Even Miners Think Copper's Heading for New Lows as China Slows

  • Copper watchers and producers expect new bottom, survey shows
  • Some participants at copper event see surplus ending in 2018

Even mining executives, by nature upbeat about copper’s prospects, are painting a gloomy picture for the year ahead.

Only a quarter of the 16 traders, analysts and producers surveyed at this week’s industry get-together in Santiago said the metal has reached a bottom. Among the other 12 respondents, which included some miners, the median forecast was for prices to fall to $4,000 a metric ton in the next year amid a glut. That’s 16 percent below prices today.

A more than 50 percent plunge from record highs of five years ago hasn’t been enough to curtail supply as new projects come on stream, and existing mines cut costs enough to stay in business. And there are few signs of a pickup in top consumer China.

“In the short term, we’re of the view that prices could carry on going down,” John MacKenzie, head of Mantos Copper and the former copper chief at Anglo American Plc, said in an interview from Santiago. “It’s going to be a tough second half of this year and probably first half of next year.”

The outlook beyond that is far more encouraging with producers from Mantos to world No. 1 miner Codelco expecting the surplus to peter out and prices to recover. In the meantime, China’s efforts to move toward a more consumer-driven economy hold the key.

The Asian nation’s transition has curbed demand for metals sending copper prices to a six-year low earlier this year. That’s hurt profits of mining companies forcing them to tackle debt and tighten their belts.

“We have to be resilient and get costs down,” MacKenzie’s successor at Anglo, Hennie Faul, said in an interview. “Everyone tries to understand what’s happening in China. China will continue to play a massive role.”

Besides China, the supply side’s own resilience is helping extend the surplus.

Miners have benefited from falling costs thanks to a stronger dollar and the collapse in oil prices, said Piotr Ortonowski, a CRU consultant. Less than 10 percent of the copper industry is loss making at current prices, CRU estimates.

As new mines such as Las Bambas and an expanded Cerro Verde in Peru flood the market now, a shortfall of new projects at the end of the decade may catapult copper back into a bull market. As Robert Friedland, the co-founder and chairman of Ivanhoe Mines Ltd., told the conference on Wednesday: “The more miserable the situation becomes, the more bullish it will be five to 10 years from now.”

New demand for the metal from electric cars and renewable energy industries gives further reason to be optimistic, Friedland said.

Jeff Tygesen, the CEO of Turquoise Hill Resources, which operates the giant Oyu Tolgoi mine in Mongolia, is getting ready for that time and expanding an underground portion of the mine.

“I am optimistic copper will be around for many years,” he said in an interview in Santiago Wednesday. “In the short term, it’s going to be tough. My sense is we are getting close to the bottom when everybody throws in the towel.”

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