BHP Billiton bearish at Escondida as copper demand stays weak

Vancouver — Despite evidence of a weakening global economy dragging down demand for copper, diversified miner BHP Billiton (BHP-N) does not envisage further production cuts beyond 2002.

“Today, we think the market is in balance,” says Brad Mills, president of BHP’s base metals division. “We see robust growth in Asia and weak markets in Europe and the United States.”

The world’s largest diversified miner first responded to the weak demand in November 2001 by announcing a 170,000-tonne reduction in copper production. The move was accomplished by constraining output at the Escondida mine in Chile, and temporarily closing the sulphide operation at the Tintaya operation in Peru.

The major subsequently extended the cuts in December 2002, removing an additional 80,000 tonnes of copper production from Escondida through to the end of this calendar year.

In total, the combined cuts at Escondida amount to 250,000 tonnes over the course of 2002. Overall, production there is expected to result in slightly less copper in calendar 2002 and in 2001, despite the start of a fourth phase of work in September.

BHP owns 57.5% of Escondida, the world’s largest copper mine, which last year produced 794,131 tonnes of the red metal. The remainder is held by Rio Tinto (rtp-n) (30%), a Japanese consortium (10%) and the World Bank’s International Finance Corp. (5%).

“The completion of phase-four will allow Escondida to remain a low-cost copper producer and protect its resources,” says Mills.

At Tintaya, the sulphide operation, which is capable of producing 90,000 tonnes copper-in-concentrate per year, will remain closed until at least January 2003. The oxide plant, which began operation in April, will continue to produce copper cathode at the rate of 34,000 tonnes per year.

“We will start again when we feel the market can accept the copper,” Mills states.

Even though demand remains weak, BHP has no plans for further reduction in production. However, Mills stressed that “production will be managed, based on our view of real demand. If we don’t have enough demand, we may dial down production.”

Other big copper producers slashed production at about the same time as BHP in a further attempt to battle a surplus of the metal.

Phelps Dodge (PD-N) is currently producing at a rate of about 2 billion lbs. copper per year, just two-thirds of its 1.5-million-tonne. annual capacity. Because of the weakening global economic picture, the copper industry has not seen all of the desired inventory reductions from the cutbacks.

Looking a the bright side of a rough base metal market over the past three years, Mills states: “The longer the downturn, . . . the healthier the recovery.”