Xstrata sees China copper demand rebounding

By James Regan

SYDNEY (Reuters) - Global miner Xstrata XTA.L is betting sluggish copper demand in China will pick up in the second half as it makes plans to boost production of the metal by 60 percent, shrugging off more cautious approaches by rivals.

Xstrata is the world's no. 4 copper producer but has designs on becoming number one, unseating Chile's Codelco, BHP Billiton (BHP.AX: Quote, Profile, Research, Stock Buzz) and Rio Tinto (RIO.AX: Quote, Profile, Research, Stock Buzz) over the next three years.

BHP has retreated from plans to spend $80 billion on new mine projects and other sector majors are also demonstrating more caution in the face of economic weakening in China.

Charlie Sartain, Xstrata's copper division head, said a $7 billion capital expenditure programme to beef up copper mining, mainly in Chile, Peru, Argentina and Australia, was proceeding.

Xstrata sells 30-40 percent of its copper to China, where metals warehouses are said to be so full that workers are starting to stockpile copper in car parks.

China's implied consumption for refined copper fell 6.8 percent in April from a month earlier, according to Reuters calculations based on official customs data.

"We typically see a cyclical return to demand in the second half of the year in China. We still have a view that the first half was always going to be slower from a copper demand point of view," Sartain told reporters on the side of conference promoting mining in Latin America.

He said new economic stimulus plans announced this week by Chinese Premier Wen Jiabao to bolster economic growth would also filter down to higher copper consumption.

Second-half growth in copper consumption could run as high as 6 percent, he said.

Copper prices tumbled to a four-month low last week but this week were showing modest gains, which metals traders link to China's stimulus measures.

Sartain also downplayed the impact of Europe's debt crisis on copper's fortunes.

"From a market point of view, Europe is relevant, but not a major copper consumer," he said. "We've factored in very flat market conditions in Europe."

On the other hand, U.S. demand for copper was starting to pick up, he added.

CONTRACTOR HAS PLENTY OF WORK

Slumping commodity prices and escalating costs are squeezing cash flows, leading BHP Billiton and Rio Tinto to rethink long-term expansion timetables on major projects, but mining contractors say they have plenty of work.

"We're still seeing a nice healthy addressable market going forward," said Hamish Tyrwhitt, the chief executive of Australia's Leighton Holdings (LEI.AX: Quote, Profile, Research, Stock Buzz), which supplies contract mining personnel and equipment to companies.

Australia has more than $400 billion in new resource projects in the works and in Latin America $300 billion is allocated for the sector, Sartain said.

"We have A$30 billion ($29.57 billion)of tenders we're undertaking and over A$8 billion where we're in a preferred position," Tyrwhitt said.

VALE SELLING ALL IT PRODUCES

Indicating the stress facing commodities markets, Chinese buyers are deferring or defaulting on coal and iron ore deliveries, traders said.

But some miners continue to see a strong outlook and the world's largest iron ore miner, Brazil's Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz), said on Monday it was selling iron ore about as fast as it could mine it.

"We don't have any problem concerning orders, we continue to sell all the amounts the company is producing. The scenario we see continues positive," Vale investor relations chief Viktor Moszkowicz said at an investment seminar in Rio de Janeiro.

At the same seminar, though, Brazilian steelmaker Usiminas USIMU.UL said it was scaling back plans to expand its own iron ore mining operations.

Sartain said Xstrata's target of becoming the world biggest copper producer ran the risk of being derailed by big expansion plans mapped out by competitors.

Xstrata is forecasting a dip in first-half copper output as its Collahuasi Mine in Chile, a joint venture with Anglo American (AAL.L: Quote, Profile, Research, Stock Buzz), faces declining ore grades, before picking up in the second part of 2012. ($1 = 1.0146 Australian dollars)

(Additional reporting by Amy Pyett; Editing by Ed Davies)