Copper is expected to be in a small surplus for the next couple
of years as new capacity opens and mine performances improve,
but the slow pace at which new production is developed will
tighten the market again by 2016, Antofagasta Plc chief
executive officer Diego Hernández said.
"We think the market is still
quite tight this yearnot too different to last
yearbut we see a small surplus by the end of the year
because there is new copper coming to the market from new
mines, new projects being commissioned and mines that are
performing better than before; mines that had problems but are
normalizing their operations," he said. "In 2014 and 2015 we
expect a small surplus, but from 2016 onwards we see things
The copper industry is not in
the same situation as aluminum, which has seen supply outpace
demand for some time, Hernández noted.
"The copper industry has been
slow to execute its growth portfolio, even with good prices.
This is because it faced a substantial increase in product
costs, and because the quality of the projects it was
evaluating were worse than those that were in operation, so
its tough to take a decision to bring them on-stream,"
Hernández told AMM in an interview in Santiago
ahead of the Center for Copper and Mining Studies annual
"Since a year ago, when
investors started to worry about capital discipline, the major
miners and the industry in general have delayed a lot of copper
projects. Thats why I think well see a small
surplus in 2014 and 2015. But after that I dont think the
industry will be able to add the necessary additional
production," he added.
Rising inventories at London
Metal Exchange-approved warehouses and the copper markets
move into a surplus didnt result from a decline in
Chinese demand, the worlds largest copper consumer,
But he remained cautious over
the future pace of Chinas growth. "Chinese economic
growth should be larger this year than last year, but the
question mark is whether this requires more copper or not, and
it depends on the focus of the growth. Is it still
infrastructure and housing, which puts copper center stage; or
will it be internal consumption, which is probably less reliant
on copper?" he asked. "We are optimistic about China, but of
course it doesnt mean the additional growth will need the
same amount of additional copper."
China is drawing down its copper
stockpiles, but Hernández said it was "not easy" to know
how large those might be, which was adding some short-term
volatility to the market.
Demand in the United States is
"improving, slowly" after the economic crisis, while Europe
will "take another couple of years to normalize," he added.
However, London Metal
Exchange-listed warehouse stocks remain an issue.
The nearly 80-percent rise in
LME copper stocks since the start of the year is a "concern"
and can be attributed to the actions of the owners of the metal
warrants, Hernández said.
"I think that certainly the rise
in inventories is a concern, but I think that the behavior of
the owners of this inventory is also not the same as it used to
be. As a result, we shouldnt apply the same rationale
(when we assess stock increases)," he said. "I think that some
of the owners of inventories will not dispose of (copper) if
they lose money. It will probably only leave warehouses if the
price is good for the owners, and if the price is not good then
it will probably take longer than before."
Similarly the future launch of
physical copper exchange-traded funds (ETFs), which have
received U.S. regulatory approval but are facing opposition in
the form of an appeal by a major U.S. consumer, "could add
short-term volatility, but I dont see that as really a
big problem for the industry," Hernández said.
"ETFs have taken much longer
than expected. That means that there are lots of doubts, even
among those that are proposing them, over whether they will
work or not," he added.