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Adding Value to Zambian Copper

Challenges & Opportunities in Copper Fabricating

Simon PaytonSimon Payton Consulting for Nathan EME

Prepared for the Jobs, Prosperity and Competitiveness Project

Supported by the World Bank, African Development Bank and DFID 1

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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 2009Source: Reuters

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W ire & Cable

W ire Rod

Further Processor/End User

Other Fabricating

Refining

(Sm elting)

Concentration

M ining

Producers

Fabricators

End Users

The Copper Industry Value Chain

Structural Divides

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Brazil

Zambia

Australia

India

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Germany

Mine Production, Refined Production and Refined Cu Usage 2008All to Same Scale (Max 6MT/y)

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RSA

Market Access: Mining is bound to the location of deposits, fabrication to world manufacturing

Source: ICSG

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01000200030004000500060007000

Large Capacity Wire RodMill

Cathode from Ore

Costs Profit

Illustrative Wire Rod Fabrication Margin, compared with SXEW Cathode Production (per tonne)

A sense of proportion:See where the big margins (and the big risks) are….

$ Sources: Rod Industry; Mining Company ARs

NB In Copper fabricating, metal value itself is a neutral straight-through item, except for the financing cost of metal in work in progress (from receipt to customer payment)

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The principal copper and copper alloy (semi)-manufactures:

Wire

Extruded Rod and Profiles

Rolled Sheet & Strip

TubeCastings

Source: IWCC

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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

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Access to Market: Semis industry responds to demand from the (complex) downstream value

chain:

Semis Intermediates ComponentsFinishedProduct Mfr

Extruded Rod ForgingMachining+ Assembly Valve

StripRolled Strip Presswork (Plating)Electrical Fitting

TubeTube Coil Forming Air-Con

Wire Rod Wire Drawing+ Insulation

HarnessAssembly CarSet

make-up

Wire Rod Wire Drawing+ Insulation + Cabling

PowerCable

TubeCastings Tap Body

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SSA market represents <1% of global consumption of principal semis

02000400060008000

10000120001400016000

Wire R

od

Rolled M

etal

Alloy E

xtrusio

ns

Cu Tube

RoWChinaJapan, SK, TaiwanN AmericaEurope

kt

Source: CRU 2008

Zambia + SSA excl RSA

30 0 0 0

RSA (est.) 90 30 25 10 Source: Trade data

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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)

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Local copper cathode is available, but that may not be a big

advantageIf 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.

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Copper cathode is not the only requirement:scrap and alloying metals are very important

for some productsInput Melt Cast Hot Form Cold Form ‘Semis’ (product)

Cu Cathode

Cu & Brass ScrapPrimary Zn

Wire Rod

Billet Casting

Extrusion, Drawing Brass Rod

Sheet, Strip

Continuous Casting(& In-line rolling)

Cu Cathode + Scrap +Alloying Metals

Continuous Casting of Strip Cold Rolling

Cu Cathode +Cu Scrap

Billet Casting

Drawing Tube

Cu Cathode Cast & Roll Drawing Tube

Extrusion

Cu Cathode

Cu & Brass ScrapPrimary Zn

Wire Rod

Billet Casting

Extrusion, Drawing Brass Rod

Sheet, Strip

Continuous Casting(& In-line rolling)

Cu Cathode + Scrap +Alloying Metals

Continuous Casting of Strip Cold Rolling

Cu Cathode +Cu Scrap

Billet Casting

Drawing Tube

Cu Cathode Cast & Roll Drawing Tube

Cu Cathode + Scrap +Alloying Metals

Cold RollingSlab Casting

Sheet, StripHot RollingCu Cathode + Scrap +Alloying Metals

Cold RollingSlab Casting

Sheet, StripHot Rolling

Extrusion

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W ire & Cable

W ire Rod

Further Processor/End User

Other Fabricating

Refining

(Sm elting)

Concentration

M ining

Producers

Fabricators

End Users

The Copper Industry Value Chain in Zambia

Zambia’s current engagement

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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

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Given the challenges, how does Zambia score on the key factors ?

(/5=good)

Subjective scoring

Zambia RSA ChinaAccess to markets 1.5 3 5Access to raw materials

Copper 4 4 5Alloying materials

2 4 5

Scrap 2 3 3Access to capital (land, plant and equipment)

2 4 5

Access to labour 3 4 5

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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….?)

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1. Copper is mined where it is found. Copper is fabricated where there is good market access

2. For further processing of copper, having a market is more important than having access to copper cathode

3. Local & regional market currently limited in size by lack of manufacturing base; need to fill that gap and attract manufacturing investment

4. 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

5. Scope for development: Zambian cable product range and exports could grow; some room for small-scale developments as a growth basis.

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Conclusions

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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 ….

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Thank You