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gsjbw copper forecast

  1. 716 Posts.
    Another medium-term copper forecast. This time from GSJBW:

    "In spite of a likely contraction in OECD copper consumption this year, we
    believe that the copper market is likely to remain very tight, courtesy of
    (1) robust demand growth in emerging economies and (2) disruption
    and delays to supply.
    • China remains the dominant driver of global demand growth, and we are
    confident that 2008 will be another year of double-digit consumption
    growth, despite the market's fears that a slowdown in the USA could
    have a knock-on effect for China.
    • On the supply side we see no reason for optimism that the rate of
    disruption will ease, and we think that the environment for financing and
    developing new copper projects remains challenging.
    • Copper is therefore our preferred metal from the perspective of
    investment exposure."

    One of key points that report makes is strong demand growth (they are forecasting CAGR of 4.8% to 2012), but bigconstraints in supply growth.

    "Production from established copper mines has been plagued by disruptions over the past three years. In some cases, this has occurred because of attempts to maximise output, perhaps through high-grading, perhaps through delaying overburden stripping, or equipment maintenance. While it is commonly possible to run a mining operation at above design-capacity for a short period of time, eventually issues catch up and production falls. This has been evident from numerous quarterly production reports over
    the past three years.

    • In a high metal price environment, industrial action and wage disputes inevitably take a toll on production. The long-running dispute at Grupo Mexico's Cananea operation in 2H2007 is a recent example which cost the company some 50,000 tonnes of copper production and US$2.8 million per day in lost sales revenue.
    • While we can identify a long list of named greenfield copper projects, the queue of approved and financed projects of a scale and grade to really make a difference to global supply is relatively short. As a generalisation, today's greenfield projects tend to be smaller and of lower grade than the leading established mines, and many of the opportunities are in countries which present challenging development and operating environments.
    • Project development schedules are extended by a number of issues such as skills shortages, and long lead-times for obtaining capital equipment. Capital costs are rising steeply."

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