The price of copper, which finds application in large swathes of products from electrical to automobiles to plumbing, is seen as the bellwether of global industrial demand. So far this year, the metal has traded in a range of $7,920 to $8,250 a tonne, but mostly above $8,000. Hopes of this kind of price behaviour have led the world’s leading miners like Chile’s state-owned Codelco and BHP Billiton to raise their stakes on global copper demand rising, approving major mines expansion projects from South America to Indonesia. Hindustan Copper, in the midst of a major ore raising capacity to 12.4 million tonnes (mt) in the next five years from 3.479 mt in 2011-12, is focussed on marketing the metal in concentrate domestically, where copper demand will continue to grow at eight to nine per cent a year. To the extent Hindustan Copper lifts concentrate production, our imports of the intermediate material will fall. Selling concentrate locally offers logistical and cost advantages to the company.
Research houses are in consensus that most metals will be in surplus in the near term. No doubt, as major copper miners have started reaping the benefits of major investments by way of incremental production, the supply deficit in the past two years should turn into a surplus in 2013. According to International Copper Study Group (ICSG), against global refined copper production of 21.14 mt in the current year, the use will be 20.682 mt leaving a surplus of 458,000 tonnes. Last year, the supply deficit was 426,000 tonnes. To some observers, however, ICSG may prove itself to be erring on the side of caution by assuming that demand will grow by only 1.5 per cent. This is in spite of International Monetary Fund scaling down global economic growth to 3.5 per cent from its earlier forecast of 3.6 per cent.
Whatever the size, a surplus is likely to keep copper prices in check. Chief executive officer of the world’s largest copper miner Codelco, Thomas Keller, says, “Maybe there will be a certain amount of downward pressure, albeit very slight towards the end of the year when there will be a small surplus.” World copper market takes guidance from Codelco, which missed the production target of 1.7 mt for 2012 hurt by dwindling ore grades in ageing deposits. Keller said in mid-November, “Next year (2013) we’re expecting production to be slightly above what we have as an aim for this year.” The Chilean company’s ambitious expansion plans involving billions of dollars should lift its production to 2.5 mt by 2021. But Codelco, though always in the forefront, is not alone to drive copper production growth in Chile.
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For example, BHP’s Escondia mine grew production by 31 per cent in the December-ended quarter. Principally on the back of Escondia, the Anglo-Australian company hopes to be able to raise copper output at a compounded annual rate of 10 per cent this year and also in 2014. Chilean conglomerate, Antofagasta, has plans to invest $2 billion in a copper project this year. Outside Chile too, companies remain active in expanding mines in operation and also opening new ones. Groupo Mexico is on course to lift production to 1.4 mt by 2015, with its Mexican mine Buenavista, which holds the world’s largest copper ore deposit, in the midst of expansion making maximum contribution. Yet another industry leader, Freeport-McMoran, is chasing an 18 per cent rise in copper sale to 4.3 billion pounds in 2013 benefiting from access to quality ore in Indonesia and South America.
As in all other non-ferrous and ferrous metals, China, because of its dominant share in world production and consumption of copper, will continue to profoundly impact the red metal market. Chinese official agencies report copper production rising 11 per cent in 2012 to 6.06 mt when imports of refined copper were up 20 per cent to 3.4 mt and copper concentrate 22.7 per cent to 7.8 mt. Consumption of the metal in the world’s second largest economy rose to 7.68 mt from 7.33 mt in 2011. A point here needs noting: a portion of refined copper import by China is used by parties as collateral for bank loans. Taking note of Beijing’s fiscal stimulus plans and quick approval of large infrastructure projects, World Bank has forecast Chinese gross domestic product growth of 8.4 per cent this year against 7.9 per cent achieved in 2012. In a scene like this, China’s official market research house, Antaike, saying the country’s copper demand will modestly rise to 8.1 mt in 2013 is a surprise. Copper production forecast to rise nine per cent should come true as one mt of new capacity is due for commissioning. Antaike foreseeing Chinese copper imports could fall by as much as 17 per cent to 2.8 mt amid higher production and big domestic inventories is a point of concern for exporting countries. To go by Morgan Stanley crystal gazing, copper prices this year will advance 7.6 per cent to $8,554 a tonne from the 2012 average of $7,952 a tonne. It, however, thinks copper prices will fall to $8,157 a tonne next year and then further to $7,496 a tonne in 2015. No doubt, to result from supply overtaking demand by some margin.