THE copper deficit this year would be the largest since 2004 after companies reported lower output than estimated in the third quarter, Goldman Sachs said.
JSE investors are now able to punt on the copper price via an exchange-traded note recently launched by Standard Bank .
It is thinly traded, however, with the most recent dealing on October 18 for R11,24.
Copper production would rise by about 1% to 19-million tons this year, "struggling to keep up with demand and resulting in a deficit of over 300000 tons", Goldman analyst Fawzi Hanano said in a report yesterday.
Most of the copper producers missed targets in the third quarter because of falling ore grades, bad weather and strikes, he said. "On aggregate, third-quarter copper production missed our estimates by 3% and was down 15% year on year and 8% quarter on quarter," Mr Hanano said in the note.
Freeport-McMoRan Copper & Gold, the biggest publicly traded copper miner, on October 19 lowered its 2011 production target to 1,72-million tons from 1,77-million tons because of a strike at the Grasberg mine in Indonesia.
Xstrata’s copper output fell to 223606 tons in the third quarter from 233647 tons, while BHP Billiton ’s production dropped 24%, partly because of lower grades and strikes at Escondida.
"Declining grades continue to impact production at major operations including Escondida, Collahuasi and Kennecott," Mr Hanano said. "Ongoing labour unrest at Freeport’s Grasberg and Cerro Verde mines has already removed over 30000 tons from third-quarter production, with the total impact to Freeport in 2011 likely to exceed 50000 tons."
Mr Hanano expected delays in new mines because of capital expenditure increases. "We have seen company updates indicating increased capex estimates and further potential delays to project delivery, providing upside to our calculated incentive price."
Xstrata had the largest growth potential among copper producers and would add more than 800000 tons by 2017, he said. First Quantum, a Canadian mining company with assets mainly in Africa, had a "superior" pipeline of expansion projects and would deliver 20% compound annual growth in copper production to 2017, "making its copper asset portfolio particularly attractive".
Analysts attributed copper’s 4,1% rise to $7991/ton yesterday to European leaders agreeing on a plan to ease the sovereign debt crisis. Prices are up 12% this week, heading for the biggest weekly gain since February 2009.
"The London Metals Exchange continues to receive some encouraging data, and we are thus likely to see more short-covering as the market further absorbs this data," said David Thurtell, head of metals research at Citigroup in Singapore.
