Copper supply glut seen tripling as prices sink 10%

Costliest Mines

Copper producers may not need to curb output any time soon because the costliest mines need about $6,600 to break even, or almost 9% below prices now, according to data compiled by Macquarie Group Ltd.

Orders to withdraw copper from LME-tracked warehouses, known as canceled warrants, rose fivefold this year, indicating demand may be stronger than estimated. The orders reached a record 375,425 tons in June and were last at 258,275 tons, still seven times the average over the past decade, bourse data show.

Supply regularly gets disrupted by everything from strikes to landslides. Freeport-McMoRan, based in Phoenix, lost about 125 million pounds (56,700 tons) of output in the second quarter after halting work at its Grasberg mine in Indonesia because of a tunnel collapse May 14. Rio Tinto Group’s $6.6 billion Oyu Tolgoi project in Mongolia was delayed because of disagreements with the government on funding.

“I’ve been to Asia recently and I see solid demand,” Javier Targhetta, the senior vice president of marketing and sales at Freeport-McMoRan said in an interview in London on Oct. 8. “I’ve seen a very solid market in China. The recovery of the U.S. is a fact. There are promising signs in Europe.”

Manufacturing Index

A Chinese manufacturing index compiled by HSBC Holdings Plc and Markit Economics reached a six-month high in September. The government’s broadest measure of credit rose more than forecast in August, signaling that a rebound is strengthening.

Faster economic growth may not be enough to spur an acceleration in the country’s refined copper imports, which rose 4.8% from a year earlier in August, according to customs data. Unwrought imports climbed 16% from a year earlier in September, reaching an 18-month high. Stockpiles held in China’s bonded warehouses, separate to those tracked by the Shanghai Futures Exchange, climbed 50,000 tons to 450,000 tons in August, Maike Futures Brokerage Co. says.

That’s more than the 31,500 tons withdrawn from bourse- monitored depots in the past three months. Premiums that buyers pay on top of the exchange price to secure immediate supply fell in September, an indication more metal was available, according to Standard Chartered Plc.

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