LONDON — Competition for copper products in the European market may intensify next year amid static demand and overcapacity, Aurubis AG executive board member Stefan Boel told AMM sister publication Metal Bulletin.
Product demand has declined over the past year, and Aurubis expects orders to stabilize at these lower levels moving into 2013.
“What we see is that it might be that the cake has shrunk a bit in the past year, and it might be a similar size next year. But given the overcapacity which is there, everybody is competing for volumes, and that might intensify,” Boel told Metal Bulletin.
Hamburg, Germany-based Aurubis made strides into high-volume copper products markets with the acquisition of London-based Luvata UK Ltd.’s flat-rolled products business in 2011 for €200 million to €220 million ($285.4 million to $314 million), complementing its activities in smaller, higher-margin markets such as high-performance alloys and strip products.
The company’s competitiveness in flat-rolled product markets depends on its ability to secure strong sales volumes, and this in turn requires robust risk management, Boel said.
“We need our volumes—that’s for sure,” he said, adding that product sales have to be fully insured and hedged against credit and price risk.
“Copper is so expensive that we can’t run the risk of having fully open exposure, and so everything we sell has to be insured,” he said. “It might be that some other companies don’t do that, and with Europe in crisis, with lower prices and lower margins it can be difficult to cover the cost of insurance as well. But for us, it’s fairly simple: What we sell needs to be secured.”
“We have one very simple policy (on price): The biggest exposure we run on price is half a lot,” he added.
The company also runs a lean process and product inventory to minimize price risk and working capital intensity, Boel said.
“We’re not going to run a bigger stock, because we can’t afford it at €6,000 per tonne ($9,628.51 per tonne). It has to be lean, lean, lean,” he said.
The company can nevertheless collect strong premiums on stock it can make available to the thinly supplied European market, he said.
Last month, Aurubis said it is able to achieve premiums of up to $100 per tonne on some spot sales, above the $86-per-tonne level it has offered on contracts for next year.
Metal Bulletin weighted average copper premiums were $86.43 per tonne in warehouse Rotterdam on Dec. 5.
“Our customers are having a particularly hard time forecasting what they’re going to need for next year, because visibility on their sales is very low. We get orders a couple of days in advance nowadays,” he said.
While customers have a restricted view on forward orders, demand for contract volumes in Europe is broadly level with 2012 bookings, Boel said.
“We are still working on our cathode contracts, but I haven’t heard that there will be more or less spot. We are mainly dealing with the biggest cathode consumers now, and what they have said they’ll need is fairly in line with our estimates,” he told Metal Bulletin.
“Whatever we can’t supply in Europe, we’re selling in China, for instance. In China, we had very good, very professional performance on contracts this year. In terms of volumes (for 2013), it’s not that bad, but maybe it will need a bit more time to sign contracts,” he said.
“We are becoming more and more established in China,”
A version of this article was first published by AMM sister publication Metal Bulletin.