Adding Value to Zambian Copper
Challenges & Opportunities
in Copper Fabricating
Simon Payton
Simon Payton Consulting for Nathan EME
Prepared for the Jobs, Prosperity and Competitiveness Project
Supported by the World Bank, African Development Bank and DFID
1
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 2009
Source: Reuters
2
The Copper Industry Value Chain
Structural Divides
Mining
Concentration
Producers
(Smelting)
Refining
Fabricators
Wire Rod
Other Fabricating
End Users
Wire & Cable
Further Processor/End User
3
Market Access: Mining is bound to
the location of deposits, fabrication to
world manufacturing
6000
5000
5000
3000
5000
Canada
4000
3000
All to Same Scale (Max 6MT/y)
6000
4000
6000
Mine Production,
Refined Production
and Refined Cu Usage 2008
Russia
4000
Germany
3000
2000
2000
1000
1000
6000
0
2000
0
Mine
Ref Prod
Use
Mine
Ref Prod
Use
5000
1000
4000
0
Mine
Ref Prod
3000
Use
6000
2000
5000
6000
5000
4000
China
USA
S Korea
1000
4000
0
3000
Mine
Ref Prod
Use
6000
6000
2000
3000
5000
5000
1000
2000
Japan
4000
4000
1000
0
Mine
Ref Prod
0
Mine
Ref Prod
3000
Use
2000
3000
Use
2000
6000
Zambia
1000
0
Mine
Ref Prod
1000
5000
6000
4000
3000
3000
1000
2000
Ref Prod
6000
1000
5000
0
Use
Ref Prod
Use
4000
India
4000
Brazil
3000
2000
1000
0
Mine
Chile
5000
Mine
4000
2000
Mine
0
5000
Peru
0
6000
Ref Prod
Use
Mine
Ref Prod
Use
6000
6000
3000
5000
5000
2000
4000
4000
1000
0
Mine
Ref Prod
Use
3000
RSA
3000
2000
2000
1000
Australia
1000
0
Source: ICSG
Mine
Ref Prod
Use
0
Mine
Ref Prod
Use
4
Use
A sense of proportion:
See where the big margins (and the big risks) are….
Illustrative Wire Rod Fabrication Margin, compared with SXEW Cathode Production
(per tonne)
$
Costs
Profit
Sources: Rod Industry;
Mining Company ARs
7000
6000
5000
4000
3000
2000
1000
0
Large Capacity Wire Rod
Mill
Cathode from Ore
NB In Copper fabricating, metal value itself is a neutral straightthrough item, except for the financing cost of metal in work in
progress (from receipt to customer payment)
5
The principal copper and copper alloy (semi)-manufactures:
Tube
Castings
Rolled Sheet
& Strip
Wire
Extruded Rod
and Profiles
Source: IWCC
6
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
7
Access to Market: Semis industry responds to demand
from the (complex) downstream value chain:
Semis
Intermediates
Wire Drawing
+ Insulation + Cabling
Wire Rod
Wire Rod
Extruded Rod
Rolled Strip
Strip
Tube
Tube
Tube
Castings
Components
Wire Drawing
+ Insulation
Set
make-up
Forging
Presswork
Coil Forming
Harness
Assembly
Machining
+ Assembly
(Plating)
Finished
Product Mfr
Power
Cable
Car
Valve
Electrical
Fitting
Air-Con
Tap Body
8
SSA market represents <1% of global
consumption of principal semis
kt 16000
14000
12000
10000
8000
6000
4000
2000
0
RoW
China
Japan, SK, Taiwan
N America
Europe
Tu
b
e
ns
A
llo
y
Ex
C
u
tru
M
R
ol
le
d
ire
W
si
o
et
al
R
od
Source: CRU 2008
Zambia + SSA
excl RSA
30
0
0
0
RSA (est.)
90
30
25
10
Source: Trade data
9
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)
10
Local copper cathode is available, but
that may not be a big advantage
If copper cathode is sold to a local fabricator (with a
saving on the cathode export freight cost) and
processed for export, the freight cost is in effect
transferred to the fabricator’s product, making it
difficult to be competitive.
The only gain is on the domestic market.
11
Copper cathode is not the only requirement:
scrap and alloying metals are very important for
some products
Input
Melt Cast
Hot Form
Continuous Casting
(& In-line rolling)
Cu Cathode
Cu & Brass Scrap
Primary Zn
Cu Cathode + Scrap +
Alloying Metals
Cu Cathode + Scrap +
Alloying Metals
Cu Cathode +
Cu Scrap
Cu Cathode
Cold Form
Billet
Casting
Slab
Casting
Continuous
Casting of Strip
Billet
Casting
Cast & Roll
Wire Rod
Extrusion,
Drawing
Hot Rolling
Brass Rod
Cold Rolling
Cold Rolling
Extrusion
Drawing
‘Semis’ (product)
Drawing
Sheet, Strip
Sheet, Strip
Tube
Tube
12
The Copper Industry Value Chain in Zambia
Zambia’s current
engagement
Mining
Concentration
Producers
(Smelting)
Refining
Fabricators
Wire Rod
Other Fabricating
End Users
Wire & Cable
Further Processor/End User
13
Zamefa already uses Zambian copper
• 1967: GRZ co-founds Zamefa with PD (USA) and
SM (Sweden); privatised 1996; now a successful
producer of wire rod, wire and cable
• Part of General Cable Corporation
• Supplier of
– copper wire rod (No 2 in SSA)
– low voltage cables: building wire; telephone wire
• Expanding other product lines
• One of Zambia’s largest NTE exporters
14
Given the challenges, how does Zambia
score on the key factors ? (/5=good)
Zambia
RSA
China
1.5
3
5
Copper
4
4
5
Alloying materials
2
4
5
Scrap
2
3
3
Access to capital
(land, plant and
equipment)
2
4
5
Access to labour
3
4
5
Access to markets
Access to raw
materials
Subjective scoring
15
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….?)
16
Conclusions
1.
2.
3.
4.
5.
Copper is mined where it is found. Copper is fabricated where there is
good market access
For further processing of copper, having a market is more important than
having access to copper cathode
Local & regional market currently limited in size by lack of manufacturing
base; need to fill that gap and attract manufacturing investment
With improved logistics a local industry could engage in RSA market
(Zamefa already present), but existing industry in RSA has the complete
product range and is very competitive
Scope for development: Zambian cable product range and exports could
grow; some room for small-scale developments as a growth basis.
17
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 ….
18
Thank You
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