Fisher Red Dog Mine Buick Mine Viburnum Century No. 12 Mine, Bathurst Broken Hill Naica Cerro de Pasco Fankou Atacocha Aggeneys Tara Zinkgruvan

270 135 120 110 90 80 78 60 46 45 40 39 38 36 32

Source: Raw Materials Group.

4.1/page 14

4 Lead

4.1 Resources and extraction

capacity, and the top ten, with just over 1 million tonnes, for about one-third.

4.1.6 Secondary production The decline of mine output has been offset by the growth of secondary production as a source of refined lead. The structure of the lead industry has changed radically in recent decades as dictated by resources of lead ore and more importantly the inception of legislation governing lead’s production and usage. Primary production, that is, taking lead from the mine and processing it into metal, was the major source of the material for centuries. By 1989, however, secondary production or the remelting of ‘scrap’ lead in whatever form, overtook primary production levels in the Western world. The output of secondary lead in 2004 stood at nearly 69% of the total refined lead produced in the Western world, and at about 52% worldwide. In the USA it accounted for 89% of the output of refined lead. This switch in production emphasises the impact of environmental concerns regarding the conservation of mineral resources and energy, stringent control of primary smelters’ emissions, and changes in the patterns of lead’s end-use. The major sources of scrap, that is, the feed for the production of secondary refined lead metal, are battery plates, drosses, flues, dusts and industrial scrap. Scrap is divided into two forms – new or process scrap, or ‘old’ scrap. New scrap refers to material that remains as a result of forming semi-fabricated or finished products while old scrap refers to material that has come to the end of its useful life in that form, such as a battery. The majority of lead scrap is derived from old batteries, and it is this sector, apart from lead ores and concentrates, that is the second most important source for lead production. Batteries generally have a recycling time of three to five years, and technological developments have improved recovery rates. In the USA there has been significant integration between battery producers and recyclers, so that batteries are a tied source of raw material and account for most of the feed for secondary smelters. Some 97% of the available lead scrap from batteries is recycled in the USA. In Europe, many countries have recycling schemes in place to encourage the return of spent batteries to the recycling industry. The UK is perhaps the most notable exception where industry does not have active government support. It does, however, have a more active scrap market traditionally accustomed to collecting lead sheet and pipe from the construction industry.

4.1/page 15

4.1 Resources and extraction

4 Lead

Table 4.4 Recovery of secondary lead in the Western world in 2004 (’000 t) Europe Africa Americas Asia Oceania Total refined Remelted Total recovery

961 76 1444 593 49 3123 c. 400 c. 3523

Source: ILZSG.

The processing of batteries can be carried out in a number of ways, once they have been drained of acid, broken and sorted. The most common method is melting in blast furnaces, reverberatory furnaces or rotary furnaces, and refining is also increasingly carried out in the electric furnace. The once rigid distinction between primary and secondary smelting and refining has become blurred or even nonexistent in recent years. Shortages of suitable lead concentrates have forced smelters to adapt to the use of secondary materials. Those recently built or remodelled are usually able to cope with both primary and secondary materials. Table 4.4 summarises the available data on the recovery of secondary lead in 2004. It includes the recovery of secondary materials by remelting without further processing as well as the output of refined lead from secondary sources. Figure 4.2 demonstrates the growth of secondary lead production in the Western world since 1979, both in volume and as a share of the total output of refined lead. The rate of growth of production of secondary lead slowed down rather unexpectedly from the late 1990s. That was probably because of the low lead prices ruling until 2003–04. Figure 4.2 shows that production has risen erratically. The availability of scrap as a source of smelter feed, although often secured in many countries that provide national recycling schemes for spent batteries, is governed by price and the level of activity. There is a well-established replacement cycle for automotive batteries that causes the availability of battery scrap to fluctuate. Merchants tend to hoard material during periods of low prices, deferring delivery until market conditions are favourable. Also environmental pressures are now having an impact on the recycling industry as well as on primary production. The USA is the principal producer of secondary lead, accounting for 36% of the Western total of secondary refined production in 2003. Poor market conditions resulted in temporary cutbacks there in early 1993, but output began to pick up again in the latter part of 4.1/page 16

4 Lead

4.1 Resources and extraction

3500

75

3000

70 Output (left-hand scale)

65

2500

’000 t

55 1500 50

Share of refined total (right-hand scale)

1000

Percentages

60 2000

45 500

40

0

35 1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

4.2 Secondary lead production, 1979–2004 (source: ILZSG).

the decade and has averaged over 1.1 Mt since 2000. It would have risen further but for Chinese competition for spent batteries. Canadian producers were also forced to implement cutbacks in 1993, and losses there and in Mexico were largely responsible for the overall shortfall in Western secondary production in 1993. Production grew significantly in the late 1990s in both these countries, and particularly in Mexico where many secondary operations were commissioned. Canadian output has fallen back since 1998, with Chinese competition for feed-stocks again partly responsible. European output reached 1.06 Mt in 2000, but it has eased to 0.96 Mt in 2004, or 31% of the Western world total. Apart from a surge resulting from smelter developments at Nordenham in Germany, few countries showed any variation from their set patterns during the late 1990s. More recently output has fallen in Belgium, France and the UK as a result of smelter cutbacks. China is now the most significant producer of secondary lead in Asia, with production of 0.31 Mt in 2004, substantially up on the 63 000 tonnes of 2000. Production had dropped substantially in the late 1990s, halving between 1997 and 2000, largely because of a lack of availability of scrap material owing to an extremely low domestic automotive density. The increases of the present decade have been largely based on the import of spent batteries for recycling. Chinese smelters are less affected by environmental regulations than many elsewhere. Japan is the second most significant recycling country in Asia. Its output tripled since 1976 from 61 000 tonnes to 182 000 tonnes in 2000, and reached 189 000 tonnes in 2004. The 4.1/page 17

4.1 Resources and extraction

4 Lead

growth was partially fuelled by a 56 000 tonne boost to capacity during the second half of the 1990s, when two of Japan’s primary smelters, Hosokura and Kamioka, were converted to process secondary feed. Output in Indonesia, South Korea and Malaysia fell during the ‘Asian crisis’ but, Indonesia aside, this fall was soon reversed.

4.1.7 Refined production With the growth in secondary recovery the trend of the total production of refined lead has not just reflected that of mine output. Fifty-six countries, spread across all continents, produce refined lead metal, in some cases solely from secondary sources. Table 4.5 shows how the world’s output has changed by country since 1976. It gives data for the same years as the earlier table on lead mine production. Setting these figures in a longer time scale, Fig. 4.3 depicts the trends since 1960 in global and Western world output of refined lead. The contrast with the trend in mine output is marked. Global production reached almost 6.8 Mt in 2004. The cyclical fluctuations in Western world output up to 2000 mainly reflect changes in demand, which are discussed in section 4.2. The 2001–02 recession also reacted adversely on production, but this economic pressure was accentuated by environmental regulations and growing competition from China for raw materials. Between 1960 and 2004 global output grew at an annual average rate of some 1.7% pa, but growth was much faster in the 1960s than in the subsequent decades. During the 1980s global output was restrained by the collapse of the Former Soviet Union, but the rate of growth picked up in the second half of the 1990s. From 1990 onwards the global total increased at an annual average 1.6% pa. The output of the Western world peaked in 2000, but subsequently dropped back close to its 1990 level. Behind the totals and their geographical split the most significant features of the past thirty years have been the growing importance of China and the continuing consolidation of producers in reaction to economic and environmental pressures. China’s output doubled between 1994 and 1999, and doubled again between 1999 and 2004, when it exceeded 1.8 Mt, or 27% of global output. Roughly onequarter of its output is based on imported lead ores and concentrates, and a further 17% on secondary materials, some of which are also imported. China’s production presently exceeds its domestic requirements, and nearly one-quarter of production was exported in 2004. Based on its known expansion plans China’s output will soon exceed 2 Mt, always provided there are adequate raw materials available. Several Chinese companies each produce over 0.2 Mt 4.1/page 18

4 Lead

4.1 Resources and extraction

Table 4.5 World refined lead production (’000 t) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Europe Austria Belgium Bulgaria Czechoslovakia Czech Republic Denmark Finland France Germany, DR Germanya Greece Hungary Ireland Italy Macedonia Netherlands Norway Poland Portugal Romania Russian Federationb Slovenia Spain Sweden Switzerland Ukraine UK Yugoslaviac Yugoslavia FR Total Europe Africa Algeria Kenya Morocco Namibia Nigeria South Africad Tunisia Zambia Zimbabwe

16 106 112 19 – 15 5 195 32 337 19 3 5 118 – 32 1 81 3 43 700

17 92 120 19 – 30 6 220 39 373 22 0 7 126 – 36 0 84 4 41 780

22 94 118 21 – 18 4 209 41 351 3 0 10 134 – 33 0 79 4 46 670

26 105 98 21 – 1 5 224 45 356 14 – 9 140 – 37 – 87 7 43 500

22 105 101 26 – – – 256 55 345 15 – 12 168 – 40 – 91 7 43 478

20 99 56 18 – – – 283 – 363 4 – 12 208 – 34 – 51 4 17 34

16 124 62 – 25 – – 261 – 332 4 – 10 223 21 25 – 61 13 21 34

22 111 73 – 22 – – 283 – 329 6 – 12 212 26 19 – 65 6 18 52

23 119 84 – 28 – – 262 – 387 5 – 9 234 23 21 – 56 4 24 32

18 65 69 – 26 – – 101 ... 357 4 – 9 214 4 17 – 60 4 28 66

– 102 33 5 – 342 111 –

– 129 41 5 – 368 111 –

– 133 50 3 – 306 103 –

– 168 70 2 – 327 123 –

– 122 85 2 – 374 131 –

8 112 88 5 60 352 – 62

15 75 83 6 9 395 – 4

15 90 86 10 11 399 – 24

14 120 78 10 15 338 – 1

14 102 76 8 7 320 – 0

2435 2670 2452 2408 2478 1890 1819 1891 1884 1569 4 – 25 – – 62 24 14 1

5 – 37 – 1 72 17 13 1

5 0 59 – 2 71 15 15 2

4 2 64 – 1 75 4 10 2

4 2 71 44 1 37 – 8 3

2 2 73 33 5 32 – 4 3

6 2 64 24 4 32 – 0 3

8 1 64 2 5 43 – 0 2

6 1 67 – 4 46 – 1 0

6 1 61 – 3 65 – 1 0

Total Africa

130

146

169

162

170

154

135

125

125

138

Americas Argentina Bolivia Brazil Canada Colombia Mexico

68 – 69 226 3 170

53 – 98 252 3 208

31 – 48 239 3 153

29 – 73 240 4 203

29 0 98 268 5 179

25 0 64 212 5 236

25 1 55 252 7 220

32 1 53 271 10 259

36 – 50 284 10 241

41 – 35 223 9 240

4.1/page 19

4.1 Resources and extraction

4 Lead

Table 4.5 (cont.) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Peru Trinidad USA Venezuela

77 90 81 83 54 75 89 98 116 112 2 2 1 1 – 2 2 1 – – 1107 1226 1032 1054 1091 1195 1249 1417 1457 1392 8 10 15 20 13 15 18 25 21 20

Total Americas 1730 1942 1603 1707 1737 1829 1918 2167 2216 2073 Asia China India Indonesia Iran Israel Japan Kazakhstan Korea (North) Korea (South) Malaysia Myanmar Pakistan Philippines Saudi Arabia Sri Lanka Taiwan Thailand Turkey UAE

140 15 1 1 – 281 – 70 8 4 3 2 4 – 1 8 2 3 2

170 21 2 6 – 283 – 70 13 3 6 1 4 – 1 20 2 6 2

202 23 5 0 – 303 – 65 15 3 8 2 6 – 2 35 1 13 2

223 24 7 7 – 367 – 65 36 10 9 2 7 – 1 49 8 12 2

241 32 7 10 – 340 – 70 90 15 4 2 7 – 1 67 16 11 1

Total Asia

545

610

685

829

914 1243 1330 1590 2163 2624

Oceania Australia New Zealand

212 5

248 9

247 6

216 4

204 5

232 5

235 6

229 12

259 11

307 8

Total Oceania

217

257

253

220

209

237

241

241

270

315

World total of which: Western countries

305 48 30 8 5 332 300 65 59 20 3 3 17 – 1 17 16 9 5

468 60 30 28 11 292 145 50 130 33 1 3 17 – 1 36 17 4 4

708 1100 1564 60 67 71 30 18 18 34 42 48 12 13 25 297 312 295 82 208 141 30 10 7 182 220 230 36 32 57 2 2 2 3 3 2 25 25 27 17 18 25 1 1 1 40 55 56 20 27 47 9 8 6 2 2 2

5057 5625 5162 5326 5508 5353 5443 6014 6658 6718 3857 4302 3920 4334 4513 4440 4610 4953 5102 4751

a

Data prior to 1991 refer to Germany, FR. Prior to 1991 data refer to USSR. c Former Federal Republic of Yugoslavia. d Prior to 1988 data include Namibia. Source: ILZSG. b

of lead per annum. These include Yuguang Gold & Lead, Juguan Gold, the Chunxing Group and Yubli. China’s expansion has pushed the USA into second place as a producer. US production has fluctuated over the past thirty years, 4.1/page 20

4 Lead

4.1 Resources and extraction

6500

World

’000 t

5500

4500

Western world 3500

2500 1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

4.3 Production of refined lead, 1960–2004 (source: ILZSG).

falling to just over 1 Mt during the 1980s but showing strong growth throughout the 1990s. It accounted for 23% of global output in 1999, when its production approached 1.45 Mt, but its share dropped back to 19% in 2004, when its output had dropped below 1.3 Mt. The recent decline partly reflects tightening environmental standards and a general mistrust of lead. The trend is towards the closure of primary facilities and increased secondary refining. Asarco closed its Omaha refinery in mid-1996 for environmental reasons. Doe Run purchased its Glover refinery in 1998, and operated it until the end of 2003, when its production was suspended, ostensibly because of weak US demand. Doe Run has partly offset the suspension by a modest increase in the output of its Herculaneum refinery, but primary production amounted to only 140 000 tonnes in 2004, and exports of lead concentrates have risen. The world’s three largest producers of refined lead are based in the USA, but with large overseas interests. The Quexco Group (RSR and Eco-Bat) made several acquisitions during the 1990s, the most notable of which was the nationalised Italian producer ENIRISORSE. Quexco specialises in recycling but also has downstream interests. Its global lead refining capacity exceeds 0.8 Mt. Exide, the second largest producer, with around 0.6 Mt secondary refining capacity, is principally a battery-producing company. It purchased GNB, the US top producer of industrial batteries, which also has recycling interests, in 2000. Exide was severely overstretched in the 2001 recession, when it disposed of a French secondary refinery to Eco-Bat. It went into 4.1/page 21

4.1 Resources and extraction

4 Lead

Chapter 11 bankruptcy administration, only emerging in 2004. Doe Run, the third largest producer, produces mainly primary material and is vertically integrated, owning lead mines in Missouri and Peru in addition to US and Peruvian smelters. European production has fallen considerably from the 2.9 Mt attained in the late 1980s. It amounted to only 1.54 Mt in 2004. Much of the decline reflects the collapse of production in the Former Soviet Union and Eastern Europe (mainly Poland and Bulgaria), but output has also dropped in Western Europe. A fall in Spanish production was largely responsible for the decline in 1992 following the closure of the Cartagena operation, while output in the Former Yugoslavia also suffered as a result of the turmoil there. In 1993 a tightening concentrate market, and depressed prices, led to a number of producers implementing production cutbacks, including Nuova Samin (now Eco-Bat), Metaleurop and Boliden. In 1995/96 output recorded a further decline, and it remained flat in 1996 as a result of the temporary closure of Metaleurop’s Nordenham operation. The latter’s recovery from its earlier technical problems was an important contributor to improved production levels in 1997. The 2001–02 recession prompted a further round of closures and cutbacks. In the UK some small secondary plants shut, including Wakefield in early 2003. Closure of the Avonmouth ISF also reduced the bullion supply to the Northfleet refinery, and UK output fell by 36% between 2001 and 2004. Metaleurop’s Noyelles-Godault smelterrefinery closed in 2003, leading to a halving of French output. In 2004 it was running at only 36% of its 1997 rate. There has also been a marked reduction in Belgium, with the withdrawal of Umicore from base metal production. In Italy Glencore’s Porto Vesme plant temporarily halted production in October 2003, but it resumed operations in July 2004. The other main producers are Canada, Japan, Australia, Mexico and South Korea. Canada’s production dipped in 2001 when TeckCominco temporarily suspended smelting at Trail, British Columbia, in order to sell electricity to the US. Noranda reduced the nameplate capacity of its Belledune, New Brunswick smelter in mid-2003, reflecting the lower output of its Brunswick mine. Japanese output held reasonably steady at around 330 000 tpa during the late 1980s/early 1990s, but fell during the mid-1990s as cutbacks were made in response to poor market conditions. Further losses were seen in 1994 following the closure of two plants, but annual production then stabilised around the lower level of about 0.3 Mt. In Australia Zinifex (formerly Pasminco) has announced that its Cockle Creek ISF, which produces about 30 000 tonnes of lead, will close some time after 2006. Mexican production levels have consistently been hampered by technical problems but environmental consider4.1/page 22

4 Lead

4.1 Resources and extraction

ations, coupled with feed shortages, added to the burden in 1993, resulting eventually in the permanent closure of IMMSA’s Monterrey refinery. Furthermore, the company’s Chihuahua smelter was also closed in early 1994. Penoles also had to curtail production during 1999 but its Torreon plant has returned to full capacity working. In South Korea capacity has steadily increased at both Korea Zinc’s Onsan plant and at a number of secondary operations since the early 1990s. Production reached 243 000 tonnes in 2002, but dropped back to 223 000 tonnes in 2004. That is a sharp contrast with output of 8000 tonnes in 1976. Production in Kazakhstan fell sharply from around 0.3 Mt in the early 1980s to well under 0.1 Mt in the late 1990s, but it bounced back to 208 000 tonnes in 2000. It dropped back during the subsequent recession, but partially recovered in 2004.

4.1/page 23

4.2 Consumption 4.2.1 Overall trends The usage of lead and its consumption have changed radically over the last century, and even more so in the last two decades. The very properties of the metal, its malleability and corrosion resistance, shaped its usage in earlier, non-technological times. Lead’s uses, and the size of its demand, were then revolutionised over the past century by the development of the automotive industry and its need for batteries. More recently demand has been dominated by concerns about lead’s toxicity and changing regulations on its production, trade and use. Global demand for refined lead metal reached 6.5 Mt in 2000 and almost 7 Mt in 2004. That is well over double the level of the early 1960s. Figure 4.4 shows how consumption has changed over that period of 44 years, both in the world as a whole and in Western countries. Total demand rose erratically, but with hardly any overall increase for fifteen years between 1979 and the mid-1990s, except for cyclical changes. It has risen strongly since 1995, although Western countries suffered a reversal after 2000. The clear break in trend in 1989–90 arose partly because of the collapse of the Former Soviet Union and its Central European satellites, but also because of changing end uses in Western countries. Lead demand has been contracting into core uses, as the next section will demonstrate. Table 4.6 shows how rates of growth have varied over the period, both for the entire world and for Western countries. Even with the accelerating growth of recent years the demand for lead has risen more slowly than for most other non-ferrous metals, and certainly more slowly than the demand for zinc, its main co-product. During the past ten years global demand grew more rapidly than demand in Western countries, reversing the pattern of the two preceding decades.

4.2.2 End-uses The applications of lead can be divided into two main classifications – metallic or alloyed and chemical. In its metallic applications it can be used on its own or alloyed with other elements. Developments in refined lead consumption have become increasingly linked with the automobile industry, and in particular with the 4.2/page 1

4.2 Consumption

4 Lead

7000 6500 6000 World

5500

’000 t

5000 4500 4000 Western world 3500 3000 2500 2000 1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

4.4 Consumption of refined lead, 1960–2004 (source: ILZSG).

Table 4.6 Rates of growth of consumption of refined lead, 1960–2004 (% pa annual average rates)

1960s 1970s 1980s 1990s 1994–2004 1960–2004

Western world

Total world

3.7 1.4 1.3 2.0 0.8 1.8

3.9 1.4 0.6 1.5 2.4 1.9

Source: ILZSG.

use of lead-acid batteries. Whereas demand in other uses has declined or shown negligible growth since the late 1970s, demand for lead in batteries has steadily expanded. The development of the principal end-uses of lead in the Western world since 1976 is summarised in Table 4.7. This, like the subsequent tables on lead’s enduses, covers close to 90% of total Western consumption and all the major economies. The last column of the table shows the annual average rates of change over the past decade for which data are available. Were it not for the growing demand in batteries the total market for lead would have contracted, mainly because of tightening restrictions on its use. The small growth of demand in rolled and extruded products, and in shot and ammunition, is mainly cyclical rather than 4.2/page 2

3736

Total

Source: ILZSG.

