Photographer: Krisztian Bocsi/Bloomberg

Copper Slump Seen Extended as Miners Look to 'Tough It Out'

  • State-owned miner is working on another round of cost cuts
  • Copper trading below supply and demand balance: Landerretche

Copper’s worst rout in seven years will be prolonged by the industry’s reluctance to shut major mines, some of which are already unprofitable, according to the world’s top miner.

The price of the metal has tumbled 27 percent this year as investors fret over faltering Chinese demand and a stronger dollar. Yet major copper suppliers are making only marginal cutbacks to satisfy shareholders, while resisting shuttering operations on the belief they can “tough it out,” Codelco Chairman Oscar Landerretche said.

“We all have mines that are not profitable at $2.10 and nobody wants to shut down a mine to open it up again because that’s extremely costly,” he said in an interview Friday from Bloomberg’s Santiago offices. “There’s this waiting game going on and that makes this adjustment a little bit longer.”

Copper traded as low as $2.07 a pound Friday, down from about $3 a year ago. Supply and demand factors suggest the metal should be trading between $2.10 and $2.40, while the long-term range is probably $2.80 to $3, Landerretche said. Even so, the market is facing “a couple of years of fluctuation” as demand catches up with supply and investors reduce positions built up during the boom, he said.

“What people disagree over is the speed at which this short-term adjustment will occur,” said Landerretche, who has a Ph.D. in economics from Massachusetts Institute of Technology. “When Chilean miners go to London this year, they’ve come back a little more depressed each time.”

Landerretche said he “suffers” every morning when he checks copper prices. The metal fell to a six-year low in four of the five trading days this week.

For now, the effect of the price downturn is most noticeable in the scrap market and among smaller mines. But for the market to tighten, some larger mines will have to close down, he said.

Cost Cutting

Codelco, Chile’s state-owned copper miner, is sticking with a strategy of cutting costs, while maintaining annual output of about 1.7 million metric tons. A more than $20 billion investment plan will take output to 2 million tons by 2025 or 2027, Landerretche said.

At its smallest and highest cost mine, Salvador, there is plan to make mining operations profitable again next year, as it tries to figure out a “structural problem” at the refinery and smelter, he said.

The future of Salvador’s processing plants will be decided as part of an analysis of Chile’s aging smelting and refinery plants being undertaken by a presidential commission.

Codelco’s record investment program and cost-cutting drive comes after decades of under-investment and rising costs. The Santiago-based company is working on another savings plan that will be announced next year.

“There are going to be new cost-cutting measures, very aggressive ones,” to restore the company’s status as one of the lowest cost producers, he said.

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