Photographer: Munshi Ahmed/Bloomberg

World's Top Copper Miner Says Rally to Fade as Gluts Persist

  • Codelco sees prices at $2 to $2.10 a pound for couple of years
  • Market to move to deficit from 2018, Landerretche forecasts

Codelco, the world’s biggest copper producer, said that a global surplus will persist through this year and next, and dismissed suggestions that a recent gain in prices was likely to endure.

The metal will probably fluctuate at around $2 to $2.10 a pound for a couple of years, with extreme volatility, Chairman Oscar Landerretche said in an interview in Florida. After the gluts this year and in 2017, the market may swing to a deficit of 50,000 to 100,000 metric tons in 2018, with the shortfall expanding to 300,000 to 400,000 tons in 2019, he said.

Oscar Landerretche

Source: Codelco

Copper has rebounded from a six-year low in January after sinking 25 percent last year as slowing growth in China hurt demand in the largest user and spurred a global surplus. The rout forced miners including Santiago-based Codelco to rein in costs, while others such as Glencore Plc shuttered mines to curb supply. Glencore Chief Executive Officer Ivan Glasenberg said Tuesday that he now sees commodity prices bottoming.

Those in the market who believe that copper will rise above $3 a pound “must have some secret information that we’re not aware of,” Landerretche said Tuesday from a mining conference. “It doesn’t look very plausible.”

Copper for delivery in three months rose 0.5 percent to $4,716 a metric ton on the London Metal Exchange on Tuesday, equivalent to $2.14 a pound, and extended that advance on Wednesday to $4,786. Prices are 11 percent higher than the low of $4,318 touched on Jan. 15, after rising 2.9 percent in February to post the biggest monthly gain since April.

The pricing of recent mine deals implied that some producers expect copper to be significantly higher in the longer term, Landerretche said. Sumitomo Metal Mining Co.’s $1 billion deal last month to raise its stake in a Freeport-McMoRan Inc. mine reflected an implied price in excess of the current spot prices, according to Sanford C. Bernstein Ltd.

Goldman Sachs Group Inc. has forecast more losses for copper this year, saying last month it didn’t expect a material recovery in Chinese metals demand growth. A deficit is likely to develop toward the end of the decade, BHP Billiton Ltd. said last week, as copper output is constrained at existing mines on lower grades.

While some small miners with higher costs may need to close down to stabilize prices, a large proportion of producers have cash costs that put them “right on the fence,” Landerretche said.  “So that makes for this sort of agonizing situation,” with miners continuing to attempt to avoid shutting operations completely, he said.

By the end of 2016, Codelco will have lowered operating costs by $2.5 billion in two years and is continuing to seek savings, he said.

Before it's here, it's on the Bloomberg Terminal.