1722 509 314 124 230 342 317 178

Batteries Chemicals Rolled/extruded products Shot/ammunition Alloys Cable sheathing Gasoline additives Miscellaneous

1976

3877

1976 514 283 95 222 308 291 187

1979

3444

1871 438 253 92 162 263 212 153

1982

3749

2231 481 283 102 155 207 136 154

1985

3982

2492 487 323 85 147 183 103 162

1988

Table 4.7 Principal end-uses of lead in Western countries, 1976–2002 (’000 t)

4118

2698 505 288 107 124 170 74 153

1991

4489

3124 477 278 115 158 129 56 152

1994

4702

3444 454 283 114 140 79 37 151

1997

5128

3876 431 302 125 146 64 26 157

2000

4752

3632 386 304 115 124 51 16 125

2002

1.2

2.5 −2.2 0.5 0.6 0 −9.5 −11.9 −1.7

Average annual rate of change (%) 1991–2002

4 Lead 4.2 Consumption

4.2/page 3

4.2 Consumption

4 Lead

1976

1988

Total: 3736

Total: 3982

Batteries Chemicals Rolled/extruded

2002

Total: 4753

Shot/ammunition Alloys Cable sheathing

Gasoline additives Miscellaneous

4.5 Lead’s end-uses in the Western world, 1976–2002 (’000 t) (source: ILZSG).

Table 4.8 Principal end-uses of refined lead in China, 1991–2002 (’000 t) 1991

1994

1997

2000

2002

Average annual rate of change (%) 1991–2002

Batteries Chemicals Cable sheathing Semi-manufactures Miscellaneous

165 29 22 7 28

191 32 16 6 46

295 85 23 10 71

379 98 24 13 78

715 112 24 22 78

13.0 11.9 0.7 10.7 9.0

Total

250

290

485

590

950

11.8

Source: ILZSG.

indicative of a trend. The use of lead in shot and ammunition has moved erratically, and it has been outlawed in several major countries in recent years. The growing dependence of lead on the battery market is illustrated in Fig. 4.5. In 2002 this accounted for 76% of total consumption. That compares with a share of under one-quarter during the 1960s and less than one-half in 1976. There are considerable variations between regions, and even between individual countries within the same region, in the importance of the different categories of use. Data on China are not available for the entire period, but Table 4.8 shows how China’s end-uses have moved since 1991. In 2002 batteries accounted for 75% of China’s lead consumption, not far off 4.2/page 4

4 Lead

4.2 Consumption

its share in Western countries. All end-uses have grown in China since 1991, and the overall growth rates have substantially exceeded those of Western countries. This is partly because China has captured markets for lead-based products from producers elsewhere. Each category of use, including the battery sector, embraces a large number of different end-uses in which different facets of lead’s properties are important. Table 4.9 sets out the Western world’s uses of lead within each category.

4.2.2.1 Batteries As by far the largest end-use market for lead batteries have the biggest influence on its consumption. The trend in the consumption of lead in batteries for the major consuming countries in the Western world since 1976 is shown in Table 4.10. The lead-acid battery is the most common form of battery. Developed in the late nineteenth century it has undergone many developments and changes but remains essentially the same. The most important, but by no means only, use for lead-acid batteries is for starting, lighting and ignition (SLI) in automobiles of all types. Such batteries provide a short burst of high power to start the engine. Full data are not available for later years on a consistent basis. Battery consumption of lead eased back in the US in both 2003 and 2004, and it also dropped in Japan. It stagnated in Western Europe. The main beneficiary was China, whose battery off-take to 2002 is shown in Table 4.8. Its consumption of lead in batteries increased to about 0.9 Mt in 2003, and approached 1 Mt in 2004. Rapid development of the SLI battery has occurred mainly in the past twenty years, resulting in improvements of as much as 50% in energy and power density. The most significant changes have been reductions in the weight of batteries, without affecting their performance, and extending the life cycle of the battery with less maintenance. Weight loss has been achieved by using lighter containers and thinner grids inside the battery. Lower maintenance has been achieved by using less antimony in the grids. Despite the changes, the weight of lead in batteries has risen, especially in the US and Japan, as the size of motor vehicles has increased. The increase in the size of cars, as well as the greater use of electronics, with additions such as car radios/stereos, air conditioning etc. becoming more and more standard, has meant that larger, and higher performance, batteries are required. With car populations growing steadily worldwide, there is a changing pattern of importance in the replacement battery sector. The market for batteries used in new vehicles, as against those being replaced, varies widely from market to market. In the USA, which 4.2/page 5

4.2 Consumption

4 Lead

Table 4.9 The uses of lead Batteries (76% of total consumption) Industrial and motive power batteries (28% of US battery consumption of lead, but less elsewhere) Telecommunications: ensure continuous power for wire/wireless phone networks, Intemet servers and networks, maintain systems during power outages UPS: ensure continuous power for data processing, hospitals, air traffic control, defibrillators etc. Load levelling Remote area power: i.e. desert locations, navigational systems in the ocean Military: i.e. back-up for submarines, missile launchers, guided missile silos, weapons handling systems, back-up power for Command, Communication and Control Systems Material handling: i.e. fork lifts, mine vehicles Power: i.e. truck, tractor, boat etc. Starting, lighting, ignition (SLI) (72% of US battery consumption of lead) Replacement (82% in USA, 70% in Western Europe) New (18% in USA, 30% in Western Europe) Rolled/extruded products (6% of total consumption) Roofing/flashings/claddings (particularly UK, then Europe) (80–90%) Radiation shielding (5%) – for rooms and protective clothing, nuclear power (lead bricks are also used but they are not in the same category) (More important in the USA, and the major use of sheet in Japan) Noise insulation (3%) Damp proofing (2%) Earthquake dampers (tiny amount but fundamental use) Pigments/chemicals (8% of total consumption) Glass products – Cathode ray tubes (significant use, but LED and plasma screens substituting), radiation glass, lead crystal, optical glass Ceramic glazes Lead stabilisers for PVC plastics to improve their durability and prevent any degradation during manufacturing processes (significant use) Lead paint, still used in special paints for corrosion protection, road markings, warning signs Alloys (3% of total consumption) Solder mainly – used in light bulbs (electrical industry), personal computers, televisions, electronic circuit boards, white goods, general electrical. Being phased out in Europe and Japan Terne plate – a lead-based alloy coating to protect iron and steel. Chemical handling Brass and bronze – traditionally used in bearings Cable sheathing (1% of total consumption) Declining use – best for underwater. Remote communities may still use it for power and communication systems Shot/ammunition (2.5% of total consumption) Ammunition for police, military, sport, but phasing out Alloying material for steel and brass Gasoline additives (0.5% of total consumption) Rapidly being phased out, and use now marginal Miscellaneous uses (3% of total consumption) Anode and cathode plates to produce copper Lead weights for wheel balancing Yacht keels Curtain weights etc.

4.2/page 6

4 Lead

4.2 Consumption

Table 4.10 Consumption of lead in batteries by major consuming countries (’000 t) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2002 Europe Austria Belgium Finland France Germany Italy Netherlandsa Scandinavia Spain Switzerland UK Total Europe

13 22 6 103 142 77 14 33 44 8 90 551

22 21 7 111 158 93 15 34 52 10 114 635

26 21 7 116 152 94 17 34 59 11 89 624

29 23 12 138 167 98 19 41 80 5 97 709

33 22 6 142 163 107 23 30 74 5 101 705

40 22 8 169 205 112 22 21 93 7 106 805

42 20 4 170 216 132 26 27 78 7 108 829

42 16 4 188 178 166 25 31 134 10 111 904

Africa South Africa Total Africa

22 22

24 24

24 24

28 28

35 35

34 34

41 41

49 49

Americas Brazil Canada Mexico USA Total Americas

17 48 98 746 909

23 58 95 814 991

37 53 67 50 71 88 93 91 45 65 61 56 72 78 72 60 100 95 90 99 101 132 218 233 704 841 970 1007 1223 1340 1490 1195 887 1055 1188 1212 1466 1638 1873 1579

Asia India Japan Korea, South South-East Asia Total Asia

13 148 5 46 212

14 192 18 53 276

17 193 24 62 296

Oceania Australia New Zealand Total Oceania Total

18 253 45 77 393

19 285 88 126 518

23 295 121 166 605

48 239 184 258 730

53 237 239 277 806

44 44 13 0 2 3 204 203 215 233 208 219 18 18 4 3 174 196 10 6 106 88 998 1014 45 45

87 219 263 362 929

56 56

98 201 300 353 952

25 45 37 41 40 38 54 43 27 28 3 5 4 6 6 3 4 4 4 2 28 49 41 47 46 41 58 47 31 30 1722 1976 1871 2231 2492 2698 3124 3444 3876 3632

a

Includes cable sheathing. Source: ILZSG.

accounts for about one-third of the Western world’s consumption of lead in batteries, replacement batteries make up 80 to 85% of the total battery shipments. By contrast, original batteries account for around 60% of the Japanese market. In Europe the use of replacement batteries accounts for around 70% of the market. These variations are explained by the proportion of each region’s car production that is exported, and by the density of each market’s car ownership. In the USA and Europe the density of car ownership is higher than 4.2/page 7

4.2 Consumption

4 Lead

90 80 70 Replacement

Million units

60 50 40 30 20

Original equipment

10 0 1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

4.6 US domestic battery shipments, 1960–2000 (source: Battery Council International).

in the Far Eastern markets, and this explains the dominance of consumption in the replacement sector. The market for replacement batteries tends to be seasonal rather than cyclical. The major influence on the rate of replacement of batteries is the severity of the winter and summer in any particular region. Studies in the USA have indicated the failure of batteries is due not primarily to the severity of the winter months, but is largely the result of the frequency of very high temperatures in the summer months. Since batteries have a typical life of four to five years, heavy replacement following severe weather does tend to establish a form of replacement cycle several years later when the newly installed batteries wear out. This is illustrated in Fig. 4.6, which tracks domestic shipments of SLI batteries in the US between 1960 and 2000. The basis of the data changed in 2001, and imports rose strongly, so that later figures are not comparable. The peaks and troughs in replacement can be clearly seen, with some more pronounced than others. There were, for example, sharp peaks in 1963, 1979, 1994 and 1999. The demand for original equipment (OE) batteries moves with the business cycle and shifts in the output of vehicles. In the USA SLI batteries make up rather under three-quarters of the total battery demand for lead, but their share is much higher elsewhere. Most other lead-acid batteries are deep cycle batteries, which are used to provide a low, but steady level of power for a longer period of time than a starting battery. Table 4.9 above listed some of the major uses of such batteries. In summary they may be used to 4.2/page 8

4 Lead

4.2 Consumption

power consumer products or electrical accessories, or for industrial purposes of all types. Looked at in another way, they can be either to provide motive power (traction) or stationary power. Traction batteries are used in such vehicles as fork-lift trucks, mining locomotives, milk-floats etc. With the development of larger and more efficient batteries with very low maintenance levels the tasks performed by such vehicles have increased, allowing for a large growth potential. Other uses for the traction battery include tractors, boats, and signalling and lighting in rail networks. Annual sales of traction batteries in Western Europe are in the 7–7.5 million unit range, compared with annual sales of 57–60 million automotive batteries. The second form, the stationary battery, provides direct electrical power from a fixed position. Many industries, such as hospitals, theatres, television and radio stations, rail systems and fire services use them to provide crucial back-up services in the event of power failures. Their use in computer systems of all types to provide Uninterruptible Power Supply (UPS) is developing rapidly. Such systems are especially important in online banking and other critical Internet applications in telecommunications. The use of what is termed load levelling is also of growing importance. Load levelling is the method by which electrical utility companies store electricity at times of low demand and subsequently discharge it at periods of high demand. They do this by charging batteries when their low marginal cost base load power plants are underutilised (i.e. during the night) and discharging at times of high demand, rather than restarting or increasing output from high marginal cost plants. The utilities benefit through the reduction in their fuel costs and an improvement of their load factors. Similarly, on the other side of the meter, large industrial consumers enjoy savings by the reduction of their peak demand charges using peak shaving. As far as possible electrical utilities generate using their lowest cost fuels. Thus, with the exception of hydroelectric plants, most rely on coal and nuclear capacity to meet their base-load requirements. As demand increases gas-fired steam plants are brought onstream, and when peak loads occur, high-cost oil or gas-fired combustion turbines are started up. In the USA load factors on base-load generating units have been declining (because of underutilisation overnight) while peak load demands have been rising (to meet lighting/heating loads in winter and air conditioning in summer). In response several US utilities have adopted load-levelling techniques to cope with often wildly fluctuating levels of demand within a given day. Benefits of battery energy storage systems include: improved base-load efficiency, peak-load management, short construction time, easy siting, envi4.2/page 9

4.2 Consumption

4 Lead

ronmental acceptance and capital expense deferral. Many of these benefits also accrue to customer-side-of-the-meter (CSOM) peak shaving applications. Several lead-acid battery load-levelling systems have been installed in the USA in recent years, as demonstration projects. The objective has been to demonstrate the operational and economic benefits of such systems, as well as gaining experience of operating and maintaining them, with a view to promoting a new market for lead-acid batteries. Energy storage systems now provide over 3.5% of total generating capacity in the USA. The share of stored energy capacity is estimated at 10% in Japan, 14% in Italy and 6–7% in the other major economies of Western Europe. Most of the US stored energy capacity presently comes from hydroelectric plants and compressed air energy storage facilities. The Electric Power Research Institute (EPRI) considers, however, that there is a sizeable potential for battery energy storage of some 4000 MW. That implies a total off-take of up to 0.8 Mt of lead in the USA alone. Outside the USA several lead-acid battery energy storage systems are operating, all on a relatively small scale, including three in Germany, one in Japan, and one in South Africa. More are at the planning stage. Worldwide, energy management systems represent a new and commercially viable application for lead-acid batteries. To realise the potential, however, improved designs will be necessary, involving advanced batteries that have greater charge acceptance, lower maintenance costs, longer cycle lives and lower costs. The dominance of the lead-acid battery in the overall consumption of lead is not thought to be in danger in the near to mid-term, although proposals have been made in the European Parliament for the replacement of lead-acid batteries in automobiles. While many alternatives to the lead-acid battery, such as the nickel-cadmium battery, are being developed and tested, their cost and power storage still cannot match that of the standard lead-acid battery. Alternatives will, however, undoubtedly be developed, but the consensus is that no commercially viable alternative for most present uses will be available until well into the century. The strongest pressures for replacing the lead-acid battery come from research into electric and hybrid vehicles. Until the early 1990s, the automobile industry paid little more than lip service to the concept of electric vehicles (EVs). Developments in Los Angeles in 1988 provided the catalyst, however, which forced it to take a more serious interest in the subject. In that year the city, one of the world’s most polluted, undertook a programme 4.2/page 10

4 Lead

4.2 Consumption

to put 10 000 hybrid vehicles on its roads by 1995. This sparked the Californian state government into action, and legislation was subsequently passed requiring that by 1998 2% of all manufacturers’ cars sold in the state had to be emission-free, rising to 10% (about 200 000 vehicles) by 2003. Although the California Air Resources Board eased the strict air quality standards it earlier sought to impose, the automobile industry is continuing to invest in the development of EVs. The major vehicle manufacturers in North America, Western Europe and Japan have committed huge research and development budgets to electric or hybrid vehicles programmes. Some are developing hybrid vehicles, which combine a high efficiency petrol or diesel engine running in parallel with a battery system, while others rely on battery-only power. Some manufacturers are developing both. Hybrid vehicles have the advantage of extended range, as the engine can take over when the batteries are running low, or the engine can share the load of the batteries. Also, the concept of the hybrid vehicle is attractive because the engine can be used to recharge the batteries during operation, thus avoiding the inconvenience of having to recharge from the mains overnight. Although hybrid vehicles are not emission-free they are considerably less polluting than internal combustion engines. None of the electric vehicles or hybrid vehicles now in production, or on the drawing board, uses lead-acid batteries. Their weight, and the limited range they allow before recharging, appear to have ruled lead-acid batteries out as serious contenders in this market. Nickel-metal hydride and lithium-based batteries are making the running. More important, many automotive companies are now concentrating on fuel cells rather than batteries.

4.2.2.2 Pigments and chemicals The next major end-use for lead is in chemical applications, which accounted for around 8% of total lead consumption in 2002. Table 4.11 shows how lead’s usage in chemicals has developed in the major consuming countries of the Western world for selected years since 1976. In the USA consumption has dropped back in the present decade, remaining close to 2002’s level in 2003–04. Japanese demand halved during the 1990s, and fell to a low in 2002, from which it staged a modest recovery in 2003–04. European consumption has also weakened since the late 1980s, but there has been good growth in South-East Asia. Environmental concerns, and consequent regulations, are reducing many of lead’s chemical uses. One major use of the past, in 4.2/page 11

4.2 Consumption

4 Lead

Table 4.11 Consumption of lead in chemicals (’000 t) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2002 Europe Austria Belgium France Germany Italy Netherlandsa Spain Switzerland UK Total Europe

7 13 32 74 65 20 20 0 33 266

7 10 33 77 60 14 25 0 34 260

13 10 28 68 45 15 21 0 20 220

14 9 28 91 35 13 17 0 21 228

12 5 29 90 42 13 21 0 31 244

15 3 25 114 46 17 20 0 14 254

13 4 24 77 40 12 17 0 19 206

16 2 18 74 37 13 16 0 18 194

15 2 17 88 24 4 20 0 19 188

15 1 22 63 29 4 16 0 16 166

Africa South Africa Total Africa

4 4

5 5

5 5

6 6

5 5

9 9

6 6

5 5

6 6

6 6

Americas Brazil Canadab Mexico USA Total Americas

9 21 21 96 146

16 21 26 91 154

16 21 10 61 108

16 18 11 73 117

15 11 13 63 102

10 10 12 60 90

12 8 22 63 104

13 6 16 67 102

12 6 16 52 86

12 5 15 51 84

Asia India Japan Korea, South South-East Asia Total Asia

7 62 5 12 86

7 62 7 14 91

11 67 8 16 102

11 73 16 24 124

13 66 30 23 131

13 69 28 40 149

11 51 36 63 161

12 38 35 67 153

16 38 21 75 151

15 20 20 75 131

7 7

6 6

4 4

6 6

5 5

2 2

– –

– –

– –

– –

509

514

438

481

487

505

477

454

431

386

Oceania Australia Total Oceania Total a

Includes alloys and miscellaneous. b Includes gasoline additives. Source: ILZSG.

paints, has been outlawed in most countries, except in special applications, as a result of increasing concerns over the health risks of lead in homes and offices. The major chemical applications are for lead in the form of lead oxide, largely in PVC stabilisers and in ceramics and glass. In PVC lead stabilisers prevent the degradation of the material during processing, and when it is exposed to sunlight in such products as window and door frames and piping. Lead’s usage in PVC is declining because of concerns over lead content in the material. In glass lead is used particularly in crystal and blown glass, light bulbs, 4.2/page 12

4 Lead

4.2 Consumption

cathode ray tubes and insulators. Demand in cathode ray tubes, where it acts as a radiation shield, is declining because of substitution of alternative computer monitors and television screens.

4.2.2.3 Gasoline additives While the consumption of lead in paints has contracted sharply, its usage in the manufacture of tetraethyl lead (TEL), which was used as an anti-knock agent in gasoline, has been even more marked. In 1972 nearly 380 000 tonnes of lead were used in gasoline additives but within ten years this had fallen to around 210 000 tonnes. By 2002, demand for lead in this end-use had fallen to a meagre 16 100 tonnes, from just two countries, Mexico and the UK. The details are in Table 4.12. Demand has subsequently dropped further. Legislative measures, which began, and were more stringent, in the USA, were followed by European nations to varying degrees. The legislation relates directly to the emissions from fuel burned with TEL as an ingredient. The combustion of gasoline was considered as the largest source of lead in the atmosphere. The catalytic converter was born in an attempt to curb emissions of hydrocarbons, carbon monoxide and oxides of nitrogen. Lead in gasoline destroys some of the elements that make up the catalytic converter, however, and impairs its efficiency. As a result of this destruction of the converter, lead’s use as an anti-knock agent has all but disappeared. In some countries, such as the UK, differential pricing of lead-free petrol encouraged its substitution for lead-based petrol, until the latter was eventually withdrawn in 2004. Table 4.12 Consumption of lead in gasoline (’000 t) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2002 Europe France Germany Italy UK

14 9 10 57

15 11 13 59

12 9 10 54

14 10 10 48

11 7 5 46

8 2 8 41

5 3 5 35

– – – 29

– – – 19

– – – 10

Total Europe

90

98

85

82

69

58

48

29

19

10

Americas Mexico USA

10 218

7 187

7 119

9 46

7 27

5 11

8 –

8 –

8 –

7 –

Total Americas

227

194

126

54

34

16

8

8

8

7

Total

317

291

212

136

103

74

56

37

26

16

Source: ILZSG.

