The dark days may be over for Russian copper industry

Plagued, in recent years, by a lack of investment caused by political upheaval, the Russian copper industry now appears to be recovering.

A report co-authored by the Metal Bulletin Research (MBR) and Russian-based consulting firm Infomine states that the rate of decline of refined copper production slowed in 1994, and even though production fell by 1.6%, it was a far cry from the 18% drop experienced in the previous year. Blister production fell by 18.8% in 1994.

Copper concentrate output actually rose by 1.3% in 1994, to 385,382 tonnes, after having fallen by 16.6% the previous year. The Norilsk complex accounts for more than 60% of Russian copper concentrate production.

The reasons for copper’s problems in recent years are many: the breakdown of the previous commercial relationships between mine, smelter and refinery due to the growth of nation states in the former Soviet Union; the breakdown of the scrap generation and collection system (which has contributed to a raw materials shortage); indebtedness of individual operations; transport, technical and environmental problems; exports of concentrates to the West, leading to shortages of raw materials; and the tightness, in the Western market, for concentrates and blister, which has had the effect of reducing tolling opportunities.

Prior to the breakup of the Soviet Union, the copper industry had been relatively self-sufficient, and there was little call for trade with the West in either concentrate, blister or refined metal.

MBR and Infomine believe copper production has bottomed out in Russia, and that growth in output will be severely constrained by the lack of investment in new projects, particularly from Western companies. The bulk of the investment has been focused on small-scale mining projects and environmental upgrades.

Consumption of the red metal in Russia is beginning to stabilize, at around 100,000 tonnes, after having fallen sharply in the early 1990s, and Infomine projects a 3% increase for 1995. (The production of copper cable is the main use for the metal in Russia, accounting for 45% of total demand.) The earlier collapse of consumption and the price differential between the local copper price and the London Metals Exchange (LME) quote have encouraged a surge in exports of refined metal to the West.

In 1994, the domestic price of copper in Russia fluctuated between 50% and 70% of the LME quote, giving local producers an incentive to export wherever possible. This, combined with the continued weakness in demand, resulted in exports being boosted to just over 400,000 tonnes last year from 163,000 tonnes in 1993.

MBR and Infomine forecast that copper exports will slip to 350,000 tonnes in 1995, and that there will be further declines in the coming years.