Global copper producers experienced a difficult year in 2013 as the red metal struggled with oversupply, a slowdown in Chinese demand and declining prices. But copper has long been one of the worlds most cyclical commodities, and producers are optimistic that demand will rebound in 2014.
Raul Jacob, vice president of finance and chief financial officer of Phoenix-based Southern Copper Corp., a major global producer of copper, told analysts in October that the turnaround came in the third quarter of 2013. We have seen the strong fundamentals of this market coming back again to support copper prices, he said. Combined inventories at the three major exchangesthe London Metal Exchange, Comex and Shanghai (Futures Exchange)decreased by 24 percent during the quarter. On top of this, we saw Chinas refined copper imports in September increase by 32 percent month on month to about 350,000 tons, or 18 percent year on year, clearly indicating to us the end of their destocking process.
Jacob said that several structural factors, such as labor stoppages, technical problems, scrap shortages and other issues, are affecting and will continue to affect copper supply, offsetting the net impact of additional production coming from new projects and expansions.
But the optimism is tempered by what was a difficult 2013.
Corporación Nacional del Cobre de Chile, the worlds largest producer that accounts for about 10 percent of global copper output, reported net income of $769 million for the first nine months of 2013, down 81.7 percent from $4.2 billion in the same period a year earlier. The 100-percent state-owned company attributed the drop to a decrease in the LME copper price.
Other producers, including Phoenix-based Freeport-McMoRan Copper & Gold Inc., reported a more stable income picture. The company, which reduced its exposure to copper to 75 percent last year from 80 percent thanks to several oil and gas acquisitions, expects copper to account for about 60 percent of its revenue in 2014 and beyond.
Freeport is bullish about the copper market. Kathleen L. Quirk, vice president and chief financial officer, said in a presentation at Macquarie Capital (USA) Inc.s Global Metals and Mining Conference in December that several factors were fueling the optimism. China remained an important demand driver for global copper, she said, and the continued improvement in the U.S. economyespecially in automotive production and constructionwould boost copper demand in 2014. Add a slow recovery in the eurozone economy and a continuing lack of copper scrap availability, and the outlook for the commodity is for positive long-term fundamentals, she said.
Baar, Switzerland-based Glencore Xstrata Plc, another leading producer, is particular strong in Katanga, the copper-producing region of the Democratic Republic of the Congo. The Katanga copperbelt contains some of the richest copper and cobalt deposits in the world, and Glencore Xstrata hopes to nearly triple 2012 production of just under 100,000 tons of copper by 2015. Two-thirds of that estimated 2015 production will come from Mutanda Mining Sarl, the companys joint venture with Rowny Assets Ltd., a subsidiary of Gibraltar-based Fleurette Properties Ltd. Glencore has invested $670 million to double production of copper cathode at Mutanda to an estimated 200,000 tonnes this year from 100,000 tonnes in 2013.
London-based BHP Billiton Plc also is planning to substantially increase its copper production in the near term. The company reported recently that production at its partially owned Escondido complex and other wholly owned Chilean mines is expected to grow at a 10-percent annual rate through the end of fiscal year 2015. Andrew Mackenzie, chief executive officer of BHP Billitons nonferrous segment, told analysts this past fall that the company feels low-risk, high-return brownfield projects and the release of latent capacity underpin the strong near-term outlook. He also said the company intends to target a substantial reduction in costs associated with the continuing inflation that impacts the global mining industry.
Some producers, however, are more cautious about prospects for 2014. London-based Antofagasta Plc, a major Chilean producer, said that prices, which peaked at $3.60 per pound in 2012, dropped to $3.33 in November before rebounding to near $3.40 at the end of the year, and noted that analysts consensus for copper prices in 2014 is closer to $3.20 per pound.
The expected surplus of refined copper has not yet materialized mainly due to less availability of copper scrap. However, concentrate stocks have increased, Antofagasta vice president for marketing Gonzalo Sanchez told analysts last fall. A surplus is expected for 2014, but it is highly dependant on new projects and their ramp-up.
Sanchez also said that many projects and investment for the new supply needed to cover demand beyond 2015 have been delayed or canceled. This could lead to a new cycle of a deficit market and higher prices, he said.
Cost-cutting and environmental opposition to mining projects have been the two major factors driving cancellations and delays of proposed new mines. Cutting costs has become a way of life for many copper producers. London-based Anglo-American Plc, one of the worlds largest copper producers, in September withdrew from the Pebble Mine project, a proposed $1-billion copper, gold and molybdenum property on Bristol Bay in southwest Alaska. Environmentalists have been fighting the development since it was first announced in the early 21st Century. London-based Rio Tinto Plc, another partner in the huge investment, is reassessing its participation.
Chinese consumption is key to improving the health of the global copper sector in 2014. China accounts for some 40 percent of global copper consumption and any increase in economic activities that consume the material, such as power generation and transmission, high-speed rail and home construction, can have a disproportionate impact on the production and shipment of copper.