|Market considerations: what are the medium to long term global demand and price projections?|
Global supply of copper is expected to peak this year at around 20 million tonnes, with a decline to follow thereafter. It is expected that global demand for copper will however increase year-on-year by three per cent, reaching 25 million tonnes by 2020.
The recent fall in copper prices is generally viewed by analysts as the result of short term market volatility and uncertainty around the general health of industrial economies, as opposed to any deterioration in fundamentals.
Whilst there is some downgrading of future demand growth projections from China, the longer term view is that there will remain a supply gap which is likely to mean copper prices will improve, and long term forecasts are generally positive.
Even projections of oversupply for this year have been downgraded as production from the likes of Glencore and Rio Tinto fell short of projections (mainly due to technical issues).
|Supply considerations: will sufficient supplies of ‘input’ raw materials be available domestically?|
Copper is the main mineral resource in Zambia.
In 2010, Zambia was the seventh largest global producer of copper in terms of mine production volume, with annual production at 715,000 tonnes.
Zambia is expected to become one of the world’s major copper producers in the near future, driven by high grade reserves and several expansion plans by the likes of First Quantum at its Sentinel and Kansanshi mines.
The projected increase in copper output in the coming years is expected to make Zambia one of the five highest copper producers in the world.
There is also increased copper mine production capacity in neighbouring DRC, increasing the need for copper beneficiation and smelting in Zambia. Clearly, this also raises the possibility of competition from copper processing capacity in the DRC.
|Capacity considerations: what scope is there for further domestic processing capacity?|
It is estimated that there is a current shortfall in copper smelting and refining capacity in Zambia of 300,000 tonnes per year.
Whilst it appears that there are plans by existing miners to construct their own smelters, it is not clear if and to what extent current and future capacity shortages will be met. Further analysis would be required in this regard.
|Export restrictions: what form do local export restrictions take and do they fall within prohibitions under international treaties?|
With an export value for refined copper and copper alloys accounting for over 60 per cent of copper’s aggregate trade value, there is clearly potential for value addition through in-country processing.
The Zambian government has been actively encouraging domestic value addition of metals.
Key to this has been the introduction of a 15 per cent export tax on copper and cobalt concentrates.
All the countries in the Eastern and Southern Africa region, except Eritrea, are members of the WTO. Tariff restrictions, such as export taxes are, however, a permissible trade policy tool under Article XI.
The EU is currently negotiating an Economic Partnership Agreement with Djibouti, Eritrea, Ethiopia, Sudan, Malawi, Zambia, Zimbabwe, Comoros, Mauritius, Madagascar and the Seychelles.
In August 2009, Madagascar, Mauritius, the Seychelles, and Zimbabwe signed an ‘interim’ Economic Partnership Agreement with the EU. Zambia, however, has not signed the interim EPA.
In negotiations to date, the Eastern and Southern African Counties maintained their position that they require policy space to impose export taxes to encourage industrial development without prior approval of the European Commission.
Zambia gets an annual rainfall of 1000mm and has relatively abundant underground and ground water sources. This is favourable to copper beneficiation since refined copper is produced mainly by the solvent extraction electro winning method, which requires large quantities of fresh water.
There is strong local support for investors through the Zambian Development Agency.
There is a comprehensive tax incentive regime for the mineral beneficiation sector, including corporate tax discounts, ability to carry forward losses for up to 10 years, VAT relief, capital allowance relief and tax reliefs based on levels of capital expenditure on industrial building construction.
Zambia has a relatively stable political system.
Investment guarantees are available against state nationalisation.
Repatriation of profit and dividend can be achieved free of charge.