Codelco scales back slowly exposure to Chinese copper market

Wed Mar 6, 2013 1:56pm EST

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By Maytaal Angel

MADRID, March 6 (Reuters) - Codelco, the world's top copper producer, said it is slowly scaling back its exposure to top consumer China as Beijing becomes more self-sufficient in meeting its copper needs through local production.

Codelco currently sells about 30 percent of its refined copper cathode to China, versus about 32 percent this time last year, Rodrigo Toro, Codelco's corporate sales vice president, told Reuters at the Metal Bulletin copper conference in Madrid.

"We decrease marginally our sales to China in order to allocate more in Europe and the U.S. China's objective is to maximise their refined copper production, and with more concentrates available its possible they will produce more themselves," said Toro.

The Chile-based copper company has launched an ambitious, long-term investment plan of roughly $28 billion to boost output at its aging mines, and is aiming to produce more than 2 million tonnes of the red metal by 2021.

To do so, however, the company, like its other mining counterparts in Chile, is battling mining accidents, labour unrest, rising costs, dwindling ore grades, energy woes and extreme weather.

"To manage huge projects and at least 2-3 of them in parallel is a big challenge. Probably energy will be more expensive but the key point is to have the project at the end of the day," said Toro.

"If we put forward an investment plan like this it is because we have a very strong view of the copper market. we believe demand will keep growing at healthy rates and be good enough to have strong prices."

Toro expects average 2013 copper prices to be fairly similar to last year's levels of $7,958.33 a tonne, adding that Codelco is still on track to produce 1.7 million tonnes of cathode this year.

Copper prices are currently trading at around $7,700 a tonne, having fallen over 2 percent this year on rising supply, fiscal problems in the U.S., political and sovereign debt concerns in Europe, and weak demand from China.

"I don't see weaker demand in China. Copper prices have fallen because the Chinese bought too much last year, they have a large stock in bonded warehouses and today they consuming what they have in stock, but copper consumption in China is rising," said Toro.

At the same time, however, production from mines is rising globally, with the copper market this year having moved into surplus from years of recorded deficits. Aside from weighing on prices, this also adds to costs for miners as it means smelters can charge them higher ore processing fees.

The fees are called treatment and refining charges (TC/RCs). A ten percent increase in benchmark 2013 TC/RCs to $70 a tonne and 7 cents a pound was agreed in Europe in January, while similar levels were agreed in Asia.

"I expect to see more concentrate supply for the next two years, but no one can say after that because it could change if more smelters are built, which I believe is one of the objectives of companies in China," said Toro.

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