Copper Kings Look Past China Wobbles to Looming Scarcity

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As forecasters debate copper’s next price move, the world’s biggest producers say they can extend a decade of profits as mines struggle to keep up with demand.

Even with Chinese growth slowing, aging mines will fail to keep pace with electrical equipment demand in developing countries, according to Jean-Sebastien Jacques, head of Rio Tinto Group’s copper business. He joined executives from Codelco, Freeport McMoRan Inc., Antofagasta Plc and Teck Resources Ltd. in Santiago this week for the industry’s annual get-together.

“I see a substantial supply gap opening up by the end of this decade,” Jacques said. “Now is the time to keep investing.”

Copper lost 11 percent in the past year and traded at three-week lows Wednesday after data showed China’s economy grew at the slowest pace in six years. The metal used in wiring and plumbing will avoid following oil and iron ore into a more abrupt slump as an anticipated surplus is erased by mine setbacks, mining executives including Antofagasta Chief Executive Officer Diego Hernandez and Teck CEO Don Lindsay told the World Copper Conference in Santiago.

Disruptions to mines have included floods in Chile’s Atacama Desert and a mechanical fault at BHP Billiton Ltd.’s Olympic Dam mine in Australia.

Output at Codelco, the world’s largest copper producer, will fall over the next four years as a $25 billion investment program won’t be quick enough to replace depleting operations, CEO Nelson Pizarro said.

Analyst Divergence

Chile’s state-owned producer will keep digging ore at its century-old Chuquicamata open-pit because an underground project beneath the 1-kilometer chasm won’t be ready on time to make up for the expected drop in output, he said.

It’s “difficult” see a surplus emerging in the copper market, said Daniel Muniz, chief financial officer of Grupo Mexico SAB, which will expand output by 25 percent in the next three years.

Analysts are less sure about what lies ahead.

Macquarie Group Ltd., Barclays Plc and Citigroup Inc. expect prices to recover or at least stabilize as mine disruptions erode a projected supply glut. Goldman Sachs Group Inc. and Societe Generale SA see more declines with the traditional second-quarter purchasing boost after Chinese New Year failing to materialize and falling costs encouraging miners to boost output.

Copper demand will receive a lift over the next five years as the world adopts energy efficiency standards in home appliances that tend to use more copper, Rio Tinto’s Jacques said Monday in his capacity as head of the International Copper Association, which promotes new uses of the metal.

Power Push

And China’s demand may not peak until halfway through the next decade as the country seeks to invest in its power grid and as the population in the agricultural west of the country continues to migrate toward the urban east, according to CRU Group, the industry consultant that traditionally holds a two-day conference preceding an industry dinner in Santiago held by producer association Cesco.

“We do expect growth in Chinese consumption of refined copper to continue to slow but we’re not anticipating that demand in volume terms will reach a peak until well into the next decade,” Vanessa Davidson, copper research director at CRU Group, told the Santiago conference.

Chinese demand will gradually increase later this year supporting prices that were oversold because of a strengthening dollar and falling oil prices, she said.

Mine Closures

More than 530,000 tons of mine supply has already been cut from 2015 estimates due to reductions in production guidance by Rio Tinto, BHP Billiton and Glencore Plc, Citigroup estimates. About 50,000 tons of price-related mine closures took place in December and January and a further 350,000 tons are under review, the bank’s analysts, including David Wilson, said in a report e-mailed April 12.

Codelco is still struggling to reconnect water supplies to its Salvador mine in the Atacama Desert after a deluge interrupted several mines including Lundin Mining Corp.’s Candelaria mine and Pan Pacific Copper Co.’s Caserones mine.

“There is a supply story attached to copper that is different from other commodities and it’s that limitation to copper supply that drives my long-term optimism,” Javier Targhetta, Freeport McMoRan’s senior vice president marketing & sales, said in an interview in Santiago on April 13. “There is no shale copper.”

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