MENAFN - Arab News
Copper's surprising lack of surprises
(MENAFN - Arab News) Something very unusual is happening in the copper market.
Here we are in the middle of the quarterly reporting season. It's normally a time for analysts to take out the red ink and adjust down their mine supply estimates in response to the ritual litany of woe from the world's largest producers.
Grade declines, labor unrest, equipment failure, unforeseen adjustments to mining plans have been the norm in the copper market for so many years that analysts have long ago factored in a "supply disruption" adjustment to their supply forecasts.
This time around, though, things are turning out very different.
BHP Billiton, Rio Tinto, Antofagasta, Southern Copper, Anglo American, First Quantum have all reported higher mined production for both the fourth quarter and full-year 2012 periods.
In some cases, the turnaround has been dramatic.
Rio's output last year rose 5.6 percent to 548,800 tons after declines of 16 and 23 percent in 2010 and 2011 respectively.
Freeport McMoRan bucked the trend with a 1.4-percent decline in production over 2012. But even that was something of an achievement given an "annus horribilis" at its Grasberg mine in Indonesia, where production slumped to 315,000 tons due to a combination of low grades and the knock-on effects of prolonged strike action at the end of 2011.
Higher production from its North American assets largely picked up the Grasberg slack and the company's Q4 output of 366,500 tons still represented year-on-year growth of 24 percent, albeit from a low strike-hit base.
Some producers, such as Antofagasta and First Quantum, even beat their 2012 guidance figures, an almost unheard-of occurrence in a market long accustomed to disappointment.
Crystallizing this dramatic shift in collective fortunes was last year's 3.0 percent rise in copper production in Chile, the world's largest supplier of the red metal.
It doesn't sound very dramatic but it followed two years of zero and negative growth respectively and was actually the highest national production rate since 2007.
Chile in recent years has come to symbolize copper's chronic supply problems, aging mines yielding progressively less as ore grades inexorably declined.
But even here, it seems, things are changing. It's hard to overestimate the impact of the turnaround that is under way at Escondida, the world's single largest copper mine.
As recently as 2007 Escondida produced almost 1.5 million tons in a mix of concentrates and cathode. By 2011 production had contracted to just 819,000 tons as ore grades fell below 1.0 percent, compared with over 1.5 percent in 2007.
The owners, a consortium of BHP, Rio and Japanese investors, have initiated a series of measures intended to revitalize those flagging grades and return the mine to its former glory days.
The stated ambition is to drive production back up to 1.3 million tons by 2015.
It's a brownfield project but on such a scale that it will feel like a new mine coming on stream.
The impact was already tangible in the fourth quarter of last year, average grades surging back up to 1.39 percent and production to 287,600 tons.
State miner Codelco, meanwhile, is confident that a heavy investment program will stop the long slide in its production.
Not last year. It has guided to lower output over the course of 2012. But it is expecting things to improve this year.
Another big Chilean mine, Collahuasi, is getting the make-over treatment from its owners, who have stepped in after a truly disastrous 2012 performance.
Of course, this is still the copper market and production problems and downgrades are never going to miraculously disappear completely.
So, for example, while Chilean production seems to be on the bounce-back, that in Zambia appears to have stalled.
Preliminary figures from the central bank, and emphasis on the word "preliminary" with this particular data series, suggest that national output fell by 6.4 percent last year, the first set-back after many consecutive years of production growth.
But for the first time in a long, long time there is a sense that copper supply is finally coming good.
Proof is in the 10-percent jump in this year's treatment and refining terms, the lightning road for supply in the copper raw materials markets.
Further proof is the sharp acceleration of concentrate imports into China. They rose by 23 percent last year, hitting consecutive all-time records over the last three months.
Chinese refined metal production has accordingly been trending sharply higher. December's annualized run-rate of 6.83 million tons was also an all-time record.
Everything is pointing to a market that is shifting from deficit to surplus with most expecting the move to become more pronounced as the year goes on thanks to new mines such as Rio's Oyu Tolgoi in Mongolia and the Japanese-owned Caserones in Peru.
