Copper Concerns Continue

By Kishori Krishnan Exclusive To Copper Investing News

Concerns about the state of global demand for copper continue to persist, with worries about rising copper stocks and a fall in US consumer confidence underlining these fears.

Global consumption for the red metal slipped 1.3 per cent in the first seven months of 2009 as compared to the corresponding period last year, the International Copper Study Group reported.

The index of consumer confidence was recorded at 47.7 in October this year from 53.4 last month, the Conference Board, a business-backed research group, reported.

Copper prices have more than doubled in 2009 on speculation that reviving economic growth will spur consumption. But as in the case of other metals, hopes are riding high on China which had surprised markets (with its 5th heaviest copper imports in September).

China story

The country is expected to drive demand as consumption in the construction sector picks up.

Speaking to Reuters late last week,  Alexander Koch, partner and managing director at Boston Consulting Group, said, “Over the past couple of weeks, I have come closer to believing that the restocking period has come to a pause. Large amounts of copper in China are used in construction, which has really been shooting up as a result of government stimulus measures. This has replaced the activities of ‘strategic restocking’ by the Chinese government earlier in the year.”

Chile, which had signed a Free Trade Agreement (FTA) with China in 2006, saw new opportunity of its own recovery in the Asian country’s 8.9 per cent GDP growth in the third quarter, a newspaper article said.

China’s economic growth has boosted Chile’s copper export to the country, according to an article recently published in Chilean’s financial daily, Estrategia, with the title of “China: The Best Ally of the Chilean Recovery.”

Experts like Koch are of the view that the ongoing construction in China will likely continue to rise in the first half of next year, although at a slower pace.

But the uncertain supply outlooks may cause fluctuations in copper inflows and analysts feel that volatility will remain high.

Price drama

On October 30, the three-month copper on the London Metal Exchange (LME) MCU3 closed down $184.50 at $6,480 a tonne. On Friday, US copper futures ended sharply lower under pressure from a sell-off on Wall Street and a recovery in the dollar after a mixed double-dose of data countered optimism from Thursday’s GDP figures.

Copper for December delivery (HGZ9) plunged 7.40 cents, or 2.4 per cent, to settle at $2.9555 a lb on the New York Mercantile Exchange’s Comex division.

Copper was down on month/week-end book squaring with stronger dollar and crumbling equity markets feeding bearish momentum, according to Ralph Preston, futures analyst with HeritageWestFutures.com in San Diego, California.

Copper from Chile

The metal’s downside was also affected due to 18-day worker strike at Chile’s Spence copper mine, which has reduced output to a minimum.

Chile’s state-owned Codelco, the biggest copper miner in the world, said its copper production rose 16 per cent in the January-September period compared with a year earlier.

However, another Chile mine, the Escondida mine, saw its January-September output fall 21 per cent from a year earlier to 788,126 tonnes.

Japanese story

On Oct 27, Bloomberg reported that Japan’s output of copper and copper alloy fabricated products, including sheets and tubes, had climbed to the highest level in 10 months as global demand increased.

Production was 64,690 metric tons last month, up from 55,670 tons in August, the Japan Copper and Brass Association said in a statement.

That was the highest since November. Output in March had tumbled to 34,512 tons, the lowest since November 1974, and production last month remained 17 per cent below a year earlier.

The country’s copper wire and cable shipments dropped 23 per cent in the fiscal first half to the lowest since 1971 on slumping demand from construction companies and electric- machinery makers, said the Japanese Electric Wire and cable Makers’ Association.

Shipments, including exports and domestic business, fell to 317,000 tons in the six months to September 30 from 411,500 tons in the year-earlier period, the cable makers’ association said. That was the lowest level since the first half of 1971.

Full steam ahead

Not one to let go, Freeport-McMoRan Copper & Gold Inc (FCX.N) said Wednesday it has decided to move forward on three deferred copper mining projects, citing a positive outlook for its metal markets and its ability to manage costs during the global economic downturn.

“We’re taking some steps today to invest in some projects that we had deferred, but we’re not taking a large scale change to the strategy we had put in place at the outset of 2009,” chief executive Richard Adkerson said.

The mining giant reported strong third quarter earnings.  Freeport’s capital expenditure budget for 2009 remained at $1.4 billion as it has all year, down from $2.7 billion in 2008.

Company news

TVI Resource Development Inc (TVIRD), the Philippine affiliate of TVI Pacific, which began copper and zinc mining operations last year, is expected to earn US$ 48.5 million in gross revenue this year, as it recently completed its eighth shipment of copper concentrates to a Chinese smelter.

TVIRD spokesman Rocky Dimaculangan said the shipment of copper concentrates was made on Monday last week, from TVIRD’s warehouse facility at Santa Maria Port in Siocon, Zamboanga del Norte.

Dimaculangan said this brings TVIRD’s total expected gross revenues to $48.5 million, which includes price adjustments from previous shipments.

He said that to date, the Canatuan mine has produced approximately 41,000 dmt of copper concentrate. Of that production, Dimaculangan said, 40,059 dmt has been sold through the off-take agreement with MRI.

Highlands Pacific announced that it was exploring a copper-gold resource close to the Ok Tedi mine in Papua, New Guinea (PNG), which was due to close next year.

Around 52 per cent in this mine is owned by PNG Sustainable Development Program Ltd, a non-profit body chaired by leading economist, Ross Garnaut.

The PNG government owns 30 per cent and Canadian miner Inmet 18 per cent.

Ok Tedi, located in the remote Star Mountains in the western province, has been contributing a quarter of PNG’s export earnings, providing about $100 million a year to the national budget.

The Brisbane-based firm, which focuses on PNG, also owns 8.56 per cent of the $1.5 billion Ramu nickel mine being built in Madang province by China Metallurgical Construction Corporation (MCC) and 16.9 per cent of the $4.3bn Frieda copper-gold project being developed by Xstrata.

Highlands said it was about to accelerate its development of the Nong River exploration area 20km northeast of Ok Tedi. It is engaged in a joint venture there with Xstrata, which has the right to take a 72 per cent stake if it pays Highlands three times its expenditure on exploration.

It will spend about $3.25m on an airborne electromagnetic survey — which will also cover Highlands’ sole owned, adjacent Tifalmin exploration area.

Nevada Copper (TSX: NCU) on October 26 announced C$ 11,250,000 private placement with Capstone Mining Corp (TSX:CS).

Capstone will subscribe for 4,500,000 units of Nevada Copper, each Unit consisting of one common share and one-half of a common share purchase warrant at a price of $2.50 per Unit for total consideration of $11,250,000.

Mexico’s largest copper mine, Cananea, could resume operations next year if a ruling dismissing the contract between Southern Copper and Cananea’s unions is upheld. Southern Copper Company expects to have a final ruling at the end of this year which SCC officials say will enable the company to restart the Cananea mine, one of the world’s largest copper mines.

The Cananea strike began on June 30, 2007, as workers claimed conditions threatened their lives and health. It was declared illegal by Mexico Federal Conciliation and Arbitration Board, prompting police to seize control of the mine site.

For the first nine months of this year, Southern Copper reported a net income of $566.1 million or 67-cents, a 63 per cent decline from the net income of $1.53 billion ($1.73/sh) reporting for the same period of 2008.