Codelco’s output and sales of refinedcopper will shrink five percent next year as the world’s largest producer seeks billions of dollars to revive production, according to the company’s top sales manager.
Shipments of copper cathode will decrease to all markets, including China, the world’s biggest consumer of the metal and buyer of more than 30 percent of Codelco’s refined copper production, Rodrigo Toro, corporate sales vice president, said in an interview.
“We cannot continue selling the same amount, as we have less,” Toro said in Shanghai on Nov. 21. “Not only to China, not only to Asia. We are selling less to the world.”
The Chilean miner plans to boost annual output to about 2.5 million metric tons by 2025 from 1.7 million tons today by investing $24 billion in the next four to five years and a further $5 billion over the next decade. Toro projects a “small oversupply” of the metal in 2015.
Imports by China, where copper is used as an industrial material as well as a collateral for financing, will drop next year as domestic smelters produce more refined metal amid rising global ore supplies, Toro said. Shipments rose for a second month in October after slumping to the lowest in a year in August as banks tightened credit amid an investigation into loan fraud centered around the port of Qingdao.
“It should be viewed positively by the market, as supply growth has been strong over the past year,” Daniel Hynes, Sydney-based senior commodity strategist at Australia and New Zealand Banking Group Ltd., said of the refined market. China may need more concentrate supply on lower refined copper sales from Codelco, he said.
Codelco, the world’s largest seller of refined copper, sold 72 percent of its output as refined cathode in 2013. The company sold 21 percent of its output as concentrate, an intermediary product, and 7 percent as blister, which requires further refining.
Toro didn’t give an estimate for total output in 2015.
Codelco estimates that China’s refined copper demand will increase about 5 percent next year, similar to this year’s rate, even as the world’s second-largest economy is projected to grow at slowest pace since 1990.
“Demand is here,” Toro said. “We see it, we feel it, we can touch it.”
The company recently offered refined copper to buyers in China in annual supply contacts at premiums of $133 a ton. Most clients in the country have renewed contracts even as they said the fee for the next year was high, Toro said.
“I have no doubt that in a few days I will be able to tell you we got all of them” to sign deals, he said.
Codelco left the 2015 fee to Europe unchanged at $112 a ton. Japan’s Pan Pacific Copper Co., whose clients are mostly end-users in China, cut its 2015 premium by almost 7 percent to $115 a ton.
The spot premium for copper to Shanghai including insurance and freight is now $60 a ton, compared with $135 in May and a record $210 in August 2013, according to data from SMM Information & Technology Co.
“The idea of long-term contacts is not to follow the spot market,” Toro said. “We don’t follow the spot market.”
Without new projects, Codelco’s annual production will fall to 960,000 tons by 2025 and risks stopping completely in 15 years, Oscar Landerretche, the company’s chairman, told an industry conference in Shanghai last week.
The Chilean government may help fund the investment beyond the $4 billion it’s already pledged, Toro said.
“The company is confident that the funding won’t be a problem,” he said. Buying assets, instead of developing its own projects, is not part of the company’s philosophy, he said.
The metal for delivery in three months on the London Metal Exchange was little changed at $6,683.50 a ton at 4:13 p.m. in Shanghai after both falling and rising as much as 0.3 percent. Prices slumped 9.2 percent so far this year.
Global supply will outpace demand next year by 492,000 tons, up from a surplus of 353,000 tons this year, Goldman Sachs Group Inc. said in a Nov. 17 report. The bank lowered its 2015 price outlook to $6,217 a metric ton from $6,400, according to the report.
Codelco is also negotiating with Chinese smelters for copper concentrate treatment charges the company will have to pay next year, Toro said. Jiangxi Copper Co., China’s largest producer of the metal, is seeking to charge a record-high fee of at least $110 a ton, Wu Yuneng, a vice president at the company, said in an interview Nov. 5.
That level “is a little bit too high,” Toro said. “I have no doubt that the final figure will be three digits, but in the very low hundreds.”
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