For those of us who believe the RMG story is copper I reprint...

For those of us who believe the RMG story is copper I reprint with thanks to another poster called mrpog on the ozl thread, an interesting article pointing to the potential of copper
:
Copper market to be in deficit by 2011 - RBS

Future mine capacity growth "will barely suffice" once real copper consumption demand starts growing again, turning the spotlight "rapidly back to the supply side of the market."
Author: Dorothy Kosich
Posted: Monday , 20 Jul 2009

RENO, NV -



In a recently published analysis, Royal Bank of Scotland (RBS) declares, "We believe that future copper mine capacity growth will barely suffice."

"We have long argued that the last copper bull market was at least as much supply as demand driven, especially in the latter stages," RBS metals analysts said. "Many of the factors that limited the supply response to the then higher copper price persist and recession has exacerbated some of the constraints."

The supply issues concern mines rather than smelters, where RBS says capacity is ample. RBS analysts Nick Moore, Stephen Briggs, and Daniel Major estimated 500kt/y of copper mine capacity was closed due to the collapse in demand and copper price in the second half of 2008. Although the analysts noted closure of three percent of world copper output was "far less than the ~20% in the aluminum and nickel industries", nonetheless, it also means comparatively little growth is possible from existing copper mines.

The analysts advised that a return "to real market tightness" is likely in the next few years. "With inventory cover far lower than in 2001-02, we expect the copper market to return within the next few years towards the tightness seen before the 2008-09 recession. We do not rule out the possibility that price-induced substitution and demand destruction will be necessary to balance the market."

If based purely on price and treatment charges, RBS suggested "the vast bulk of the closed copper mine capacity could comfortably be restarted today."

"The appreciation of key producer currencies has put upward pressure on costs, a modest portion of the closed capacity is dependent on other metals (cobalt, nickel or zinc) and some of it, notably Freeport's, may wait until copper demand is palpably improving," the analysts noted. "Nevertheless, we expect most to restart over the next 12-18 months, a period in which demand can be expected to rebound from precipitous decline by considerably more."

‘But the flipside of the above is that, in contrast to the other major base metals, there is simply not that much shut copper mine capacity to be reopened," they stressed.

Copper mining production growth has been held back by numerous constraints, most significantly a decline in ore grades, RBS asserted. Meanwhile, the tendency of new copper mines and expansions to start up late and take longer than planned to reach full output has probably contributed to the overstatement of copper mine capacity.

The fact the copper industry has been hit harder than most by equipment breakdowns, accidents and strikes has also exacerbated the situation.

While some copper production constraints of recent years have eased, RBS suggests cuts in copper mine investment "may well re-intensify in the medium term."

RBS' analysis reveals the probability that effective capacity at many mining facilities "is now permanently lower, and it is possible that the aggregate capability of steady-state mines will continue to decline in the coming years. Either way, new mines/expansions will have to do the heavy lifting in meeting copper demand in the coming years."