copper production increases and prices

Copper Miners Say China Demand to Buoy Prices, Soak Up Output

By Heather Walsh and Matthew Craze

March 30 (Bloomberg) -- Freeport-McMoRan Copper & Gold Inc., the world's second-biggest copper producer, and other leading mining companies say demand from China will soak up scarce supplies of the metal and buoy prices.

``China will be a strong consumer of copper for years to come,'' Freeport Chief Executive Officer Richard Adkerson said yesterday in an interview in Santiago.

Officials from Codelco, Xstrata Plc and BHP Billiton Ltd. said a scarcity of mine workers and a lack of new projects also will bolster copper prices. Mining executives this week met at a two-day conference in Chile, the world's biggest producer of the metal used in power cables and electrical wire.

Miners say they are shaking off some of the concerns that led to a 10 percent slump in prices in January and declines in February, when speculation that China's economy was slowing also triggered declines in mining shares. China is the world's biggest copper user.

Copper futures for May delivery gained 5.95 cents, or 1.9 percent, to $3.1460 a pound at 2:50 p.m. on the Comex division of the New York Mercantile Exchange. Prices, which touched a record $4.04 in May, surged 14 percent this month.

Inventories monitored by the London Metal Exchange fell for a seventh week, leading to a rebound in prices. Inventories doubled last year as Chinese users relied on stockpiles and scrap metal.

World's Biggest User

China's economy expanded 10.4 percent last quarter, fueling a jump in copper demand. That demand will help soak up supplies, at a time when few new mining projects will limit output increases, executives said.

``You have restraints on the supply side, and while the demand side stays strong and those restraints exist, the price will stay high,'' Peter Kukielski, chief operating officer at Vancouver-based Teck Cominco Ltd., said in an interview yesterday. ``I can't think of a single major copper project coming on line.''

Codelco Executive President Jose Pablo Arellano, who this month called demand in China ``unimaginable,'' said yesterday the world's biggest copper producer will boost output 19 percent early in the next decade to 2 million metric tons. Santiago- based Codelco's output fell to 1.68 million tons in 2006.

New Orleans-based Freeport plans to boost output 18 percent by 2009, while Phoenix-based Southern Copper Corp. aims to increase output by 14 percent by 2009.

New Mines

Melbourne-based BHP Billiton's Spence copper mine in Chile's northern Atacama desert is the largest mine to open in the South American country this decade, according to the Chilean Copper Commission, a government-run research group.

Chile is the world's biggest supplier of the metal, producing 35 percent of the world's copper from mines.

The lack of new projects is a reversal from the 1990s, when openings of mines such as BHP Billiton's Escondida, the world's largest copper mine, added to a glut of the metal and pushed prices to a 14-year low of 60.35 cents a pound in late 2001.

``We'll never see those prices again,'' Teck Cominco's Kukielski said.

Expenses are rising as aging mines become less productive, companies scramble to fill jobs and buy equipment and executives reach into riskier parts of the world to look for new projects.

Growth in demand is ``testing the limits of a lot of capabilities'' of suppliers, said Chris Curfman, president of the global mining division at Peoria, Illinois-based Caterpillar Inc., the world's largest maker of earthmoving equipment.

Riskier Projects

Mining companies, including Freeport and BHP Billiton, may spend more in 2007 on exploration than last year's record $7.13 billion in Asia and Africa, Metals Economics Group forecast last week. Freeport is developing a ``world-class'' mine in the Democratic Republic of Congo, Adkerson said in a speech.

``Companies are being forced into harder environments in Africa, in other parts of Asia and Mongolia, where the political environment is less stable,'' said Bhagyesh Dash, managing director at Crosby Capital Partners Inc. in Singapore. ``There is more chance of frequent disruptions to supply. Costs will be higher.''

Not everyone agrees that copper producers will enjoy prices that are more than double their levels from three years ago.

Copper prices will likely fall because China is boosting supplies from its own mines, Huang Guoping, vice-president of China Minmetals Nonferrous Metals Co., a unit of state-owned Minmetals that buys and sells copper, said in a speech yesterday at the conference.

U.S. Demand

Meanwhile, demand in the U.S., the second-largest copper user, is also slowing and may weigh on prices, said David Humphreys, chief economist at MMC Norilsk Nickel, Russia's biggest copper producer.

U.S. home construction fell at an annual rate of 19.8 percent in the fourth-quarter, the most since 1991. The average U.S. home contains 400 pounds of copper, according to the New York-based Copper Development Association.

The Chilean Copper Commission in January forecast average prices of $2.40 a pound in 2007, down from an October estimate of $2.80 as supplies increase.

``We have to remain calm,'' Eduardo Titelman, executive vice president of the commission, said in an interview in Santiago today. ``The market will begin to moderate but we will still have good prices.''

To contact the reporter on this story: Heather Walsh in Santiago at [email protected]