Copper is shining bright June 14, 2015, 6 p.m.
THE world’s biggest mining companies haven’t agreed on much lately as they argue about how to deal with a glut of iron ore and coal.
The world’s biggest mining companies, including Mount Isa Mines owner Glencore, all say copper is the one commodity not dogged by oversupply.
When the subject turns to copper, however, they’re on the same wavelength.
Executives of BHP Billiton, Antofagasta, Rio Tinto, Freeport-McMoRan and Glencore all pointed to copper in comments this month as the one commodity not dogged by oversupply. Demand is proving resilient, according to analysts who cite China’s response to a slowdown in economic growth by sanctioning a large number of previously delayed infrastructure projects.
‘‘If you’re looking for a single structural long-term bullish argument for owning a commodity, just look at copper,’’ said Clive Burstow, who helps manage $57billion at Baring Asset Management in London.
In an interview last week, the head of the world’s biggest mining company painted a gloomy picture for the industry. BHP’s Andrew Mackenzie said that in all the minerals markets in which it operates, any demand increase can too ‘‘easily’ be met by expanding existing mines. One exception he sees is copper.
The red-brown metal is used in pipes and wires in houses and appliances and is second only to silver as a conductor of electricity and heat. Last month, China’s imports rose to the highest in a year, according to data compiled by Bloomberg, as tighter supplies of scrap led fabricators to use more refined metal.
Price jump
Prices, meanwhile, have risen to US$6271 a tonne as of Thursday afternoon in London. While that’s still far off the 2011 record of US$10,190, it’s a 13per cent jump from this year’s low in January. That compares with gains of 0.3per cent and 8.5per cent for aluminium and zinc, and a 15per cent drop in the price of iron ore over the period.
’’The demand picture appears to be improving fast and seems to be the main factor supporting the price recovery,’’ Kevin Norrish, a mining analyst at Barclays, wrote in a report this week.
For Rio Tinto, the world’s second-biggest miner, copper is proving to be an antidote to a collapse in the price of iron ore, responsible for 81per cent of its 2014 profit. This week, Rio signed a long-awaited accord with Mongolia’s government letting it expand the Oyu Tolgoi gold and copper mine.
Clear shortfall
Afterward, Jean-Sebastien Jacques, the head of Rio’s copper unit, gushed about the red metal’s prospects, stating ‘‘we love copper.’’
Jacques said in an interview that ‘‘supply is very challenging in copper and when you look at the next 10 years there’s a clear shortfall of around 8million tonnes.’’ That’s equivalent to about eight mines the scale of Escondida in Chile, the largest copper mine.
‘‘It took nearly 25 years to build Escondida, so therefore we’re pretty bullish about copper,’’ he said.
The chief executive officer of Antofagasta, the Chilean mining company that’s the world’s ninth-largest producer, also fails to see a market glut this year.
‘‘The large supply surplus that has been forecast for the past couple of years has been like a bow wave being pushed out in front of us but never materialising,’’ Diego Hernandez said.
Disruptions at operations owned by BHP and Freeport-McMoRan have fuelled speculation that a global surplus of the metal will disappear. Macquarie expects a copper deficit of about 40,000 tons this year. The bank forecast a surplus of 104,000 tons in January, down from an October estimate of 475,000 tons.
Strong fundamentals
‘‘The fundamentals mid-to-long term in the copper business are as strong as any commodity could be, supported by demand from global growth and also by significant supply constraints,’’ Richard Adkerson, CEO of Phoenix-based Freeport McMoRan, told a conference in Barcelona last week.
One of the most outspoken critics of oversupplied markets is Glencore CEO Ivan Glasenberg, who last week accused the biggest miners of damaging the industry’s credibility and creating a ‘‘crisis of confidence.’’
Yet even he sees copper bucking the trend of swollen metals markets.
‘‘We believe copper is moving into a deficit,’’ he said at a meeting of Glencore shareholders on May 7.
‘‘Consensus has always said there is a surplus. The grades are going down.
‘‘People are struggling to hold their current production levels.’’ http://www.northweststar.com.au/story/3145532/copper-is-shining-bright/?cs=190
SMD Price at posting:
2.3¢ Sentiment: Buy Disclosure: Held
