Copper-Inflow Chatter Masks Looming Deficit, Top Miner SaysBy
Codelco’s Landerretche says metal has a ‘promising future’
Predicts widening market deficit amid dearth of new projects
A surge in copper stockpiles isn’t sounding any alarm bells with the world’s biggest producer as supply struggles to match demand.
After tumbling to a four-month low in June, global warehouse inventories have jumped about 15 percent this month, spurring concern that demand for the metal used in wiring and plumbing is waning. Prices have retreated in July.
Codelco Chairman Oscar Landerretche looks at the seesawing of stockpiles and futures contracts as a consequence of increasing financial transactions that can obfuscate longer-term supply and demand factors.
“Short-term reactions can be influenced by a thousand things,” Landerretche said in an interview Monday from his Santiago offices. “Copper prices have cyclical elements, but volatility has increased over time and that has to do with the fact that financial and speculative transactions around copper account now for more than half of transactions.”
While Codelco settles its contracts annually and isn’t as plugged in to the shorter term demand swings as other players in the market, the company hasn’t heard anything from its Chinese buyers that would explain the latest surge in stockpiles, he said. Analysts including Leon Westgate at Levmet U.K. Ltd. said the recent inventory movements probably reflect tactical moves among big traders to pressure prices
Landerretche expects the market to move into a small deficit this year and get progressively tighter in 2018 and 2019, with prices headed back toward $3 a pound, from Tuesday’s close of $2.672 in New York.
The demand outlook is supported by the electric-car revolution, urbanization in emerging markets such as India and Indonesia and infrastructure programs in the developed world, Landerretche said. A scarcity of new projects and deteriorating ore quality at existing mines mean supply will struggle to meet demand, he said.
"There is a promising future for copper," Landerretche said.
Mining companies should focus on the longer term and be prepared to make the most of higher prices when they come, he said.
The state-owned company has trimmed and slowed the planned roll out of a series of projects to overhaul its aging deposits after years of under-investment. The transition of its Chuquicamata open pit into an underground mine is on schedule, with production to start in early 2019. It’s also working on projects to expand the Teniente and Andina mines.
"We want to move away from a pharaonic mentality," he said. "We think we have a portfolio of realistic projects sequenced one after another in a way that can become a reality."
— With assistance by Mark Burton, and Luzi-Ann Javier