Piece of "copper pie" for Azerbaijan

The year 2020, despite all the difficulties, has become successful for specific areas. A lot has been said about digital and various online services. Some assets like gold, bitcoin, and copper were also effective.

Copper broke a 7-year record this year, surpassing $ 8,000 per ton. Its price on the London Metal Exchange (LME) is slightly lower - $ 7,787.5 per ton, but the forecasts promise a further rise in prices. For instance, Goldman Sachs expects copper to cost over $ 10,000 per ton by 2022.

Main factors driving copper prices up

Firstly, a fairly rapid economic recovery in China, which is one of the primary consumers of copper. In only nine months of this year, 4.99 million tons of copper were imported into the country, which is 41% more than a year earlier. In 2019, China shipped 4.98 million tons of copper.

Copper is arguably the most popular non-precious metal. It is cheap and has the best electrical conductivity of any metal, except silver. Also, copper is nearly immune to corrosion and can be used in a variety of alloys. Therefore, the demand for it in the industry is enormous. It is not surprising that China, being one of the world's largest manufacturing centers, consumes so much copper. According to the International Monetary Fund (IMF), the country's economy will be the only one of the largest powers to see growth this year. In the second and third quarters, the GDP grew by 3.2% and 4.9%, respectively. Fitch Ratings recently improved its forecast for Chinese economic growth in 2021 from 7.7% to 8%.

Strike at Chile's Candelaria copper mine added fuel to the flames. One of the unions strike at Chile's Candelaria copper mine, owned by Canada's Lundin Mining Corp, rejected a contract offer from the company on Tuesday, confirming the work stoppage would continue.

The Candelaria Union rejected the proposal by a vote of 366 to 159

This country is the largest copper exporter. However, this year the preservation of the previous production volumes is under question.

And, of course, electric cars. A reasonably young and actively developing electric car market requires a lot of copper. It is part of batteries and motors for electric vehicles and many other components.

In principle, copper is used in the manufacture of ordinary cars, but electric vehicles need 80% more of it, according to the UBS Evidence Lab. By 2030, the electric vehicle market will account for almost 10% of global copper consumption (currently at 2.4%).

Not to mention the stimulating US monetary policy, which creates preconditions for the weakening of the dollar.

Of course, not everything is as smooth as we would like.

Copper usually serves as a benchmark for the global economy. When everything is bad, the demand for it falls, and the price drops. Some analysts consider the current growth to be an indicator of economic recovery. But there is one nuance - the coronavirus pandemic has hit the global economy too hard. In March, the cost of copper fell to $ 4.45 thousand per ton. Therefore, most likely, now there is a rebound in prices, which spur the above factors.

But the expected global economic recovery in 2021 will support this growth. No wonder Goldman Sachs and Blackrock recently announced the beginning of the commodity cycle and a long-term bullish trend.

Azerbaijan can break off its piece of "copper pie."

Copper producers and exporters will benefit from this situation, first of all. Azerbaijan has good opportunities for this.

The state-owned company AzerGold and the private Anglo Asian Mining are engaged in copper mining in Azerbaijan (within the framework of the mining sharing agreement with the Azerbaijani government). According to the State Statistics Committee, in January-November 2020, copper ore production in the country amounted to 2,443.5 tons, which is 21.7% more than a year earlier. If you look at the monthly statistics, you can see that such a high growth rate in copper ore mining continued throughout the year. Exports are also growing. Over the three quarters of this year, 11.2 million kilograms of copper ore were supplied for a total of $ 12.6 million. Last year's figures are 7.7 million kilograms of copper ore worth $ 10.9 million.

Notably, in 2020, Switzerland was the leading importer of copper from Azerbaijan. In 2019, copper was also actively supplied to Uzbekistan.

Although there are no statistics on domestic sales, it can be assumed that the demand for copper in Azerbaijan is also considerable, taking into account the production of copper fittings, cables, profiles, fittings, plates, foil, pipes, and other copper products. Not to mention cars and many other industrial products that use copper.

And here, by the way, another side of the coin is revealed. If copper producers benefit and will be able to earn more, then for companies that produce cables from copper, the cost of goods will increase. Here, either copper products should rise in price, or manufacturing companies will consider losses. Well, or at least part of the profit will be missing.

According to the Ministry of Ecology and Natural Resources, copper in Azerbaijan is mainly found in the Balakan-Zagatala, Gadabay, Garadagh, and Ordubad ore regions.

At the same time, the Garadagh porphyry copper deposit accounts for about 4.7% of all ore reserves of the country. Karabakh recently liberated from the Armenian occupation, is also rich in deposits of non-ferrous and precious metals. According to the Center for Analysis of Economic Reforms and Communications, there are two large copper deposits in Karabakh. It is also found in other polymetallic deposits. For example, at the Vejnali deposit, along with gold, there are 3 thousand tons of copper. All these are preliminary assessments; with demining in Nagorno-Karabakh and the arrival of experts, new studies will be carried out, and data on the potential of the lands will be complete.

Azerbaijan has not used all its potential (this applies not only to copper but also to other metals), but it is actively increasing it. AzerGold is actively working in this direction: a constant exploration of deposits is carried out, their potential is being studied, work is being improved at current deposits, the export of precious and non-ferrous metals is expanding.

For example, one of the largest polymetallic deposits in Europe, Filizchay, through the company's efforts, will be commissioned two years earlier in 2025, also in 2026, 3 copper deposits in Shamkir and Gedabek will be commissioned - Garadagh, Kharkhar, and Jairchay.

In the mid-2010s, it was often said that copper was the new gold.

Copper jewelry has become a trend; copper home accessories were as fashionable among wealthy people like gold. But most importantly, investors began to view copper as an investment metal at almost the same level as gold. But not every one can bite off this "copper pie" .old.

Of course, there are some nuances here, but the fact that copper's role is growing is indisputable. Unlike other global economic trends, such as cryptocurrency, it cannot be created from scratch. Copper is a treasure, a wealth not available to everyone, and Azerbaijan is very lucky to be among those who have it.

Azad Hasanli, financial expert