Copper mine output drops in Q1, supply gap could widen
Global copper mine production hit speed bumps last quarter, interrupting a growth trend that the copper industry counted on to meet strong global demand and justify aggressive expansion plans. The drop in copper output from the world’s biggest listed mining companies in the first three months of 2011 could temporarily exacerbate a supply deficit that contributed to the rise in copper prices to record highs this year. After rising for three straight quarters, production from the 11 biggest publicly listed miners fell by 8 percent in the first three months of 2011, due to declining ore grades and adverse weather conditions, data from companies showed last month.One of the hardest hit miners in the group was Anglo American. Anglo American’s Collahuasi and Los Bronces mines in Chile hit such roadblocks, resulting in a 14 percent drop in first-quarter copper production from 2010 levels.
The data lend support to the bullish argument that the copper market will likely see a deepening deficit this year as existing operations struggle while new projects are still a year or two away from making a significant contribution.
This view has helped support the price of the metal, which is up more than 20 percent from the first-quarter of 2010.
Copper rose to all time highs in February near $4.62 a lb in New York and $10,000 per tonne in London.
High prices left companies like Freeport McMoRan Copper & Gold llooking flush enough to increase their exploration budgets, in which case any copper deficit blow-out could be short-lived as could some of the supply-driven strength in prices.
“Escondida was supposed to be down 10 percent year-on-year due to ore grades, Freeport’s Grasberg was down 17 percent, and Collahuasi had problems due to heavy rains in January and
February,” said Catherine Virga, senior base metals analyst with CPM Group in New York. “This keeps the concentrate market fairly tight.”
Output from 11 of the world’s largest miners, which together produce about a tenth of the world’s copper, fell to 1,8443,445 tonnes in the quarter, the lowest quarterly tally since the first quarter of 2010 when output hit 1,812,040 tonnes.
The figures exclude Chile’s state-owned Codelco, which accounts for around 11 percent of the world’s mined copper but reports its first-quarter production figures later than other companies.
Production in Chile, the world’s largest producer of copper, fell in the first quarter of this year relative to last.
“With not a lot of capacity coming on stream, you’re likely to have a tight supply/demand pattern,” said Rodman & Renshaw’s managing director Wayne Atwell, who has more than 35 years of
experience in the field of investment analysis for the metals and mining industries.
According to the International Copper Study Group (ICSG), global mine capacity utilization rates fell for a third straight month in January to stand at 77.8 percent.
“Overall, 2011 will be a challenging year to see meaningful growth from existing operations,” said Terry Ortslan, a mining analyst with TSO & Associates in Montreal, with over 30 years of experience in the industry.
Two operations – a production restart at Grupo Mexico’s Cananea mine in Mexico and a ramp-up of Antofagasta’s Esperanza mine in Chile – offer the biggest boost to mine supply growth this year, but analysts do not expect enough extra concentrate to alter the overall trend.
“It is difficult to really have an expectation that there will be an improvement,” said Nicholas Snowdon, analyst with Barclays Capital in New York.
“Apart from those two facilities, there are no other mines that are ramping up, offering over 100,000 tonnes of fresh output this year.”
PRICE INCENTIVE
With benchmark prices of the metal sitting well above the marginal cost of production, generally seen above the $2 to $2.50 per lb range, more restarts, expansion projects and new production ramp-ups should eventually boost mine capacity rates.
Still it will likely take until 2012 or later before any supply-side impact would likely be felt.
“The industry is trying quite hard to bring production up because the profitability is so high with prices so strong, but there is a limit to how quickly they can do that,” Rodman & Renshaw’s Atwell said.
Freeport, the world’s second-largest producer behind Chile’s Codelco, raised its 2011 exploration budget to $225-million from the $200-million announced in January, in an effort to move full steam ahead with expansion and restarts.
About $1.3-billion of the capex budget will go primarily to underground development of the Indonesian Grasberg copper mine, construction activities at the Climax molybdenum mine in Colorado and development of the El Abra sulfide deposit in South America.
