Copper demand remains 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, BHP’s President of base metals. “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 detailing a 170,000 tonne reduction in copper production. The move was acomplished by constraining output at Escondida in Chile, and temporarily closing the sulphide operation at Tintaya in Peru. The major, subsequently extended the cuts in December 2002, removing an additional 80,000 tonnes of copper production from Escondida through the end of this calendar year. In total, the combined cuts at the operation now tally 250,000 tonnes over the course of the year. Overall, production at Escondida is expected to produce slightly less copper in calendar 2002, then calendar 2001, despite the start up of Escondida Phase 4 in September. BHP owns 57.5% of Escondida, the world’s largest copper mine, which last year produced 794,131 tonnes of copper in 2001.

“The successful completion of Phase Four will allow Escondida to remain a low-cost copper producer and to protect its resources,” adds Mills.

At Tintaya, the sulphide operation, which is capable of producing 90 000 tonnes of 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 that the market can accept the copper,” Mills said.

Even though demand remains weak and Mills noted that five of the past six recessions have suffered a “double dip”, BHP currently has no plans for further reduction in production but stressed that this could change.

“Production will be managed, based on our view of real demand,” adds Mills. “If we don’t have enough demand we 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 of copper per year, just two-thirds of its 3.2 billion lb 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 very rough base metal market over the past three years, Mills states:

“The longer the downturn now, the more competitors are stressed, the continued absence of new project and discoveries, the healthier the recovery will be.”