World short of copper, 10 Mt supply gap in 2020 – BHP Billiton

By: Martin Creamer
A copper supply shortage is looming,
but top tier copper resources that could
fill the supply gap are not only hard
to find, but would take time
to turn to account.

Independent consultancy GFMS says
a copper deficit of 88 000 t is likely,
which, it says, is likely to push
the copper price to $7 500/t in 2010.

BHP Billiton base metals marketing director
Dave Martin says: "We have a challenge
in copper supply and need
the industry to develop resources."

Martin calculates that there will be
a copper supply gap of 10-million tons in 2020.

He arrives at the figure by adding
the supply from the current mines,
planned expansions, mines under
construction and probable
greenfield expansions.

Some of that gap will be filled by
copper scrap, but the question remains
about how all of it is going to be filled.

GFMS expects higher prices
each year, stretching out to 2012.

While copper use is popularly said
to in virtually everything from vehicles
to ordnances, things military hardly
feature on the charts showing
the main copper demand drivers these days.

The vehicle-related and general
consumer-related copper sales
are collectively up there as the biggest
single driver of demand, and growing
in prominence is the use of
underground copper cabling
that is being used increasingly
to distribute electricity, particularly in China.

Sensing the opportunity, small newcomer
miners are keen to enter copper
mining in the Democratic Republic
of Congo (DRC), despite the perceived
political risk there, as well as in
Zambia, and medium-size companies,
already are keen to expand in those countries.

Ironically, it is the bigger companies,
still protecting themselves from
the potential fallout from
the global economic meltdown,
that talk of waiting a while before
investing heavily in the DRC
in particular in order to avoid
 putting "risk on risk".

The fears about investing in the DRC
have resurfaced as a result
of the clampdown on copper miner
First Quantum by the general prosecutor
of the Katanga province.
First Quantum has had to stop
its Kolwezi project, which is
65%-complete, because the Katangan
general prosecutor "sealed" off
the property without a court order.

BHP Billiton chief commercial officer
Alberto Calderon drew attention
to this action when Ambrian Capital
mining analyst Peter Davey asked
why BHP Billiton was not pursuing
copper opportunities in the DRC.

"Even for the 'very green' prospect,
it's complicated," Calderon replied.

The political risk is not deterring
South Africa's JSE-listed, black
economically empowered African
Rainbow Minerals (Arm).

Arm CEO André Wilkens tells Mining
Weekly that he wants his company
to be producing at least 100 000 t/y
 of copper in five years from deposits
in the DRC and Zambia.

The financially constrained JSE-listed
Metorex is another South African company
well advanced with its Ruashi copper/cobalt
project in the DRC and wanting
to emphasise the copper part
of its diversified portfolio.

Arm has a joint venture with South
American major Vale and intends
focusing initially on the assets
of Arm's former Teal exploration
company at the Konkola North copper
project in Zambia, and in copper/cobalt
in the Kalumines prospect in the DRC.

"Copper is a very good commodity to be
in and we are going to keep our eyes open
and try to expand in copper
as soon as possible," Wilkens
reiterates to Mining Weekly.

Metorex CEO Terence Goodlace says
company is going all out to lift copper
 production at Ruashi to a higher level.

"We have a plant that can do 180 t on
the hydrometallurgical circuit.
Ultimately, once the crushing circuit
has been fully commissioned - and that
should be towards the end
of the year - it will then be up to us
to see if we can feed this plant
1,44-million tons a year," Goodlace
tells Mining Weekly.

That will translate into a copper output
of between 40 000 t/y and 45 000 t/y
of copper and 3 500 t/y of cobalt,
from pre-recovery head grades
of 3,2% copper and 0,39% cobalt.

But the activities of these South African
companies are drops in the ocean
compared to the activities at
the huge copper mines in
South America, including Escondida,
in Chile, the world's largest.

Africa has largely lost out on copper,
after the halcyon days of
the Copperbelt was ended
largely by political uncertainty.

The view of several market analysts
is that China will provide the demand
in growth over the coming years
and that the mining challenge
will be the meeting of that demand.

Zambia's Mines Minister Maxwell Mwale
says BHP Billiton will soon start
exploring for copper in western Zambia,
using specialised equipment
to measure the magnetic properties of rocks.

