Copper Surplus Seen at Risk From Global Disruptions at Mines

A surplus of copper predicted for this year is at risk of shrinking because of potential disruptions at mines around the world, according to researcher Wood Mackenzie Ltd.

Production will exceed demand by about 300,000 metric tons in 2014, from 65,000 tons last year, said Paul Benjamin and Jonathan Barnes, analysts at Edinburgh-based Wood Mackenzie. The surplus will equate to 70 days of usage, compared with 69 days last year and the long-term average of 65 days, they said March 6 in an interview in London. Disruptions at mines last year were below average, according to the researcher.

Freeport-McMoRan Copper & Gold Inc. said last month it may have to declare force majeure on concentrate sales from its Grasberg mine in Indonesia because of new export rules. The Democratic Republic of Congo told miners to halt project expansion requiring more power amid a shortage that will take years to resolve, according to government documents. Workers went on strike last year at Codelco’s Salvador mine in Chile.

“Just because there was a dip in disruptions last year doesn’t mean we are out of the woods yet,” Benjamin said. “It only takes something like this Indonesian situation to get out of control, or Chinese demand to be slightly better than we are forecasting, and the surplus is gone.”

The new rules imposed by Indonesia on Jan. 12 curb shipping of unprocessed ore and place duties on exports of copper concentrate as the country seeks to increase the value of the exports. Concentrate is partly treated ore that’s shipped to smelters from mines.

World Consumption

New projects will drive supply growth this year, presenting a risk that late commissioning contributes to disruptions in 2014, Benjamin said. Global refined-copper usage will rise 4.5 percent to 22.2 million tons this year as Chinese demand expands by 7.5 percent, according to Barclays Plc. China, the leading copper consumer, may account for 65 percent of demand growth this year, against 85 percent in 2013, Wood Mackenzie estimates.

“We will be less dependent on China, what China does,” Barnes said. “We still think China is going to be a big part of the total, but we’re also looking for contributions from the U.S., Europe, Japan, Brazil, Taiwan and Korea. It’s going to be a much more even picture, hopefully.”

Orders linked to China’s electricity grid are “the most encouraging thing,” the analysts said, with investment up 13 percent from the previous year. China’s power industry accounts for about 40 percent of the nation’s copper consumption, according to Wood Mackenzie.

Force Majeure

Freeport is the biggest publicly traded copper producer, and force majeure is a legal clause freeing companies from contract terms because of circumstances beyond their control. State-owned Codelco, based in Santiago, is the world’s largest copper miner.

“There was a big stock build-up in concentrate last year” in China, Benjamin said. “But this year, the operators of the smelters will want to maximize the utilization so they will start to draw that concentrate stockpile down.”

Copper for delivery in three months fell 1.6 percent to $6,671 a ton by 4:30 p.m. on the London Metal Exchange after earlier today reaching the lowest in more than eight months. Stockpiles monitored by the bourse fell 28 percent this year to the lowest since December 2012. Inventories monitored by the Shanghai Futures Exchange climbed 65 percent since the end of December to a 10-month high. Bonded copper stockpiles in China gained to 750,000 tons by the end of February, according to Macquarie Group Ltd.

“It doesn’t really feel like there’s a surplus in the rest of the world,” Benjamin said. “There is a question of dislocation of stocks. So much of it is in China.”

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