Copper may evade large price drops in next 2 years On supply disruptions, delays to planned project: Macquarie

Print this page Posted on : 04-25-2008 by recycleinme.com

There are still high hopes for Chinese demand growth this year, but Chinese import data have so far failed to show much pickup in demand.

Copper prices will evade large drops in price for the next two years or even longer because of supply disruptions and delays to planned projects, Macquarie said in a report Monday.

Aside from disruptions because of strikes and maintenance at operations running at or close to capacity, increasing government demands for higher royalties and profit taxes or greater stakes in projects are hampering development in many areas, the bank said.

This was most obviously the case in Africa, where analysts have pencilled in large parts of copper's supply growth, and Mongolia, it said. "Once again, we find ourselves looking at the timing of the 'probable and possible' projects, which we have included in our forecasts and conclude that in many cases they will take even longer than we had previously thought to come on stream," it said.

Slow Progress

Projects such as Rio Tinto Ltd's Oyu Tolgoi copper-gold project in Mongolia had to be put back a year to 2011 because of slow progress with amendments to mining investment laws.

Talks to formalise changes to the investment agreement for the 4,40,000-tonne project have been ongoing since 2006, but a final agreement is yet to emerge. As a result of project delays, Macquarie has cut its supply growth expectations from 2010. On the demand side, there are still high hopes for Chinese demand growth this year, but Chinese import data have so far failed to show much pickup in demand, Macquarie said.

"Chinese buyers appear to still be holding back from purchasing at the moment. The bullish case is that they are running down stocks and will have to come in and buy again in the coming weeks, regardless of the price," said Macquarie. The bear scenario would be Chinese fabricators replacing imports with domestic production after very high imports of copper concentrates and scrap at the beginning of the year.

"Unless China returns as a major buyer, it is hard to see prices making a strong push to the upside," the bank said. London Metal Exchange copper prices hit a new record high of $8,880 a tonne last week on the back of news contract workers at Codelco in Chile, the world's biggest supplier of the metal, had gone on strike.

Supply growth

But despite two of Codelco's five divisions shutting down mining operations because of safety concerns, copper prices retraced by the end of the week. "The market looks as though it will remain close enough to balance that it is hard to call for a large drop in prices over the next two years or even longer. The lack of committed supply growth is making us question whether our previous forecasts of a move into surplus in 2010 and 2011 will actually occur."

Source : Business Line