Copper winding Earth 105 times shows supply lacking

Oyu Tolgoi

A 3.4% surge in copper output may overwhelm demand and keep prices in check, according to Barclays. Mines scheduled to open this year include Codelco’s Ministro Hales near Calama, Chile, and Rio Tinto Group’s Oyu Tolgoi Mongolia’s South Gobi Desert. Production will jump the most since 2004 this year, creating a surplus of 56,000 tons, Barclays estimates. The London-based bank forecast prices will decline 0.3% on average in 2013, according to the Feb. 15 report.

Chile, the world’s biggest copper-producing nation, said Jan. 28 that domestic output will probably reach a record this year.

“I’m not convinced we’ll see a bull market in copper any time soon,” Jack Ablin, who helps oversee about $66 billion of assets as chief investment officer of BMO Private Bank in Chicago, said in a telephone interview. With the increase in China demand, “it’s a favorable environment, but the rising supplies are going to get in the way of that.”

Copper consumption is also poised to rise in the U.S., the world’s second-biggest user, and the outlook for U.S. housing will be an “important contributor” to demand growth, Goldman said in a Feb. 19 report.

U.S. Housing

Builders broke ground in January on the most U.S. single- family homes in more than four years, Commerce Department data showed Feb. 20. The U.S. will account for 9.7% of demand this year, while China will use 44%, according to Goldman.

The world’s mining companies have fallen short of forecasts by an average of 6.5% annually since 2006, data from the Lisbon-based International Copper Study Group show. Companies from Melbourne-based BHP Billiton Ltd. to Phoenix-based Freeport-McMoran Copper & Gold Inc. have contended with labor stoppages and aging mines. Refiners must process about 15% more ore than in 2000 to extract the same amount of metal because of declining grades, according to Macquarie Group Ltd.

Morgan Outlook

Rio Tinto, the world’s s largest mining company, said Feb. 14 its $6.6 billion Oyu Tolgoi copper mine won’t start until disagreements with the government are resolved. London-based Rio has twice rejected Mongolia’s demands in the past 18 months for a greater share of profits from the mine.

The outlook for new supply will have a “muted” effect on the market in the medium-term, in part because of the risk of project delays, Morgan Stanley said in a Jan. 24 note. The bank estimated prices will rise to $8,554 this year from $7,952 in 2012.

“The Chinese will continue to urbanize as they want to bring more of their population to the middle-class platform, and that means more infrastructure, and that in turn means more copper demand,” said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion of assets. “The economic data in the U.S suggests that the economy continues to grow, and particularly in the housing market, and that is positive.”

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