LONDON Copper is no longer the investor's darling of the London Metal Exchange (LME) industrial metals pack.
The deluge of analyst commentary over the course of this year's LME Week has seen copper usurped by tin and lead as the bullish picks of the crop. Copper's not been downgraded as far as aluminum or nickel, both of which suffer from chronic oversupply at the moment, but it has certainly lost its previously shining bull halo.
And to understand why, you need only to consider the third-quarter operational report released on Tuesday morning by Rio Tinto.
The company reported a 23 percent year-on-year jump in mined copper production to 162,300 tonnes and lifted its full-year guidance from 565,000 tonnes to 590,000 tonnes.
It's symptomatic of the building wall of supply that is starting to hit the market and of the relative lack of disruption in this year's global mine performance. Some analysts have even been quietly lifting their supply forecasts, itself a telling development in a market that has for many years been characterised by systemic mine production problems.
Rio may not be the biggest copper producer in the world but its portfolio is uniquely revealing about the current state of copper supply since it includes one of the biggest production hits of 2013, the largest single expansion and one of the largest greenfield projects.
On April 10 of this year the U.S. Bingham Canyon copper-gold mine, part of Rio's Kennecott Utah Copper division, experienced a major wall collapse, involving the movement of 150 million tonnes of material and registering 2.4 on the Richter scale at a local seismograph station.
Rio Tinto declared force majeure on sales of cathode produced at the integrated complex and assessed the hit on mined and refined output at 125,000 tonnes and 100,000 tonnes respectively.
That mine loss estimate was trimmed to 100,000 tonnes at the time of the Q2 results and has been cut again to 65,000 tonnes. Bingham Canyon is now expected to produce 185,000 tonnes this year, which is actually higher than output last year, when the mine was transitioning through low-grade ore.
The recovery work "continues to progress better than originally planned", Rio noted. In particular a new heavy-vehicle access road will be completed in the fourth quarter, which "will be a major milestone in the recovery process as it will enable additional ore production alongside remediation and waste movement".
This is a significant downwards revision of the copper loss impact at Bingham Canyon, one of only two major supply disruptions so far this year.
The other, the fatal tunnel collapse at Freeport McMoRan's Grasberg mine in Indonesia, is also seen cutting production by around 100,000 tonnes this year, although confirmation will come with Freeport's own Q3 report on October 22.
The reduction of the lost copper figure also offsets a couple of recent downgrades from Newmont Mining and Oz Minerals.
Newmont has guided full-year copper production lower by around 9,000 tonnes, using the mid-point of its forecast range, reflecting expected lower output at its Boddington mine in Australia and its Batu Hijau mine in Indonesia.
Oz Minerals' Prominent Hill mine in Australia was hit by a wall collapse in the first quarter and it has just cut again its production guidance to 70,000-75,000 tonnes, compared with 90,000-95,000 tonnes at the start of the year.
One of the major changes in the global copper supply profile this year has been much lower disruption relative to previous years.
Analysts have got used to factoring in a "disruption allowance" in their supply forecasts but, barring any major surprises in the coming reporting season, this year's debit column is relatively empty.
Rio Tinto owns a minority stake in Escondida, the world's largest copper mine. Together with majority owner BHP Billiton, it is now reaping the rewards of a major investment programme aimed at returning Escondida to its glory days, when it was capable of producing almost 1.5 million tonnes in a mixture of cathode and concentrate every year.
Output at Escondida actually dipped in the third quarter to 284,000 tonnes, largely due to a slight step-back in average ore grades to 1.37 percent from 1.42 percent in the second quarter.
But production over the first nine months was still up by 14 percent and on track for around 1.2 million tonnes over the full year.
Compared with production of 814,000 tonnes as recently as 2011, this expansion is the equivalent of a major new mine coming on line.
It has also been a major driver in the resurgence of Chilean copper production after many years of stagnation. National output grew by 6.5 percent in the first eight months of 2013, the fastest rate of growth in a decade.
There is still a bit more to come from Escondida. The stated goal is to reach 1.3 million tonnes of production by 2015.
A deal with unions last month on improving bonuses and working conditions has removed any immediate threat of disruption.
The owners have also recently approved another major $3.43 billion investment in a new water desalination plant intended to insulate the mine from the chronic water shortage affecting the copper-rich Atacama desert.
THE NEW MINE
Mongolia's Oyu Tolgoi is one of the single biggest additions to copper mine supply this year. After years of delay, the project is now finally ramping up in earnest.
Third-quarter production was 30,600 tonnes of copper in concentrates and operator Turquoise Hill Resources is sticking to its full-year forecast of 75,000-85,000 tonnes.
The full flow-through to the raw materials market is yet to take place due to an impasse between the mine's Chinese customers and the country's customs department.
At the moment much of the output is going into a bonded warehouse on the border but Rio, which owns a majority stake in Turquoise Hill, said it expects "sales to be aligned with production rates by the end of the year".
And the latter are still rising with the concentrator "now consistently operating at or near nameplate capacity, processing approximately 100,000 tonnes of ore per day".
There is a lot more to come at Oyu Tolgoi, which is expected to produce an average of around 330,000 tonnes per year of contained copper once fully up and running.
An expansion to over 400,000 tonnes is currently on hold, the latest twist in the long-running feud between Rio and the Mongolian government, but little doubt exists that there is massive upside potential at this mine.
THE NEW NARRATIVE
Rio's Q3 operating results are a neat snapshot of the new narrative in the copper market, one of feast after many years of famine.
The real surprise is not that new mines and expansions are lifting supply, it is more that the expected level of disruption this year is turning out to be too high.
So far at least.
Copper supply's propensity to surprise hasn't gone away. How could it, given the migration of production to ever more remote parts of the world with all the accompanying infrastructure and operating problems?
But in that respect the real take-away from Rio's Q3 operations report is the downgrade of the loss of production at Bingham Canyon, now almost half the original assessment.
Looking at the current copper price, tracking sideways just above $7,000 per tonne, it's hard to discern this new narrative.
But it's there and already impacting the raw materials side of the market, as shown by the rapidly rising smelter expectations for next year's treatment and refining charges.
A significantly higher outcome in 2014 charges, and that seems inevitable right now, will incentivise the conversion of growing concentrates surplus into refined metal surplus.
Which is why copper is no longer the investment darling it once was.
(Editing by Dale Hudson)