Disruptions to provide upside for copper prices by 2015 - Barclays

Friday, January 17, 2014

There is likely to be a "sizeable" upside in copper prices in the medium term as supply fails to come on line as previously expected, according to Barclays Capital.

"Supply growth from 2015 onwards could be much lower than the market currently expects," Barclays analyst Gayle Berry wrote in a note.

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The International Copper Study Group (ICSG) has made one of its biggest ever downward revisions to copper mine supply growth for 2014, lowering it by 18% or 1.1Mt, according to the analyst.

"To put it into perspective, it is equivalent to a year's production at [BHP Billiton's] Escondida, the world's largest copper mine," Berry wrote.

The ICSG said the downward revision was because "significant delays are expected in many projects," as mining companies scale back investments in the face of higher costs, falling metals prices and shareholder pressure.

"Planned growth investment capex will fall by 43% in real terms over the next two years, which means actual spending will be even lower once inflation is factored in," Berry said.

Projects at risk of delays include Glencore Xstrata's (LSE: GLEN) Las Bambas copper project in Peru's Apurímac region. The project, which has over 10.5Mt of copper resources, is expected to produce at least 400,000t/y of copper during its first five years of operation and is due to start production in the second half of 2015 but a sale process could delay that start-up by at least a year, according to Berry.

Copper mine supply will, however, grow strongly this year, Barclays believes, with Freeport-McMoRan Copper & Gold's (NYSE: FCX) Grasberg, Chilean state copper producer Codelco's ​Mina Ministro Hales, Lumina Copper Chile's Caserones and Chinalco's Tomorocho operations expected to add more than 725,000t.

Barclays has an average copper price forecast for 2015 of US$8,000/t (US$3.63/lb).

The copper price fell 8% to an average US$3.32/lb in 2013.

Copper closed Friday at US$3.347/lb cash on the London Metal Exchange.