Vast new copper supplies depressing prices? Don't worry, it's never going to happen
Supplies in the industry – around 16 million tonnes of concentrate per annum – have been largely flat for a number of years.
The Financial Times reports on expected growth in copper production worldwide and its impact on prices noting research from Wood Mackenzie that forecasts greater growth in supply of the metal next year and in 2014 than over the past 13 years.
Copper is currently trading at around of $8,100 a tonne ($3.65 per pound) – close to three month lows and down 4% in April – as stockpiles in China, the world’s number one consumer of the commodity, continue to grow, but this is still way above average production costs in the industry which is south of $6,000 a tonne.
The market for the red metal could go into surplus "at some point in the next 18 months" and push the price of copper closer to what it costs to get out of the ground.
But that would only happen if the many copper projects in the pipeline do actually become reality; something the paper is high skeptical of going so far as to quote a senior trader in the metal as saying “the miners are all lying” about the chances of their projects coming on stream.
FT points to numerous problems facing the industry. Apart from rising labour and electricity costs, political problems (vide Argentina's seizure of energy firm YPF), and a scarcity of project finance, skills shortages and tough regulation is also hampering the industry:
A shortage of engineers and contractors, particularly over the next 18-24 months when a large chunk of capital expenditure is supposed to kick in, is already causing problems, miners say. Engineering companies are sending their “C team” to jobs which might once have merited the “A team”, with the consequence that teething problems at new projects are becoming more common.
Regulation is becoming tougher and more costly to meet. In northern Chile, for example, no project is likely to be approved using fresh water, meaning new mines must desalinate water and pump it from the sea to the desert – a process that can add 20-30 per cent to operating costs.