What would a world of copper surplus look like? And what specifically would it mean for prices?
Conventional analysis would be to look at the cost curve and the price needed to incentivize producers to keep on developing new projects.
Researchers at UBS, for example, justify their call for copper to fall to 5,842 per ton over the course of 2014, a notable bearish outlier in the recent Reuters poll, on precisely this basis.
Two years of "relentless global mine supply growth" will force prices down to the marginal cost of production, they argue.
Analysts at Macquarie Bank are considerably more bullish than that.
Not that they disagree with the concept of copper falling to the cost of production just that they suggest the top end of the cost curve is actually much higher at 6,600.
And with new mine supply coming in toward the upper end of the cost curve range, "we are comfortable with copper trading in a range of 7,000-7,500/t by the middle of this decade, but this will not be at a premium to the cost curve."
Certainly, recent events underline the dynamic nature of copper production costs, which Macquarie estimates grew by 3.5 times between 2003 and 2011. Witness, for example, Antofagasta's warning on cost escalation at its existing operations this year and its suspension of the 1.7 billion Antucoya mine project due to a blow-out in projected budget.
Or consider the pressure on Rio from the Mongolian government over the revenue split from the new Oyu Tolgoi mine.
Rio has been forced to deny suggestions it was halting work on the project in protest about the latest Mongolian demands.
Negotiations between mine operator and government are scheduled next week but it looks likely that Rio is going to have to come up with some sort of further sweetener to keep the government on side.
That won't affect the project right now. It has in fact just generated its first concentrate.
But it certainly places a question mark over any second-phase development of Oyu Tolgoi.
So even while the copper market is experiencing the rare phenomenon of improving mine supply, uncertainty about the next generation of mines, particularly their likely cost, is growing.
- Andy Home is a Reuters columnist. The opinions expressed are his own.
MENA News Headlines
|Mar 10 2014||Doha Insurance to launch rights issue at USD120m ,MENAFN|
|(MENAFN) Doha Insurance announced its intention to offer additional shares to shareholders, Arabian Business reported.
The company"s bid aims to raise around USD119.9 million and double its ...|
|Mar 10 2014||ME oil, gas transactions led by Oman, UAE, Iraq ,MENAFN|
|(MENAFN) Combined oil and gas transactions in the UAE, Oman and Iraq accounted for around 60 percent if total upstream transactions in the Middle East, Times of Oman reported.
The number of ...|
|Mar 10 2014||Oman plans to divest stakes in state-owned firms ,MENAFN|
|(MENAFN) The Omani government announced its intention to divest its stake in state-owned companies through initial public offerings (IPO), Times of Oman reported.
Executive President of Capital ...|
|Mar 10 2014||Makkah hotel industry posts steady growth ,MENAFN|
|(MENAFN) The city of Makkah is confident that it will continue to enjoy steady business growth, pushed by the positive presence of convenient room occupancy rates, Saudi Gazette reported.
The city ...|
|Mar 10 2014||Saudi construction projects at USD195b in 3 years ,MENAFN|
|(MENAFN) Planned construction projects in Saudi Arabia in the following three years are estimated at USD195.4 billion, Saudi Gazette reported.
The Big 5 Saudi has launched and is expected to ...|
|Mar 10 2014||Dubai non-oil trade up to USD361b in 2013 ,MENAFN|
|(MENAFN) Dubai"s non-oil foreign trade surged USD25.58 billion last year, hitting a record USD361.7 billion, Khaleej Times reported.
