* Biggest miners lift global copper output 2 pct in Q4
* Production rates up for third consecutive quarter
* Global market expected to be in deficit through 2012
By Chris Kelly
NEW YORK, March 4 The world's biggest copper
miners increased output for a third consecutive quarter late
last year, pushing operations hard to cash in on record-setting
prices, a Reuters survey showed on Friday.
Production restarts and expansion projects by 11 of the
biggest publicly listed miners helped to boost output 2 percent
in the fourth quarter, corporate reports showed last month. The
figures exclude Chile's state-owned Codelco [CODEL.UL], which
accounts for around 11 percent of the world's mined copper.
While small, the production gain is significant as it
suggests that miners are starting to have some success
offsetting worsening ore qualities -- including from top
producer Freeport McMoRan (FCX.N) -- with more quantities.
"A lot of them are trying to get every pound out of the
ground ... even the lower quality stuff," said Bart Melek, Vice
President and Director of Commodities, Rates Research &
Strategy with TD Bank Financial Group.
Output from the miners, who produce about a tenth of the
world's copper, rose to 2,004,980 tonnes in the quarter.
Codelco produced 1,262,000 tonnes of the metal in the first
nine months of 2010, largely in line with the 1,273,000 tonnes
produced in the January to September period of 2009.
London Metal Exchange copper prices CMCU3 rose to record
highs last year, clearing the $9,000 per tonne level for the
first time in December. It continued the rally this year,
peaking at $10,190 in mid-February.
"As the price of the commodity rises, the returns get
pretty phenomenal," said Casimir Capital's managing director
Wayne Atwell, who has more than 35 years of experience in the
field of investment analysis for the metals and mining
"There is a not a whole lot of idled capacity because
copper is so attractive right now."
But that strategy varied from miner to miner.
Freeport McMoRan Copper & Gold (FCX.N) saw output in the
quarter decline as higher costs and lower ore grades at its
massive Grasberg mine in Indonesia impacted results.
"Often what happens when the prices go up a lot is the
mining companies will go after lower grade ore," said Charles
Bradford, steel and metals analyst with Bradford Research.
"Freeport is in that category ... that was the mine plan.
It was not because they wanted less production."
The company, the world's second largest copper producer
behind Chile's Codelco, is transitioning Grasberg from an open
pit to an underground mine. Current operations are likely to
deplete the open pit in 2016.
Expansions were also seen at Chile's Collahuasi, whose
shareholders are Xstrata XTA.L, Anglo American (AAL.L) and a
Japanese consortium. The world's No. 3 copper mine plans to
spend $470 million on a 10 year exploration plan near its
Rosario open pit operation in an effort to overtake Escondida,
also in Chile, as the world's biggest copper mine. Escondida is
owned mostly by BHP Billiton (BLT.L) and Rio Tinto (RIO.L).
According to the International Copper Study Group (ICSG),
the global mine capacity utilization rate has risen steadily
since July of last year to stand at 84.5 percent in November.
"We have definitely seen some increases in mine production
through increases in capacity utilization," Catherine Virga,
senior base metals analyst with CPM Group in New York, said.
Those production increases have been feeding through to LME
warehouses, which now stand at their highest since July 2010.
Canceled warrants -- material earmarked for futures delivery --
account for just 4 percent of total stocks. MCU-STOCKS
(Graphic: link.reuters.com/buz38r )
Despite the supply builds, analysts still expect the global
copper market to be in deficit of 444,000 tonnes this year,
with the shortfall extending through 2012, according to a
recent Reuters poll. COMMODITYPOLL16
"We do not look for a meaningful increase in copper
production in 2011. There is a limited ability to respond
short-term, so anything you'd want to pull the trigger on now
would be like three years out," Casimir's Atwell said
(Thomson Reuters clients can view the Metals Production
Database by clicking on:
(Reporting by Chris Kelly; Editing by Alden Bentley)