Chinese buying to aid copper demand: Freeport
Wed Apr 22, 2009 4:02pm EDT
reuters.com
By Carole Vaporean
NEW YORK, April 22 (Reuters) - Freeport-McMoRan Copper & Gold Inc (FCX.N) sees Chinese purchases of copper continuing to support the industrial metal for the long term, even though its buying practices could cause price volatility in the near term.
"We think a lot of the activity in China is sustainable. Their (copper) buying practices will create volatility in the near term, but underlying that is economic growth and infrastructure development that requires real consumption of copper," Chief Executive Officer Richard Adkerson told analysts on a conference call on Wednesday.
Despite the dampening effect global recession has had on China's export business, the chief of the largest publicly traded copper producer said copper demand was inherent in Chinese development of its standard of living.
"We have a long-term view that's positive on China continuing to invest in infrastructure. They're building facilities -- housing, transportation, railroads, power facilities -- that consume copper," he said.
He attributed copper's rise from $1.40 per lb at the start of 2009 to current levels above $2.00 a lb to China.
"As we go forward, given market conditions elsewhere around the world, the copper price in the short term is going to be driven by China," the executive told analysts.
Earlier on Wednesday, the Phoenix, Arizona-based mining company reported first-quarter profit slumped sharply and revenue dropped by more than half as the global economic downturn weakened metal demand and prices. [nN22411505]
Looking ahead, Adkerson said Freeport still expects 2009 consolidated sales of 3.9 billion lbs of copper, 2.3 million ounces of gold and 50 million lbs of molybdenum.
By 2010, it projects a decline in copper sales to 3.8 billion lbs and in gold sales to 2.1 million ounces, but a rise in molybdenum to 60 million lbs.
The CEO warned of risks to the upside, referring to price moves in 2003 when global recession drove copper down to about 75 cents a lb but subsequent economic recovery doubled prices by the end of 2004 as a a case study for what the copper industry will face as China and the developed world gear up.
"We continue to be very positive about being in the copper and molybdenum business, even though prices are weak."
Adkerson pointed out that historically low exchange and consumer inventories around the world and supply issues unrelated to price -- low ore grades at aging mines, equipment shortages and challenges of operating in politically unstable regions -- should support prices.
"As developing world economies begin to recover and as China and the undeveloped world builds infrastructure, the world is going to have strong demand for copper and the industry will be challenged to meet that demand," he said.
When demand does pick up, he said, it can take as long as two years between the time when Freeport decides to restart operations and output reaches previous levels.
"If we were to make the decision in the second half of '09, it would take a couple of years. The longer it goes the more that lag time gets extended," he said.
On the other hand, Freeport could expand operations elsewhere if necessary to make up for curtailed supply.
"Lag time will be limited to Morenci, Safford operations (in the U.S.), and other operations we could use to cushion volumes quickly both for copper and molybdenum," he said.
Molybendum operations could be restarted more quickly. Freeport trimmed molybdenum output at its Henderson mine in the U.S. to 40 percent and cut byproduct output at copper mines.
Molybdenum prices are off last year's levels by two-thirds, hit by a steep declines in steel and chemical industry demand.
Though Freeport has historically not shipped molybdenum into the Chinese market, Adkerson said it had received "recent inquiries about it," but could not comment further.
"We're working our plans off of what we see from our traditional customers (in the U.S. and Europe), and if this gives us some new opportunities we're in a position to act very quickly on it," the executive added. (Additional reporting by Steve James; Editing by Christian Wiessner) |
