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Drop in World Copper Price Hurts Armenia’s Economy

By Seda Hergnyan

The international price of copper continues to fluctuate and the trend is downward. This doesn’t auger well for Armenia, so heavily dependent on the export of various raw materials.

In January 2014, the international price of copper stood at US$ 7,500  per ton. By January of this year it had dropped to $5,500.

While the price rose a bit in February it has dropped again this month. This comes against the backdrop of the overall softening economic  situation in China, a country that imports a great deal of Armenian copper.

The economic slowdown in China has been the focus of economic analysts. In a recent interview with Bloomberg News,  CGOG Futures analysts Yu Yi underlined that China’s demand for copper had decreased.

The downward trend in the international price of copper started at the end of 2013. By March 2014, it had dropped to the lowest level in the past four years. After the 2008-2009 financial crisis the highest price for copper was in February 2011 - $9,934 per ton.

Some analysts tie the drop in copper prices to softening macroeconomic indicators in the USA and to recessions in the European Union and Japan.

Analysts at the French Natixix Investment Bank predict that the price of copper will drop anotherb 7.7% over this year to $6,033 per ton.

How the drop in the price of copper affects Armenia

History shows that a drop in the international price of metals adversely affects Armenia’s economy. Copper ore, Armenia’s number one export, is no exception. (Copper comprises 20.5% of total exports)

Mining companies are some of the largest taxpayers in Armenia. In 2013, the Zangezur Copper-Molybdenum Combine in Kajaran  was the largest corporate taxpayer in Armenia paying 37.8 billion AMD ($80 million). In 2014, the company was the fourth largest taxpayer at 19.940 billion AMD; almost a 50% drop.

Of course, the drop in taxes paid can be a result decreased extraction and exports; i.e. less gross revenues. But the company points to the drop in copper prices as the prime reason, which makes most sense.

There is another factor at play as to why Armenia’s economy is so sensitive to the fluctuations in international metal prices. When prices fall, mining and ore processing companies pull back on their investment programs, waiting for more more profitable times. Even without this factor, foreign investment in Armenia has drastically fallen over the past few years.

During the past two years, the operation of mines in Armenia has taken off with the utilization of new technologies. This has contributed to increased exports. But last year’s fall in copper prices has left its mark. According to stats from Armenia’s state customs service, the country exported 185,000 tons of copper ore in 2014; 12 tons more than the previous year. But given the fall in prices those 185,000 tons translated into a customs value of $236 million. In comparison, the 173,000 tons exported in 2013 had a value of $280 million. If copper prices continue to drop this year the negative trend in export revenues will grow.

In 2014, Armenia exported copper ore at an average of $1,275 per ton. The lion’s share went to China and Bulgaria. Bulgaria imported 64,000 tons, 40,000 less than 2013. Exports to China rocketed to 107,700 tons, up from 43,700 in 2013 and 8,900 in 2012. Serbia was a minor importer – 12,500 tons last year as opposed to 4, 770 in 2013.

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Armenia  also exports two other kinds of copper – unrefined and scrap. Armenia exported 9,800 tons of unrefined copper in 2014 – mostly to Germany (8,880 tons). The rest went to Belgium. The country exported 1,900 tons of scrap copper – 1,600 tons to Belize and the rest to Iran and the USA.

Even with the recent financial crisis, exports of Armenian copper have grown since 2007. 2014 was a record year for total exports and 2013 in terms of customs valuation.

Expectations from Teghout

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Armenia’s Ministry of Energy and Natural Resources reports that there are seven copper-molybdenum and four copper mines operating in the country today. In terms of reserves, the Kajaran mine comes in first followed by Teghout.

The copper-molybdenum mine at Teghout was launched in December of 2014. Estimates of the mine’s reserves  (1.6 million tons of copper and 99,000 tons of molybdenum) will allow the mine to operate for another forty years

The mine is operated by Teghout CJSC, a member of the Vallex Group.

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