LONDON (Commodity Online): The copper mine supply-side experienced an appalling year by any standards in 2011, with what can only be described as a perfect storm of disruptions impacting output. Weighed by a combination of lower ore grades, technical issues, slower-than-expected ramp-ups and labour disputes, global mine production is anticipated to have fallen 200Kt y/y to 15.9Mt in 2011, said Barclays Capital ina research note.
According to Barclays, this represents the first contraction in copper mine output on a global scale since 2002 and the largest annual decline in tonnage terms on record. Corporate results have, if anything, exceeded this headline underperformance.
"We track specific operation production figures accounting for close to 50% of global copper mines, and these show in Q4 2011 production fell by 7% y/y, while for the year as a whole, output was down by 4.5% y/y. The critical question is whether 2012 can possibly be just as bad? Our answer at this stage is that current projections indicate a full-blown repeat is not likely. We are forecasting copper mine output to rise to 16.3Mt this year (post-disruption allowance), which offers a healthy 3% growth versus 2011 levels," Barclays added.
The reasons for this improvement are threefold
--First factor, there are several greenfield projects ramping up this year which appear on track to achieve output growth, including Konkola Deep in Zambia (+60Kt), Esperanza in Chile (+70Kt) and Antapaccay in Peru (+40Kt).
--Second factor, there are also a number of brownfield expansions of notable size. The most prominent is at the Los Bronces mine in Chile, which is anticipated to expand output by close to 200Kt in 2012 and appears on-track. Restarts or expansions at mines such as Buenavista in Mexico (+30Kt), KOV in the DRC (+50Kt) and Antamina (+40Kt) will also provide a boost. Also important in this respect is Escondida in Chile, the world’s largest copper mine, which saw total output fall by 24% y/y to 817Kt in 2011. We anticipate a rebound in output in 2012 by close to 200Kt, as the commissioning of the Ore Access project takes place from mid-year.
--The third factor for an anticipated rebound is that given the ultimately successful conclusion of labour negotiations at the several of the world largest copper mines, there is a very low probability of a repeat on the same scale of unrest in 2012 (at least). For example, a two-year labour agreement was reached at Grasberg in December 2011. This does not, however ,imply a rebound to 2010 levels at such mines, particularly in the case of Grasberg, where a low-grade sequencing will mean 2012 output (460Kt) is still 25% lower than in 2010. Certainly then the case for improved output is solid, although this should not be characterised as a glut given the refined market is still anticipated to be in sizeable deficit and supply expectation are certainly at risk of erosion given recent history.
