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Strategies & Market Trends : Commodities - The Coming Bull Market -- Ignore unavailable to you. Want to Upgrade?

To: Stephen O who wrote (1002)	12/31/2001 9:56:20 AM
From: Stephen O	Respond to of 1643

(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