India was the emirate"s top trading partner in the year as ...|
|Mar 10 2014||SW China Forest on Fire, Casualties Unknown ,Qatar News Agency|
|(MENAFN - Qatar News Agency) Firefighters are battling to extinguish a forest fire in southwest China's Yunnan Province, according to China's News (Xinhua). A total of 2,320 people, including 250 ...|
|Mar 10 2014||Waiting and Searching for Missing Malaysian Flight Continue ,Qatar News Agency|
|(MENAFN - Qatar News Agency) Chinese warship Mianyang has arrived at the waters suspected to be the site of the missing Beijing-bound Malaysian jetliner, military sources said on Monday. The warship ...|
|Mar 10 2014||Amnesty Accuses Syrian Forces of Committing War Crimes in Yarmouk ,Qatar News Agency|
|(MENAFN - Qatar News Agency) Amnesty International has accused the Syrian government forces of starving the population and targeting doctors in Yarmouk refugee camp in the outskirts of the capital ...|
|Mar 10 2014||Qatar's Mutaz Essa Barshim Wins Men's High Jump Gold Medal ,Qatar News Agency|
|(MENAFN - Qatar News Agency) Qatar's Mutaz Essa Barshim claimed gold medal in the Men's High Jump Final during day three of the IAAF World Indoor Championships at Ergo Arena on Sunday. The ...|
|Mar 10 2014||Al Sadd and Al Arabi Share Spoils in Qatar Stars League ,Qatar News Agency|
|(MENAFN - Qatar News Agency) Al Arabi and Al Sadd drew Saturday 1-1 in the 22nd round of Qatar Stars League.
Ibrahim Khalfan took the lead for Al Sadd in the 70th minute. It took Al Arabi only ...|
|Mar 10 2014||Kuwait Probes Deaths of Dolphins along Its Coast ,Qatar News Agency|
|(MENAFN - Qatar News Agency) Kuwait's Environment Public Authority (EPA) has launched a probe into the causes of dolphin deaths along the country's coasts overs the past few days. EPA's Deputy ...|
|Mar 10 2014||Qatar - Filmmaker Noujaim to Address Northwestern University Students ,Qatar News Agency|
|(MENAFN - Qatar News Agency) Academy Award-Nominated Director of The Square, Jehane Noujaim will be the graduation speaker at Northwestern University in Qatar's ceremony on May 4, the university ...|
|Mar 10 2014||Ukraine Could Sign EU Agreement Later in March ,Qatar News Agency|
|(MENAFN - Qatar News Agency) Ukraine said Sunday it could sign later this month part of a crucial EU agreement for greater integration, even as the former Soviet state remains in a state of upheaval. ...|
|Mar 10 2014||Public Security Director General Inaugurates 30th GCC Traffic Week ,Qatar News Agency|
|(MENAFN - Qatar News Agency) HE Director General of Public Security Staff Major General Saad Bin Jassim Al Khulaifi inaugurated on Sunday the events and activities of 30th GCC Traffic Week in the ...|
|Mar 10 2014||Arab FMs Approve Agenda of Kuwait Summit ,Qatar News Agency|
|(MENAFN - Qatar News Agency) Kuwait's First Deputy Prime Minister and Foreign Minister Sheikh Sabah Khaled Al-Hamad Al-Sabah said Sunday the 141st session of the Arab League Council has approved the ...|
|Mar 10 2014||Qatar - HE the Prime Minister Condoles Afghan President ,Qatar News Agency|
|(MENAFN - Qatar News Agency) HE the Prime Minister and Interior Minister Sheikh Abdullah bin Nasser bin Khalifa Al Thani has sent a cable of condolences to Afghan President Hamid Karzai on the death ...|
|Mar 10 2014||Omani Official Meets Qatari Administrative Development Minister ,Qatar News Agency|
|(MENAFN - Qatar News Agency) Oman's deputy premier for cabinet affairs, Fahd bin Mahmoud al Said, conferred on Sunday with Isa Saad Al Jafali Al Nuaimi , the Qatari administrative development ...|
|Mar 10 2014||Qatar - HH the Emir Sends Cable of Condolences to Afghan President ,Qatar News Agency|
|(MENAFN - Qatar News Agency) HH the Emir Sheikh Tamim bin Hamad Al Thani has sent a cable of condolences to Afghan President Hamid Karzai on the death of First Vice-President Marshal Mohammad Qasim ...|
|Mar 10 2014||Electricity Crisis Expected in Gaza as Fuel Runs Dry ,Qatar News Agency|
|(MENAFN - Qatar News Agency) The last shipment of Qatar-donated diesel -- used to fuel the Gaza Strip's sole power plant -- is expected to run out within four or five days, a Palestinian official ...|