A look into the future: copper

By Paula Wallace

To read the first part of this report click here.

By late June the spot price of copper had come off its recent high, falling by about seven per cent from a peak of US$5354 per tonne. Analysts at Macquarie Bank said the metal had experienced a “phenomenal run” with prices lifting by as much as 80 per cent since late last year.
The Australian Bureau of Agricultural and Resource Economics (ABARE) says economic growth in key copper consuming nations such as China, the United States, Japan and Germany will be a key factor influencing movements in the copper price over the medium term. However, there is also considerable uncertainty surrounding the outlook for mine production.
“A major risk factor is associated with the degree to which current credit constraints limit existing and future mine developments. If access to credit continues to remain constrained in an extended period, it would have the potential to adversely affect mine production over the next several years,” said ABARE’s Australian Commodities March report.
John Meyer, head of resources for Fairfax consultancy based in the UK, said the credit crisis has pushed back many mining projects and expansions by more than a year, and projects in certain countries will be delayed indefinitely as capital is allocated to safer jurisdictions.
Production has been cut as miners move to conserve cash, pay debt and preserve value in resources and he sees that the 12 months in lost development time may take a longer time to recover.
He told a global copper conference in mid-June that according to the Chinese stimulus plan, China is planning to spend US$585.7bn on infrastructure, modernisation and development until the beginning of 2011. Only around $369bn from the package will directly affect demand for metals through construction of new airport, railroads, low cost housing and post quake reconstruction in Sichuan region.
Meyer said the amount of different metals used in the construction industry in China was calculated given that the industry accounts for 37 per cent, 20 per cent and 45 per cent of annual copper, aluminium and zinc demand respectively across the globe. The Fairfax estimation shows that the Chinese stimulus package should increase demand for steel, copper, aluminium and zinc by 17 per cent, 25 per cent, 14 per cent and 31 per cent respectively over the next two years.
In 2009, ABARE sees world copper consumption declining by 2 per cent to 17.9 million tonnes; and sees it increasing by around 4 per cent per year between 2010 and 2014 to nearly 22 million tonnes in 2014.
Mine production is forecast by ABARE to increase by 3 per cent to 16 million tonnes in 2009. New projects which will support increased mine production include Equinox Minerals’ Lumwana in Zambia, Oz Minerals’ Prominent Hill in Australia and Freeport’s Tenke Fungurume and KOV restart in the Democratic Republic of Congo. However, mine production will be lower than previously forecast as over 1.1 million tonnes of planned mine production (6 per cent of global mine capacity) is estimated to have been cut.
Australian copper mine production in 2008-09 is forecast by ABARE to increase by 7 per cent to 922,000 tonnes largely attributable to increased copper production at Oz Minerals’ Golden Grove and the commissioning of their Prominent Hill project. Increased production at the Townsville Copper Refinery combined with higher production at BHP Billiton’s Olympic Dam is forecast to increase Australia’s refined copper production by 17 per cent to 521,000 tonnes in 2008-09.
In 2009-10 Australian mine production is forecast by ABARE to increase significantly to over 1 million tonnes as Prominent Hill approaches capacity and Newcrest’s Ridgeway Deeps development and Newmont and Anglo Gold Ashanti’s Boddington development are commissioned. In line with higher production, exports of ores and concentrates are forecast to increase by 11 per cent. However, exports of refined copper are expected to decline by 7 per cent reflecting the closure of SX-EW capacity in the previous financial year. In all, lower average copper prices are forecast to offset higher export volumes with the value of export earnings declining by 22 per cent to $4.4 billion in 2009-10.
Over the remainder of ABARE’s outlook period Australian mine production is projected to grow at an annual average of 5 per cent a year to 1.2 million tonnes in 2014. Projects expected to enter production over the outlook period include Golden Cross Resources’ Copper Hill project, Universal Resources’ Roseby project, Exco Resources’ Cloncurry development Havilah Resources’ Kalkaroo and Mutooroo projects and Copper Strike’s Einasleigh project.

To read the first part of this report click here.