Copper price seen to raise further on Grasberg output cut

For the second time in just over a week, Goldman Sachs JBWere has raised its copper price forecast for 2004, this time blaming significantly lower-than-expected production from the Grasberg mine in Indonesia, dow Jones reported.

The brokerage's resources team now projects an average copper price of US$1.11 a pound in 2004, compared with last week's US$1.07/lb forecast, which had been revised up from US$1.01/lb.

In addition, it raised its 2005 forecast to US$1.16/lb, from US$1.12/lb.

The current London Metal Exchange cash price for copper is US$2,450 a metric ton, equivalent to about US$1.11/lb.

In December, U.S.-based Freeport McMoran Copper & Gold Inc., Grasberg's majority owner, declared force majeure on concentrate deliveries after two accidents disrupted production at the world's second-largest copper mine.

This led Freeport Tuesday to lower its 2004 sales target to 1 billion pounds of copper from its previous estimate of 1.4 billion pounds, potentially removing 181,438 tons of copper concentrate from the global market.

For its part, GS JBWere has reduced its Grasberg 2004 production forecast by a further 160,000 tons, which equates to about 1% of global mine production, in addition to its earlier cut of 40,000 tons.

However, the brokerage believes a portion of the Grasberg shortfall will be offset by the accelerated restart of idled capacity in North America, and possible production increases at large mines with what it describes as grade/tonnage flexibility, such as Escondida in Chile.

"Consequently, we are assuming that global refined copper production will be only 57,000 tons lower than previously forecast in 2004," it said.

"Nevertheless, this has a significant impact on our forecast stocks-to- consumption ratio in both 2004 and 2005," GS JBWere said, hence the four cents a pound increase to its price forecasts for 2004 and 2005.(*)