Analysts eye copper market shift, smaller projects gain market share

Copper market analysts expect big changes for the red metal in the coming years in Latin America, with small and medium projects becoming increasingly important.

As some mines in Chile reach their limits, Metal Bulletin sources believe that smaller projects, with lower ore grades, will have more space in the market.

“Traditional mines in South America are presenting a reduction in ore grades. Producers are starting to explore projects with up to 0.5% of ore. Ten years ago, nobody would have invested in that,” a copper specialist told Metal Bulletin.

“The future is not giant mines anymore. Medium and small projects will play a greater role to play in the world’s supply,” a second analyst added.

Copper is forecast to remain in deficit until 2014, and will present a small surplus after that.

“The copper industry faces a lot of challenges. Demand is a little lower, costs are higher and investments are required,” Pedro Fuenzalida, an analyst at Larrain Vial, said.

Chile’s Codelco, the world’s biggest copper producer, reported first-half 2012 results that support the analysts assessments.

The company reported a 6.3% drop in production to 766,756 tonnes for the first half of 2012 compared with the same period of 2011, due to lower ore grades at its largest mines.

Codelco saw average ore grades of 0.72% in the first half of the year, down from 0.80% in the same period last year.

“We are in line with what we forecast. The drop in production is not a surprise,” Thomas Keller, Codelco’s ceo, said during the results presentation.

The next results will include part of Anglo American Sur’s production, following a recent agreement between the Chilean company and Anglo American.

“The agreement was good for both parties. Perhaps a little better for Codelco, but Anglo also won in doing an agreement as early as it could,” the copper specialist source said.

In addition, BHP Billiton has cancelled a planned $20 billion investment in its Olympic Dam project in South Australia, which could have an impact on future supply.

“The problem is that the costs of producing in Australia are too high at the moment. Competition with other countries is hard. Workers, for instance, are very well paid and don’t actually live in the mine area,” the source said.

Analysts note, however, that despite these developments, copper will remain a strong business in the future.

“I don’t see the end of the copper cycle. Prices are low in comparison with last year’s figures. But considering the last 10 years, they are still worthwhile,”  said the executive.

Carolina Guerra
cguerra@metalbulletin.com
Twitter: #!/cguerra_mb