4.2/page 13

4.2 Consumption

4 Lead

4.2.2.4 Rolled and extruded products Lead’s usage in rolled and extruded products, which accounts for 6% of total consumption, is largely dependent on the construction industry, as are so many of the base metals. The UK housing market dominates, using around one-third of the world total, as shown in Table 4.13. The reason for the UK’s dominance is the traditional use of lead in rolled sheet and strip for roofing and flashings, while in the rest of Europe zinc remains the preferred material. Demand inevitably moves in step with house-building, which is influenced by incomes, demographic trends and house prices. Climatic considerations limit Table 4.13 Consumption of lead in rolled and extruded products (’000 t) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2002 Europe Austria Belgiuma France Germany Italy Netherlands Spain Switzerland UK Total Europe

1 16 25 35 49 14 42 2 48 231

1 18 27 33 41 15 28 2 47 210

1 18 25 37 30 17 11 1 54 193

1 27 19 43 22 14 8 1 80 214

1 31 22 46 20 22 9 1 104 256

– 30 24 39 21 20 7 1 82 223

– 34 17 43 12 20 5 0 86 218

– 38 17 39 11 19 4 0 94 221

– 42 19 45 9 7 5 0 104 231

– 33 19 49 10 7 5 0 112 234

Africa South Africa Total Africa

3 3

4 4

4 4

4 4

4 4

3 3

1 1

1 1

1 1

1 1

Americas Brazil Canada USA Total Americas

3 3 39 45

3 5 28 35

2 4 24 30

1 4 35 39

1 3 36 40

1 3 36 40

1 3 31 35

1 3 31 35

1 3 53 57

1 2 53 56

Asia Japan Korea, South Total Asia

27 1 28

27 1 28

19 1 20

16 2 18

13 2 15

11 2 13

10 3 13

12 3 15

3 3 6

3 3 6

Oceania Australia New Zealand Total Oceania

4 2 7

5 2 6

5 1 6

8 1 9

7 1 8

8 1 9

11 1 12

10 1 11

6 1 7

6 0 7

314

283

253

283

323

288

278

283

302

304

Total

a Classified as semi-manufactures/alloys. Source: ILZSG.

4.2/page 14

4 Lead

4.2 Consumption

lead’s use for roofing in some regions like the USA. Whereas only a small percentage of lead is used in modern buildings, much use is still made of the material in refurbishing historic buildings. Moreover, new markets have opened for lead sheet as sound insulation, and for radiation shielding. The rise in the US consumption from 2000 shown in Table 4.13 largely arose from increased use in foil, collapsible tubes and other metal products, which are grouped with sheet, pipe and other extruded products. Demand for lead in those rose modestly, and has stabilised since 2002.

4.2.2.5 Cable sheathing The consumption of lead in cable sheathing, which now takes only a modest 1% of total lead consumption, has remained in a down trend. Table 4.14 shows the main geographical markets for this use. Incomplete data suggest a further slight decline since 2002. Cables have in many instances been superseded by satellite and microwave communications. Alternative materials such as rubber and plastic have been used increasingly, mainly because of their cheapness in comparison with lead. Lead in cable sheathing is now only applied to special uses such as deep-sea cables and highvoltage cables. The ‘under-grounding’ of electrical transmission cables on environmental grounds offers a modest continuing market in the latter regard.

4.2.2.6 Other uses of lead When it is alloyed with other materials such as tin and antimony, lead has a number of uses. Lead alloys account for just 3% of the total demand for lead. One example is lead antimony alloys, which prevent corrosion on valves and pumps. The most renowned lead alloy, however, is that of solders, bearings and type material. Type metal, used in print production, has not faced competition from any other metal or alloy but encountered a revolution in printing technology that negated the need for hot metal typesetting. In the case of bearing metal some substitution has taken place by a variety of other materials. Demand for lead-based solders is falling rapidly because of European and Japanese restrictions on their use for environmental reasons. Japanese electronics producers expect to have replaced lead-based solder by the end of 2006. Chinese producers of electrical and electronics goods are also substituting away from leadbased solders in deference to the European restrictions. US usage of lead in solder halved between 1999 and 2002, and it has since dropped further.

4.2/page 15

4.2 Consumption

4 Lead

Table 4.14 Consumption of lead in cable sheathing (’000 t) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2002 Europe Austria Belgium

17 12

15 16

11 13

11 8

11 8

10 9

Finland France Germany Italy Scandinavia Spain Switzerland UK Total Europe

11 37 36 39 17 6 9 34 216

12 21 32 40 16 4 8 27 192

14 12 21 39 12 3 4 21 148

9 14 15 36 8 2 4 13 119

5 11 12 45 9 2 4 11 118

3 16 15 39 3 2 1 9 106

Africa South Africa Total Africa

9 9

9 9

10 10

8 8

10 10

6 6

3 3

Americas Brazil Mexico USA Total Americas

19 10 27 55

5 10 20 36

5 9 15 29

3 11 16 29

3 3 16 22

1 2 18 20

Asia India Japan Korea, South South-East Asia Total Asia

19 26 1 10 56

19 37 1 11 68

25 32 2 13 72

19 18 3 9 49

16 5 5 6 31

4 2 6

3 1 4

3 1 4

2 2 3

342

308

263

207

Oceania Australia New Zealand Total Oceania Total

9 3 8 included batteries 2 0 14 14 8 4 27 9 3 3 1 1 – – 9 10 80 43

2

1

0 10 4 2 3 1 – 10 32

0 9 2 1 3 1 – 8 25

4 4

4 4

3 3

1 1 16 18

1 1 6 8

1 1 4 6

1 1 4 5

14 7 5 8 34

6 5 5 8 24

7 4 3 9 23

6 5 3 9 22

6 0 3 8 17

1 1 2

4 0 4

3 1 4

1 1 2

1 1 2

1 0 1

183

170

129

79

64

51

in

Source: ILZSG.

Lead shot and ammunition, which took 2.5% of lead’s consumption in 2002, are declining in importance. Some Northern European countries have banned the use of lead shot for wildfowling, and other countries, including the US and Canada, are travelling the same road. Lead is also being substituted in ammunition. The remaining miscellaneous uses of lead, which made up 2.5% of 2002’s consumption, cover a diverse field. They make use of lead’s specific properties, and most usually its density and softness. Potential substitutes seldom offer the same properties at an equivalent cost. 4.2/page 16

4 Lead

4.2 Consumption

4.2.3 Regional trends in consumption As the preceding descriptions of lead’s end-uses have demonstrated, there are significant national differences in the patterns of consumption that cannot merely be explained by levels of economic development. Tradition, the nature of industry and access to resources have been additional influences. Table 4.15 shows how the consumption of refined lead metal has moved in each country since 1976. The table includes lead metal refined from both primary and secondary raw materials, but not lead or lead alloys that have merely been remelted for reuse. The behaviour of total consumption has already been illustrated in Fig. 4.4, which shows trends in both the entire world and in Western countries. The complete geographical breakdown of Table 4.15 rather obscures the main underlying trends. These are brought out more clearly and succinctly in Table 4.16 and Fig. 4.7. During the past decade demand has stagnated or fallen in Western Europe, Japan and Australasia. In the former Socialist countries consumption collapsed between the late 1980s and the early 1990s, but it has since staged a modest revival. North America’s decline of the 1970s and 1980s gave way to good growth in the 1990s and its demand peaked in 2000. This growth was driven by the US whose consumption has since fallen back. In 2004 US demand was over 16% below its peak of 2000. Demand in the newly industrialising countries of Asia-Pacific was only temporarily disrupted by their 1997 recessions. Brazil’s demand has risen well in recent years, but it remains erratic. Indian consumption has also increased strongly. 1976

1988

Total: 5151

Total: 5420

North America Western Europe Japan

Asia-Pacific Other Western world

2003

Total: 6783 China Former Socialist countries

4.7 Lead’s geographical markets, 1976–2003 (’000 t) (source: ILZSG). 4.2/page 17

4.2 Consumption

4 Lead

Table 4.15 World consumption of refined lead (’000 t) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Europe Albania Austria Belgium Bosnia Bulgaria Croatia Czechoslovakia Czech Republic Denmark Finland France Germany, DR Germanya Greece Hungary Ireland Italy Macedonia Netherlands Norway Poland Portugal Romania Russian Federationb Slovak Republic Slovenia Spain Sweden Switzerland UK Yugoslaviac Yugoslavia, FR Other CIS Total Europe

3 40 55 – 95 – 55 – 17 18 228 80 300 28 16 7 265 – 46 15 92 15 48 700

2 47 58 – 108 – 59 – 30 21 211 87 361 27 12 7 258 – 56 13 85 19 47 780

3 53 61 – 120 – 51 – 16 24 195 88 333 22 14 11 243 – 54 13 85 19 41 720

3 62 66 – 96 – 46 – 13 24 208 73 346 23 13 10 235 – 45 13 94 26 54 550

4 61 60 – 85 – 47 – 7 13 216 82 373 18 13 12 244 – 55 10 81 31 44 410

1 67 72 – 35 10 30 – 5 12 253 – 414 11 7 22 259 5 59 1 47 24 20 260

1 64 65 3 20 3 – 18 4 5 237 – 354 7 8 28 251 5 58 4 52 34 16 103

1 61 60 7 11 4 – 35 4 4 256 – 340 9 8 33 259 6 57 3 57 24 18 103

1 60 57 6 13 5 – 70 1 2 268 – 390 9 10 29 279 6 29 4 52 22 13 83

1 54 37 5 17 4 – 72 1 2 220 – 384 7 7 37 258 6 34 2 58 19 11 112

– – 115 22 18 318 69 – –

– – 115 22 19 333 87 – –

– – 102 28 11 272 101 – –

– – 116 27 10 274 116 – –

– – 123 32 11 303 129 – –

– 20 135 25 13 315 – 40 8

3 13 112 31 8 334 – 5 8

4 17 172 35 16 340 – 11 18

4 17 219 11 11 327 – 3 20

4 18 216 5 8 302 – 9 20

2665 2864 2680 2543 2464 2170 1854 1973 2021 1930

Africa Algeria Egypt Kenya Morocco Nigeria South Africa Tunisia Zambia Other Africa

5 8 0 4 2 47 4 6 3

5 15 0 4 2 51 5 3 11

13 12 0 5 3 58 4 3 3

14 14 2 5 3 48 4 3 7

21 17 2 5 3 56 4 4 7

19 16 2 5 4 56 3 2 7

18 6 3 7 6 59 5 2 5

20 9 3 10 5 63 5 1 10

21 9 3 11 6 59 6 1 14

15 6 2 3 5 80 4 1 16

Total Africa

79

96

101

100

119

114

111

126

130

132

46 78 112

56 98 122

32 55 99

29 73 104

29 95 102

25 66 77

33 92 73

37 110 71

28 114 68

24 112 51

Americas Argentina Brazil Canada

4.2/page 18

4 Lead

4.2 Consumption

Table 4.15 (cont.) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Chile Colombia Cuba Jamaica Mexico Peru Trinidad USA Venezuela Other America

2 2 2 2 2 1 2 8 6 1 5 5 4 5 8 7 8 14 18 19 3 3 3 4 4 4 3 2 2 2 2 2 2 1 1 0 1 1 1 1 81 97 93 125 77 133 155 169 257 259 12 20 19 14 19 14 13 14 16 11 2 2 1 1 1 0 1 1 1 1 1269 1344 1106 1124 1236 1247 1529 1650 1791 1513 10 11 20 26 22 18 21 26 19 9 4 3 7 6 5 3 4 22 9 14

Total Americas 1626 1765 1443 1514 1601 1595 1935 2125 2330 2017 Asia China Hong Kong India Indonesia Iran Iraq Israel Japan Kazakhstan Korea, North Korea, South Malaysia Myanmar Pakistan Philippines Saudi Arabia Singapore Sri Lanka Taiwan Thailand Turkey Other CIS Other Asia East Other Asia West

190 2 52 5 14 1 1 310 – 28 16 9 6 4 8 – 3 2 15 9 11 – 1 4

210 2 59 7 10 1 1 365 – 30 33 12 6 4 12 – 3 3 18 10 7 – 1 3

191 2 68 9 30 5 2 354 – 25 42 11 8 3 12 – 2 2 29 14 17 – 1 5

Total Asia

691

797

832 1005 1167 1315 1500 1762 2002 2662

Oceania Australia New Zealand

75 15

73 15

56 13

59 10

60 9

56 6

78 4

62 5

41 5

38 4

Total Oceania

90

88

69

69

69

62

82

67

46

42

World total of which: Western world

243 2 72 15 17 7 3 397 – 25 81 21 8 4 10 – 3 2 40 17 28 – 2 8

250 5 75 17 27 19 5 406 – 30 146 24 4 6 12 – 3 2 75 30 25 – 1 5

250 1 75 40 32 15 6 422 40 40 159 44 1 6 20 – 7 1 83 39 27 2 0 5

295 1 80 91 63 – 9 345 20 36 233 53 1 8 25 – 10 3 121 62 35 2 2 5

485 1 88 66 68 – 10 330 10 24 292 73 2 9 31 4 14 3 141 48 48 2 3 10

590 1183 1 1 119 142 66 71 68 72 – – 16 25 301 248 11 15 7 5 303 349 84 90 2 2 10 14 38 33 16 22 14 15 3 3 170 137 96 131 56 69 3 3 10 10 18 22

5151 5610 5125 5231 5420 5256 5482 6053 6529 6783 3840 4186 3783 4028 4369 4512 4895 5272 5640 5263

a

Data prior to 1991 refer to Germany, FR. Prior to 1991 data refer to USSR. c Former Federal Republic of Yugoslavia. Source: ILZSG. b

4.2/page 19

4.2 Consumption

4 Lead

Table 4.16 World consumption of refined lead by politico-economic region (’000 t) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Developed countries: North America Western Europe Japan Australasia Newly industrialising countries of Asia-Pacific Other developing Western countries China Other former Socialist countries Total world

1381 1466 1205 1228 1338 1324 1602 1721 1859 1564 1576 1684 1558 1614 1698 1770 1625 1718 1755 1628 310 365 354 397 406 422 345 330 301 248 90 88 69 69 69 62 82 67 46 42 67

97

121

189

312

393

596

666

772

827

416

486

476

531

546

541

645

770

907

954

190 210 191 1121 1214 1151

243 960

250 801

250 494

295 292

485 296

590 1183 299 337

5151 5610 5125 5231 5420 5256 5482 6053 6529 6783

Source: ILZSG.

The main growth has been in China, whose consumption nearly doubled between 1991 and 1997, and more than doubled in the next six years to 2003. In 2004 China accounted for almost 19% of global consumption, a far cry from the 5% of 1991. Leaving to one side the burgeoning Chinese economy, the changing patterns of regional consumption largely reflect the decline of traditional uses of lead and developments in the automotive sector. Part of China’s spectacular growth has resulted from its capture of downstream markets previously supplied from elsewhere, as well as from its own expanding markets. The growth of vehicle production and the later emergence of markets for replacement batteries have been driving total demand. That dependence is both lead’s strength and its weakness. Global demand for automobiles is likely to expand, but it is subject to cyclical fluctuations. Moreover, the leadacid battery itself remains at risk in the medium to longer term. New uses are emerging, but not on such a scale as to replace the battery market. Yet the greatest risk to lead is not technological, but regulatory. It comes from the determination of some governments to eliminate lead from as many uses as possible, often regardless of the true risks it poses or of the economics. 4.2/page 20

4.3 The market 4.3.1 Ores and concentrates The various stages of production of mining, smelting and refining have their counterparts in the marketing of lead. The market for lead ores and concentrates is very distinct from the markets for bullion and refined metal. Most concentrates are sold by the mining company or miners to smelters on annual contracts. The balance is sold on a spot basis, often through merchants and trading companies. Within this trading sphere some of the miners are independent of smelters whereas other parts of the industry are more integrated, with smelters owning part or all of any given mine or mines. Miners and smelters, as in the zinc industry, call the matching up of contracts on this annual basis the ‘mating season’, when the long-term prices, volumes and delivery periods are agreed. Many of the contracts between individual miners and smelters are essentially frame contracts that have continued for years. The terms of the contract are varied annually according to current market prices and conditions of supply and demand. Some of the larger concentrate producers will have several such contracts with several smelters, thereby dividing up their annual tonnage sold. There are several aspects of any given contract. These include the treatment charge, refining charge (known collectively as the TC/RCs), quotational period, price, unit deductions, penalty clauses and payment terms. The treatment charge is basically the amount per tonne of concentrates charged by any given smelter to the miner to extract the metal. It includes the cost of receiving, handling, sampling and assaying the concentrate. The refining charge is one made by the processor, or refiner, for refining the metal into a product that can be sold. In the case of TCs and RCs the charge is based on the price of lead at the time the contract is agreed. The quotational period refers to the time over which the buyer and the seller agree to fix the price of the concentrate, while the price is the market value of the refined lead less a percentage of the cost to market and sell the material. Payment terms are the date or dates on which any given buyer agrees to pay. Penalties can be incorporated into the contract if the concentrate contains elements that have to be removed in order to sell the final product. In lead’s case this normally refers to bismuth. There can, however, also be payable credits given to the miner if the concentrate contains valuable elements such as gold, 4.3/page 1

4.3 The market

4 Lead

silver and tin, which can in turn be processed and sold by the buyer. All the components of a typical concentrate contract are negotiated in accordance with prevailing market conditions. At any time there is a sense of the going rate for typical concentrates, although there is no transparent marketplace. Full details of individual contracts are not always published, and different contracts concluded at the same time for similar quantities of identical concentrates may have slightly different terms. The balance of supply and demand for ores and concentrates is affected by the changing supply of secondary materials as much as by the demand for refined metal. Inasmuch as lead is a co-product or by-product of zinc or silver mining, much mine output is inflexible in response to changing market conditions in the short term. Strikes and other unforeseen disruptions also affect the supply of concentrates. Since the mines typically receive the prevailing metal prices less the treatment charge, the effects of changing market conditions in the metal market are quickly transmitted to their profitability. That means that they tend to react rather faster to metal price movements than the smelters. The upshot is that the markets for concentrates and for metal are seldom, if ever, precisely aligned. Table 4.17 and Fig. 4.8 summarise developments in the supply/demand balances for lead ores and concentrates over the period from 1994. The top portions of the table and figure show balances for the Western world, and the lower portions the global balances. Supplies of concentrates should normally exceed primary metal production in a balanced market so as to allow for processing losses at the smelting and refining stage. No allowance is made for such losses. The data for the global balances may overstate primary metal production, and correspondingly exaggerate the size of any deficits in the concentrate market, because of incomplete information on secondary recovery. The Western world’s mine output peaked in 2001, and fell back in the next three years. Meantime, its net exports of concentrates to China and the CIS countries rose, further squeezing available supplies of raw materials for primary smelting. Those peaked in 1996, and had fallen by almost 31% by 2004. The continued growth of secondary recovery, notwithstanding increased demand for refined metal, has further restrained primary production. With that proviso, the Western concentrates market was in deficit in 1994–95, but showed large surpluses in 1996 and in 1998–99. It was close to balance in 2000–01, back in modest deficit in 2002–03 and again in surplus in 2004. The global concentrate market displayed a similar broad picture of deficits in 1994–95, giving way to surpluses in 1996–98 in response to rising mine output. The concentrate market 4.3/page 2

2682 2825 −143 34

World Concentrate production Primary metal output Concentrate balances Metal balances

Source: ILZSG.

30 2037 2117 −80 −102

27 2040 2093 −53 −10 2739 2840 −101 −75

1992 15

1998 15

1995

Western world Concentrate production Net trade with Eastern countries Net imports of bullion Available supplies Primary metal output Concentrate balances Metal balances

1994

2997 2801 196 −98

38 2140 2011 129 −100

2154 −52

1996

3023 2880 143 2

28 2083 2065 18 −109

2130 −75

1997

Table 4.17 Lead concentrate supplies and demand, 1994–2004 (’000 t)

2988 2908 80 6

33 2113 2003 110 −174

2243 −163

1998

2967 3121 −154 97

36 2084 1979 105 −96

2258 −210

1999

3046 3383 −337 165

30 1962 2000 −38 63

2236 −304

2000

2997 3170 −173 120

23 1909 1883 26 63

2243 −357

2001

2830 3170 −340 14

10 1742 1821 −79 37

2019 −287

2002

3096 3242 −146 −4

6 1615 1652 −37 27

1978 −369

2003

3069 3205 −136 −114

−3 1480 1422 58 −225

1969 −486

2004

4 Lead 4.3 The market

4.3/page 3

4.3 The market

4 Lead

150 Concentrates 100

50

0 ’000 t

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2002

2003

2004

–50

–100 Metal

–150

–200

–250

(a)

300

200 Metal 100

’000 t

0 1994

1995

1996

1997

1998

1999

2000

2001

–100

–200 Concentrates –300

–400

(b)

4.8 a) Western world lead concentrate and metal market balances (source: ILZSG); b) Global lead concentrate and metal market balances (source: ILZSG).

then plunged into deficit in 1999, with the tightness most acute in 2000 and 2002. As both the table and figure clearly show, the markets for concentrates and metal can move out of phase. In 1997–98 the Western world metal market was in deficit when the concentrate market was recording surpluses. The global metal market was in 4.3/page 4

4 Lead

4.3 The market

surplus in 2000–01, when there was a shortage of concentrate. In 2004 global markets were tight for both metal and concentrates. In the spring of 2000, when the concentrates market was in surplus, the typical spot treatment charge, for a concentrate containing 70 to 80% lead, was in the range of $184 to $190 per tonne of concentrate. That was on the basis of a lead price of $500 per tonne, with escalators and ‘de-escalators’ for variations in lead prices from this level. In the spring of 2004, when the market for concentrates was tight, spot charges had fallen back to $99 to $109 per tonne of concentrate. By early 2005 they had moved up to $105–140 per tonne of concentrate. Spot charges are more volatile than those for annual contracts. The average contract charge over the 2000–2004 period was $143 per tonne of concentrate, after adjusting for movements in the lead price during the period.

