(MB) - Copper production cuts support the market
2001-12-28 17:01 (New York)
December 28 (Metal Bulletin) - Chilean state-owned copper
producer Codelco has detailed its mine production cuts for next
year, which will total 106,300 tonnes of refined copper.
Following a review of mining plans at each of its divisions,
the company is to cut output at its biggest mine, Chuquicamata,
by 47,000 tonnes.
Production at El Teniente will be slashed by 25,000 tonnes,
Andina will produce 23,000 tonnes less in 2002, and Salvador
will see 11,300 tonnes cut. Codelco's total copper production
in 2002 will be around 1.53m tonnes.
Codelco's output cuts are the latest positive fundamental news
in 2001, which until recently was beginning to look like a year
of unremitting decline for copper.
Starting in January at an average LME price just under $1800
per tonne basis three months, the metal was traded down and
down during the year as consumer demand slumped. Copper broke
line after line of resistance to hit 14-year lows of $1340 per
tonne in early November.
But just when its fate looked worse than a turkey at
Thanksgiving, producers finally stepped in and took the
necessary measures. BHP Billiton assumed the initiative -their
announcement that they would cut 170,000 tpy of production
marked the turning point for the copper market and helped boost
sentiment. The red metal eventually finished the year at a more
respectable price of $1500 per tonne, despite the continuing
lack of demand.
BHP Billiton's actions were significant for two reasons.
Firstly, the cut was not forced on the company because it was
losing money - the reductions at the Escondida and Tintaya were
purely market related. Secondly, it marked a change in
responsibility in the global industry. The biggest miners, not
just the least profitable, must now respond to the needs of the
market.
"Over the past 30 years the copper industry has relied heavily
on the highest cost part of the US and Canadian mining
industry, together with the Philippines and a few smaller
producers, to act as the copper market's swing suppliers.
However, over recent years the Filipino copper mining industry
has effectively disappeared, while the highest cost US capacity
has been closed since the last price trough in 1999," explained
analysts at HSCB in a recent copper market update. (All the
same, North American producers Phelps Dodge, Noranda and Grupo
Mexico suffered under the strong US dollar in 2001 and were the
first to reduce output.)
The day after BHP Billiton's announcement, Codelco confirmed at
least 100,000 tpy of cuts for 2002, and by the end of the
fourth quarter around 500,000 tonnes of mine production had
been taken offline.
There were whispers that BHP Billiton and Codelco had made the
cuts just in time to influence the annual copper concentrates
negotiations. But in fact concs treatment charges had been on
the slide for the latter half of the year as concs stocks were
wound down and smelter demand from China picked up.
The cuts have slowed the rate of growth in copper production
such that a modest increase in demand next year will return the
market to balance. "The cuts that have taken place have
improved market fundamentals and mean that demand must grow by
2% next year, much less than the recent average [2.9% in the
1990's], in order to balance the market in 2002," said Kevin
Norrish at Barclays Capital.
At Macquarie Bank, Adam Rowley expected fairly weak demand in
2002 and forecasted demand growth of 1.9% in the western world,
adding that China's bullish influence for the past two years
"remains a wildcard".
So can copper reverse this year's trend and sustain a rally
rather than a decline? It all depends whether demand will re-
materialise. Analysts are hopeful, especially given that
consumers have spent most of the year reducing their
inventories, so any sign of economic recovery will surely
stimulate fresh buying. If it doesn't, copper producers will
face another test of their will.
Metal Bulletin newsroom, London Tel +44 207 827 9977 Fax
+44 207 928 6892 New York Tel +1 212 213 6202 Fax +1 212
213 6273
-0- (BN ) Dec/28/2001 22:01 GMT |
