Minews - Copper glut fades on mine cuts as China buys stockpiles

(Minews) - Copper mines from Australia to Zambia are confounding forecasters as slumping prices and mine disruptions threaten to erase a global production surplus.

Companies including BHP Billiton Ltd and Rio Tinto Group have reported accidents and equipment breakdowns while announcing 2015 spending cuts that Macquarie Group Ltd. estimates at $20 billion. The unexpected reductions mean mines may produce less, with any excess absorbed by expanding government stockpiles in China, the top user, Bloomberg surveys of analysts showed.

Banks including JPMorgan Chase & Co. have revised output forecasts with prices hovering near a five-year low. While China’s State Reserve Bureau may buy less metal than last year, the country still uses one of every two tons the world produces for power lines and appliances, and won’t need to import much to mop up the surplus.

“I would expect them to buy,” Rodrigo Toro, corporate sales vice president at Chile state-owned Codelco, the world’s biggest copper producer, said in a Feb. 26 interview at Metal Bulletin’s International Copper Conference in Brussels. “Everybody’s price expectation is that we will see a recovery.”
Rally Beginning

The rally already has begun. Copper jumped 7.3 percent on the London Metal Exchange last month, the most since September 2012, and traded at $5,826 a metric ton on Tuesday. Prices may gain 13 percent further to $6,600 this year, a Bloomberg survey of 10 analysts showed.

Copper remains well below the record of $10,190 in 2011, and mine owners started cutting output after a 23 percent slump in prices over the past two years. Production this year will rise 1.5 percent from 2014, down from a forecast of 6.6 percent made at the beginning of last year, JPMorgan said on Feb. 20.

BHP, the world’s largest mining company, plans to cut project spending to the lowest since 2010, following similar reductions by fellow producers including Phoenix-based Freeport-McMoRan Inc. Rio Tinto, based in London, said output will be less than expected at its Kennecott mines in the U.S. this year, and Toronto-based Barrick Gold Corp. in December said it would suspend its Lumwana mine, citing lower prices and Zambia’s new tax regime.