Xstrata takes punt on copper market recovery

Wed, May 23, 2012, 01:00

GLOBAL MINER Xstrata 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 per cent, shrugging off more cautious approaches by rivals.

Xstrata is the world’s fourth-largest copper producer but has designs on becoming number one, unseating Chile’s Codelco, BHP Billiton and Rio Tinto 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 per cent 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 per cent in April from a month earlier, according to calculations based on official customs data.

“We still have a view that the first half was always going to be slower from a copper demand point of view,” Mr Sartain told reporters on the side of a conference promoting mining in Latin America.

He said new economic stimulus plans announced this week by Chinese premier Wen Jiabao would also filter down to higher copper consumption. Second-half growth in copper consumption could run as high as 6 per cent, 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.

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

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. - (Reuters)