4.3.2 The pricing of lead metal The major reference point in any given formula for concentrate contracts is the price of refined lead. The vast majority of the lead industry uses the London Metal Exchange’s (LME) prices as the basis price for lead and the other base metals. The US market, however, has traditionally based its prices on posted producer prices, which allow the producers to plan production levels at fixed prices. US producer prices, which are quoted in cents per pound, include delivery to a customer’s plant. By contrast the LME prices are quoted f.o.b. LME registered warehouse. Producer prices were seen as having advantages over the LME price in that they provided a more stable basis, without the volatility of speculator interest. Published prices by the trade media have been, and still are, used as references but producers have in recent times abandoned the producer price in increasing numbers and based more of their contracts on the LME price. Wide movements in international exchange rates, the elimination of tariffs and other trade barriers, fluctuations in supply and demand and the consequent difficulties involved in tailoring supply to demand have conspired to reduce the importance of producer pricing. Further influences have been the growing importance of secondary production and concerns about antitrust restrictions on concerted actions by producers. Figure 4.9 compares annual average US producer prices with LME prices over the past twenty-five years, both expressed in US cents per pound. The two quotations have increasingly diverged in recent years, although they have moved up or down together. This divergence only partly reflects the difference between c.i.f. and f.o.b. pricing. The quality of the metal for the two pricing bases has differed. Also there is always a premium for metal of a known quality 4.3/page 5

4.3 The market

4 Lead

60

50

US ¢/lb Annual averages

US producer 40

30 LME 20

10

0 1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

4.9 Lead: LME and US producer prices, 1980–2004.

from a known source and location. LME prices are for any brand in any warehouse location. It is the LME price that is used for the majority of concentrates and metal contracts, and it is also used as a basis for the price of semi-finished lead products and secondary lead. Discounts on any given product, according to the percentage of lead contained, are worked out according to the primary metal’s price. The LME contract is for both primary and secondary refined pig lead with a minimum purity level of 99.97% lead in ingots or pigs each weighing no more than 55 kilograms. The quotation is for lots of 25 tonnes, with a maximum variation of 2% more or less. As with all the other base metals traded on the LME the lead must be of a brand that is registered with the LME and acceptable for ‘good delivery’ into a LME-registered warehouse. In addition to the daily cash settlement prices there are daily published quotations for 3 months and 15 months forward. Each working day between today and 3 months forward is a valid prompt date, and then each Wednesday falling after the 3-month date until the last Wednesday in the 6th calendar month. Between the 7th and 15th month the prompt date is each third Wednesday. Options prices are quoted in addition to the normal forward prices. Table 4.18 shows how the LME’s annual average settlement prices have moved since 1980. Prices were quoted in sterling until July 1993, when the basis switched to US dollars. The dollar prices prior to July 1993 in the table are converted from sterling at the relevant annual average sterling/dollar exchange rates. The final column 4.3/page 6

4 Lead

4.3 The market

Table 4.18 LME average settlement prices for lead, with highs and lows, 1980–2004

Average 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

391.3 363.4 310.7 280.0 322.2 303.7 277.4 363.7 368.4 413.1 459.8 315.4 306.6 338.0 – – – – – – – – – – –

£/tonne High 588 509 372.5 313 400 396 381 451 412 490 815 364 356 485.5 – – – – – – – – – – –

Low

Average

301 277 263.5 258 273.5 262.5 236.5 285.5 333 337 313 274 274 254 – – – – – – – – – – –

911.7 737.6 543.8 425.6 445.1 394.8 407.7 596.4 656.4 677.4 820.6 558.5 542.0 406.3 549.0 630.5 774.0 624.1 528.4 502.2 454.2 476.0 452.5 515.7 888.4

US $/tonne High – – – – – – – – – – – – – – 684 773 902 725 615 559.5 518.5 522.5 538 739.5 1056

Low

cents/lb Average

– – – – – – – – – – – – – – 424.5 505 660 510 477.5 463 399 430.5 402.5 428 696.5

41.4 33.5 24.7 19.3 20.2 17.9 18.5 27.1 29.8 30.7 37.2 25.3 24.6 18.4 24.9 28.6 35.1 28.3 24.0 22.8 20.6 21.6 20.5 23.4 40.3

gives prices in cents per pound comparable to those illustrated from 1990 onwards in Fig. 4.9. The table also shows each year’s high and low prices in the relevant currencies of the quotation. This brings out the marked swings in prices that can occur in any year, and between years, even when the averages are similar. Normally three-month prices exceed cash prices by the costs of warehousing, insurance and interest, and a contango prevails. When the market is disturbed for some reason, perhaps because of a strike or a near-term shortage, the market moves into backwardation. Cash prices then exceed the three-month prices. Figure 4.10 shows the relationship between monthly average cash and three-month prices for lead since 1990. For convenience all the prices have been converted to US dollars per tonne. For most of the period the lead market has been in contango, but there was a severe backwardation early in 1990, and another smaller, and much briefer one in 1996. The former reflected a lack of available inventory and a genuine shortage of nearby supply to meet 4.3/page 7

4.3 The market

4 Lead

1100

1000 Cash 3-month

900

US $/t

800

700

600

500

400

300 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

4.10 Lead: LME cash and three-month prices, 1990–2004.

demand. In 1996, however, LME stocks were fairly comfortable and the LME authorities imposed a limit on the size of the backwardation. There were suspicions that attempts were being made to squeeze the market. A backwardation briefly emerged in early 1999, largely for technical reasons, and shortages of metal in a tight market forced a prolonged backwardation from the middle of 2003. The size of the backwardations is displayed more clearly in Fig. 4.11, which expresses the differences between the monthly average cash and three-month prices as percentages of the three-month price. The behaviour of prices over time mainly depends on changes in the balance between supply and demand for lead metal, and especially on how those are reflected in movements in stocks.

4.3.3 Lead metal supply and demand Trends in the production of refined metal were described in section 4.1, and section 4.2 looked at the behaviour of consumption. Figure 4.12 brings together the performance of global production and consumption of refined lead, whether from primary or secondary sources, since 1994. There was a surplus in the opening years of the decade followed by balance in 1994 and deficits in 1995 and 1996. Subsequently the global market moved back into broad balance, but with a surplus in the 1999–2001 period. Near-balance in 2002–03 was followed by a deficit in 2004. 4.3/page 8

4 Lead

4.3 The market

10.0 Contango

5.0

Percentage of 3–month price

0.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 –5.0 Backwardation –10.0 –15.0 –20.0 –25.0 –30.0 –35.0

4.11 Lead: monthly average contangos and backwardations in LME prices as percentages of the three-month price.

7500

7000

Production 6500 ’000 t

Consumption

6000

5500

5000 1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

4.12 Global lead production and consumption, 1994–2004 (source: ILZSG).

The trend of LME prices shown above in Fig. 4.10 broadly mirrors the shifts in global balances, but the trends in Western countries alone have a greater influence. The overall balances from 1994 onwards are summarised in Table 4.19 both for the world and for Western countries. They tended to move in step, except over the 4.3/page 9

4.3/page 10

Source: ILZSG.

34

5482

Consumption

Metal balances

5451 65 5516

Total metal output US stockpile disposals Total supply 5971 −98

−75

5834 39 5873

2801 3033

−14

−100

5268

5222 46

39 5168

4800 329

2011 2789

1996

5866

5757 34 5791

2840 2917

−173

−33

Change in reported stocks

2825 2626

−102

−10

Metal balance

World Refined metal production: Primary Secondary

5149

4920

34 5047

65 4910 5113 36

4766 247

2117 2649

4576 269

2093 2483

1995

4884 36

Consumption Exports to Eastern countries Total demand

Total metal output Imports from Eastern countries US stockpile disposals Total supply

Western world Refined metal production: Primary Secondary

1994

Table 4.19 Lead metal balances, 1994–2004 (’000 t)

2

6049

6025 26 6051

2880 3145

2

−109

5397

5270 127

26 5288

4972 290

2065 2907

1997

6

6065

6021 50 6071

2908 3113

−20

−174

5479

5260 219

50 5305

4916 339

2003 2913

1998

97

6250

6286 61 6347

3121 3165

52

−96

5671

5421 250

61 5575

4943 571

1979 2964

1999

165

6525

6658 32 6690

3383 3275

−28

63

5721

5640 81

32 5784

5102 650

2000 3102

2000

120

6499

6578 41 6619

3170 3408

−4

63

5544

5457 87

41 5607

4939 627

1883 3056

2001

14

6655

6663 6 6669

3170 3493

47

37

5449

5336 113

6 5486

4916 564

1821 3095

2002

−4

6782

6718 60 6778

3242 3476

−76

27

5374

5264 110

60 5401

4751 590

1652 3099

2003

−114

6962

6790 58 6848

3205 3585

−111

−225

5438

5307 131

58 5213

4545 610

1422 3123

2004

4.3 The market 4 Lead

4 Lead

4.3 The market

1997–99 period, when the Western countries were in deficit while there was a global tendency towards surplus. Demand in the Western world rose in the mid-1990s as the industrial countries recovered from their recessions. The growth in US demand was especially pronounced, largely on the back of strong demand from the replacement battery market. The Asian recessions of 1997 had but a mild restraining impact on total demand, which rose to new heights in 1999–2000. It was then hit by the 2001–02 recession and by tightening environmental restrictions on the use of lead. The growth of 0.8% in 2004 was low for a year of strong economic expansion. There were modest continuing exports of metal to Eastern countries, mainly in Central Europe. On the supply side the growth came from increased output of metal from secondary materials, and from exports from the CIS and China. The latter exported 446 000 tonnes of lead metal to Western countries in 2004 and imported 430 000 tonnes of lead in concentrate from Western countries. China’s exports have become an essential feature of the overall supply/demand balance, as there would have been a severe shortage of lead without them, especially in 2004. The output of primary metal trended downwards in Western countries, and increased supplies of secondary materials have been insufficient to balance the market. There were annual disposals from the US strategic stockpiles, which had fallen to 37 500 tonnes by the end of 2004. Until the second half of 2000 improved demand was insufficient to absorb continuing excess supplies, and prices reflected this. As Fig. 4.10 has shown, LME prices trended downwards from the peak they reached in 1996 but they recovered in the second half of 2000 in response to growing market tightness until they were affected by the US recession in 2001. They drifted back to another low in the second half of 2002, but subsequently rose dramatically in 2003–04. The rise partly mirrored a general surge in metal prices, but it also reflected the tightening fundamentals of the lead market. Burgeoning Chinese demand was one element behind this, although that has been largely met through increased Chinese production of lead metal.

4.3.4 Stocks of lead metal and prices The last two lines of the Western world portion of Table 4.19 compare the annual market balances with changes in the levels of recorded stocks. If all data were comprehensive and perfect the two lines would be identical. As it is, they are not, and there are differences of timing between movements in supply and demand and the recording of stocks. Allowing for lags and other imperfections, there 4.3/page 11

4.3 The market

4 Lead

800 700 600 Merchant LME

’000 t

500

400 300 Consumer 200 100 0 1980

Producer

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

4.13 Total reported lead industry stocks, 1980–2004 (source: ILZSG).

is a broad correlation in the table. Changes in reported stocks offer early warnings of variations in the pressure of demand. Figure 4.13, taken from the data of the International Lead and Zinc Study Group, show how total reported commercial stocks of lead metal have moved, on a monthly basis, since the beginning of 1980. This figure includes the reported stocks of producers, consumers and merchants, plus LME stocks. Over the whole period the average level of stocks relative to consumption has trended gradually downwards. This decline has reflected economy-wide trends including improved systems of inventory management, lowered inflationary expectations and the emergence of positive real interest rates in the early 1990s. ‘Just-in-time’ systems of inventory control became widespread. In the case of lead changes in the structure of ownership and the growing importance of secondary production, which was closely linked with battery manufacture, were additional factors. Lead has run on a lower average level of stock than many other non-ferrous metals. Figure 4.14 plots the ratio between total reported stocks at the end of June each year and annual Western world consumption in terms of weeks’ consumption. The consumption of China and the former Communist countries is excluded from the comparison because there are no data for their holdings of inventory. Nonetheless, those countries have greatly contributed to changes in the recorded level of stocks, especially during periods of excess supply. Even in 1996–2001, when prices were weak, the total inventories amounted to under five weeks’ Western world consumption. Part of 4.3/page 12

4 Lead

4.3 The market

9 8

Weeks' consumption

7

Total

6 5 4 3 LME 2 1 0 1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

4.14 Lead stocks in terms of weeks’ consumption (Western world, based on end-June stocks and annual consumption) (source: ILZSG).

the explanation is the behaviour of LME warehouse stocks, the most visible and liquid component of the total. Their ratio to consumption is also shown in Fig. 4.14. As a market of last resort the LME attracts metal into its warehouses when markets are oversupplied, and metal flows out of them when there are shortages. Its share of total estimated stocks has risen over the past twenty years, but far from evenly. The rise is mainly a function of the same general economic factors that have caused the gradual decline in total lead stock ratios. Producers and consumers have come to rely more on LME warehouses than their own stocks because that is cheaper. Also LME pricing has become more widespread for lead producers and users. Figure 4.15 shows how the LME’s share of total lead stocks has moved since 1980. The LME’s share of the total had not fallen back to the troughs of 1980 or 1990 even in late 2004 when its warehouse stocks had declined sharply. The rising trend has been most pronounced in periods of oversupply, and especially in the first half of the 1990s. That was when metal was flooding out of Central Europe and the FSU. Without established marketing channels or customers its obvious first destination was the market of last resort, or an LME warehouse. The geographical origins of lead in LME warehouses in 1997–2005 are given in Table 4.20. The table brings out the overwhelming importance of Central Europe and the FSU as contributors to LME 4.3/page 13

4.3 The market

4 Lead

70

60

Percentages

50

40

30

20

10

0 1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

4.15 LME stocks’ share of the total, 1980–2004.

Table 4.20 Geographical origins of lead metal in LME warehouses on 31 March (’000 t) 1997 Africa Asia & Australasia North America Latin America Western Europe Central Europe & FSU Total

1998

1999

2000

2001

2002

2003

2004

2005

0.0 9.0

0.0 5.8

0.0 14.2

0.0 86.9

0.0 89.8

0.0 107.7

0.6 123.5

0.0 31.7

0.0 31.3

0.8 0.5 5.5 90.9

0.1 0.2 5.0 82.2

0.1 6.8 2.4 79.5

0.1 2.7 5.1 103.7

47.8 2.7 0.0 0.3

9.8 2.7 8.6 0.0

5.3 3.7 49.5 0.1

0.2 1.1 41.3 0.1

0.0 0.1 1.6 0.3

106.7

93.2

102.9

198.4

140.6

128.7

182.6

74.3

33.3

Source: LME.

stocks during the 1990s, and the LME’s role as a market of last resort for the USA in 2001, and Western Europe in 2002–04. By 1999 China, which is included under Asia and Australasia, had become a major source. LME-registered brands all have to meet the defined standards of quality, but these fall short of the requirements of many users. Thus LME warehouses tend to attract the lower-quality metal, and it only emerges on a large scale when markets are tight. Yet the apparent stability of total LME stocks from one year to the next can disguise substantial two-way flows, as befits a terminal market. Those flows 4.3/page 14

4 Lead

4.3 The market Table 4.21 LME deliveries of lead as percentages of world production and consumption

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Deliveries into warehouse

Deliveries out of warehouse

2.5 0.6 1.2 0.7 1.2 1.9 2.0 2.2 3.8 0.9 0.7

1.7 4.2 1.4 0.8 1.2 0.8 2.8 2.7 2.5 1.9 1.6

Sources: LME, ILZSG.

nonetheless account for only a small percentage of global production and consumption of refined lead, as Table 4.21 makes clear. Deliveries into warehouse are compared with production and deliveries out with consumption. Nearly all the world’s annual output is sold direct to end-users without going near an LME warehouse, but most production is priced on the basis of LME quotations. Table 4.22 brings out the way in which LME stocks are affected by a large two-way movement of metal into and out of warehouses. It also shows how most lead has been concentrated in only a few locations, which are not always the most accessible. Rotterdam and other Benelux locations have been displaced as the main locations of lead by other locations. The Swedish warehouses were recipients of much lead from CIS countries, and Trieste took metal from the successor states of Yugoslavia. Metal lingered in both locations until European markets tightened, when consumers were prepared to accept less-favoured brands. US warehouses assumed the greatest importance in 2001–02 as a consequence of the weakening of US demand, but metal flowed out again in 2003–04. Singapore has been the main centre for exports from China. In all locations, and even the more logistically disadvantaged, there has been two-way traffic throughout. Market prices react more quickly to changes in LME stocks than to movements in other inventories, or to the changes in supply/demand balances that they mirror. The relationship between LME monthly average LME settlement prices and LME stocks since the start of 1990 is portrayed in Fig. 4.16. As noted earlier, lead prices soared in early 1990 as dwindling LME stocks resulted in the development of a huge backwardation. This forced the LME cash price to a high of almost $1320/tonne (60 ¢/lb) in March of that year, 4.3/page 15

4.3 The market

4 Lead

Table 4.22 LME end-year stocks of lead, 1993–2004, with deliveries into and out of warehouses by location (’000 t)

End-1993 In Out End-1994 In Out End-1995 In Out End-1996 In Out End-1997 In Out End-1998 In Out End-1999 In Out End-2000 In Out End-2001 In Out End-2002 In Out End-2003 In Out End-2004

Rotterdam

Trieste

Sweden

Singapore

166.0 49.9 −33.5 182.4 8.2 −166.5 24.0 6.7 −28.0 2.8 5.8 −4.2 4.4 2.2 −4.4 2.2 7.1 −3.5 5.9 0.1 −3.6 2.4 11.0 −11.9 1.4 0 −0.8 0.7 0 −0.7 0 2.2 1.9 0.4

18.2 9.5 −6.6 21.1 0.5 −21.2 0.5 2.3 −2.7 0.0 0 0 0.0 22.8 −3.2 19.5 7.4 −11.6 15.3 5.0 −15.3 5.0 2.0 5.0 2.0 9.3 −7.5 3.9 0 −0.6 3.2 0.5 −0.3 3.4

53.2 48.8 −1.6 100.4 22.4 −18.3 104.5 25.5 −38.4 91.6 6.8 −5.7 92.7 6.7 −28.5 70.9 14.5 −8.0 77.4 47.5 −86.0 38.9 2.6 −20.9 20.3 4.0 −23.1 1.2 0 −1.2 0 0 0 0

24.1 17.2 −28.8 12.5 1.3 −13.5 0.3 19.8 −6.8 13.4 11.4 −19.3 5.5 27.3 −27.3 5.5 80.3 −13.0 72.9 76.6 −73.1 76.4 98.9 −124.6 50.5 121.1 −123.5 48.3 20.8 −63.5 5.6 36.6 −19.9 22.3

USA 0 0 0 0 0 0 0 2.0 0 2.0 0 −2.0 0.0 8.0 0 8.0 0 −5.2 2.8 5.2 −0.1 7.9 28.8 −13.4 23.3 102.8 −5.4 120.7 32.3 −62.9 90.1 1.7 −84.7 7.1

Others

Total

42.1 8.6 −23.6 27.1 1.9 −26.0 3.0 12.4 −6.6 8.8 19.4 −19.6 8.7 4.6 −11.1 2.3 9.3 −9.3 2.3 0 −2.2 0.1 0.3 −10.7 0.2 15.2 −6.0 9.2 4.2 −3.3 10.1 3.8 −10.2 7.3

303.7 133.9 −94.1 343.4 34.2 −245.4 132.3 68.7 −82.3 118.6 43.5 −50.8 111.3 71.6 −74.5 108.4 118.6 −50.5 176.4 134.4 −180.1 130.7 143.5 −176.4 97.7 252.4 −166.2 183.9 57.3 −132.2 109.0 44.7 −113.2 40.5

Source: LME.

but inevitably the enormous premium being commanded for cash attracted more metal on to warrant. Thereafter, with the exception of a brief spike in mid-1992, prices remained in a general downtrend until late 1993 as inventories continued to accumulate. In the latter year the cash lead price averaged just $406/tonne (18.4 ¢/lb), although the picture had started to improve towards the end of that period. Strong demand, particularly from the US replacement battery industry, and the influence of trends in the prices of other metals, helped boost prices in 1994, but it was in 1996 that they really started to take off. Having fallen steadily throughout the preceding year, from their October 1994 peak of 372 650 tonnes, LME 4.3/page 16

4 Lead

4.3 The market

400

1200

350 1000 300 Prices (right-hand scale)

800

200

600

Prices US$/t

Stocks (’000 t)

250

150 400 100 Stocks (left-hand scale) 200 50 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

0

4.16 Lead: LME stocks and prices, 1990–2004.

stocks bottomed out at just below 90 000 tonnes in the second quarter of 1996. Against this backdrop the cash price rose sharply, reaching a high of $900/tonne (40.8 ¢/lb) in mid-March. The threemonth price peaked at $861/tonne (39.1 ¢/lb) in early May. Then lead was affected by the collapse of copper prices, by a disappointing replacement battery season and by high Chinese exports. Although total reported stocks remained at relatively low levels throughout 1997 the market seemed unconcerned and prices maintained their earlier downward path. Initially there was confidence that supplies would be more than sufficient to satisfy lacklustre Western demand. By the end of the year the implications of the Asian recessions for demand were sinking in, and prices retreated further. Temporary rallies aside the subsequent tendency was for a continued downward drift until the second half of 2000 under the influence of excess supply, high Chinese exports and rising LME stocks. The year’s low was $399/tonne (18.1 ¢/lb). Prices seemed set to rise during 2001, but a fall in stocks was halted by the onset of the US recession. Prices fell back to a low of $402.5/tonne (18.3 ¢/lb) in 2002. The year’s average of $452.5/tonne (20.5 ¢/lb) was below that of 2000. By the second half of 2002 LME stocks had reached their cyclical peak and had started to fall back. The decline only became pronounced in the second half of 2003, when commentators emphasised China’s growing role in all metal markets. In 2003 the low price of $428/tonne (19.4 ¢/lb) came at the start of the year, and the high of $739.5/tonne (33.5 ¢/lb) at the end. Stocks continued to fall 4.3/page 17

4.3 The market

4 Lead

1000 Dec '04

900

3-month price ($/t)

800

700 Jan '90

600

500

400

300 0

50

100

150

200

250

300

350

400

Stocks (’000 t)

4.17 LME monthly stocks and three-month prices, 1990–2004.

throughout most of 2004 in response to tight markets, but prices dropped back temporarily in the spring to the year’s low of $696.5/tonne (31.6 ¢/lb), in response to concerns about the Chinese economy. Those proved temporary, and prices recovered, with a high of $1039/tonne (46.3 ¢/lb) in late July. That was the highest nominal price since the peak of 1990. Equally, by the end of 2004 LME stocks had fallen to their lowest level since 1990. The relationship between LME stocks and prices has altered over the past decade and a half, as Fig. 4.17 demonstrates. This figure plots the level of prices against the level of stocks between January 1990 and December 2004. Successive monthly points are joined together by the line, which thus traces how stocks and prices moved together over the period. The 3-month rather than cash prices are used to abstract from periods, such as early 1999, or 1996, when cash prices may have been distorted by artificial factors. That explains why the price in December 2004 is higher relative to that of March 1990 in Fig. 4.17 than in Fig. 4.16. This figure brings out the imprecise and variable relationship between levels of LME stocks and prices. There is clearly a level of total LME inventory below which prices will rise steeply, but that level appears to vary. Equally, a given level of inventory in the past twelve months has been associated with a lower level of prices than in the mid-1990s. That is because expectations and market sentiment, not to mention developments in other metal markets and the economy at large, are other determinants of prices. 4.3/page 18

4 Lead

4.3 The market

LME stocks drifted down by 22% in the first quarter of 2005, and prices moved back over $1000/tonne. Provided Chinese consumption remains strong, lead prices will also remain well above their 2000–02 lows, although their recent levels are unsustainably high. Consumption will continue to be constrained by tightening environmental restrictions, and mine output is being stimulated by the buoyant prices of both lead and zinc.

