PLAN DE ESTUDIOS

Good fundamental factors on the copper market continue, though uncertainties are on the rise

Signals on the international copper market have been varied at the start of fiscal year 2014/15. Many factors still depend on economic development in the key copper demand countries. China continues to exercise a great deal of influence on the copper market. The country accounts for 44 % of global refined copper demand. Weakness in the real estate sector in particular, a central copper consumer, is worrying. There are also uncertainties about the future use of copper as a physical basis for backing credit transactions. If this use of copper becomes less significant due to a modified credit policy, this will affect import demand accordingly. On the other hand, it can be assumed that the Chinese government will continue supporting national economic growth. Furthermore, in 2014 the SRB (State Reserve Bureau), the Chinese authority for managing strategic reserves, was an active buyer when copper prices were low. Additional purchases with a corresponding price trend can’t be ruled out.

Copper demand growth in the US will likely be driven by the industrial sector, which makes up 22 % of total demand. The automotive and transport sectors will probably not keep up and will grow at half this speed. There are mixed signals in the real estate sector, which accounts for about 45 % of copper demand in the US. In total, analysts anticipate copper demand growth of just under 3 % in the US for 2015.

Despite the different levels of economic development in Japan and India, both countries have planned infrastructure invest- ments that could revive copper demand. Old structures have to be renovated in Japan, while populations in Indian cities will grow in the coming years, which could increase demand for living space and infrastructure.

Stable growth in copper demand is expected in Europe for 2015 and the years afterward. The prospects are favorable

in Germany and Poland especially. Developments in the real estate and transport sector will also be crucial here.

On the production side of the copper market, the supply of copper concentrates will probably be good in the new fiscal year. Smelters’ capacities continue to expand. Nevertheless, it must be kept in mind that capacities will primarily be expand- ed in China and Africa, that old smelter capacities have been decommissioned in China and that operational weaknesses, strikes, technical disruptions and other unpredicted events will limit capacity utilization in 2015 again.

Copper inventories at exchanges and in Chinese bonded ware- houses fell distinctly in 2014 and are low overall. Moreover, the availability of LME volumes is limited in some cases, with a concentration at just a few locations with individual market ac- tors. In addition, larger volumes in Chinese bonded warehous- es are supposedly bound to financing transactions and are therefore unavailable to cover physical demand. Considerable volume fluctuations aren’t expected among these warehouses in the next few months.

When weighing individual factors, we believe that a statistical production surplus of refined copper is possible on the market in 2015. However, it won’t reach the level many are currently expecting but will stay relatively low compared to the global market volume of about 21 million t.

There are additional influences on the copper market apart from the pure market balance of output and demand, in- cluding developments on the currency markets. A strong US dollar leads to a decline in institutional investors’ interest in the dollar-based copper market. The price trend for other raw materials, such as crude oil, or developments on the capital market could also have an unfavorable impact on investor be- havior. A reliable development forecast isn’t possible in either of these cases.

The copper price seems to have established an accepted range of about US$ 6,500 to 7,000/t at the start of the fiscal year. Whether this will continue into the coming year remains to be seen. An October 2014 Reuters survey of 25 copper market analysts resulted in an average copper price forecast of US$ 6,724/t for 2015.

Markets for copper concentrates and sulfuric acid

The raw material supply for copper production is largely made up of copper concentrates, which are primarily procured on the international market with long-term supply contracts whose treatment and refining charges are oriented to annual benchmarks.

The supply on the copper concentrate markets will likely be good during the fiscal year thanks to the commissioning of expansion capacities and new projects. Complex concentrates are increasing, however. Production difficulties at mines or unpredictable events such as strikes, technical disruptions, energy bottlenecks or extreme weather conditions could also negatively impact the supply.

Treatment and refining charges for spot shipments of copper concentrates are high at the moment. This should positively influence the conditions in the current negotiations for 2015. The supply on the markets for other raw materials that are processed in the BU facilities, for example blister copper, cop- per scrap and materials containing precious metals, is currently satisfactory. This may continue for the time being but can’t be reliably forecast for a longer period.

When it comes to prices for sulfuric acid, which we produce as a by-product of concentrate processing, the situation has improved somewhat in the past few months due to a recovery of demand. In light of this development, we expect this market situation to continue in the course of fiscal year 2014/15. How-

ever, many factors depend on how the overall global economic situation and the fertilizer markets develop.

Markets for recycling materials and precious metals

There is a good supply of copper scrap for BU Recycling/ Precious Metals at the moment. This became evident at short notice after the end of summer 2014, showing that the condi- tions on the copper scrap market can change quickly. The availability of complex recycling materials, including electronic scrap, is subject to different conditions and thus to changes that don’t go into effect at such short notice. The following developments are apparent:

The lifecycle of electrical and electronic products is decreas- ing. Furthermore, many countries are enacting laws to improve the collection of used appliances for recycling. At the same time, the appliances are becoming smaller and lighter and are more difficult and more expensive to collect. Ultimately, this leads to a stable to slightly increasing level of material accumu- lation in Europe.

This development has already been accounted for in the ex- pansion of European processing capacities, so we can expect largely unchanged market conditions with relatively stable metal prices.

The availability of industrial residues depends first and foremost on the trend in the overall economic situation. A general reduction in valuable metals is observed in production residues from the processing industry due to process improve- ments there.

Furthermore, the market is increasingly home to new, more complex materials in which we see additional future supply potential. They replace traditional residues and alloy scrap in some cases and are very well suited to our processing meth- ods. We therefore assume that we will be able to supply our processing capacities fully with these new materials as well.

Markets for copper products

The situation on the copper products market in 2014/15 will likely strongly depend on how the European economy devel- ops and how the individual industries perform. While the risks continue, there are also positive signals.

In the German electrical industry, a survey released by the German Electrical and Electronic Manufacturers’ Association indicated that 11 % of the companies that responded expected increasing business overall, while 71 % expected stable busi- ness in the next sixth months.

According to the Association of European Carmakers, car sales in Europe rose by 5.8 % to 9.91 million in the first nine months of 2014. While representatives of the automotive industry defi- nitely see risks for 2015, they also believe that ongoing growth is possible, though with lower momentum than in 2014. Nominal revenue growth of 4.5 % is expected in the German construction industry, and demand in cities is high. Significant decreases shouldn’t be expected in light of these factors. The situation in the three main copper consumer industries could therefore be favorable in 2015. However, there are still economic risks.

The US economy, whose development impacts our subsidiary there, is still on track for solid growth.

Business and earnings development in the