Copper market excess supply or less than expected

As new supply surges into the market, copper market supply will soon be the largest surplus in 13 years. However, the top copper producer said that the excess amount may eventually be less than investors' expectations, as the new mine is also struggling to increase production.

At the interview in Santiago on the 7th of April, CEOThomas Keller of Chile’s national copper company (Codelco) stated that the prospect of oversupply of 3-40 million tons depends on the successful operation of several projects.

Under the background that copper prices are close to a four-year low and investors are pursuing the maximization of their profits, mining companies have adopted a prudent approach in putting new mines into production.

At the same time, the new mines in Chile and Peru face increasing opposition from domestic groups and environmental organizations, and there are also obstacles in energy and logistics.

“When the new project is put into production, it will face difficulties or be put into production. It will not be surprising that this happened again in 2014,” Keller said. Its forecast of excess volume last year has not been achieved.

The National Mining Society of Chile predicts that the country’s copper production this year is expected to reach a record high of 6 million tons. However, Keller said that this prediction depends on the operations of Pan-Pacific Copper Co.'s Caserones copper mine and KGHMPolskaMiedzSA's Sierra Gorda copper mine. Both mines are located in northern Chile.

**Discontinued production**

Between 2003 and 2009, the annual output loss caused by the stoppage of the mines exceeded 800,000 tons. The reasons for the suspension of production included workers, poor weather, and technical difficulties. Since the financial crisis, the output loss caused by the suspension of production has dropped to about 400,000 tons per year. Due to the reduction of activities in the main mines.

Macquarie Group Ltd. said on April 1 that this year, this trend is expected to reverse from 2013.

Keller said that not all new mines are behind in production. The production capacity of MinistroHales produced by Codelco last year is expected to reach saturation in June, which will help the company surpass its output of 1.79 million tons last year.

Societe Generale SA. said that in order to meet demand, it needs 1 million tons of new ore per year. By 2020, nearly 60% of new supplies will come from Chile and Peru.

**China demand**

Keller said that China will continue to maintain an annual economic growth rate of 6-8%, which means that if the mining company does not operate new projects, the market may reproduce the supply gap.

"We still believe that the Chinese economy will continue to grow," he said. “We have not yet encountered the cancellation of the order. (Chinese buyers are still interested in our refined copper.)

The International Copper Research Organization (ICSG), headquartered in Lisbon, expects that the new mines in Chile and Peru will drive global copper production growth by 4.7% and 7.3% for the next two years.

** Market tightening**

ICSG expects the surplus of refined copper supply this year to be about 405,000 tons, the largest surplus since 2001.

Bank of America Corp. analyst Michael Widmer said in a speech at the San Diego Copper Conference on Wednesday that the market may recover from the gap in 2017, and by 2020, the gap may exceed 2 million tons.

Lunbron declined by 10% during the year and touched the lowest level since 2010 at the end of last month due to concerns about the slowdown in China's economic growth and the influx of copper into the market.