Grasberg update will affect copper markets

The key event in recent base metals markets is Freeport-McMoRan Copper & Gold’s (FCX-N) update on the status of its recovery efforts from the landslide at its Grasberg mine in Indonesia.

Some of the mine’s customers have already warned of smelter production cuts if full operation of the mine (the world’s second-largest) is not resumed soon.

The refined copper market is already in substantial deficit, estimated at 256,000 tonnes so far this year by the International Copper Study Group (ICSG), and any further delay to the restart could provide another boost to copper prices overnight.

Copper prices were firming on the morning of Nov. 11 after falling overnight in early Asian trading as longs continued to liquidate on the Shanghai Futures Exchange. However, support held at $2,032 per tonne, and the market has since moved swiftly back up to just below $2,060, where selling is expected.

Regarding the Freeport update on the Grasberg landslide, the Indonesian government says it did not want to rush the reopening of the mine until the investigation into the cause of the landslide was finished, and at presstime, there was no date set for its completion. However the mine’s customers are calling for a quick restart, owing to copper concentrate shortages resulting from lower shipments by the mine. Sumitomo, Japan’s third-largest copper producer, recently said it was considering cutting production as a result of the Grasberg shortfall.

As stated, the apparent refined copper balance for the first eight months of 2003 shows a production deficit of 256,000 tonnes. This compares with a production surplus of 127,000 tonnes in the corresponding period of 2002. The refined market balance for August 2003 showed a surplus of 67,000 tonnes, which is mainly a reflection of the seasonal weak demand in America and Europe. Other data show that world refined copper usage has grown 1.7%, year over year, in the first eight months of 2003. Only Asia contributed considerably to the increase, whereas Europe and the U.S. showed a decline.

Production in central Chile suffered from a power blackout that hit most of the country on the evening of Nov. 7, and the extent of the losses was still being evaluated at presstime. Most of the country’s copper production is in the north, which was unaffected by the power outage, but mines and plants in central Chile were hit. Codelco’s two copper mines in the affected region, Andina and El Teniente, both suffered losses.

“We had 15,000 tonnes less mineral processed, and the underground mine was shut down for four hours,” says spokesman for Andina.

El Teniente reported that its mine, smelter and concentrator plant were also shut down for nearly four hours. The mine, which has been producing at below target levels this year, produced 334,306 tonnes of copper last year, whereas Andina produced 218,706 tonnes.

Officials at the state mining firm Enami say the company has been evaluating the impact of the blackout on the Ventanas smelter and refinery, but so far there is no word on the degree to which production has been affected.

Meanwhile, Codelco’s plans to build a US$1-billion smelter and refinery in the northern region of Mejillones are on hold as it seeks to secure a stable supply of copper concentrate for the smelter, both from its own mine expansions and from other companies.

An alternative to the Mejillones refinery recently emerged as a result of an internal review of the company’s mine development plan, the Codelco chief executive said. He added that “an alternative arose as a result of a much better performance of our convertor in the north . . . and some technological changes we have introduced.” The project is still in the early stage, and it is not yet clear whether it would be feasible.

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