Analysis – Copper market may get a 2003-style supply shock from Glencore closures – by Josephine Mason (Reuters U.K. – September 22, 2015)

NEW YORK – As copper miners start to slash spending and shutter mines because of the plunge in the price of the metal, experts who analyse the market in the base metal are suddenly getting a little more cheery.

They are seeing the potential for a re-run of 2003 when Chile’s Codelco [COBRE.UL], the world’s top copper producer stockpiled 200,000 tonnes of the metal that is used in everything from pipes to autos, providing the market with a supply shock that soon drove copper prices back up.

This time around hopes are pinned on the announcement earlier this month from Glencore (GLEN.L) of a sweeping strategy to shore up cash and cut spending, including plans to shutter two major, high-cost copper mines in Zambia and the Democratic Republic of Congo over the next 18 months. That will cut company output by 400,000 tonnes and remove some 2 percent of global supply from the market.

For Glencore CEO Ivan Glasenberg, the plan helped placate shareholders worried about $30 billion (£19 billion) of debt as prices of its main products from copper to coal sank to six-year lows amid worries about China’s waning appetite for such commodities.

The company’s shares jumped 7 percent on the news, although they have since come under renewed pressure, hitting fresh all-time lows last week. They are down 60 percent so far this year.

For the beleaguered copper market, it was the first meaningful supply-side shock since the start of the current year-long copper rout. It has the potential to help trigger a long, slow revival in prices, analysts and other experts said.

There is a big similarity with the market in 2002-2003, much more than the financial crisis-driven plunge in 2008, said Leon Westgate, analyst at ICBC Standard Bank.

Twelve years ago, prices were languishing near 14-year lows and global inventory was skyrocketing. In response, the state-run Codelco built the stockpile of 200,000 tonnes of copper cathodes near the northern Chilean port of Antofagasta. It kept that material off the market until conditions had improved.


The comparisons with 2003 only go so far.

China devoured a record 9.4 million tonnes of copper last year, almost half of the global total, against just 3 million tonnes in 2003. The country’s average annual growth rate in demand of more than 10 percent over the past decade has plunged to around 3-4 percent this year, and that has been a big reason for the recent price slump.

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