By Scott Patterson
SANTIAGO--Copper producers and industry observers gathered here
for a global conference say prices will rebound from near five-year
lows.
But few agree on when.
Copper has taken a beating since its price hit record highs
around $10,000 a ton on the London Metal Exchange in 2011 on
supercharged industrial growth in China. While copper prices have
recently rebounded from lows just north of $5,000 a ton to $6,000 a
ton, they remain 40% below the highs reached in 2011.
The prices have stayed stubbornly low despite what company
executives and analysts say are solid fundamentals--a supply
constrained by naturally degrading ore quality and demand that is
expected to only increase as the world becomes more connected and
urbanized. The electricity conductor is used in wiring and piping,
and is seen as a barometer of global economic health.
"The world is on the edge of a new metals age, with copper at
its center, " Jean-Sebastien Jacques, chief executive of Rio Tinto
PLC's copper and coal unit, said in a speech Tuesday at the annual
World Copper Conference here in Chile, the world's largest copper
producer.
Mr. Jacques is less upbeat in the short term. He said in an
interview that he doesn't expect copper demand to match supply
until at least 2017, if not later. That could keep a lid on prices
until traders get more evidence of a meaningful uptick in
demand.
Others see demand outpacing supplies much earlier.
Vanessa Davidson, director of copper research and strategy for
CRU Group, a commodity research firm, said in a speech that demand
could outpace supply by the end of 2015, driven by relatively
strong demand in China. The country's State Reserve Bureau often
steps into the market when prices are low, and that, along with
some short-term supply constraints, by year-end could push the
market into a "deficit" -- a situation in which supplies are lower
than demand.
Ms. Davidson also pointed to a big drop in projections for new
copper projects in the last six months as prices slumped. The
number of new copper mines in the global pipeline plunged to 19 in
April, down 30% from 27 projects in October, she said. That means
supplies over the next several years aren't likely to be as robust
as previously expected, she added.
Not everyone sees a bright future for copper. Goldman Sachs
Group Inc. analyst Max Layton said that with Chinese steel demand
tailing off in the past six months, copper will be "the next shoe
to drop.
"It's just a matter of time," he said, projecting that copper is
likely to fall to $5,200 a ton by year-end, with risks "heavily
skewed" to the downside.
In Chile, which produces one-third of the world's copper, there
is a variable working in the metal's favor: a constraint on
supplies because of climate and labor problems. Water shortages in
part because of an eight-year drought have crimped production at
some Chilean copper mines.
Iván Arriagada Herrera, chief executive of Chilean mining
company Antofagasta PLC's mining unit, said in an interview at the
company's Santiago headquarters that "external shocks" such as
labor unrest and mining community issues have crimped output at its
Los Pelambres mine. The company has said that protests at the mine
earlier this year, which were largely over water issues, cut 8,500
tons of copper production.
A wild variable for copper prices has been an emerging interest
from Chinese hedge funds, according to analysts. Trading at hours
when an influx of short bets could have an outsize effect, Chinese
funds were likely "the drivers behind the dramatic move of the
world's most important industrial metal," Macquarie Research said
in a note in February.
Those bets were likely behind two big daily drops in copper's
price in mid-January and then in February, Macquarie said. One
Shanghai-based fund noted for having a large number short bets,
Shanghai Chaos, declined to comment.
Still, analysts said copper was likely to rebound over the long
run. Mr. Jacques of Rio Tinto said the metal would be needed for
the world-wide migration to cities, which he said means "more
buildings, more buildings mean more infrastructure."
That outlook makes copper stand out among commodities. Iron
ore--also needed for industrialization--likely won't see a price
recovery soon because producers such as Rio Tinto and BHP Billiton
have flooded the market, analysts say. Oil prices have rebounded
some since bottoming in January, but with North American drillers
developing new ways to respond to low prices, the outlook for crude
is mixed.
The big question for the copper industry and investors is when
that important shift will take place.
Write to Scott Patterson at scott.patterson@wsj.com
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