Tuesday, September 9, 2014

Joy Global sees strength in copper price

The price of copper has dug itself out of a hole since hitting a near four-year low of $2.93 a pound in March.

At the close of regular trading in New York on Friday, December copper was trading at $3.17 a pound, showing some strength amid expectations of a slide back below $3 a pound.

Weak economic news out of China, consumer of 45% of the globe’s copper, is the number one factor behind the negative sentiment, but the supply side is adding to concerns for the rest of this year and 2015.

Mine production is ramping up again and is forecast to grow 5% this year and more than 7% in 2015, while Freeport McMoran (NYSE:FCX), Indonesia’s largest copper concentrate producer, resumed exports after a six months hiatus and Newmont Mining (NYSE:NEM) is set restart shipments from the country following a dispute over concentrate duties.

Dynamics of lower ore grades, higher strip ratios and a great percentage of ore deposits moving underground can clearly be seen

Joy Global (NYSE:JOY) on Thursday logged lower-than-expected quarterly revenue and profits, but the Milwaukee-based company in a conference call is expressing optimism about the outlook for the copper price:

Turing to global copper market, we continue to see strength in both business activity and the underlying fundamentals of the copper market. The unexpected 400,000 tonne deficit through the first half of the year reflects two dynamics. First, the typical supply disruption that occur simply from geological conditions or from policy decisions remain prevalent in the market. And second, the strong demand that has resulted from global economic growth continue to support the plus $3 per pound copper and where we see strong activity in our quote log.

During the quarter, we did receive three large shovel orders for copper mines. We also saw our service business in Latin America return to the 2012 run rate for the first time in the last five quarters. The expectation for copper to return to a deficit post 2015 continues to drive longer term investment for those that are well positioned on the cost curve. The mining dynamics of lower ore grades, higher strip ratios and a great percentage of ore deposits moving underground can clearly be seen in the copper market.

Frik Els

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