4.3/page 19

4.4 Appendix Table 4.A.1 The world’s lead mines in 2005 Location

Africa Morocco Namibia South Africa Tunisia

Mine

Ownership

Guemassa (Hajar) Tighza Others Rosh Pinah Aggeneys Bougrine Others

ONA, State Harwanne Anglo American Anglo American Breakwater Total Africa

Asia China

India Iran

Japan Kazakhstan Myanmar North Korea Turkey Oceania Australia

Fankou Huangshaping (Hunan) Huize Luizhou Huaxi Shuikoushan Xilin Xitieshan Various Rajpura-Dariba Rampura-Agucha Zawar (Udaipur) Angouran Iran Kuh Koushke Haft-deh Emarat Toyoha Tishinsk Zyryanovke Various Bawdwin Various Kayseri Mines

State State State State State State State State Vedanta Vedanta Vedanta State Bama Mining Bafgh Mining Shahin Mining Nippon Mining Glencore, State Glencore, State State No. 1 Mining Corp. State Cinkur Total Asia

Cannington Century Endeavour Broken Hill Rosebery Lennard Shelf

BHP Billiton Zinifex CBH Resources Perilya Zinifex Teck Cominco

Mount Isa/George Fisher McArthur River

Xstrata Xstrata, Nippon, Marubeni, Mitsui

Capacity (’000 t)

25 25 1 20 40 6 2 119 40 15 20 25 20 5 55 770 7 30 15 15 4 2 2 8 7 7 30 5 20 15 1077 275 80 48 60 30 80 suspended 135 40

4.4/page 1

4.4 Appendix

4 Lead

Table 4.A.1 (cont.) Location

Europe Bulgaria Ireland Poland

Romania Russian Federation Sweden

Latin America Argentina Bolivia

Brazil Chile Honduras Mexico

Peru

4.4/page 2

Mine

Ownership

Golden Grove

Newmont Total Oceania

4 752

Gorubso Tara Galmoy Lisheen Lubin Olkusz Pomorzany Rudna Trzebionka Baia Mare & Deva Various mines Boliden/Kristineberg Garpenburg Zinkgruvan

State Boliden Lundin Anglo American KGHM State State KGHM Trzebionka State Various Boliden Boliden Lundin Total Europe

18 50 5 25 5 5 15 10 15 17 20 7 15 32 239

Aguilar Bolivar Caballo Blanco Porco Others Morro Agudo El Toqui El Mochito Charcas San Martin Santa Barbara Santa Eulalia Taxco Velardena Fresnillo La Cienega Zimapan/El Monte La Encantada Naica Sabinas San Francisco Avalos/Bufa Francisco I Maderos (Zacatecas) Tayahua La Colorada Tizapa

Comsur Comsur/State Comsur Comsur Various Votorantim Breakwater Breakwater Grupo Mexico Grupo Mexico Grupo Mexico Grupo Mexico Grupo Mexico Grupo Mexico Peñoles Peñoles Peñoles Peñoles Peñoles Peñoles Frisco SA Tayahua Peñoles

15 5 2 2 3 20 2 5 5 4 20 5 4 4 10 7 6 3 40 7 20 6 15

Grupo Corso Pan Am Silver Penoles/Dowa/ Sumitomo

10 1 12

Small producers Andaychagua Antamina

Volcan BHP Billiton, Noranda, Teck Cominco, Mitsui

Capacity (’000 t)

10 6 5

4 Lead

4.4 Appendix

Table 4.A.1 (cont.) Location

Mine

Ownership

Anticona Arcata Atacocha Austria Duvaz

Pan Am Silver Area Cia. Min. Atacocha Soc. Min. Austria Duvaz Volcan Gubbins Casapalca Glencore Caudalosa Castrovirrey Volcan Volcan Buenaventura Colquisiri Mitsui Pan Am Silver Glencore Buenaventura Pan Am Silver Cia. Min. Milpo Gubbins Ganoza Glencore BHL Peru Pan Am Silver Cia. Min. Raura Volcan San Valetin Simsa Buenaventura Gubbins

Carahuacra Carolina Casapalca (Americana) Casapalca (Yauliyacu) Caudalosa Castrovirreyna Cerro de Pasco Chungar Colquijirca Colquisiri Huanzala Huaron Iscaycruz Julcani Manuelita Milpo (El Porvenir) Morococha Pachapaqui Perubar Pucarrajo Quiruvilca Raura San Cristobal San Valetin San Vicente Uchucchacua Yauricocha Small producers

Total Latin America North America Canada USA

Brunswick By-product Green’s Creek Lucky Friday Montana Tunnels Red Dog Viburnum Mines Other & By-product

Noranda Rio Tinto/Hecla Hecla Apollo Gold Teck Cominco Doe Run Total North America Total world

Capacity (’000 t) 2 1 40 1 3 2 7 16 4 2 55 23 30 7 20 14 10 1 5 30 2 1 15 2 6 12 8 2 3 8 12 20 618

80 10 21 25 5 130 280 12 563 3117

Sources: ILZSG, Brook Hunt Associates, Raw Materials Data.

4.4/page 3

4.4 Appendix

4 Lead

Table 4.A.2 The world’s primary lead smelters in 2005 Location

Smelter

Ownership

Africa Morocco South Africa

Oued-el-Heimer Germiston

Zellidja Fry’s Metals Total Africa

Baiyin, Gansu Baoding Feng Fan, Hebei Geiju Shadian, Yunnan Hanjiang, Hubei Huapeng, Sichuan Chizou, Anhui Shaoguan, Guangdong Shengyang, Liaoning Shuikoushan, Hunan Xinli, Yunnan Xitieshan, Qinghai Yinhe, Shaanxi Yubei, Henan Yuguang, Henan Zhuzhou, Hunan Other plants Tundoo Chanderiya Zandjan

State

Asia China

India Iran Japan

Kazakhstan Myanmar North Korea South Korea Thailand Oceania Australia

Europe Bulgaria Germany Italy

4.4/page 4

Harima Kosaka Chigirishima Hachinohe Chymkent Ust-Kamenogorsk Namtu Munpyong Haeju Onsan Karnchanaburi

Capacity (’000 t)

100 40 140 52 20

Process

BF RF

QSL

35

Kewei Metals State State State

State State Vedanta Vedanta National Iranian L. & Z. Sumitomo Dowa Toho Zinc Hachinohe Yuzhpolymetal Kazzinc No. 1 Mining Corp. State State Korea Zinc Thai Lead Total Asia

80 40 60 70 70 45 70 50 18 170 180 94 600 8 35 40

BF BF BF ISF Kaldo

30 22 120 46 60 130 10

ISF EF BF ISF BF BF/KF BF

100 20 150 18 2443

ISF BF BF

BF BF QSL RF

Port Pirie Cockle Creek Mount Isa

Zinifex Zinifex Xstrata Total Oceania

250 48 200 498

BF ISF BF/Isa

Plovdiv Stolberg Nordenham Porto Vesme Porto Vesme

KCM Berzelius Xstrata Glencore Glencore

56 120 90 100 30

BF QSL Ausmelt KF ISF

4 Lead

4.4 Appendix

Table 4.A.2 (cont.) Location

Smelter

Ownership

Macedonia Poland Romania

Sweden

Titov Veles Miasteczko Copsa-Mica Baia Mare Bucharest Vladikavkaz Rudnia Pristan Ronnskar

MHK State Sometra Romplumb Neferal State Dalpolimetall Boliden Total Europe

38 35 42 24 25 40 20 65 685

ISF ISF ISF BF RF BF BF Kaldo

Latin America Argentina Mexico Peru

Alto La Torre Torreon La Oroya

Aguilar Penoles Doe Run Total Latin America

11 180 93 284

BF BF BF

Belledune Trail Glover, Missouri Herculaneum, Missouri

Brunswick Teck Cominco Doe Run Doe Run

100 120 125 220

BF KF BF BF

Total North America Total world

565

Russian Federation

North America Canada USA

Capacity (’000 t)

Process

4615

BF = Blast Furnace RF = Rotary Furnace KF = Kivcet Furnace EF = Electric Furnace ISF = Imperial Smelting Furnace QSL = Queneau/Schuhmann/Lurgi Kaldo = Kaldo Isa = Isasmelt Sources: ILZSG, Raw Materials Data.

4.4/page 5

4.4 Appendix

4 Lead

Table 4.A.3 The world’s lead refineries in 2005 Location

Refinery

Ownership

Africa Algeria

Rouiba

Kenya

Nairobi

Morocco

Casablanca Oued-el-Heimer Alagbado Germiston Small secondary plants Secondary plants Secondary plants

Ste Nationale de Siderurgie Associated Battery Manufacturers SAMAB SFPZ Lob Metals Fry’s Metals

Nigeria South Africa Zambia Zimbabwe

Baiyin, Gansu Changsa, Hunan Geiju Shadian, Yunnan Hanjiang, Hubei Huapeng, Sichuan Chizou, Anhui Shaoguan, Guangdong Shengyang, Liaoning Shuikoushan, Hunan Kunming, Yunnan Xitieshan, Qinghai Yinhe, Shaanxi Yubei, Henan Yuguang, Henan Zhuzhou, Hunan Guangdong Tianjin Xiamen Xuzhou, Jiansu Shanghai

India

Other plants Tundoo Chanderiya Calcutta/Thane Calcutta Mumbai Small secondary plants

4.4/page 6

Process

6

P2

3

P2

5 100 3 60 6

P2 P1 P2 P1/2 P2

8 4 195

P2 P2

State State State

50 5 35

P1 P1 P1

State State Kewei Metals & Materials State

80 40 60

P1 P1 E1

70

E1

State

40

E1

State

45

E1

Xinli Nonferrous Metals State State State Yuguang Gold & Lead Group State Chunxing Alloy Chunxing Alloy Chunxing Alloy Chunxing Alloy Shanghai Jingao Chemical

70

E1

50 18 170 180

E1 E1 E1 E1

94 15 15 10 160 12

E1 P2 P2 P2 P2 P2

650 8 35 32 25

P1/2 P1 P1 P1/2 P1/2

Total Africa Asia China

Capacity (’000 t)

Vedanta Vedanta Indian Lead Associated Pigments Binani Lead

25 31

P2 P2

4 Lead

4.4 Appendix

Table 4.A.3 (cont.) Location

Refinery

Ownership

Indonesia

Surubaya

47

P2/E

Iran

Zandjan

Indra Eramulti Logam National Iranian Lead & Zinc Niru Battery Manufacturing Hakurnas Lead Works Vulcan Batteries Sumitomo Mitsui Dowa Toho Hosokura Smelting Ichikawa Mitsui Nihonkaiseiren

40

P1

65

P2

25

P2

5 30 44 25 95 22 20 34 17

P2 E1 E1 E1 E1 E2 P2 E2 E2

Osaka Lead Tomatsu

20 20 71

P2 P2 P2

60 130 18 70 10 90 20 36

P1 P1 P2 P2 P1 P1 E1 P2

11

P2

36

P2

200 24

E1 P2

15 15 3 2

P2 P2 P2 P2

12

P2

28

P2

14 43 20

P1 P2 P2

6

P2

6

P2

Tehran Israel

Ashdod

Philippines

Migdal Tefen Harima Takehara Kosaka Chigirishima Hosokura Ichikawa Kamioka Maizuru-shi, Kyoto Amagasaki Kariya Small secondary plants Shymkent Ust-Kamenogorsk Leningorsk Palau Indah Namtu Munpyong Heaju Marilao

Saudi Arabia

Other secondary plants Riyadh

Japan

Kazakhstan Malaysia Myanmar North Korea

South Korea

Onsan Ansan

Sri Lanka

Ulsan-Kun Ansan Pusan Ratmalana

Taiwan

Taipei Kaohsiung

Thailand Turkey

United Arab Emirates

Karnchanaburi Secondary plants Kartal Small secondary plants Sharjah

Yuzhpolymetal Kazzinc Kaz-Tyumen Metal Reclamation No. 1 Mining Corp. State State Philippine Recyclers National Lead Smelting Korea Zinc Korea Lead Recycling Tae Kwang Sang Sin H. K. Industry Associated Battery Manufacturers ACME Metal Enterprise Thye Ming Industrial Thai Lead Metal Mutlu Aku ve Malzemeleri San Solo Industries Total Asia

Capacity (’000 t)

Process

3474

4.4/page 7

4.4 Appendix

4 Lead

Table 4.A.3 (cont.) Location

Oceania Australia

Refinery

Ownership

Port Pirie Laverton North

Zinifex Australian Refined Alloys Australian Refined Alloys

Alexandria

New Zealand Europe Austria Belgium Bulgaria Czech Republic Estonia France

Germany

Other secondary plants Petone

Arnoldstein Small secondary plants Hoboken Beerse Brussels Plovdiv Kardjali Pribram Sillamae Pont Sainte, Maxence Bourg Fidele, Ardennes Toulouse, HauteGaronne Bazoches Stolberg Nordenham Hamburg Goslar-Oker Braubach Buchholz Muldenhutten

Greece Ireland Italy

Brilon, N RhineWestphalia Piraeus Dublin San Gavino Paderno-Dugnano Marcianise Pacce del Mela, Messina Brugherio Maclodio, Brescia Lamerzia Terme, Catanzaro

4.4/page 8

Capacity (’000 t)

250 15

Process

P1/2 P2

15

P2

5

P2

16 301

P2

32 9

P2 P2

125 45 20 56 33 30

P2 P2 P2 P1 P2 P2

Ecometal APSM

10 45

P2 P2

Metal Blanc

23

P2

STCM

20

P2

Exide Technologies Total Oceania BMG Metall Umicore Campine FMM KCM State Kovohute Pribram

STCM Berzelius Xstrata Norddeutsche Affinerie Metaleurop BSB Recycling Varta Recycling Muldenhutten Recycling Hoppecke

30 130 150 50

Marnten Metal Processors Glencore Eco-Bat Eco-Bat Ecological Scrap Industry Piomboleghe Piombifera Bresciana ME. CA Lead Recycling

12 15 110 50 40 10

P2 P1/2 P1/2 P1/E1

30 50 50 60

P2 P2 P2 P2

12

P2 P2 P2 P1/E1 P2 P2 P2

25 20

P2 P2

20

P2

4 Lead

4.4 Appendix

Table 4.A.3 (cont.) Location

Refinery

Ownership

Kosovo

Kosovska, Mitrovica Delft Miasteczko Katowice Glogow Bytom Castanheira do Ribatejo Copsa Mica Bucharest Vladikavkaz

Trepca

90

P1

Uzimet State BATERPOL State Orzel Bialy Metal Potuguesa

20 34 20 25 10 14

P2 P1 P2 P2 P2 P2

Sometra Neferal State

42 25 40

E1 P1 P1

State State Rudnik Mezica MPI Derivados de Minerales Metalurgica de Medina MEGORSA

20 60 18 6

P1 P2 P2 P2

22

P2

50

P2

Netherlands Poland

Portugal Romania Russian Federation Slovenia Spain

Rudnia Pristan Verkh-Neyvinsk Mezica Barcelona Medina del Campo

Sweden Switzerland Ukraine UK

San Estaban de Gormaz Espinardo, Murcia Ronnskar Landskrona Pratteln Konstantinovka Northfleet Northfleet Welwyn Garden City Chester Darley Dale Woodville

Latin America Argentina Brazil

Colombia Mexico

Jujuy Secondary plants Jacarei, Sao Paulo Cacapava Recife Small secondary plants Cali, Valle Torreon Cienega de Flores Monterrey

Capacity (’000 t)

Perdigones Azor Boliden Boliden-Bergsoe Metallum State Britannia Refined Metals Britannia Refined Metals British Lead Mills

22 70 50 10 20 210

Calder Industrial Materials H J Enthoven Midland Lead Manufacturers Total Europe Aguilar Tonolli do Brasil Ind. e Com. de Metais Metalurgica Bitury Metalurgica Bera de Colombia Penoles Enermex PIPSA

Process

P2 E1 P2 P2 P2 P1/2

35

P2

50

P2

40

P2

85 20

P2 P2

2420 11 20 35 24

P1 P2 P2 P2

18 10

P2 P2

10

P2

180 100 14

P1 P2 P2

4.4/page 9

4.4 Appendix

4 Lead

Table 4.A.3 (cont.) Location

Refinery

Ownership

Tijuana

Acumuladores de Noroeste Empresas CA-LE de Tlaxcala

Tetia

Peru Trinidad

Small secondary plants La Oroya Arima

Venezuela

Guacara

North America Canada

USA

Belledune Trail Montreal Ville Ste Catherine Mississauga Small secondary plants Glover, Missouri Herculaneum, Missouri Boss, Missouri Lyon Station, Pa. Reading, Pa. Muncie, Ind. Baton Rouge, La. Forest City, Missouri Frisco, Texas Los Angeles, Ca. Altoona, Pa. College Grove, Tenn. Eagan, Minn. Tampa, Florida City of Industry, Ca. Middletown, NY Indianapolis, Ind. Troy, Ala. Small secondary plants

P1 = Pyrometallurgical Primary P2 = Pyrometallurgical Secondary E1 = Electrolytic Primary E2 = Electrolytic Secondary Sources: ILZSG, Raw Materials Data.

