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Copper unfazed by Bingham Canyon outage—for now

Keywords: Tags  Copper, force majeure, Bingham Canyon, Kennecott Utah Copper, Rio Tinto, American Copper Council, andrea hotter

WASHINGTON — They might be bluffing, but copper market participants appear to be unfazed by the wall slide at Kennecott Utah Copper’s Bingham Canyon Mine.

The anticipated loss of 100,000 tonnes of refined copper certainly doesn’t seem to be making much of a difference to the ability of consumers, traders and merchants to secure metal.

Delivered copper premiums have not blown out following the April 10 wall slide and April 15 declaration of force majeure at the mine (, April 16).

Traders and merchants at the American Copper Council meeting in Washington said getting copper from Utah would probably cost 8 cents per pound instead of 6 cents prior to the wall slide, but acknowledged that nobody has paid this as they can get metal elsewhere.

Therein lies the copper bull’s biggest stumbling block: rising inventories, slowing imports by its largest consumer, China, and a move into surplus have all dulled the luster of the metal, which has seen prices slide accordingly.

A year ago, the potential loss of 100,000 tonnes of refined copper from the market would have been a huge deal. That amount is only a conservative figure; the mine produced 163,000 tonnes last year and had been expected to produce more than 200,000 tonnes this year, and Kennecott parent Rio Tinto Plc cannot be sure how long it will be impacted by the wall slide.

Copper industry participants are banking on the wall slide taking Bingham Canyon out of being fully operational for at least six months, and potentially longer.

That’s a lot of copper. Or is it, in a market with London Metal Exchange inventories at 10-year highs, Shanghai stocks over 200,000 tonnes and China working through a still rather large pile of off-warrant material, much of which is in bonded warehouses?

Incentives to attract copper into its three biggest LME storage locations—New Orleans; Antwerp, Belgium; and Johor, Malaysia—are still around $100 per tonne, warehousing firms and traders say.

Of course, this depends on the customer and the tonnage being brought in; higher volumes naturally attract a better incentive, and some clients get a better deal due to relationships.

The steady flow of metal into warehouses, easily replacing anything headed for the exit, means copper is available at the right price.

Add to this new copper capacity, such as the gigantic Oyu Tolgoi Mine in Mongolia—also operated by Rio Tinto—plus falling Chinese consumption, and the situation doesn’t look quite so dire after all.

The overall view among industry participants is that the Bingham Canyon situation hasn’t significantly tightened the market—for now; that’s the key phrase.

Kennecott says it can meet customer contracts for April and May, albeit at lower numbers next month. It also plans to start transporting ore to its concentrator in the next few days, although at significantly reduced levels.

This is probably why there’s been a muted reaction, which surprised many attendees at the Washington meeting.

Nobody has yet been backed into a corner and forced to buy at an inflated premium, and nobody has been really playing hardball and talking the market up.

What about June onwards, when Kennecott customers may need to look elsewhere? Perhaps things will change then.

Much depends on China, whose buying patterns have changed and left traditional copper bulls seeking a new patron of late. Increased demand from the Asian consumer could make a real difference and isn’t beyond the realms of imagination, given the currently weaker copper price.

If there has been any impact, it’s on scrap. The market has tightened considerably in recent months, industry participants say, pushing discounts for grades like bare bright from 11 cents per pound under Comex to almost flat with Comex (, April. 18), and a copper scrap premium could be on the cards soon.

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