NEW YORK, May 23 (Reuters) - Global copper mine production
hit speed bumps last quarter, interrupting a growth trend that
the copper industry counted on to meet strong global demand and
justify aggressive expansion plans.
The drop in copper output from the world's biggest listed
mining companies in the first three months of 2011 could
temporarily exacerbate a supply deficit that contributed to the
rise in copper prices to record highs this year.
After rising for three straight quarters, production from
the 11 biggest publicly listed miners fell by 8 percent in the
first three months of 2011, due to declining ore grades and
adverse weather conditions, data from companies showed last
One of the hardest hit miners in the group was Anglo
American (AAL.L: Quote). Anglo American's Collahuasi and Los Bronces
mines in Chile hit such roadblocks, resulting in a 14 percent
drop in first-quarter copper production from 2010 levels.
The data lend support to the bullish argument that the
copper market will likely see a deepening deficit this year as
existing operations struggle while new projects are still a
year or two away from making a significant contribution.
This view has helped support the price of the metal, which
is up more than 20 percent from the first-quarter of 2010.
Copper rose to all time highs in February near $4.62 a lb
in New York and $10,000 per tonne in London.
High prices left companies like Freeport McMoRan Copper &
Gold (FCX.N: Quote) looking flush enough to increase their exploration
budgets, in which case any copper deficit blow-out could be
short-lived as could some of the supply-driven strength in
"Escondida was supposed to be down 10 percent year-on-year
due to ore grades, Freeport's Grasberg was down 17 percent, and
Collahuasi had problems due to heavy rains in January and
February," said Catherine Virga, senior base metals analyst
with CPM Group in New York.
"This keeps the concentrate market fairly tight."
Output from 11 of the world's largest miners, who together
produce about a tenth of the world's copper, fell to 1,8443,445
tonnes in the quarter, the lowest quarterly tally since the
first quarter of 2010 when output hit 1,812,040 tonnes.
The figures exclude Chile's state-owned Codelco [CODEL.UL],
which accounts for around 11 percent of the world's mined
copper but reports its first-quarter production figures later
than other companies.
Production in Chile, the world's largest producer of
copper, fell in the first quarter of this year relative to
"With not a lot of capacity coming on stream, you're likely
to have a tight supply/demand pattern," said Rodman & Renshaw's
managing director Wayne Atwell, who has more than 35 years of
experience in the field of investment analysis for the metals
and mining industries.
According to the International Copper Study Group (ICSG),
global mine capacity utilization rates fell for a third
straight month in January to stand at 77.8 percent.
"Overall, 2011 will be a challenging year to see meaningful
growth from existing operations," said Terry Ortslan, a mining
analyst with TSO & Associates in Montreal, with over 30 years
of experience in the industry.
Two operations -- a production restart at Grupo Mexico's
(GMEXICOB.MX: Quote) Cananea mine in Mexico and a ramp-up of
Antofagasta's (ANTO.L: Quote) Esperanza mine in Chile -- offer the
biggest boost to mine supply growth this year, but analysts do
not expect enough extra concentrate to alter the overall
"It is difficult to really have an expectation that there
will be an improvement," said Nicholas Snowdon, analyst with
Barclays Capital in New York.
"Apart from those two facilities, there are no other mines
that are ramping up, offering over 100,000 tonnes of fresh
output this year."
With benchmark prices of the metal CMCU3 sitting well
above the marginal cost of production, generally seen above the
$2 to $2.50 per lb range, more restarts, expansion projects and
new production ramp-ups should eventually boost mine capacity
Still it will likely take until 2012 or later before any
supply-side impact would likely be felt.
"The industry is trying quite hard to bring production up
because the profitability is so high with prices so strong, but
there is a limit to how quickly they can do that," Rodman &
Renshaw's Atwell said.
Freeport, the world's second-largest producer behind
Chile's Codelco, raised its 2011 exploration budget to $225
million from the $200 million announced in January, in an
effort to move full steam ahead with expansion and restarts.
About $1.3 billion of the capex budget will go primarily to
underground development of the Indonesian Grasberg copper mine,
construction activities at the Climax molybdenum mine in
Colorado and development of the El Abra sulfide deposit in
South America. [ID:nN20191756]
With new copper production capacity set to come onstream in
North America and Australia in 2012 and 2013, Christine
Meilton, chief consultant at CRU, said the market could be in
surplus as early as 2013.
Speaking to Reuters at the consultancy's World Wire and
Cable Conference in Amsterdam this week, she said, "Demand is
forecast to show much more steady growth which is why we see
the market moving from a deficit this year to surplus and then
(Reporting by Chris Kelly; Editing by Alden Bentley)