Copper futures for March delivery fell 2.35 cents to $1.4050 a pound on the Comex division of the New York Mercantile Exchange today. Copper, which reached a record $4.2605 a pound on May 5, has dropped 54 percent this year. Copper had more than quadrupled in the six years through 2007. The decline over the last six months,gives copper the worst- performance among metals tracked on the Reuters/Jefferies CRB Index of 19 commodities.
Copper prices will be “depressed” next year and demand almost “stagnant” as the international economic crisis leads to higher stockpiles of the metal, Chilean state owned Codelco Chief Executive Officer Jose Pablo Arrelano was quoted in Bloomberg today
Demand won’t recover until 2010, Arellano said today in a speech in Santiago. Prices for the metal, will return to “normal” in 2011 as the surplus declines, Arellano said, without specifying a price. Codelco is the world’s largest copper producer by 2007 output. Global stockpiles are rising as wordlwide economic expansion slows to 2 percent or less this year and next. Before a “violent drop” cut copper prices by two-thirds since May, Codelco had forecast a gradual decline, he said. The company has sold a smaller share of its production for 2009 than the 80 percent usually committed by this time.
This will undoubtedly hurt other players in the commodities market, including BHP Biliton (NYSE – BBL) / (ASX – BHP) & Freeport McMoran (NYSE – FCX), Freeport McMoran have made some inroads to looking at the problem, the board announced in early December , Revised Operating Plan in Response to Weak Market Conditions. Which is basically a slow down in extraction & refining in both its North & South American operations. In Chile & Peru, copper extraction looks like a loss leader at the moment, in aggregate across all units, costs in 2009 are predicted to range from between $0.85 – $1.45 per pound. BHP have similarly looked at cutbacks regards copper extraction, the world’s biggest mining company, said yesterday that it has delayed plans for an energy plant in Chile that it planned to build to supply two of its copper mines.
As discussed in an earlier post, Aussie-Canuck operator Equinox have just opened the largest copper mine in Africa, at Lumwana in Zambia, which when it comes fully online in early 2009, will be churning out 172,000 tonnes per year, which can only bring about competition for BHP & Freeport, especially as Equinox has hedged production at $2.00 for the first three years of operation at Lumwana & have an existing extraction cost of $0.80.
Chile, the world’s biggest copper supplier, and the rest of the world will weather “tough” months ahead, Chilean President Michelle Bachelet said last week. Copper demand in the U.S. may weaken further, while the pace of demand growth in China may be cut by almost half to between 5 percent and 6 percent, Eduardo Titelman, EVPof the Chilean Copper Commission, said in an interview last week.
Demand growth in China, the world’s largest user of the metal used in plumbing and wiring, slowed to an estimated 9.8 percent this year from 26 percent in 2007, the commission said. Freeport-McMoRan has shelved projects including a $450 million expansion at its Chilean copper mine El Abra. Freeport owns 51 percent of the mine and Codelco the remainder.