Copper supply growth to remain slack

Rising output, energy costs seen as reasons

Disappointment in copper supply growth is likely to continue on the back of rising production costs and high energy costs, said a Barclays Capital survey of copper producers in Chile, the world's largest supplier of the metal.

About 43 per cent of the producers surveyed said they were "uncertain" if their current expansion plans would materialise according to plans. Further, a majority of these producers are still using a long-term real copper price assumption, of $2,006-2,425 a tonne, when assessing the viability of new investment. This is not only far below today's price of $5,710 a tonne but also way lower than their expected price levels at the end of this year.

About 29 per cent of the producers believe copper cash prices will rule above $5,975 a tonne, while a half of them think the current price levels of copper are fundamentally justified, the Barclays note said.

A majority (86 per cent) of the producers surveyed said their output costs (cash, excluding by-products) are up somewhere between 10 per cent and 29 per cent over the past year alone. While high energy prices have had the biggest negative impact (according to a half of them), strength of the local currency against the US dollar, the producers observed, is the other key factor, the note said.

About 43 per cent suggested the lack of access to attractive deposits was the main hurdle for expanding production, while 14 per cent said declining ore grades are the main problem. Energy and water availability were also cited as key factors constraining supply growth, while environmental issues were viewed as increasingly critical.

However, no one claimed either availability of skilled workers or mining equipment as holding back supply growth. Also, few appeared to be selling their production forward at present (only less than 4 per cent of those polled), and a majority " 56 per cent " said that they are waiting.

The survey also confirms the near-term bullish nature of copper producers, while signalling a potential underestimation of long-term requirements by the consumer and sustainability of a high price environment, the note added.