"The use of the plane with modern
technology will enable easy identification,"
Mwale said.

Zambia says it will continue to
encourage mining companies
to venture into mineral exploration
and mining, but this is going to take time.

Meanwhile, it is being increasingly
reported is that the world will remain
short of copper for
in the medium-to-long term.

As a result, copper scrap is expected
to gain market share, Chinese demand
for imported copper cathode and
for imported copper concentrate
is expected to grow.

Reports already say that the increase
the demand for copper cathode
from China is substantial.

Martin forecasts an increase in demand
for copper cathode in China of 22%
in 2009 and a decrease of 8% from rest
of the world, giving a total global
increase for cathode demand in 2009 of 1%.

The three major drivers of Chinese
demand are seen as scrap replacement
by cathode; a restocking by
China's State Reserves Bureau (SRB),
fabricators and traders; strong domestic
Chinese consumer demand; and
infrastructure development,
driven partly by the
Chinese government's economic
stimulus package.

GFMS juxtaposes strong Chinese
consumption recovery with
slower mine production growth
in arriving at the 8 000 t 2010 deficit.

The consultancy expects the market
deficit to trigger additional investor
interest in the metal,
which will further boost prices.

GFMS expects the magnitude
of the copper deficit to grow
to 121 000 t in 2011
and 176 000 t in 2012.

"It should be noted that not all
of the inventory reduction will
take place on the London
Metal Exchange as we believe
that there has been a build up
of unreported inventories
within China," GFMS adds.

Martin reports that China's imports
of copper scrap have fallen
by 36% in the first half of 2009
compared to 2008.

He assumes a 3% year-on-year growth
for semi-fabricated consumption in 2009,
with the scarcity of scrap
having significantly boosted
the demand for cathode.

Martin believes that cathode demand
will moderate in the last quarter of 2009,
as improving economic conditions
lead to greater scrap generation,
and the price increase result
in greater incentive to recycle.

SRB is believed to have bought
230 000 t of copper on a net basis
and that Chinese fabricators
have bought 600 000 t during
the period of restocking.

Chinese car production increased
23% in the first half of 2009 ,
refrigerator production by 33%
and there was also strong
"floorspace" growth.

The observations are that China
has less scrap and lower mine production,
causing the 160% year-on-year
increase in the importation of copper cathode.

Martin reports that China's per capita
copper growth is rising to 4 kg,
and he expects this
to more than double by 2025.

He sees power distribution as
a major demand driver owing
to copper being preferred
as underground distribution cable,
and replacing overhead
aerial transmission cables - which
are made mainly from
aluminium - in the process.

China currently has a 60/40 aerial/
underground split, compared
to the 25/75 split in France.

Martin postulates that copper usage
in the underground electricity
distribution sector will increase
by 2,5-million tons a year by 2025,
if the transition to underground cables
in urban areas evolves
to a ratio of 40/60 by 2025,
and power distribution infrastructure
grows by 2,5%, both being
reasonably conservative estimates.

There is also considerable scope
for car ownership in China
to trend towards the ownership levels
of developing countries.

While in China there are only 16 cars
for every 1 000 people,
there are the same number
for every 344 people in Portugal,
480 in the US, 495 in the UK
and 171 in Malaysia.

Increased copper consumption
is also expected to result from
increased purchases in China
of air conditioners.

Currently there are 57 air conditioners
for every 100 Chinese households,
and modest increases in
the penetration of these is expected.

Other copper-containing consumer
articles are also expected to rise
to levels closer to the position
in developed countries.

Global demand for copper cathode
is some 18-million tons a year,
of which three-million tons are
met by scrap; three-million tons
by cathode; and 12-million tons
from refined concentrate.

If the copper price rises strongly,
analysts point to the possibility
of substitution of copper
for other materials as
anxious producers look for alternatives.

While it is true that pig iron nickel
began substituting nickel
when the nickel price soared,
Martin's response is that
he takes substitution into account
when he puts his forecasts together
and reminds analysts that
the copper market continued
to grow when copper was at $8 500/t last year.

Edited by:
Martin Creamer

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             J-L K.
Procurement Consultant
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