4.4/page 10

Doe Run Automotive Components Bera de Venezuela Total Latin America

Capacity (’000 t)

Process

10

P2

9

P2

16

P2

115 2

PE1 P2

20 594

P2

Brunswick Teck Cominco American Iron & Metal Nova Pb Tonolli Canada

100 120 20

P1 E1 P2

90 45 8

P2 P2 P2

Doe Run Doe Run

125 220

P1 P1

Doe Run East Penn Mfg. Exide Technologies Exide Technologies Exide Technologies Exide Technologies

130 75 66 75 80 30

P2 P2 P2 P2 P2 P2

Exide Technologies Exide Technologies Fry Technology Metalico-College Grove Gopher Smelting & Refining Gulf Coast Recycling RSR Corporation

58 88 10 30

P2 P2 P2 P2

58

P2

24

P2

110

P2

90 110 110 10

P2 P2 P2 P2

RSR Corporation RSR Corporation Sanders Lead Total North America

1882

Total world

8866

5

Zinc

5.1 Resources and extraction 5.1.1 Resources and reserves 5.1.2 Mining and concentrating 5.1.3 Smelting and refining 5.1.4 Mine production 5.1.5 Secondary production 5.1.6 Production of refined zinc 5.2 Consumption 5.2.1 Overall trends 5.2.2 End-uses 5.2.2.1 Zinc coatings 5.2.2.2 Zinc-based alloys 5.2.2.3 Brass and bronze 5.2.2.4 Zinc chemicals 5.2.2.5 Zinc semi-manufactures 5.2.2.6 Other uses of zinc 5.2.3 Regional trends in consumption of refined zinc 5.3 The market 5.3.1 Ores and concentrates 5.3.2 The pricing of zinc metal 5.3.3 Zinc metal supply and demand 5.3.4 Stocks of zinc metal and prices 5.4 Appendix 5.A.1 The world’s zinc mines in 2005 5.A.2 The world’s zinc smelters in 2005

5

Zinc

Zinc is a silver-coloured metal with a melting point of 419.5 °C and a boiling point of 907 °C. Its hexagonal crystal structure cannot be modified but it can be strengthened. Its main advantages lie in its resistance to non-acidic atmospheric corrosion and its high position in the electrochemical series, which allows its use as a sacrificial anode for steel. It also alloys well with other metals, such as copper. Unlike most other base metals, zinc was not isolated as a metal in antiquity and was unknown as such until the seventh century AD. In pre-Christian times the ancient Romans mixed calamine, which contained zinc carbonate, with copper ore to produce brass. Zinc’s use in brass therefore arose accidentally. Because it has a relatively low boiling point it vaporises at the temperatures at which other metals are smelted and would have dispersed as smoke in the atmosphere. The knowledge of zinc can be traced back in India to between 1000 and 1300 BC, and there is evidence that the Chinese had developed some zinc metallurgy before this time. Around 2000 years ago zinc was known as false silver. One of the oldest recognised pieces of zinc is an idol found in prehistoric ruins in Romania, which contained 87% zinc. Bracelets containing zinc have also been found on Rhodes and are dated around 500 BC. The Romans used zinc alloy to make coins as early as 200 BC. The first appearance of written work on physical properties of ‘zinck’ was by Paracelsus (1490–1541). Europe’s introduction to the metal appears to have occurred in the seventeenth century when slab zinc was imported from China and Sumatra and sold in the European market under the terminology of ‘spelter’. The technology for smelting the zinc was only brought to Europe from China in about 1730, and the first smelting began in Bristol, England, on a small scale in 1738. Commercial smelting only began in the early nineteenth century with the introduction of the horizontal or ‘Belgian’ retort. By the end of the nineteenth century zinc smelting was well established in Belgium and Germany. In the US the first zinc was produced in 1835 at the arsenal in Washington, DC. By 1860 two companies had established zinc smelting operations, the first at La Salle, Illinois and another at South Bethlehem in Pennsylvania. The eighteenth- and nineteenth-century smelters used the distillation process developed by the Chinese and Indians. This basic 5/page 1

5 Zinc

chemistry using pyrometallurgical techniques only changed with the use of zinc sulphide. The higher temperatures required to convert raw zinc oxide ore with carbon met with considerable technical difficulties. The use of zinc sulphide arose after difficulties in sourcing zinc oxide during the First World War. In 1917 a major step was taken with the electrolytic extraction of zinc from zinc sulphate solutions. Today the greater part of refined zinc produced comes from electrolytic refineries. Zinc’s major end-uses have changed dramatically as technology has developed. Its earlier use was primarily in brass and bronze. This continued well into the twentieth century because of the increasing demand for ammunition during the two world wars. More recently zinc’s major use has been in galvanising to protect steels. It is also used in zinc alloy die-casting, and in chemicals.

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5.1 Resources and extraction 5.1.1 Resources and reserves Like lead, zinc is not an abundant element and zinc deposits have normally been exploited only if other secondary metallic values can be found. These are usually lead, copper or silver, and there are sometimes minor metals like cadmium and indium. There are, however, some zinc deposits rich in the metal that have been exploited for zinc alone. World zinc reserves that are viable at recent prices are estimated at roughly 220 000 tonnes. The identified reserve base is much greater at 460 000 tonnes. The world’s known resources are much larger still at 1.9 billion tonnes, but their extraction would require both much higher prices relative to extraction costs and changed technology. China (15%), Australia (15%), the USA (14%), Kazakhstan (14%), Peru (7%) and Canada (5%) have the largest reserves. Together with Mexico they account for about four-fifths of the reserve base. The remainder is spread across a broad range of countries in all continents, but with Africa and Latin America having relatively small reserves compared with their land area. India, Ireland and Spain are in the second rank. There are around 55 known zinc minerals, of which about seven are of economic importance. Sphalerite (ZnS) is the most significant zinc mineral and accounts for around 90% of zinc production. Other important zinc minerals are hemimorphite, smithsonite, hydrocincite, zincite, willemite and franklinite. Primary zinc reserves that are considered exploitable can be divided into five main categories: volcanic-hosted submarine exhalative massive sulphide deposits, sediment-hosted submarine exhalative deposits, strata-bound carbonate-hosted lead–zinc deposits, strata-bound sandstone-hosted deposits, and vein-replacement and contactmetasomatic deposits. The volcanic-hosted submarine exhalative massive sulphide deposits are almost entirely made up of pyrite and pyrrhotite. There are also varying amounts of chalcopyrite, sphalerite and galena. These deposits normally occur as multiple stratiform lenses often overlaying or adjacent to lower-grade deposits in altered volcanic rocks. The majority of orebodies contain between 0.1 and 10.0 Mt of ore, containing 4–5% zinc, 1–2% copper and 1–1.5% lead. Examples of such orebodies are found in Kuroko in Japan and the Kidd 5.1/page 1

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5 Zinc

Creek mine in Timmins, Canada. Most sphalerite has associated cadmium in quantities ranging from trace amounts to 2%, along with small quantities of germanium, gallium, indium and thallium. Sediment-hosted submarine exhalative deposits of zinc and lead are stratiform basinal accumulations. These are mainly made up of fine-grained pyrite and pyrrhotite, sphalerite, galena, barite and chalcopyrite, which are deposited concordantly. They are interbedded with sediments that include black shale, siltstone and sandstone. These deposits contain between 2 and 200 Mt of ore grading from 6 to over 30% zinc, lead and copper, with zinc in the 3 to 20% range. A typical example of these deposits is Mount Isa mine in Queensland, Australia. Some of the Canadian deposits, including the now-closed Sullivan mine, are also of this type. The third type of deposit is the strata-bound carbonate-hosted zinc/lead, which invariably contains sphalerite, galena, pyrite, fluorite, barite, chalcopyrite, diatomite, calcite and quartz. These minerals fill both primary and secondary voids in beds or horizons within thick sequences of shallow-water dolomite or limestone. The deposits range in size from thousands of tonnes of ore to as much as 20 Mt, with some ten times that figure. The ore grades range between 3 and 10% of both zinc and lead, but some of the deposits contain zinc alone at grades between 3 and 6%. The Mississippi Valley deposits in the US are typical examples of such deposits. The strata-bound sandstone-hosted deposits are usually either fine or medium crystalline galena. Small deposits of sphalerite, pyrite, barite, fluorite and some chalcopyrite are laid down in multiple sheets of orebody. The ore minerals are regularly found in subspherical clots or in evenly spread disseminations. They are, however, generally found in larger orebodies, which have been localised by sedimentary structures. The more closely spaced clusters, which are more exploitable, contain between 1 and 80 Mt of ore grading 3.5–5% lead and 0.5–0.75% zinc. The Laisvall deposit in Sweden is a typical example. In the vein-replacement and contact-metasomatic deposits ores are generally made up of coarsely crystalline aggregates of sphalerite, pyrite, galena and chalcopyrite along with numerous base and precious metal sulphide, sulphosalts, arsenide and antimonide minerals. Deposits can contain several hundred thousand tonnes of ore rising to a few million tonnes grading 10–30% lead and zinc. The Bingham and Coeur d’Alene mines in the US are typical deposits.

5.1.2 Mining and concentrating Compared with some of the other base metals and iron ore the mining of zinc remains on a relatively small scale. A large propor5.1/page 2

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5.1 Resources and extraction

tion is mined jointly with lead, described in Chapter 4. With the changing relative economics of the two metals the main attention of recent decades has focused on zinc-rich deposits at the expense of lead. The average ratio of zinc to lead production is one indication. It rose from 1.85 tonnes of zinc to 1 tonne of lead in 1980 to 2.3 tonnes in the mid-1990s. The average grades of ore mined, on a zincequivalent basis, also rose over the period, another indication of the metal’s favoured status. The nature of the ore deposits dictates that most zinc ore is extracted by underground mining. There are some operations, like Kidd Creek in Canada, that have used a mixture of underground and open-pit methods, and there are a few solely open-pit mines like the Red Dog mine in Alaska and Century in Australia. The majority of new operations remain underground. They tend to operate on a smaller scale than open-pit mines. Facilities that are solely of an underground nature make up around 84% of the number of mines, but only 75% of their milling capacity. Conversely open-pit mining accounts for 8% of the mines, but almost 14% of milling capacity. The balance comes from mixed operations. The average size of mine has gradually risen over the years. Many of the smaller operations have been squeezed out in the recessions of 1975, the early 1980s and 1991–93. While much of the discovery of zinc deposits has come from surface mapping, the study of stratigraphy from oil drilling and from widely spaced diamond drilling and airborne magnetic surveys have been instrumental in discovering large reserves of base metals including zinc. There are four conventional methods of underground mining of zinc ore. These are room and pillar, shrinkage stoping, cut-and-fill and the square set methods. Several different methods may be used within one mine. Room and pillar mining generally describes the excavation of flat or gently dipping orebodies by means of excavating chambers. Pillars of ore or waste rock are left to support the roof of the chamber. Stratiform orebodies are the types mostly mined by this method although slight variations of this method do occur. In shrinkage stoping, ore is mined in successive flat or inclined cuts or slices, which progress upward from a haulage level. Following each ‘slice’, enough broken ore is removed through chutes to allow working space between the top of the pile and the new roof of the stope. The remaining broken ore serves as the floor on which miners prepare the next cut or slice. Cut-and-fill and square set methods have proven to be more costly and are therefore only used in the highergrade silver/lead/zinc mines or copper/zinc mines. Like the majority of mining, the extraction of zinc ore consists of drilling, blasting and removing the broken rock. Mechanical shovelling and loading are used in some deposits, while electrical equip5.1/page 3

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5 Zinc

ment is used in others. Mechanisation has played a major role in such mining. In the flat zinc ore zinc replacement deposits selfpropelled jumbos have multiple drills mounted on them. These jumbos have effectively replaced the single drill. Broken ore, meanwhile, is loaded either onto diesel or electrical shovels and loaders and hauled out by means of trucks or load-haul-dump (LHD) units. Over the years increased mechanisation has greatly increased the productivity, and reduced the costs, of underground mining. Once the ore, in whatever form, is removed from the mine it requires processing. Zinc ores are generally too low in zinc content for direct reduction processes and therefore first require concentrating. The first step is in milling the ore to prepare a concentrate that can be treated in order to recover zinc and associated by-product metals. This concentrating or milling of zinc ore is generally carried out at or near the mine. The milling involves separating the zinc in an ore from the unwanted impurities or ‘gangue’ by a number of mechanical processes. The mineralogy of the zinc-containing ores determines the technology and economics of the chosen milling process. Simple ores such as coarsely disseminated zinc, or zinclead minerals with low specific impurities, are the more easily treated. These ores are first crushed, normally underground, by means of jaw, gyratory or cone crushers. They are then ground by ball or rod milling. The crushed and sized ore is then treated in heavy-medium cones, jigs and tables. Simple zinc ores can be treated by flotation with copper sulphate, which causes the hydrophobic zinc ore particles to attach to rising bubbles. The zinc ore treated by flotation normally produces concentrate containing 50–60% zinc. The more complex mixed sulphide ore consists of fine-grained lead and zinc sulphide, along with pyrite, copper sulphides, gold, silver and quartz. It is crushed and fine-ground in a closed circuit to a size at which the ore minerals are separated from impurities such as barite, siderite or rhodeochrosite. Following grinding the ore is selectively floated to yield lead, zinc and copper in a number of steps. The lead and copper are floated off as a lead–copper bulk concentrate with cyanide or zinc sulphate. Sphalerite is then activated and floated from iron and gangue minerals and possibly the pyrite is separated floated. Zinc concentrates may be further treated in smelting plants close to the mill, but they are more usually shipped as concentrates for subsequent extraction of zinc metal.

5.1.3 Smelting and refining Whereas copper and lead sulphides are normally directly smelted all zinc sulphide concentrates have to be roasted to remove sulphur 5.1/page 4

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5.1 Resources and extraction

prior to smelting. The zinc sulphide in the concentrates is converted to oxide by multiple hearth roasters, flash roasting or fluidisation roasting. This process is usually carried out at the smelters. Multiple hearth roasters have largely been overtaken in use by the flash furnaces. The multiple hearth is just that, a series of vertically arranged hearths that stir the ore as it drops from the top and is gradually oxidised. Such roasters have high capital and labour costs, a high degree of sulphur dioxide emissions and little waste-heat recovery. Flash roasters suspend the concentrates in a stream of air that is hot enough to desulphurise the material. In the fluidisation method fluid filled roasters are used, which can handle a higher tonnage of concentrate than the multiple hearth roasters. The majority of electrolytic plants use fluid bed roasting. Partially roasted concentrates are sintered before further pyrometallurgical smelting. Sintering methods depend on the smelting method employed and the purity required. In some cases roasting and sintering are carried out in one machine, the Dwight-Lloyd downdraft type. There are five major methods of producing zinc metal from the concentrate. These are the horizontal retort, the vertical retort, the electrothermic process, the Imperial Smelting Process (ISP), and the electrolytic process. The horizontal retort was the method first used in a commercial zinc operation in 1800, and it became the usual means of reducing zinc. Vertical retorts were developed as an improvement in the late 1920s. They can be divided into two main types: those externally heated by fuel and those heated electrothermically. All three types of retort plants employ 0.5 to 0.8 tonnes of coal or coke per tonne of slab zinc as the reducing agent. The zinc vapour and carbon monoxide from the retorts pass into condensers of various forms where the zinc is collected in liquid form and is ready for casting into slabs. In vertical retorts zinc recovery is around 92–95% in the form of Prime Western Grade material, which can be purified to Special High Grade (SHG) zinc by distillation. By the mid-1980s horizontal and vertical retorts had been largely abandoned, because of their capital and labour intensity, the cost of coke and natural gas, and their severe environmental emissions. There are no longer any horizontal or vertical retorts operating in Western countries. In the electrothermic process, developed by the St Joe Mineral Corporation in the 1930s, the thermal energy used to smelt the material is developed by passing an electrical current through the bed of coke and zinc sinter. By this means High Grade, Prime Western Grade or Intermediate Grade metal is produced. This method is sometimes known as the electrothermic arc furnace and is still used 5.1/page 5

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5 Zinc

in two plants, one producing primary zinc in the US, and a secondary zinc plant in Japan. The blast furnace method of producing zinc came about with the development of the Imperial Smelting Process (ISP) by Imperial Smelting Co. at Avonmouth, UK in the 1950s, although it was only in the 1960s that it was first brought into commercial operation. The process follows the normal blast furnace practice of burning carbonaceous matter with the ore to be reduced. The zinc is released as a vapour, which requires condensing. A preheated charge of sinter zinc or lead–zinc concentrate and coke is added to the blast furnace. Lead oxide is reduced and the molten lead sinks to the bottom of the furnace and eventually lies beneath a slag layer, which is formed by a reaction of the gangue in the sinter and coke with the flux in the charge. Gold, silver and copper are contained in the lead, which is tapped periodically. The zinc oxide, still in the furnace, is then reduced to form a vapour. This moves up the furnace and is withdrawn at a temperature of around 1000 °C. The zinc vapours and furnace gases then move through heated passages to a condenser. Vertical motor-driven impellers in the condenser revolve in a lead pool creating lead droplets, which absorb the zinc. The zinc is then separated from the condensing lead by means of either cooling or by vacuum treatment Using this method zinc recovery ranges between 92 and 95% with lead at around 1.1–1.3%, putting the zinc into the Prime Western Grade category. It can then be further treated in an electrolytic refinery to produce purer forms of zinc. The advantages of the ISP are that it can treat bulk lead–zinc concentrates and produce a number of metals simultaneously, but primarily zinc and lead. This allows for the treatment of complex lead/zinc ores, lead/zinc-copper ores, zinc-containing dusts, drosses and residues. It has proven to be more economical than any retort system. A disadvantage, however, is its reliance on coke with its increasing prices. Imperial Smelting Plants, with a combined capacity of some one million tonnes of zinc, accounted for around 13% of global zinc smelting and refining capacity in the late 1990s, but several (e.g. Avonmouth and Noyelles-Godault) have since closed down. The electrolytic process was first used in a plant in 1915 built by the Anaconda Company in Montana, USA. Electrolytic plants now account for over four-fifths of global zinc smelting and refining capacity, and are also used to upgrade zinc metal produced by other methods. Their advantage is that they can treat complex ores and lead/silver ores in particular, which contain zinc, copper and iron. Their atmospheric emissions are also lower than those of other processes. All electrolytic plants have four common operations, namely roasting of concentrates, leaching of the roasted concentrate 5.1/page 6

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5.1 Resources and extraction

of calcine to extract soluble zinc, purification, and electrolysis of the solution to obtain metallic zinc. A number of leaching or pre-leaching processes are carried out for those concentrates with a high magnesium and calcium content. Two processes, either the Jarosite process or the Geothite process, separate iron from the solution. Leaching will also remove silica, alumina, antimony and germanium. Copper, cadmium and cobalt generally still remain and these are removed by means of zinc dust, which precipitates out the impurities. Because of the problems associated with the disposal of iron residues the Jarosite process is being superseded. For example, the Budel smelter in the Netherlands almost had to close because it had no further capacity for jarosite disposal. It was saved only by access to low-iron concentrates from the new Century mine in Australia. Once purified the solution is pumped through to electrolytic cells where zinc is electro-deposited onto aluminium cathodes. These are then removed from the tanks and stripped of the zinc, which is then melted and cast into slabs. The effect of the electrolysis on the solution regenerates sulphuric acid, which is then returned to the leaching plant. Many of the zinc concentrates shipped to electrolytic plants contain lead, gold and silver, which build up as a residue in the electrolytic tank. This residue is collected and shipped to lead smelters where lead bullion can be recovered. Some later processes have been developed, such as the replacement of roasting by a form of smelting. This smelting fumes off zinc oxide for electrolysis and produces lead metal and slag from the original concentrate. Such principles are used in the Kivcet and Isasmelt processes (see section 4.1.3 of the Lead chapter). These are not yet widely used for producing zinc metal. Work is also under way on more revolutionary processes that eliminate some of the present steps, but they will not make significant inroads for some years. Zinc oxide is produced either by an indirect method that is also known as the French process, or by a ‘direct’ method, which produces zinc oxide from zinc ore or scrap. The zinc vapour from the ore or scrap is oxidised without being condensed to metal. This is also known as the American process. Other means of producing zinc oxide include grate-type furnaces, Waelz kilns, the vertical electrothermic process and slag fuming. Zinc oxide can also be produced from secondary materials such as scrap in the form of galvanisers’ dross, trimmings, turnings etc. Scrap is becoming an increasingly important source of zinc oxide and accounts for about one-fifth of all US zinc oxide production. Zinc is not only recovered from metallic sources but can also be extracted from dusts, residues and chemicals. Some scrap is vapo5.1/page 7

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5 Zinc

rised and then converted to zinc oxide, while other scrap is processed in a retort and condensed to zinc dust or slab zinc. Except where it is just remelted, secondary zinc requires prerefining in the same way as primary zinc. This can be done by mechanical, hydrometallurgical or pyrometallurgical processes. Following pre-refining the scrap requires further refining, either by retort distillation or muffle furnace distillation. Increasing quantities of zinc are extracted from the flue dusts of electric arc steel furnaces, which largely use steel scrap. Nearly all such flue dusts are processed in Waelz kilns, but other processes such as plasma furnaces are under development.

