Post on 18-Feb-2016
description
1
Adding Value to Zambian Copper
Challenges & Opportunities in Copper Fabricating
Simon PaytonSimon Payton Consulting for Nathan EME
Prepared for the Jobs, Prosperity and Competitiveness Project
Supported by the World Bank, African Development Bank and DFID 1
2
Maximising the value of Zambia’s resources
“The time is ripe for investors to consider processing the copper and add more value by selling finished products made in Zambia to the international market."
President Banda, Lumwana, 17 April 2009Source: Reuters
3
W ire & Cable
W ire Rod
Further Processor/End User
Other Fabricating
Refining
(Sm elting)
Concentration
M ining
Producers
Fabricators
End Users
The Copper Industry Value Chain
Structural Divides
4
0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
Chile
Peru
0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
USA
Brazil
Zambia
Australia
India
China
Russia
S Korea
Japan
Canada0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
Germany
Mine Production, Refined Production and Refined Cu Usage 2008All to Same Scale (Max 6MT/y)
0
1000
2000
3000
4000
5000
6000
Mine Ref Prod Use
RSA
Market Access: Mining is bound to the location of deposits, fabrication to world manufacturing
Source: ICSG
5
01000200030004000500060007000
Large Capacity Wire RodMill
Cathode from Ore
Costs Profit
Illustrative Wire Rod Fabrication Margin, compared with SXEW Cathode Production (per tonne)
A sense of proportion:See where the big margins (and the big risks) are….
$ Sources: Rod Industry; Mining Company ARs
NB In Copper fabricating, metal value itself is a neutral straight-through item, except for the financing cost of metal in work in progress (from receipt to customer payment)
6
The principal copper and copper alloy (semi)-manufactures:
Wire
Extruded Rod and Profiles
Rolled Sheet & Strip
TubeCastings
Source: IWCC
7
What drives the copper fabricating industry?
• Access to markets• Access to raw materials
– Copper– Alloying materials– Scrap metal
• Access to capital (plant and equipment)• Access to labour+ Profitability
8
Access to Market: Semis industry responds to demand from the (complex) downstream value
chain:
Semis Intermediates ComponentsFinishedProduct Mfr
Extruded Rod ForgingMachining+ Assembly Valve
StripRolled Strip Presswork (Plating)Electrical Fitting
TubeTube Coil Forming Air-Con
Wire Rod Wire Drawing+ Insulation
HarnessAssembly CarSet
make-up
Wire Rod Wire Drawing+ Insulation + Cabling
PowerCable
TubeCastings Tap Body
9
SSA market represents <1% of global consumption of principal semis
02000400060008000
10000120001400016000
Wire R
od
Rolled M
etal
Alloy E
xtrusio
ns
Cu Tube
RoWChinaJapan, SK, TaiwanN AmericaEurope
kt
Source: CRU 2008
Zambia + SSA excl RSA
30 0 0 0
RSA (est.) 90 30 25 10 Source: Trade data
10
A realistic appraisal of the current market
• Market in Zambia and neighbouring countries (excl RSA) for fabricated copper products is currently miniscule
• Domestic and regional use of copper is driven mainly by demand from– utilities (power generation & distribution; telecommunications);– construction (building wire) – mining industry (cables; bespoke spares but OEMs importing
parts)• Outside mining, there is a lack of manufacturing industry to
offer a customer base on which to build a copper processing industry
• RSA is significant, largely self-sufficient market; net exporter
• More distant markets present logistical challenges (squeezing margins)
11
Local copper cathode is available, but that may not be a big
advantageIf copper cathode is sold to a local fabricator (with a saving on the cathode export freight cost) and processed for export, the freight cost is in effect transferred to the fabricator’s product, making it difficult to be competitive.The only gain is on the domestic market.
11
12
Copper cathode is not the only requirement:scrap and alloying metals are very important
for some productsInput Melt Cast Hot Form Cold Form ‘Semis’ (product)
Cu Cathode
Cu & Brass ScrapPrimary Zn
Wire Rod
Billet Casting
Extrusion, Drawing Brass Rod
Sheet, Strip
Continuous Casting(& In-line rolling)
Cu Cathode + Scrap +Alloying Metals
Continuous Casting of Strip Cold Rolling
Cu Cathode +Cu Scrap
Billet Casting
Drawing Tube
Cu Cathode Cast & Roll Drawing Tube
Extrusion
Cu Cathode
Cu & Brass ScrapPrimary Zn
Wire Rod
Billet Casting
Extrusion, Drawing Brass Rod
Sheet, Strip
Continuous Casting(& In-line rolling)
Cu Cathode + Scrap +Alloying Metals
Continuous Casting of Strip Cold Rolling
Cu Cathode +Cu Scrap
Billet Casting
Drawing Tube
Cu Cathode Cast & Roll Drawing Tube
Cu Cathode + Scrap +Alloying Metals
Cold RollingSlab Casting
Sheet, StripHot RollingCu Cathode + Scrap +Alloying Metals
Cold RollingSlab Casting
Sheet, StripHot Rolling
Extrusion
13
W ire & Cable
W ire Rod
Further Processor/End User
Other Fabricating
Refining
(Sm elting)
Concentration
M ining
Producers
Fabricators
End Users
The Copper Industry Value Chain in Zambia
Zambia’s current engagement
14
Zamefa already uses Zambian copper
• 1967: GRZ co-founds Zamefa with PD (USA) and SM (Sweden); privatised 1996; now a successful producer of wire rod, wire and cable
• Part of General Cable Corporation• Supplier of
– copper wire rod (No 2 in SSA)– low voltage cables: building wire; telephone wire
• Expanding other product lines• One of Zambia’s largest NTE exporters
15
Given the challenges, how does Zambia score on the key factors ?
(/5=good)
Subjective scoring
Zambia RSA ChinaAccess to markets 1.5 3 5Access to raw materials
Copper 4 4 5Alloying materials
2 4 5
Scrap 2 3 3Access to capital (land, plant and equipment)
2 4 5
Access to labour 3 4 5
16
Opportunities to use more Zambian Copper
• With Business as usual:– organic growth among existing operations (volume; product
portfolio)– small scale developments (cast-product foundries, non-
industrial scale semis manufacture; both largely scrap based)• Greater potential exists if
– More local and regional manufacturing industry is in place to create a customer base (e.g. El Sewedy Transformers, Ndola)
– Certain user markets are actively developed – e.g. copper plumbing;
– The basic issues are fixed!• But RSA industry ready and waiting! (Potential partners
in any Zambian growth….?)
17
1. Copper is mined where it is found. Copper is fabricated where there is good market access
2. For further processing of copper, having a market is more important than having access to copper cathode
3. Local & regional market currently limited in size by lack of manufacturing base; need to fill that gap and attract manufacturing investment
4. With improved logistics a local industry could engage in RSA market (Zamefa already present), but existing industry in RSA has the complete product range and is very competitive
5. Scope for development: Zambian cable product range and exports could grow; some room for small-scale developments as a growth basis.
17
Conclusions
18
Key issues to address….
1. Is adding value to copper metal a priority for Zambian economic diversity ?
2. Developing a manufacturing base in Zambia, at the heart of the region
3. Improvements in competitive market access through better and faster logistics
4. The basics: finance, productivity, power quality ….
19
Thank You