The Hindu Business Line : Demand for copper substitutes seen rising

The boom in sectors such as telecom, realty and power are driving the copper demand but not much new investments are being made to ramp up supplies.

Suresh P. Iyengar

Mumbai, Aug 29 Even as the demand for copper continues to be buoyant, the recent spike in copper prices may not be sustainable in the long run as the consumers may shift to substitute metals such as aluminium and plastics, said Mr Jurgen Leibbrandt, Executive Vice-President, Codelco Corporation (National Copper Corporation of Chile) – world’s largest copper mining company.

“The demand for copper substitutes (such as aluminium, plastics and fibre) has been on the rise last four years and it will increase this year too. It is a clear indication that manufacturers are shifting,” said Mr Leibbrandt on the sidelines of India Copper Forum 2008.

The boom in sectors such as telecom, realty and power are driving the copper demand but not much new investments are being made to ramp up supplies. Though the global economy looks weak, the strong demand from India and China is boosting the copper prices. “No new investment in mineshas been announced of late. Mining cost has more than doubled,” he said. The rise in cost of mining has deterred investments in the sectors. New mining opportunities in Central Africa, Pakistan and Mongolia have to be explored to increase supply, said Mr Leibbrandt.

Prices

Copper prices on London Metal Exchange touched a high of $9,000 a tonne on July 3 and fell to a low of $7,260 a tonne on August 12. However, it recovered to trade at $7,600 a tonne on Friday. Weak dollar provided a strong support to the copper prices.

Weaker US dollar increases the real value of the metal and makes the metal cheaper for overseas buyers. The investment demand due to weak dollar was another price driver of the metal in the recent times.

The demand was more or less weak with Chinese imports of refined copper sliding down continuously.

China is the largest consumer of the metal and any significant changes in its production and consumption have the direct impact on copper prices. Total imports of refined copper and copper alloy in first half of 2008 were 8.18 lakh tonnes, almost 18 per cent lower than the same period of 2007. In 2009, world copper mine production is forecast to increase by 9.20 per cent to 17.91 million tonnes as a number of projects are commissioned in 2008 approach full capacity and two large projects in the Democratic Republic of Congo commence operations.

Future

These two projects are the Nikanor-Katanga joint venture KOV mine restart (2.50 lakh tonnes per annum) and Freeport’s Tenke Fungurume (1.14 lakh tonnes per annum).

Despite the forecast of increase in output, mine production may be adversely affected by lower ore grades, labour disputes and difficulties in sourcing equipment, all of which present a downside risk to the production forecast with the potential to further push up world copper prices, said an analyst.