March 4, 2011 / 3:39 PM / 7 years ago

Global copper output inches higher with record prices

* 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 (Reuters) - 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 industries.

“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). [ID:nN21273692]

    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: )

    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: here) (Reporting by Chris Kelly; Editing by Alden Bentley)

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