Codelco Says It Won't Cut Copper Production as Prices Slump
The head of the world’s biggest copper miner said he would rather rein in costs than curb output to navigate a slump in prices that are hitting fresh six-year lows almost daily.
Chile’s Codelco this week slashed the premium it charges Chinese buyers by 26 percent, the most since the global financial crisis, as it seeks to sustain sales to the world’s largest consumer amid weakening demand.
“We’re trying to lower costs to overcome the price drop but we’re not cutting production,” Chief Executive Officer Nelson Pizarro told a Metal Bulletin conference in Shanghai. “We would rather cut costs than production. If we suspend production then it’s difficult to restart.”
The plunge in copper has yet to be arrested by production curbs, most notably the 400,000 metric-ton reduction by Glencore Plc in Africa. Only a significant rise in Chinese consumption will be enough to rescue prices, according to Goldman Sachs Group Inc.
Other executives at the conference said copper is at or near its bottom as output cuts leave supply and demand broadly in balance, although there was a scarcity of predictions on when the metal used in electronics and power cables could rebound. The International Copper Study Group predicts a shortage of 130,000 tons in 2016, after a balanced market this year, said Don Smale, secretary general. Widespread Slump
Copper has plunged 27 percent in 2015 to the lowest since May 2009 as investors fret over faltering Chinese demand and a stronger dollar. Trading on Wednesday above $4,600 a ton, the metal has lost $500 in the past month.
Goldman Sachs says the bear cycle in copper has years to run, predicting rising global surpluses through 2019. The growth in China’s demand will slow to 3 percent a year from 11 percent in 2013 as the government shifts the focus from investment spending to consumer demand and services as the main driver of the economy.
Wu Yuneng, a vice president at China’s biggest smelter Jiangxi Copper Co., said supply and demand will be in balance in 2015 and for the next several years. Stefan Boel, an executive board member at top German smelter Aurubis AG, said the market should find a floor in the short term. That contrasts with the opinion of Jeff Currie, Goldman’s head of commodities research, who sees copper at $4,500 by end-2016.
Copper miners from Australia to South America are facing the weakest market since the global financial crisis as the slowdown in China weighs on demand. Copper has tumbled amid a widespread slump that’s sent prices of raw materials to their lowest since 1999, battering everything from oil to steel.
Codelco’s Pizarro said he sees some “very difficult years for commodities” ahead.
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