Castillo Copper

Zambia will remain a regional leader and an important global player in refined copper production over the coming years says BMI Research.

Unlike other markets in the region, most copper ore mined in Zambia is refined locally before being exported abroad.

 BMI Research is a unit of the Fitch Group

With an estimated output of 582 kt refined copper this year, Zambia’s downstream copper production is the largest in Africa, ahead of competing copper producers the DRC and South Africa.

We forecast Zambian refined copper production to increase from 582 kt in 2018 to 865 kt in 2027, averaging a solid production growth of 4.5%, the fastest of any major global producer bar India.

As a result, we expect Zambia to jump from the tenth largest refined copper producer in the world to eighth largest over the same period.

Strong mining outlook and smelter capacity to underpin growth

Zambian refined copper production will be driven by a number of modern smelters at key operations.

The majority of investment into downstream copper activity in the country came as a result of the government’s push to privatize the mining industry which led to the entry of important foreign mining players during the period from 2000 – 2010.

Key players active in the domestic copper market include Vedanta Resources, First Quantum Minerals (FQM) and Glencore, all of which have ramped up investments in developing downstream operations over the past decade.

For instance, Vedanta’s Konkola Copper Mine Nchang a smelter was commissioned in 2008, while the Mopani mine smelter (part-owned by Glencore and FQM) was commissioned in 2006 and underwent a rebuild in 2014.

Most recently, FQM invested over US$ 800 million to develop the Kansanshi smelter, which came into production in December 2014, with a capacity of 300 kt per year.

In combination with the Chambishi smelter, Zambia has a total of four copper smelting operations, giving it a combined smelting capacity of up to 1.2 Mt of refined copper per year, the largest in Africa.

Our forecast for Zambian copper mine output to witness considerable growth this year will feed into downstream services, further supporting short-term refined production.

Our outlook for Zambia’s mining sector in 2018 remains positive as copper prices continue to rise and the country’s electricity supplies improve.

While copper prices have suffered a decline driven by heightening trade war tensions in recent weeks we maintain our bullish copper price forecast of US$7,000/t this year and expect persistent global under supply to keep prices on an upward trajectory, averaging US$7,300/t by 2022.

As an added tailwind to Zambia’s mining sector, higher dam-water levels achieved in the country so far this year will likely reduce the possibility of power shortages in the coming months.

Power supply remains one of the key constraints for the operational efficiency of mining companies in Zambia, due to the country’s over-reliance (over 80% of domestic power generation) on hydro-power.

Economic diversification to provide long term support

In the longer term, government support for ongoing economic diversification through the development of a value-added downstream copper industry, will provide further tailwinds to refined production in the country.

As part of Zambia’s 7th National Development plan for 2017-2021 and Vision 2030, the government will aim to promote local and foreign participation higher up the value chain through the manufacturing of finished copper goods for use in electrical, automotive, plumbing or the aquaculture industries, among others.

As a result, we expect the downstream copper industry’s share of domestic GDP to gradually increase over the coming years, while the contribution of raw mining to the total economy declines.