With new copper production capacity set to come onstream in North America and Australia in 2012 and 2013, Christine Meilton, chief consultant at CRU, said the market could be in surplus as early as 2013.
Speaking to Reuters at the consultancy’s World Wire and Cable Conference in Amsterdam this week, she said, “Demand is forecast to show much more steady growth which is why we see the market moving from a deficit this year to surplus and then deficit.”
The data lend support to the bullish argument that the copper market will likely see a deepening deficit this year as existing operations struggle while new projects are still a year or two away from making a significant contribution.
This view has helped support the price of the metal, which is up more than 20 percent from the first-quarter of 2010.
Copper rose to all time highs in February near $4.62 a lb in New York and $10,000 per tonne in London.
High prices left companies like Freeport McMoRan Copper & Gold llooking flush enough to increase their exploration budgets, in which case any copper deficit blow-out could be short-lived as could some of the supply-driven strength in prices.
“Escondida was supposed to be down 10 percent year-on-year due to ore grades, Freeport’s Grasberg was down 17 percent, and Collahuasi had problems due to heavy rains in January and
February,” said Catherine Virga, senior base metals analyst with CPM Group in New York. “This keeps the concentrate market fairly tight.”
Output from 11 of the world’s largest miners, which together produce about a tenth of the world’s copper, fell to 1,8443,445 tonnes in the quarter, the lowest quarterly tally since the first quarter of 2010 when output hit 1,812,040 tonnes.
The figures exclude Chile’s state-owned Codelco, which accounts for around 11 percent of the world’s mined copper but reports its first-quarter production figures later than other companies.
Production in Chile, the world’s largest producer of copper, fell in the first quarter of this year relative to last.
“With not a lot of capacity coming on stream, you’re likely to have a tight supply/demand pattern,” said Rodman & Renshaw’s managing director Wayne Atwell, who has more than 35 years of
experience in the field of investment analysis for the metals and mining industries.
According to the International Copper Study Group (ICSG), global mine capacity utilization rates fell for a third straight month in January to stand at 77.8 percent.
“Overall, 2011 will be a challenging year to see meaningful growth from existing operations,” said Terry Ortslan, a mining analyst with TSO & Associates in Montreal, with over 30 years of experience in the industry.
Two operations – a production restart at Grupo Mexico’s Cananea mine in Mexico and a ramp-up of Antofagasta’s Esperanza mine in Chile – offer the biggest boost to mine supply growth this year, but analysts do not expect enough extra concentrate to alter the overall trend.
“It is difficult to really have an expectation that there will be an improvement,” said Nicholas Snowdon, analyst with Barclays Capital in New York.
“Apart from those two facilities, there are no other mines that are ramping up, offering over 100,000 tonnes of fresh output this year.”
PRICE INCENTIVE
With benchmark prices of the metal sitting well above the marginal cost of production, generally seen above the $2 to $2.50 per lb range, more restarts, expansion projects and new production ramp-ups should eventually boost mine capacity rates.
Still it will likely take until 2012 or later before any supply-side impact would likely be felt.
“The industry is trying quite hard to bring production up because the profitability is so high with prices so strong, but there is a limit to how quickly they can do that,” Rodman & Renshaw’s Atwell said.
Freeport, the world’s second-largest producer behind Chile’s Codelco, raised its 2011 exploration budget to $225-million from the $200-million announced in January, in an effort to move full steam ahead with expansion and restarts.
About $1.3-billion of the capex budget will go primarily to underground development of the Indonesian Grasberg copper mine, construction activities at the Climax molybdenum mine in Colorado and development of the El Abra sulfide deposit in South America.
With new copper production capacity set to come onstream in North America and Australia in 2012 and 2013, Christine Meilton, chief consultant at CRU, said the market could be in surplus as early as 2013.
Speaking to Reuters at the consultancy’s World Wire and Cable Conference in Amsterdam this week, she said, “Demand is forecast to show much more steady growth which is why we see the market moving from a deficit this year to surplus and then deficit.”
Comments
Post a Comment