5.1.4 Mine production Mine production of zinc tracks metal production and consumption much more closely than mine output of lead, because secondary sources are much less important. Figure 5.1 shows how global mine output has moved over the past forty-five years. Data are shown separately for the whole world and for Western countries. This figure brings out the cyclical nature of mine output, especially in Western countries. Production contracted in the late 1970s/early 1980s and again in 1993–94, when the shakeout was pronounced. There was a further slowdown in 2001–02, which mainly affected Western countries. Over the entire period, 1960 to 2004, global mine output rose at an annual average 2.4% compound rate. The annual average rate of growth was 2.1% per annum in the

10000 9000 8000 World

7000

’000 t

6000 5000 4000

Western world

3000 2000 1000 0 1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

5.1 Mine production of zinc, 1960–2004 (source: ILZSG). 5.1/page 8

2002

2005

5 Zinc

5.1 Resources and extraction

Western countries combined. These growth rates disguise marked variations in different periods, and between countries. Table 5.1 shows the mine output of zinc in all producing countries for selected years from 1976. The picture is slightly complicated by the geopolitical changes of the past two decades. Even with the break-up of the USSR and Yugoslavia into their constituent parts the number of producing countries has fallen and there has been a marked reduction in the number of operating mines. Many of the mines that closed during recession were small. Even where their output was more substantial they were usually running out of economic reserves. Reduced numbers of mines have been accompanied by the growth of total output. Thirty-five countries are recorded as mining zinc in 2004. The three leading countries supplied 43% of the total in 1977 and 51% in 2003.The shares of the leading ten countries, and the identity of those ten have changed over the past twenty years, as illustrated in Table 5.2. The USSR has disappeared both as a country and as a major zinc producer. From just over 1 Mt in 1979, the output of the successor states dropped to 0.3 Mt in 1994. There has subsequently been a strong revival in Kazakhstan with the injection of foreign capital and management, but Kazakhstan only ranks as the world’s seventh producer. Its Zyryanovsk mine is the sixth largest outside China. China’s reported mine output of zinc has risen dramatically over the past twenty-five years to place it comfortably in first place as a producer. In 2004 it controlled over 23% of world production, with a rise of almost 12% over 2003’s level. Production is spread across a large number of sites throughout China. There are no Chinese mines comparable in size to the largest operating in Western countries, the biggest having an annual output below 100 000 tonnes. A fair proportion of China’s mine output comes from small-scale operations, with annual production of under 10 000 tonnes. The precise accuracy of the official figures is suspect, but the relative magnitude of Chinese zinc production is not in doubt. Australia has long been an important producer of zinc but it only assumed second place during the 1990s. Its output more than doubled between 1985 and 2001, when it reached a plateau. In 2003 Australia produced 1.45 Mt, or 15% of global output. Its production fell back to just under 1.3 Mt in 2004, following the temporary suspension of the Lennard Shelf mines with the bankruptcy of Western Metals, and their purchase by Teck-Cominco. Also production fell at the Broken Hill operations, which are nearing exhaustion. These were purchased by Perilya when Pasminco went into administration. The Century mine reached full capacity in 2002 with annual production of over 0.5 Mt, offsetting a large reduction at the 5.1/page 9

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5 Zinc

Table 5.1 Mine production of zinc by country, 1976–2003 (’000 t) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Europe Austria Bosnia Bulgaria Denmark Finland France Georgia Germany Greece Ireland Italy Macedonia Norway Poland Portugal Romania Russian Federation Slovenia Spain Sweden UK USSR Yugoslavia Yugoslavia FR Total Europe Africa Algeria Congo DR Congo Morocco Namibia South Africa Tunisia Zambia Total Africa

23 0 85 81 59 35 – 133 26 62 90 – 29 215 – 48 –

15 0 29 0 56 27 – 54 30 188 37 – 19 145 2 27 190

– 0 30 – 17 – 2 – 17 194 22 22 16 151 – 35 147

– 1 26 – 32 – 1 – 18 193 8 21 7 158 – 29 121

– – – – – 3 84 143 168 234 278 265 122 175 187 212 193 158 3 – 10 5 5 1 1020 940 750 625 670 – 107 102 84 89 71 – – – – – – 31 2234 2366 2049 2065 2026 1330

1 151 160 – – – 8 973

– – – 147 204 15 155 177 188 – – – – – – – – – 13 4 – 930 1063 1017

3 1 – 79 33 76 12 – 205

4 3 – 90 37 71 3 – 208

7 68 5 15 37 86 7 50 275

21 0 75 87 55 37 – 117 23 205 66 – 28 237 – 45 –

3 73 – 7 29 70 8 54 243

19 0 66 80 55 37 – 106 20 167 39 – 32 183 – 37 –

11 82 – 12 40 86 8 53 291

22 0 51 70 61 41 – 118 22 192 45 – 28 191 – 54 –

13 75 – 15 31 97 6 51 285

17 0 44 77 64 31 – 75 21 177 38 – 18 183 – 58 –

10 76 – 11 34 90 9 47 294

4 42 – 27 36 64 5 25 203

– 0 10 – 16 – 1 – 17 263 – 25 – 157 – 27 163

6 0 – 105 40 63 41 – 256

– – 12 – 39 – 0 – 3 419 – 4 – 154 – 24 159

3 – – 69 108 41 38 – 259

Americas Argentina 41 37 37 36 36 39 27 33 35 30 Bolivia 53 44 46 38 55 128 101 155 151 145 Brazil 47 69 71 85 99 103 146 124 100 147 Canada 1147 1204 1189 1172 1347 1157 1011 1077 1002 788 Chile 5 2 6 22 19 31 31 34 31 33 Colombia 0 0 1 2 2 – – – – – Ecuador 0 1 – – – – – – – – Guatemala 0 1 1 – – – – – – – Honduras 25 20 24 44 24 38 23 40 43 44 Mexico 262 251 251 292 271 317 382 379 393 472 Nicaragua 14 – – – – – – – – – Peru 464 491 507 583 485 638 690 865 910 1369 USA 483 294 330 252 256 547 598 632 852 768 Total Americas 2541 2413 2462 2556 2592 2998 3008 3339 3517 3795

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Table 5.1 (cont.) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Asia China India Iran Japan Kazakhstan Korea, North Korea, South Laos Myanmar Philippines Saudi Arabia Thailand Turkey Uzbekistan Vietnam Total Asia Oceania Australia World total of which: Western countries

135 27 78 260 – 150 59 – 2 11 – 1 34 – 10 766

155 43 25 243 – 135 62 – 3 10 – 1 25 – 10 712

275 395 527 750 991 1210 1780 2029 27 53 60 102 147 142 208 305 40 50 60 101 73 77 102 111 251 253 147 133 101 72 64 45 – – – 284 170 223 322 392 130 140 150 120 90 60 34 52 58 46 22 22 7 9 12 – – – – – – – – 4 4 3 2 1 1 0 2 2 4 2 1 0 – – – – – – 2 2 2 1 3 2 4 49 81 87 59 15 27 31 34 33 41 33 33 64 48 40 – – – 34 31 2 – – 10 10 10 15 12 16 22 45 837 1034 1101 1613 1716 1893 2623 3058

432

487

633

713

739 1048

928

972 1379 1447

6249 6299 6275 6651 6714 7160 6798 7337 8839 9577 4574 4610 4814 5178 5067 5590 5170 5498 6323 6706

Source: ILZSG.

Table 5.2 Top ten zinc-mining countries, 1977, 1990, 2003 1977 ’000 t % Canada USSR Peru Australia USA Japan Mexico Poland China North Korea Others Total

1300 1040 476 451 448 276 266 221 150 150 1789 6567

19.8 15.8 7.2 6.9 6.8 4.2 4.1 3.4 2.3 2.3 27.2 100

1990 ’000 t % Canada Australia China USSR Peru USA Mexico Spain Ireland Sweden Others

1203 884 763 610 598 543 307 257 167 158 1878 7368

16.3 12.0 10.4 8.3 8.1 7.4 4.2 3.5 2.3 2.1 25.5 100

2003 ’000 t % China Australia Peru Canada USA Mexico Ireland Kazakhstan India Sweden Others

2027 1447 1369 788 768 475 419 389 305 188 1402 9577

21.2 15.1 14.3 8.2 8.0 5.0 4.4 4.1 3.2 2.0 14.6 100

Source: ILZSG.

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5 Zinc

Scuddles mine whose output more than halved between 2000 and 2004 to 46 000 tonnes. Cannington, which is primarily a lead/silver mine that opened in 1997, produces around 55 000 tonnes of zinc. Xstrata’s MIM raised its Queensland output in the late 1990s with the development of McArthur River, Hilton and George Fisher. Conversely, Thalanga, Woodcutters and Woodlawn closed in 1998–99 and Hellyer in 2000. Australia has usurped Canada’s place in the rankings. Canada’s mine output peaked at 1.48 Mt in 1987, but it fell to under 0.8 Mt in 2003–04, even below its recession-hit level of 1993. Many of its former mines have been depleted and closed, or were too high-cost to survive. Sullivan’s ore ran out in 2001 and Nanisivik and Polaris were depleted in 2002. Several mines assumed a role of swing producers, opening and closing with swings in prices. The Yukon mines of Faro and the adjacent ore deposits have been a good example, often changing their ownership with each reopening. They last closed in late 1996, with some concentrates shipped from already mined ore during 1997. Breakwater’s Caribou is another swing producer that is presently closed. While new mines, such as BouchardHébert, Langlois, LaRonde and Bell-Allard, opened in the second half of the 1990s their output is insufficient to offset the closures. Langlois was suspended in 2000, but there are plans for restarting. Both Laronde and Bell-Allard have expanded capacity since 2001. Output was declining in the USA until Cominco’s Red Dog mine opened in Alaska in 1989. Expansions there to an output of over 0.55 Mt pa are largely responsible for sustaining the US share of global output. Several mines, like Leadville, ran out of ore in the second half of the 1990s; West Fork and Sweetwater closed in 2000, Tennessee Zinc Mines in 2001, and the Elmwood-Gordonsville mine in 2003, a casualty of Pasminco’s bankruptcy. Green’s Creek reopened in Alaska in 1996 after closing in the early 1990s’ recession. Teck-Cominco is working on the Pend-Oreille mine in Washington State, but no other developments seem likely in the foreseeable future. Peruvian output was volatile in the 1980s and early 1990s, mainly because of political factors and a struggling economy. Production has risen steadily between 1992 and 2003 to take Peru into third place. It dropped back from 2003’s 1.37 Mt to 1.23 Mt in 2004. The fall was almost entirely due to reduced output from Antamina. This mine opened in 2001, and produced 0.36 Mt in 2003, but only 0.19 Mt in 2004, well below its capacity. The Iscaycruz mine, which opened in 1996, raised its output to 0.15 Mt in 2004. Aside from these two mines most of the growth has come from better performances at existing mines. In contrast to Peru, Mexico’s output has been relatively stable in recent years. The main change was the start-up of the Zacatecas mine in 2001. 5.1/page 12

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5.1 Resources and extraction

Europe has seen contrasting trends in different countries. Leaving aside the former Soviet Union, its output peaked at roughly 1.4 Mt in 1984–85, but had slumped below 0.8 Mt by 1998. Ore grades fell and reserves became exhausted at a number of long-established operations. Also many mines suffered from cost/price squeezes because of adverse movements in exchange rates. Zinc mining has largely contracted to Scandinavia, Poland and Ireland, with modest production in Bulgaria, Romania and Macedonia. Spain witnessed a renaissance in the 1990s with the opening of Los Frailes in 1997 to replace the depleted Aznacollar pit, and of Aguas Tenidas in 1999. A tailings dam failure forced the closure of Los Frailes in 2001, and in the same year Sotiel was depleted and Aguas Tenidas shut. With the exhaustion of the Reocin mine in 2003 Spanish mine production of zinc ceased. In Sweden the exhaustion of the Laissval lead mine in 2001 was balanced by the opening of Storliden in 2002. Greek output was boosted by the expansion of the Stratonian mine in 2001, but it closed in 2003. Ireland’s output has been boosted first by the opening of Arcon’s Galmoy operation in 1997, which was sold to Lundin in 2005, and then by the start-up of the larger Lisheen mine in 1999. Tara, the largest producer, has had a chequered history. It closed temporarily in 2002, but its output reached new heights in 2004 under the changed ownership of Boliden rather than Outokumpu. Africa has witnessed a mixture of openings and closures that have restored production to the level of the late 1980s after an intervening fall. By the mid-1990s zinc mining had ceased in Zambia and the Democratic Republic of Congo. The losses were offset by an expansion of Hajar in Morocco and by the start-up of Tunisia’s Bougrine in 1994. The latter was forced to close in 1996 but reopened in 1998 under the changed ownership of Breakwater Resources. Hajar’s output has dropped considerably from its level of the late 1990s. In South Africa the Pering mine closed in 2003, and output has fallen at Maranda, leaving the Aggeneys lead mine as the main producer. Namibia has emerged as Africa’s largest producer with an expansion at Rosh Pinah, and the start-up of Anglo American’s 150 000 tpa Skorpion mine in 2003. While China dominates Asian production, with Kazakhstan a poor second, there has been movement elsewhere in Asia. Japanese production has steadily declined for similar reasons to the European, namely adverse exchange rate movements, a cost/price squeeze and depleting reserves. In Thailand reserve exhaustion forced a sharp contraction in the output of the Mae Sod mine in the mid-1990s. Conversely, there have been rises in Iran and India. The main development in the latter was the opening and later expansion of Rampura-Agucha by Vedanta (previously Hindustan Zinc). Turkish production rose from 1995 with the opening of the Cayeli copper/zinc operation. 5.1/page 13

5.1 Resources and extraction

5 Zinc

Table 5.3 Major zinc mines Country

Company

Mine

Production capability (’000 t)

USA Australia Canada India Peru Ireland Kazakhstan Australia Australia Ireland Australia Peru Namibia Australia Brazil

Cominco American Zinifex Noranda Vedanta BHP-Billiton/Noranda Boliden Glencore/State Xstrata Xstrata Anglo American Teck-Cominco Glencore Anglo American Perilya Votorantim

Red Dog Century Brunswick Rampura-Agucha Antamina Tara Zyryanovsk McArthur River Mt Isa/George Fisher Lisheen Pillara Iscaycruz Skorpion Broken Hill Vazante

560 515 280 275 250 225 180 175 170 160 160 150 150 130 120

Source: Raw Materials Group.

Table 5.3 lists the fifteen leading zinc mines, with their production capabilities. Pillara is presently suspended, and Skorpion is building up to full capacity working. Brunswick and Broken Hill have limited life expectancies. The three largest mines, with 1.35 Mt, account for about 13% of global mine capacity, and the fifteen have a combined capacity of 3.5 Mt.

5.1.5 Secondary production The production of metal from secondary materials is nowhere as important for zinc as it is for lead, but it rose during the 1990s, as displayed in Fig. 5.2. This covers only Western countries, as the data on other countries are incomplete. The fall in 2003–04 resulted from weak metal prices and changes in the structure of the zinc refining sector. Secondary materials accounted for almost 10% of zinc metal output in 2001, but had fallen back to 8.4% in 2004. Secondary zinc metal comes from scraps, wastes and residues of all types. One growing source is the flue-dusts of electric arc furnaces in the steel industry, which are largely fed with scrap. Secondary recovery will continue to grow, and account for a slowly, if erratically, rising share of metal production. This reduces the need for new mine capacity. In addition to the secondary materials used in smelters and refineries for making new slab zinc metal, secondary zinc and zinc alloys are widely used without undergoing further processing, other 5.1/page 14

5 Zinc

5.1 Resources and extraction 11

700 The blocks show the tonnage (left-hand scale) and the line the share of total metal output (right-hand scale) 600

10 500 9

’000 t

% share

400

300

8

200 7 100

0

6 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

5.2 Western world production of secondary zinc metal, and share of total zinc metal output, 1990–2004 (source: ILZSG).

Table 5.4 Western world recovery of secondary zinc, 2003 (’000 t)

Western Europe USA Japan Other countries Total

Refined metal

Remelted

Direct uses

Total

288 150 99 28 565

132 4 32 112 280

444 290 236 209 1179

864 444 367 349 2024

Source: ILZSG.

than remelting. Much is in the form of brass. Furthermore, secondary zinc-containing materials are used in preference to primary zinc in chemicals, paints and pigments. Data are only available for Western countries, and they are incomplete. The International Lead and Zinc Study Group estimates the recovery of secondary zinc in all forms at some 2 Mt in 2003. It was allocated as shown in Table 5.4. The growth of the 1990s was mainly in the production of refined metal from secondary materials. The other types of secondary recovery have stagnated, largely reflecting the slow growth of brass output and improvements in fabricating technology that have reduced the arising of new scrap. Direct use of scrap is also cyclical, moving closely in step with industrial activity. 5.1/page 15

5.1 Resources and extraction

5 Zinc

5.1.6 Production of refined zinc A large proportion of zinc ore is smelted in the same country in which it is mined. As the zinc mining sectors of Europe and Japan have contracted over the years, and their output of zinc metal has not, they have increasingly relied on imported concentrates to meet their raw material needs. Concentrates are therefore shipped to these regions, and also to South Korea, for smelting and refining. China is also a large net importer of concentrates. Close to 5 Mt of zinc in concentrates, or roughly half of production, is traded annually. Japan and South Korea take 1.1 Mt between them, and Western Europe 2.2 Mt. Canada has a two-way trade, importing from Alaska, as well as exporting, but has become a net importer. Australia, Peru, the USA, Ireland, Mexico and Bolivia are the other main exporters. Imports are rising into Brazil and Russia. Subject to the rising input of secondary raw materials, and losses in transit and processing, the global production of refined zinc metal closely tracks mine output. Figure 5.3 illustrates the behaviour of global zinc metal output since 1960. While the trend is similar to that of mine output, the cyclical fluctuations are rather different. The output of metal experienced greater downturns in 1974–75, and again in the early 1980s, but mine output suffered much more in 1993. Then a large surplus of concentrates forced up treatment charges when metal prices were weak. Mine output rose faster than metal production in the late 1990s and 2000, leading to a build-up in stocks of concentrates. A run-down

11000 10000 9000 8000

’000 t

7000

World

6000 5000 4000

Western world

3000 2000 1000 0 1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

5.3 Production of refined zinc metal, 1960–2004 (source: ILZSG). 5.1/page 16

5 Zinc

5.1 Resources and extraction

of these stocks allowed metal production to grow faster than mine output in 2002–03. The geographical distribution of the production of refined zinc metal is given in Table 5.5. Fewer countries are involved than in mining. A listing of the world’s zinc smelters, with their ownership and production capacities, is given in Appendix 5.A.2. Global capacity

Table 5.5 World production of refined zinc metal by country (’000 t) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Europe Austria Belgium Bulgaria Finland France Germany DR Germany FR Italy Macedonia Netherlands Norway Poland Portugal Romania Russian Federation Spain Ukraine United Kingdom USSR Yugoslavia Yugoslavia FR Total Europe Africa Algeria Namibia South Africa Zaire Zambia Total Africa

17 244 93 111 234 15 305 191 – 123 63 237 – 53 –

23 253 89 147 249 17 356 203 – 154 78 209 – 47 –

24 228 92 144 243 17 334 158 – 186 79 165 4 44 –

25 271 92 161 247 17 367 210 – 203 93 180 6 35 –

25 298 82 156 274 20 352 242 – 210 122 174 6 40 –

17 306 52 170 300 – 346 256 57 201 125 126 2 9 165

– 218 77 173 309 – 360 256 39 212 137 154 4 22 138

– 221 82 176 317 – 348 268 55 203 136 171 – 30 190

– 264 84 223 318 – 357 170 58 217 138 173 – 52 242

– 244 86 266 253 – 388 123 10 223 142 154 – 48 253

161 – 42

186 – 77

190 – 79

216 – 74

256 – 77

274 – 101

296 14 101

378 2 93

391 – 76

519 – 14

1000 1000 850 720 705 – – – – – 104 112 101 95 129 – – – – – – – – – – 48 4 29 8 0 2991 3198 2939 3016 3169 2572 2520 2698 2770 2723 6 – 66 61 39 172

23 – 75 44 38 181

29 – 80 64 39 204

35 – 94 56 23 216

38 – 85 61 20 204

30 – 92 28 7 156

24 – 94 1 0 119

26 – 110 – – 136

26 – 103 – – 129

32 47 112 – 2 193

Americas Argentina 35 41 29 30 33 36 35 39 36 39 Brazil 43 64 96 116 140 163 199 186 192 258 Canada 472 580 512 692 703 661 691 704 780 761 Mexico 175 162 128 182 191 189 209 230 235 319 Peru 64 68 159 163 126 155 161 173 200 202 USA 515 526 303 334 330 376 356 367 371 353 Total Americas 1305 1442 1226 1516 1521 1574 1651 1699 1814 1932

5.1/page 17

5.1 Resources and extraction

5 Zinc

Table 5.5 (cont.) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Asia China India Iran Japan Kazakhstan Korea, North Korea, South Thailand Turkey Uzbekistan Total Asia Oceania Australia Total Oceania World total of which: Western countries

150 160 238 306 425 612 1017 1434 1957 2319 27 63 53 71 69 92 157 166 204 280 – – – – – – 1 12 47 101 742 789 662 740 678 731 666 603 654 651 – – – – – 292 173 185 262 279 135 120 110 120 160 130 100 55 37 55 27 81 96 109 224 242 271 336 477 645 – – – 59 69 70 71 84 101 107 2 17 15 22 23 17 20 37 0 – – – – – – – 40 53 34 30 1093 1240 1184 1437 1657 2285 2532 2965 3774 4467 249 249

310 310

296 296

293 293

302 302

326 326

318 318

307 307

494 494

553 553

5811 6456 5855 6480 6856 6895 7123 7802 8981 9869 4118 4719 4330 4996 5240 5409 5381 5603 6140 6644

Source: ILZSG.

is approaching 11 Mt, but disruptions of all types tend to keep production lower than capacity, even when there is adequate demand and raw materials are available. Just as new mine capacity is being developed so smelters are being extended and new ones built. Within Western Europe, Japan and North America these tend to be marginal expansions, often to reduce costs or improve environmental performance. Japan has seen a gradual decline in its capacity in response to adverse economic developments. The main growth in capacity is shared between mining countries aiming to add value to local materials and developing countries with burgeoning demand for zinc. In some instances the two motives may be combined, as in the opening of a South Korean-owned smelter at Townsville in Queensland, Australia in 1999. Similarly China has seen a rapid expansion of both mining and smelting. Its metal capacity has outstripped mining and China has become a net importer of concentrates after being a net exporter between 1997 and 2000. The late 1990s saw widespread mergers and rationalisation in both zinc mining and smelting that have continued in recent years. Small companies have been taken over, and the ownership of some of the larger companies has become more concentrated. In Europe two of the larger producers, Preussag Metall AG and Société Minière 5.1/page 18

5 Zinc

5.1 Resources and extraction Table 5.6 Equity shares of global zinc mine and smelter output, 2004 (%, ranked according to shares of metal output)

’000 t State of China Xstrata Zinifex Umicore Young Poong Boliden Teck-Cominco Glencore International Noranda Votorantim

n/a 286 609 18 0 313 602 385 487 58

Mine % share

’000 t

Metal % share

n/a 3.0 6.3 0.2 0 3.2 6.2 4.0 5.0 0.6

1517 650 622 570 455 425 296 269 205 204

14.9 6.4 6.1 5.6 4.5 4.2 2.9 2.6 2.0 2.0

Source: Raw Materials Group.

et Metallurgique de Penarroya, merged to form Metaleurop SA. Glencore purchased a stake in the company from Preussag and subsequently raised it. Glencore has also purchased zinc assets in Spain, Italy, Peru and Kazakhstan. Its German and Spanish zinc-smelting interests were hived off to Xstrata, but Glencore has retained zincsmelting interests in Porto Vesme, Italy and in Kazakhstan. Metaleurop went bankrupt in 2003 and its Noyelles-Godault ISF in France was closed. In Australia the lead and zinc operations of North Broken Hill and CRA were merged to form Pasminco, which then acquired Savage Resources. With Pasminco’s bankruptcy some of its assets were closed or sold off, but its successor company, Zinifex, took over most of the zinc-smelting assets. Xstrata took over MIM in 2003, adding its Australian zinc-refining capacity to its existing interests. Soon before the takeover MIM had closed its ISF plant at Avonmouth, UK, and sold its Duisburg, Germany ISF to Safeguard Industries which has since closed it. Boliden and Rio Tinto sold their equal shares of the Odda, Norway smelter to Outokumpu in 2001, and Boliden then took over all Outokumpu’s zinc interests in 2002. Teck-Cominco sold its Cajamarquilla, Peru smelter to the Brazilian company, Votorantim, in 2004. Umicore hived off its zinc-smelting interests into a separate company in 2005. Even where companies own both mines and smelters they may still buy or sell concentrates. The effective degree of vertical integration of the zinc industry remains low, although it has increased in recent years. Table 5.6 shows the shares of world zinc mine and metal production held by the ten leading zinc-smelting companies. The figures, collated by Raw Materials Group of Sweden, are based 5.1/page 19

5.1 Resources and extraction

5 Zinc

on the companies’ equity shares of the output of their relevant mines and smelters in 2004. Based on their equity shares of production the five leading companies controlled 37.5% of the production of refined metal and the top ten 51.2%. To the extent that such companies can exert strong influence over the operations in which they have an equity interest this probably understates the importance and market power of the leading producers. Anglo American, Volcan and Breakwater have significant zinc-mining interests, and appear in the top ten zincmining companies, but only Anglo American also has zinc-smelting interests (eleventh with 2.2% of global metal output). Only three of the ten leading smelting companies featured as such in a similar list for 1989, and only two in 1975’s ranking. In 1995 the five leading smelting companies of the time controlled 33% of metal output, and the top ten 50.8%, so that the mergers and consolidations of the decade have not dramatically changed the degree of concentration of ownership.

