Codelco, the world’s biggest copper producer, expects a “tighter” market for the metal next year because of continued demand from China and a lack of new supply.
“China is continuing to have a strong demand and from the supply side we have only a couple of new projects coming on-stream,” Codelco Chief Executive Officer Diego Hernandez said today in an interview in London. The company is selling “a little more” than 40 percent of its copper to China, he said.
Copper surged to a 27-month high yesterday on speculation that the Federal Reserve will increase measures to stimulate the U.S. economy, weakening the dollar and boosting demand for commodities as alternative investments. Prices will need to remain higher than in the past for metals producers to cope with rising costs and lower ore quality, according to Hernandez.
Codelco, which supplies about 10 percent of the world’s mined copper, will spend $15 billion over the next five years to revamp mines, some of which are a century old. The Santiago- based company is expanding its Andina, El Teniente and Norte mining divisions in Chile and accelerating development of the new Quetena project after four years of declining output.
Mining companies need a long-term average price of about $6,500 a metric ton, or $2.95 a pound, to develop new copper mines because deposits of the metal are becoming more expensive to develop and run, Hernandez said.
Goldman Sachs Forecast
Goldman Sachs Group Inc. increased its estimate for copper prices to $11,000 a metric ton by the end of next year. Copper has “the strongest fundamentals” because of low inventories, Jeffrey Currie, Goldman’s head of commodities research, said at a conference in London Oct. 6.
“This year supply and demand have been quite tight and I think that next year should be the same or even a little tighter,” Hernandez said.
Some Chinese buyers of the metal may be accumulating stockpiles of the metal to sell later for a profit, Hernandez said. The trend may cause short-term price fluctuations, he said. Prices in the “longer-term” will reflect supply and demand, he said.
Copper for delivery in December rose 0.5 percent to $3.80 a pound at 11:39 a.m. on the Comex in New York. Prices yesterday touched the highest level since July 8, 2008. Copper for delivery in three months slipped 0.1 percent to $8,283 a metric ton on the London Metal Exchange.
Chile’s government has authorized Codelco to sell as much as $1.8 billion in a planned bond sale that the company will “partially” exercise in four to five weeks. The proceeds will be used to replace short-term debt with long-term debt and to fund investments, he said.
Next year, Codelco expects to raise about $1 billion by selling assets including its stake in Chilean power generator E- CL SA.
The company will spend about $26 billion from 2009 to 2019, the same amount spent in the 33 previous years to 2008, Chairman Gerardo Jofre said in a presentation on Oct. 5.
Hernandez, 61, was appointed head of Codelco by Chilean President Sebastian Pinera in April, replacing Jose Pablo Arellano. Hernandez is a former Vale SA and BHP Billiton Ltd. executive.