Annual Copper Review (November 01, 1988)

Norman Keevil Jr, president of Teck Corp., suggested last year that a price turnaround for copper couldn’t be far off. The reason? His board of directors was almost unanimously negative on the red metal’s price outlook, something he thought was a good sign. A few months later, copper started its ascent to more than $1.40 (us) per lb. Depressed copper prices were largely a function of high inventories. According to Ralph Perkin, a market analyst with Highland Valley Copper in Vancouver, inventories in 1982 and 1983 were huge, and producers desperately tried to reduce costs to stay solvent. Over the next few years, however, consumption began to increase and, when the Chinese purchased an estimated 500,000 tons of the metal in 1984, stockpiles tumbled, creating a significant deficit on the production side. Perkin adds that most analysts were unaware of just how low stockpiles had dropped.

Apparently, the Chinese are back in the market again, but they are short of foreign currency (U.S. dollars). “At this point, they have to be getting desperately short of metal,” he says.

The U.S. copper industry, decimated by low prices during the recession years, began to contract, which compounded the deficit problem even further, and it’s been slow to recover. “With production falling off, we went into a very significant period of deficit.” explains Perkin. “So basically, in 1985, ’86, and ’87, we were running big deficits which, along with the Chinese buying, brought the stockpiles down from two million tons to something like one million tons, which is sort of a normal level. And then we went under that level.

“A lot of people discounted data that was reasonably correct. Basically, they fooled themselves as to what the situation really was. Also, production was genuinely declining and the deficit just kept growing and growing.” He says there was a consensus that a lot of new production would come on-stream in 1986 and in 1987. But that didn’t happen. Ok Tedi in Papua New Guinea was the largest, but some expansions in Chile were delayed, as were several re-starts in the U.S.

In any event, George Reynard, Highland Valley Copper’s vice- president, marketing, cautioned that Chile’s Escondida project will affect the market in the early 1990s. That operation alone is expected to produce some 300,000 tons of copper annually at full capacity.

Most of the big increase in demand has come from Asia, including Korea, whose gross national product has been growing at 17%. But industrial demand has sharply increased copper consumption on the North American continent as well. Capital spending is responsible for the higher consumption levels in North America, and this is partly the case in Europe, too. Perkin believes Asian growth is largely consumer-oriented.

Predictably, smelter charges have taken up a lot of the increase in copper prices and the Japanese, to keep charges high, have restrained their demand for concentrate. Escondida, which is scheduled to produce in mid-1991, will have a large impact on the concentrate market in the 1990s, which could mean higher smelting and refining charges. “What impact it will have on the copper market is still hard to say, however.”

In his estimation, growth will remain flat in 1989 and he predicts it will reach an annual 1.5% from 1990 to 1996. “There are two related, but separate, markets,” he emphasizes. “There’s a market for refined copper, which in the final analysis drives everything. But there’s also a copper concentrate market, and it’s possible to have the two markets heading in different directions at one time.

“In the past year, the price of copper went up and treatment charges went down for a fair part of it. But it’s now turned around and treatment charges are going back up again.”

The level of the Canadian dollar also has had a major impact on producers because both the copper and treatment prices are expressed in U.S. dollars. “So far this year the Canadian dollar going up has had quite a negative impact on our realized copper price in Canadian dollars,” Perkin says.

Foreign buyers with strong currencies, especially the Germans and Japanese, have been getting a break though, because their purchase costs have remained the same or dropped.


Norman Keevil Jr, president of Teck Corp., suggested last year that a price turnaround for copper couldn’t be far off. The reason? His board of directors was almost unanimously negative on the red metal’s price outlook, something he thought was a good sign. A few months later, copper started its ascent to more than $1.40 (us) per lb. Depressed copper prices were largely a function of high inventories. According to Ralph Perkin, a market analyst with Highland Valley Copper in Vancouver, inventories in 1982 and 1983 were huge, and producers desperately tried to reduce costs to stay solvent. Over the next few years, however, consumption began to increase and, when the Chinese purchased an estimated 500,000 tons of the metal in 1984, stockpiles tumbled, creating a significant deficit on the production side. Perkin adds that most analysts were unaware of just how low stockpiles had dropped.

Apparently, the Chinese are back in the market again, but they are short of foreign currency (U.S. dollars). “At this point, they have to be getting desperately short of metal,” he says.

The U.S. copper industry, decimated by low prices during the recession years, began to contract, which compounded the deficit problem even further, and it’s been slow to recover. “With production falling off, we went into a very significant period of deficit.” explains Perkin. “So basically, in 1985, ’86, and ’87, we were running big deficits which, along with the Chinese buying, brought the stockpiles down from two million tons to something like one million tons, which is sort of a normal level. And then we went under that level.

“A lot of people discounted data that was reasonably correct. Basically, they fooled themselves as to what the situation really was. Also, production was genuinely declining and the deficit just kept growing and growing.” He says there was a consensus that a lot of new production would come on-stream in 1986 and in 1987. But that didn’t happen. Ok Tedi in Papua New Guinea was the largest, but some expansions in Chile were delayed, as were several re-starts in the U.S.

In any event, George Reynard, Highland Valley Copper’s vice- president, marketing, cautioned that Chile’s Escondida project will affect the market in the early 1990s. That operation alone is expected to produce some 300,000 tons of copper annually at full capacity.

Most of the big increase in demand has come from Asia, including Korea, whose gross national product has been growing at 17%. But industrial demand has sharply increased copper consumption on the North American continent as well. Capital spending is responsible for the higher consumption levels in North America, and this is partly the case in Europe, too. Perkin believes Asian growth is largely consumer-oriented.

Predictably, smelter charges have taken up a lot of the increase in copper prices and the Japanese, to keep charges high, have restrained their demand for concentrate. Escondida, which is scheduled to produce in mid-1991, will have a large impact on the concentrate market in the 1990s, which could mean higher smelting and refining charges. “What impact it will have on the copper market is still hard to say, however.”

In his estimation, growth will remain flat in 1989 and he predicts it will reach an annual 1.5% from 1990 to 1996. “There are two related, but separate, markets,” he emphasizes. “There’s a market for refined copper, which in the final analysis drives everything. But there’s also a copper concentrate market, and it’s possible to have the two markets heading in different directions at one time.

“In the past year, the price of copper went up and treatment charges went down for a fair part of it. But it’s now turned around and treatment charges are going back up again.”

The level of the Canadian dollar also has had a major impact on producers because both the copper and treatment prices are expressed in U.S. dollars. “So far this year the Canadian dollar going up has had quite a negative impact on our realized copper price in Canadian dollars,” Perkin says.

Foreign buyers with strong currencies, especially the Germans and Japanese, have been getting a break though, because their purchase costs have remained the same or dropped.


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