Bloomberg News

Codelco Says Price Slump May Lure China to Rebuild Copper Supply

October 04, 2011

Oct. 4 (Bloomberg) -- Codelco, the world’s largest producer of copper, said buyers in China should take advantage of a 14- month low in prices to boost imports of the metal.

“I hope that they will start restocking again,” Diego Hernandez, chief executive officer of Santiago-based Codelco, said today in an interview in London. “They should, because when you look at next year’s supply-and-demand equation it’s very tight.”

China, the biggest consumer of copper, has de-stocked more than 500,000 tons of copper cathode, scrap and concentrate this year, according to Macquarie Group Ltd. The price of the metal used in pipes and wires has slumped 27 percent this half and fell to a 14-month low yesterday on speculation slowing growth in Europe and the U.S. will curb demand for industrial metals.

Customer orders from Asia look “quite strong” for next year, Hernandez said, adding that Codelco has started talks with buyers for 2012 sales and expects them to match this year’s number. Clients in Europe are “cautious” on requirements and the company has had some cancellations, Hernandez said. Other customers have sought to bring forward deliveries, he said.

Copper prices may be supported by Chinese purchases in the coming months after de-stocking earlier this year, Macquarie said in a Sept. 26 note.

Volumes Are ‘Key’

“What we see in principle is similar quantities required by the clients,” Hernandez said of the outlook for next year’s sales. “In this current scenario, what is key in our negotiations is to secure volumes.” Early indications from customers are “good,” he said.

Hernandez’s view on the European copper market echoes that of Bern Drouven, CEO of Aurubis AG, Europe’s largest copper smelter. Buyers are “cautious” about placing orders because of the movement in prices, he said yesterday.

Still, commodity prices may advance 20 percent in the next year as growth in emerging markets softens the impact of the sovereign-debt crisis in Europe and a slowdown in developed economies, according to a Goldman Sachs Group Inc. report today. The bank reiterated its “overweight” recommendation on commodities over the next 12 months.

Goldman Sachs lowered its 2012 estimate for three-month copper on the London Metal Exchange to $9,200 a metric ton from $10,790. The price fell $171.25, or 2.5 percent, to $6,818.75 a ton at 2:44 p.m. in London. China’s Shanghai Futures Exchange is closed this week for the National Day holidays.

Chinese Buyers

“I’m very interested to see what the reaction will be with current prices in a week’s time when they will be back to trading,” said Hernandez, a former BHP Billiton Ltd. executive who took the helm of the Chilean state-owned company last year.

Codelco is moving ahead with plans to invest almost $20 billion over five years to expand its mines, betting that Chinese demand will help drive up prices amid a shortage of global supply. China consumes about 35 percent of Codelco’s output, according to the company’s website.

Codelco and other mining companies in Chile, which supplies a third of the world’s copper, are struggling to raise output this year as strikes and bad weather in the Atacama Desert curtail operations.

Codelco’s production should remain stable through to the end of next year at about 1.7 million tons of copper annually, Hernandez said.

--With assistance from Matthew Craze in Santiago and Agnieszka Troszkiewicz in London. Editors: Amanda Jordan, Stephen Cunningham

To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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