5.1/page 20

5.2 Consumption 5.2.1 Overall trends Until well into the twentieth century zinc was mainly used as an alloy with copper in the form of brass. That outlet remains important, but it has been long since overtaken by the use of zinc for protecting steel against corrosion, mainly in the form of galvanising alloys. The growth of galvanising, both in construction and the automobile industry, has driven demand for zinc in recent decades. The global consumption of refined zinc rose to a record 10.4 Mt in 2004, up from about 9 Mt in 2000. This includes zinc used directly for the production of zinc alloys. Whereas most came from newly mined ores and concentrates, some was extracted from residues, slags or scrap. Remelted zinc and zinc alloys, and zinc dust are not included, and nor is the direct use of secondary materials, including the zinc content of remelted brass, which do not undergo further treatment before reuse. The inclusion of such direct-use and remelted metal raises 2004’s total consumption of zinc in all forms close to 12 Mt. Figure 5.4 shows how consumption has moved over the period since 1960, both globally and in the Western world. Consumption rose strongly during the 1960s and early 1970s, with demand for zinc die-castings for the US automobile industry a strong contributor to the growth. That market was hit both by a steep rise in zinc prices in 1973–74 and by the automobile producers’ search for weight savings after the jump in oil prices. The use of zinc in automotive die-castings fell markedly in the mid-1970s and never recovered. The total consumption of the Western world stagnated in the decade from 1973–74, but revived from the mid-1980s on the back of a growing use of zinc for coating steel. That came both from construction and from an automobile industry seeking to prolong the life of cars. Also demand grew strongly in the Asia-Pacific region, including China. The growth of Western countries’ demand was partly offset by the collapse of consumption in the FSU and Central Europe during the first half of the 1990s. Over the past decade those countries’ demand has slowly revived, but demand eased back in the USA and Japan after 2000. There was also a modest hiccup in Western Europe between 2000 and 2004. Most of the recent expansion has been in Latin America and Asia. Above all, China has experienced strongly growing demand for zinc in most uses. 5.2/page 1

5.2 Consumption

5 Zinc

11000 10000 9000 8000 Total world

’000 t

7000 6000 5000 4000

Western world

3000 2000 1000 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002

5.4 Consumption of refined zinc metal, 1960–2004 (source: ILZSG).

Table 5.7 Annual average growth rates of consumption of refined zinc, 1960–2004 (% pa)

1960s 1970s 1980s 1990s 1994–2004 1960–2004

Western world

World

4.7 1.4 1.5 3.2 2.5 2.6

4.9 2.2 0.6 3.1 4.1 2.8

Source: ILZSG.

Table 5.7 sets out the average annual rates of change of the consumption of refined zinc for the world and for Western countries for successive decades. These do not precisely coincide with the turning points of consumption described above. During the 1990s global consumption increased by an annual average 3.1%, but with Western countries’ demand rising by 3.2% pa. That is rather higher than the 2.6% pa average for the entire period since 1960, but well above the weak growth rates recorded in the 1970s and 1980s. In the 1994–2004 decade annual average growth slowed to 2.5% in Western countries, but global growth accelerated to 4.1%. That underscores the rapid expansion in China. Future growth will depend both on developments in end-use markets and on the 5.2/page 2

5 Zinc

5.2 Consumption

economic performance of the main zinc-consuming regions. These are described in the next two sections.

5.2.2 End-uses Zinc’s unique properties ensure its continued use in a variety of applications. These are heavily concentrated in the construction and transport industries. Construction of all types, including public sector infrastructure, uses about 45% of total consumption. Transport equipment, and mainly automobiles, takes one-quarter. Consumer and electrical goods use 23%, and the remaining 7% goes into general engineering applications. Within the consumer sector small quantities go into short-lived products, such as batteries and photocopiers. Nearly all the ultimate markets for zinc are sensitive to fluctuations in economic activity, and especially to changes in interest rates. Much more data are available about the immediate uses of zinc than about its distribution into final demand. Table 5.8 shows the principal uses in the Western world for selected years since 1976, according to the data collected by the International Lead and Zinc Study Group. The changes in the patterns of usage are brought out in Fig. 5.5, which shows the shares of each use in 1976, 1988 and 2002. As China has become such an important user of zinc, Table 5.9 gives Chinese end-uses since 1991 on a slightly different basis, with the annual average growth rates between 1991 and 2002 shown in the final column.

1976

1988

Total: 4596

Total: 5454 Galvanising Zinc-base alloys Brass & bronze

Zinc semis Chemicals

2002

Total: 7510 Dust/powder Miscellaneous

5.5 Principal end-uses of zinc, Western world (’000 t) (source: ILZSG). 5.2/page 3

5.2 Consumption

5 Zinc

Table 5.8 Principal end-uses of zinc in Western countries, 1976–2002 (’000 t) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2002 Galvanising 1738 1996 1889 2009 2411 2625 2956 3302 3619 3636 Zinc-base 998 1002 802 891 935 911 975 1096 1255 1265 alloys Brass and 1057 1093 850 967 1082 1182 1219 1273 1452 1348 bronze Zinc semi330 359 383 349 368 367 452 501 526 488 manufactures Chemicals 356 385 337 450 460 453 534 547 547 488 Zinc dust/ 57 56 43 74 73 87 69 31 11 12 powder Miscellaneous 60 67 80 91 125 158 178 203 227 273 Total 4596 4958 4384 4831 5454 5783 6383 6954 7635 7509 Source: ILZSG and estimates.

Table 5.9 Principal end-uses of zinc in China, 1991–2002 (’000 t)

Galvanising Brass and bronze Die-casting alloys Zinc strip Zinc oxide/brass/lithopone Miscellaneous Total

1991

1994

1997

2000

2002

Annual average % growth 1991–02

126 110 40 120 156 15 567

160 110 63 140 170 12 655

145 142 95 252 160 37 830

345 210 125 300 280 90 1350

560 250 185 325 310 120 1750

14.5 7.7 14.9 9.5 6.4 20.7 10.8

Source: ILZSG.

Figure 5.5 shows that in 2002 zinc’s principal first use, 48% of total Western world demand, was in the galvanising industry, where steel is coated with zinc to protect from rust in a wide variety of products. Galvanising’s share of new production of slab zinc is higher (overall), at about 56%, than its share of zinc use because it does not use scrap or recycled metal. The die-casting (17%) and brass/bronze (18%) alloyers accounted for a further 35% of consumption, with secondary materials important for the latter, while smaller uses for zinc were found in the semi-manufacturing (6.5%) and chemical (6.5%) industries. A small, and declining, use (0.2%), was as zinc dust. Demand for galvanising alloys has risen faster than other major uses over the past twenty years to increase their share of the total. Only the small miscellaneous uses have collectively grown more 5.2/page 4

5 Zinc

5.2 Consumption

Table 5.10 Annual average rates of change of principal end-uses in Western countries from 1976 (% pa compound)

Galvanising Die-casting alloys Brass and bronze Zinc semi-manufactures Chemicals Zinc dust/powder Miscellaneous Total

1976–88

1988–98

1976–02

1997–02

1991–02

2.8 −0.5 0.2 0.9 2.2 2.2 6.3 1.4

3.2 2.0 2.2 2.3 2.2 −1.5 6.6 2.6

2.9 0.9 0.9 1.5 1.2 −5.8 6.0 1.9

1.9 2.9 1.2 −0.5 −2.3 −17.6 6.1 1.5

3.0 3.0 1.2 2.6 0.7 −16.5 5.1 2.4

Source: ILZSG.

rapidly. Table 5.10 sets out the rates of change of each end-use for varying periods since 1976. The main changes in trend of the post1997 period have been the accelerated growth of zinc-base alloys, and the falls in semi-manufactures and chemicals. These latter changes are linked to the slowdown in economic activity in North America and Western Europe. Galvanising is not such a dominant first use in China as in Western countries, taking only 32% of the total. The manufacture of zinc strip (semi-manufacture) is the second most important use with 19% of the total, closely followed by chemicals with 18%. Brass accounts for 14% and die-casting alloys for 11%. Miscellaneous uses are collectively more important in China than in Western countries. The final columns of Tables 5.9 and 5.10 allow direct comparisons of the growth rates of each major use in China and elsewhere. Within China, the die-casting, galvanising and miscellaneous uses have grown faster than the average, just as in Western countries.

5.2.2.1 Zinc coatings The basis of zinc’s use in coating steel is that zinc is more strongly electro-negative than steel. In the presence of an electrolyte, such as rainwater, an electric current will flow from the zinc to the steel. The zinc will dissolve in preference to steel, thus protecting the underlying steel substrate. There are several major processes for coating steel with zinc to protect it against rust and corrosion. They include hot-dip galvanising, zinc plating or electro-galvanising, zinc spraying, zinc dust painting, sherardising and mechanical plating. Hot-dip galvanising and zinc plating are easily the most important, and account for all the zinc used in the galvanising alloys identified in Table 5.8. 5.2/page 5

5.2 Consumption

5 Zinc

In hot-dip galvanising the object to be coated is completely immersed in a bath of molten zinc. Zinc plating or electroplating, otherwise known as electro-galvanising, allows a thinner zinc layer to be attached to the article. The zinc forms a very thin, formable coating and is normally applied to steel strip or wire, and sometimes pipes. A further layer of paint or plastic is used, both to provide added protection and for decorative finishes. Both processes, but especially hot dipping, can be carried out on a batch or continuous basis, depending on the steel products involved. Zinc spraying uses either molten metal, metal powder or metal wire that is sprayed from a metallisation pistol in atomised form. It is used for products that are too large to galvanise such as bridge steelwork, large tanks, and ship’s hulls and anchors. In many uses spraying has been replaced by zinc paints, which are made from zinc dust and zinc flakes. Sherardising uses zinc dust or powder. A steel article is rotated for several hours in a sealed drum that contains zinc dust and fine sand at temperatures of 350–375 °C. The zinc diffuses into the steel, providing a hard and even coating of zinc–iron alloy. Smaller articles such as nuts and bolts are normally coated by this means. Mechanical plating is another means of coating small steel components, but without the application of heat. The parts are tumbled in a drum with zinc dust and small glass balls, and the balls hammer the zinc onto the surfaces of the steel. The batch hot-dip process was the original form of galvanising, with its roots in the eighteenth century. The steel product is cleaned and then dipped in a bath of molten zinc. The batch process gives a relatively thick coating, which ensures a low maintenance cost for the finished product. It forms a zinc–iron layer as well as a pure zinc coating, which is too thick to allow subsequent forming of the steel. Hence products for hot-dipping have to be pre-fabricated. Thus an obvious limitation is that the size of the structure to be galvanised is confined to that of the bath. Another disadvantage, which has been largely overcome by the more advanced plants, is that the thickness of the coating may vary. Batch hot-dipping is carried out mainly by general galvanisers, who collectively use about one-quarter of the zinc used in galvanising. It is a fragmented industry with low entry costs and tends to focus on local usage, such as for galvanising gates, and on fabricated steel products, primarily from the construction industry. These include beams, frames, scaffolding, roofing, window frames and guttering. The end-uses of the 6 Mt of steel galvanised by general galvanisers in Europe in 2003 are shown in Fig. 5.6. Approximately 66 kg of zinc was used on average per tonne of steel, with differences between specific uses and countries. Paint remains the biggest competitor for general galvanising. Other substitutes include materials other than steel. For example, the UK 5.2/page 6

5 Zinc

5.2 Consumption Other Industrial equipment Fasteners Construction

Transport

Agriculture / Horticulture

Utilities Street furniture

5.6 European end-uses of general galvanised steel, 2003 (source: European General Galvanisers Association).

Department of Transport is considering the use of steel-less carbonfibre bridges, while composite street furniture is being tested in Europe. The batch-dipping of individual steel sheets for large-scale use in construction, and more especially the automobile industry, was scarcely economic. Hence, continuous galvanising lines were developed to provide standardised coiled steel products en masse. Continuous hot-dip galvanising is normally carried out as a stage in steel production, and is thus the province of much larger companies than general galvanising. The capital costs of the lines are much higher than those of batch producers, but the operating costs are much lower. Also the quality of the finished products can be more closely monitored and controlled. Continuous hot-dip galvanising deposits a ductile zinc coating some five to ten times thinner than batch hot-dipping and will stand up to subsequent forming and processing. The development of continuous galvanising opened up new markets beyond the traditional outlets for galvanising in constructional steels and in products for public infrastructure such as pylons, road signs and crash barriers. Above all, zinc-coated sheet that could be subsequently formed is suitable for use in automobiles, consumer durables and a wide range of general engineering applications. The process can be augmented by the use of alloys such as galvalume or galfan. Galvalume is a zinc/aluminium alloy containing 43.5% zinc, which gives better protection against corrosion and is longer-lasting than zinc alone. It is not easily welded or processed, however, which 5.2/page 7

5.2 Consumption

5 Zinc

inhibits its use in the automotive industry. Galvalume was developed by Bethlehem Steel in the USA during the 1970s principally for applications in the construction industry. It is extensively used in Australia. Galfan is a 95% zinc/5% aluminium and misch metal alloy developed by the zinc industry in the 1980s as a zincintensive alternative to galvalume. As it is more formable than other hot-dip zinc and zinc alloy coatings it is used in domestic appliances, although its main uses are architectural. During the 1980s the automotive industry came under pressure to improve the corrosion-resistance of its body parts. The galvanising industry responded quickly to this new potential market but soon realised that the automotive sector was far more demanding than construction. Continuously galvanised steel could not achieve the automotive industry’s goals of low-cost, safety and decreasing body weight, without sacrificing a highly desirable aesthetic appearance. An alternative process, electro-galvanising, was therefore developed. This provides a very smooth finish, suitable for painting with zinc coatings barely half the thickness of those on continuously hot-dipped steel. The coated sheet is as formable as uncoated mild steel and can be resistance-welded. These characteristics make it ideally suited for both the automobile industry and domestic appliances. The cost savings generated by the reduced zinc usage of electrogalvanising lines were largely offset by their higher energy costs. The galvanising industry was motivated to reduce the burden of costs to the automotive industry by, among other things, the threat of substitution by aluminium. It developed an improved hot-dip product, galvanneal, which involved heat treatment of the coated sheet. In the galvanneal process the galvanised sheet is annealed or heated, changing the zinc coating to a zinc–iron alloy. This gives improved weldability and an enhanced surface for painting. This product provides similar standards to that of electro-galvanised sheet, but at less cost. Many galvanisers began to switch their lines to accommodate galvanneal, causing bottlenecks in supply. These led to prices for the cheaper hot-dip process rising above those of electro-galvanised sheet during the late 1990s. Improvements in hot-dip galvanised steel have since occurred, and some participants in the automotive industry feel this product is now adequate for their needs. Galvanised sheet has gained at the expense of non-coated sheet for automotive uses, largely through the growth of hot-dipped sheet. Over 80% of the steel sheet used in the automobile industry is now galvanised, against 63% in the mid-1990s. The volume of zinc consumed in the galvanising industry has not risen at the same rate as the output of galvanised sheet. This is largely the result of a trend towards thinner coatings, but that should 5.2/page 8

5 Zinc

5.2 Consumption White goods

Automotive

Building and construction

5.7 Markets for continuous zinc-coated steel (source: ILZSG).

be increasingly offset, at least in part, by a growing preference for double-sided coatings. Roughly 77 Mt of steel are coated with zinc in continuous galvanising plants in Western countries. Four-fifths is coated in hot-dip lines, and the remaining one-fifth is electrogalvanised. Continuous galvanising of steel sheet and strip accounts for some two-thirds of the zinc used for galvanising. Steel wire and pipe are also coated in continuous hot-dip galvanising plants, accounting for about 4% and 3% respectively of the zinc used. Figure 5.7 shows the present downstream markets for continuous zinc-coated steel, whether hot-dipped or electro-galvanised. Construction takes 60% of the market share of continuous zinc-coated steel for uses such as heating and vent ducting, and, when further organically coated, for roofing and cladding. The largest potential market in construction for continuous galvanising is in the steel studs that are increasingly replacing timber framing in North American residential building. The significant change of the past twenty years has been the growth in the use of galvanised steel by the automotive industry, which now takes 35% of continuously galvanised sheet. The smaller market in the white goods industry (5% of the total) developed as its enhanced appearance made electro-galvanised steel ideal for housing domestic appliances. The automotive industry may not be the biggest consumer of continuously galvanised steel but it does drive the market. This is partly because of the ever-present threat of substitution from aluminium and composites, but also because the automotive market has much potential, in particular in developing countries where vehicle ownership is currently low. Galvanising was initially used only in the 5.2/page 9

5.2 Consumption

5 Zinc

more specialised performance or luxury automobiles but it has been increasingly used for volume cars from the late 1980s. The full potential in mature markets will be achieved when all steel used in car bodies is galvanised, as against the present 80%. Car producers tout guarantees of corrosion-resistance as selling points, something that aluminium can also offer. The galvanisers’ competitive strategy is to bear the costs of research and development and of installing and revamping galvanising lines so that the car manufacturers are tied in to the use of steel. The capital costs of switching to aluminium are considerable and probably outweigh any differences in raw material costs. Different galvanising processes also ensure that there is a wide range of coatings available, as corrosion-resistance is not always the only consideration. Formability, resistance to cracking and compatibility with paint systems are also important. There have been substantial increases in continuous galvanising capacity in recent years in all major markets, mostly of sheet for the automotive industry. Those increases have been most pronounced in North America and in South-East Asia. As Table 5.11 demonstrates, US demand for galvanising alloys rose particularly strongly in the late 1990s, but it dropped back in 2001–02 with the economic recession. Figure 5.8 plots the trend in total Western world consumption of zinc in galvanising from 1987 to 2002. Demand for galvanising alloys fell in the 1982 recession but then recovered to show good growth, apart from a pause in 1990. There is a discontinuity in the data in 1994, which reflects a change in basis of the Indian figures, and this somewhat exaggerates both the overall growth and more especially that of Asia. Yet this discontinuity does not invalidate the strong performance of the developing Asian economies, whose growing demand was only modestly interrupted by the 1997 recessions. Consumption dropped in some European countries and in North America in 2001, but the total surpassed its 2000 peak in 2002. Chinese consumption of zinc-galvanising alloys, which is not included in the figure, has grown rapidly to equal 15% of Western world usage in 2002.

5.2.2.2 Zinc-based alloys Table 5.8 above, based on adjusted ILZSG’s statistics, suggested that the consumption of zinc to produce zinc-based alloys declined both absolutely and relatively between the late 1970s and the mid-1990s, from 22% to 15% of total reported consumption. The main factor in this contraction was continuing substitution by lighter materials, mainly aluminium, magnesium and plastic, in the principal end-use sector, the automotive industry. The drive to reduce weight in the 5.2/page 10

5 Zinc

5.2 Consumption

Table 5.11 Consumption of zinc in galvanising by major consuming countries (’000 t) 1976 1979 1982 1985 1988 1991 1994 1997 2000 2002 Europe Austriaa Belgium Denmark Finland France Germany Italy Netherlands Norway Portugal Scandinavia Spain Sweden Switzerland UK Total Europe

15 82 – 15 96 141