CHINA COPPER CONF: $7,000/t is minimum required for new mining capex investment

Meanwhile, back to the bigger picture of is going on in the big wide world out there in relation to copper!

From Metal Bulletin latest subscription report:

CHINA COPPER CONF: $7,000/t is minimum required for new mining capex investment - SocGen Bhar
23 October

New capital expenditure for mining seems unlikely unless copper prices stay above $7,000 per tonne, Robin Bhar, head of Metals Research with Société Générale, said at China’s Copper Conference in Jiangxi Nanchang on Friday October 20.

Though copper prices have recovered over 63% from the bottom reached in January 2016, mining companies still don’t feel comfortable enough to build new capacity, or restart newly re-built capacity after a price downturn in past years.

“$7,000 [per tonne] is the minimum needed to pull the trigger on new investment,” Bhar said.

The LME three-month copper price hit $7,177 per tonne earlier this week for the first time in over three years, before retreating to $7,035 per tonne as of 04:35am London time on Friday.

The Metal Bulletin copper concentrates index hit a four-year low of $73.90 per tonne in March of this year after disruptions at major mines Escondida and Grasberg left the market short of material.

The capex to depreciation ratio of the global mining industry was at a historical low of 1.1 in 2016, compared with a 2.4 high in 2008. Between 2005 and 2008, the ratio kept above 2, Bhar said.

The market has been lacking investment since 2011, funding has fallen sharply and greenfield discoveries that were announced have so far remained subdued.

Data from the International Copper Study Group also echoed this view, observing that many new mining projects scheduled for 2017 have been delayed by three years to 2020, according to the manager of Statistical Analysis, Shairaz Ahmed.

A lower ore grade globally is another factor behind constrains on the copper market. With higher grade ore near the surface depleted, some mines are having to dig deeper and are therefore achieving lower grade ore.

On the demand side, Bhar seemed confident that there would be growth in both China and India.

He viewed China’s hard-landing risk at 15%: “This is fairly low if we compare it with 2015 and 2016, the government still has good control over the country’s economy.”

China continues to play a dominant role in global copper consumption, with its growing urbanisation plans, the One Belt, One Road programme and the move toward electrical vehicles all likely to drive the country’s domestic demand up.

Looking to India, which accounts for around 2% of global consumption, here they could easily double, or even triple, consumption during the next decade due to the rolling out of infrastructure spending plans, said Bhar.

With demand increasing, a deficit of 100,000 tonnes is expected in 2017 and 200,000 tonnes in 2018, while a shortage around 2020 is somewhat likely.