Copper Surplus Seen Shrinking on Outage at BHP’s Olympic DamAlex Davis
Copper’s global oversupply may be smaller than forecast this year after BHP Billiton Ltd. reported output disruptions at its Olympic Dam mine.
As much as 70,000 metric tons of refined copper production will be lost because of repairs to the largest of three processing mills at the Australian mine. That’s equal to almost 38 percent of the site’s output of the metal last fiscal year. The market this year was headed for a surplus of 120,000 tons, analysts at Australia & New Zealand Banking Group Ltd. forecast before BHP announced the cut on Feb. 13.
“The BHP shutdown lowers the likelihood of a surplus this year,” said Daniel Hynes, a senior commodity strategist at ANZ said on Monday. “That will certainly mean the market is tighter than expected, which is supportive of better prices.”
Copper in London has fallen 20 percent in the last 12 months on speculation that demand growth is slowing in China, the largest consumer, while global supply is rising. The metal for delivery in three months on the London Metal Exchange slid 0.2 percent to $5,735 a ton at 11:29 a.m. in Hong Kong.
The lower production at Olympic Dam will probably reduce global copper supply growth to 5.1 percent this year, ANZ’s Hynes said. That’s little changed from 2014 and below the bank’s earlier forecast of 5.8 percent.
The shutdown will last for as long as six months and the majority of BHP’s production losses will be by the end of June, according to the company. The mine produced 184,400 tons in the year to June 2014 and 82,200 tons during the six months to Dec. 31, according to the company reports. The site is the 18th largest by capacity, according to rankings by the International Copper Study Group.
“This is just another example of the supply-side difficulties facing the copper market,” Anthony Rizzuto, an analyst at Cowen & Co., said in a research note Feb. 13. The lost production will be “taking a big chunk out of the expected global copper surplus for this year,” Edward Meir, an analyst at INTL FCStone, said in a report the same day.
Outlooks for surpluses or deficits can vary significantly between analysts and are based on individual forecasts of supply and demand growth of refined copper. The ICSG in October said the market may be oversupplied by 393,000 tons this year after five years of deficits.
Falling prices were already impacting supply before the Olympic Dam slowdown. Miners including Freeport-McMoRan Inc. have cut investment plans for this year while Glencore Plc and Rio Tinto Group reduced output of the metal.
Glencore produced 397,400 tons of the metal, including concentrates, in the fourth quarter, down 7 percent from the previous three months. The company on Feb. 11 said it cut its 2015 investment forecast to as low as $6.5 billion, down from $7.9 billion announced in December. Rio Tinto Group’s copper production fell 23 percent in the fourth quarter from a year earlier.
Freeport, the largest publicly-traded copper producer, expects to spend about 20 percent less on mining projects in 2015 than it forecast in October, the company said last month. That’s even as it sees the copper market “relatively tight,” Richard Adkerson, chief executive officer, said in a Jan. 27 earnings call.
“This surplus expected in 2015 appears to be much smaller than anticipated,” Adkerson said during the call. “Supply is coming on slower. Disruptions are more frequent.”