Base Metals

PwC recently put out its Mine 2015 report, which looks at the top 40 mining companies globally. The firm covers a number of themes in the mining space, including differing points of view on the state of the copper market.

PwC Mine 2015: Cautious on Copper Supply GrowthPricewaterhouseCoopers (PwC) recently put out its Mine 2015 report, which looks at the top 40 mining companies globally. In it, the firm covers a number of themes in the mining space, including differing points of view on the state of the copper market. 

PwC notes that copper is the largest contributor to revenues for the top 40 mining companies, making the red metal an important factor in the firm’s overall analysis.

According to the report, mine production was flat for that group of companies during 2014. Strong performances from Glencore’s (LSE:GLEN) mines in Africa were offset by the fact that export restrictions in Indonesia forced Freeport-McMoRan (NYSE:FCX) to curb output from its copper mines in the country.

Obstacles to production growth have been present on a larger scale as well. Looking more broadly at the industry, global copper production didn’t grow nearly as much in 2014 compared to the year previous (2.6 percent vs 8.1 percent), and PwC notes that Chile, the world’s largest copper producer, has faced trouble upping its production due to falling grades.

“Production was stagnant due to declining grades, which has forced companies to mine more tonnes and increase processing capacity just to maintain current production levels,” the report reads.

Furthermore, falling prices have led to a drop in investments in new projects. Citing data from the Peruvian National Society of Mining, Oil and Gas, and Energy, PwC states that mining investments in Peru fell 12.3 percent in 2014. The report also suggests that many mining companies are in “stand-by mode,” waiting on prices to improve before deciding to start new projects.

Certainly, there are positive signs for supply growth as well. Peru is predicting 10.25-percent growth in copper supply for this year as MMG’s (HKEX:1208) Las Bambas comes online and Hudbay Minerals’ (TSX:HBM) Constancia mine ramps up. In Chile, Codelco approved a record investment of $3.3 billion late last year to develop the Chuquicamata underground mine.

Meanwhile, strong demand growth isn’t expected to materialize anytime soon, and PwC draws attention to rumors that China made “significant copper purchases” over the past year, which “may have protected prices.”

However, PwC also notes “a growing concern over stability of supply” for copper in the medium to longer term, echoing what many others have been saying — namely that forecasted surpluses for copper are not that large relative to global supply. The International Copper Study Group is calling for a 2-percent surplus this year relative to global supply, with that amount dropping to 1 percent in 2016.

“That could easily turn into deficit should planned world copper production not materialise due to factors such as unexpected events caused by severe weather, labour unrest or technical issues, all of which are fairly commonplace,” PwC’s report reads.

Of course, it’s one thing to say disruptions are commonplace, and it’s another to actually predict them. To be sure, firms such as Thomson Reuters GFMS are holding to the thesis that a copper deficit is still a few years out, and PwC states that “[w]ith uncertainty over whether commodity prices will improve, it is difficult to predict whether a supply deficit will actually materialise.”

Still, PwC’s report directs attention to a number of points that could get in the way of that surplus, and copper investors will no doubt continue to keep a close eye on what the larger players in the space get up to going forward.


Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.

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