Copper deficit expected in 2004

The global copper market will remain in deficit in 2004 because production restarts announced by Phelps Dodge will not compensate for lost output in Indonesia, Chile and Papua New Guinea, analysts was quoted by Reuters as saying.

"Despite the restarts, I think we'll see a market deficit up towards half a million tonnes in 2004 and 200,000 to 300,000 tonnes in 2005," Martin Fewings, analyst at Mitsui Bussan told Reuters.

Maqsood Ahmed, analyst at Credit Lyonnais Rouse, said: "I had been predicting a shortfall of 325,000 tonnes before all the production problems and restarts, so I am now looking at a deficit of about 500,000 tonnes."

Regarding 2003, Thomas Baack, chief statistician at the Lisbon-based International Copper Study Group, said that up to the end of October 2003 the market was 360,000 tonnes in deficit and he expected this to rise to 400,000 tonnes once November and December's figures had been calculated.

Three-month copper futures on the London Metal Exchange (LME) peaked earlier this week at a 6-1/2 year high of $2,479.50 a tonne, rising from a low of $1,336 in November 2001.

On Thursday the world's second largest copper producer, Phelps Dodge of the U.S. said it would restart operations contributing 108,900 tonnes to global copper mine production in 2004 and around 168,000 tonnes in 2005.

In recent weeks a string of announcements of curtailments and production losses in Asia has cost the market up to 245,000 tonnes of lost production and additional losses may be just around the corner.

BHP Billiton said on Thursday that technical problems at its Escondida open pit facility in Chile, which produces around 150,000 tonnes of copper cathode annually and 1.05 million tonnes of copper in concentrate, would reduce concentrate production by between five and 10 percent while remediation work takes place.

Fewings said this could amount to 8,000 tonnes per month.

"Losses at Escondida would come in addition to the 500,000 tonne deficit," he said.

"It's not a great deal of copper compared to total production at the mine, but the market is so tight," he added.

BHP Billiton suffered an additional setback in Chile on Friday when workers at its Cerro Colorado solvent extraction-electrowinning facility, which was expected to produce 134,000 tonnes of copper cathodes in 2004, walked out on strike after failing to agree a new labour contract.

If the walkout is short-lived the effect on global supplies is expected to be limited.

Industrial action at Falconbridge Ltd 's Sudbury, Ontario, copper-nickel complex could limit production at the 40,000 tonnes per year copper mine and would cost the market more than 3,000 tonnes of copper concentrate per month.

Consumers have become increasingly reliant on exchange warehouse stockpiles, which have declined from 794,000 tonnes at the start of the year to 717,000 tonnes.

Codelco, the Chilean state owned company which is the world's largest copper producer, said it would distribute half of a 200,000 tonne stockpile it had built up in recent years during 2004.

Analysts expected most of the material was destined to feed China's enormous appetite for raw materials.

Earlier this month Freeport-McMoRan lowered its forecast for 2004 copper sales at its Grasberg copper-gold mine in Indonesia to 1.0 billion lbs (453,600 tonnes) from 1.4 billion (635,000 tonnes) following a series of landslides.

Fewings expected production at the mine to fall by 230,000 tonnes in 2004 to 540,000 tonnes.

Ok Tedi said this week production would fall by around 15,000 tonnes to 185,000 tonnes of copper in concentrate following a mechanical failure at one of the two mills at its Papua New Guinea facility.(*)