China Copper Buyers Undeterred by Record Prices, Chile Says

Feb. 22 (Bloomberg) -- Demand for copper is proving to be resilient to prices that breached $10,000 a metric ton for the first time earlier this month, according to the world’s largest producing country.

Chile, where state-owned Codelco accounts for more than a tenth of global mine supply, hasn’t observed any slowdown from China, where the government is attempting to cool its economy, Mining and Energy Minister Laurence Golborne said. Analysts including Citigroup Inc.’s David Thurtell have said base metals such as copper may be peaking as buyers delay purchases.

“We’ve read these analyses but in practice we haven’t seen it,” Golborne said in a telephone interview yesterday. China is the world’s largest copper user. “Even with increasing inventories prices have remained firm.”

Golborne joins Freeport McMoRan Copper & Gold Inc. and BHP Billiton Ltd. in signaling demand is staying strong as China builds the infrastructure needed to accommodate swathes of its rural population moving to cities. Chile’s government copper commission Cochilco raised its price estimate for 2011 to $4.17 a pound ($9,195 per ton) on Jan. 26, from $3.40 to $3.50.

Copper on the London Metal Exchange lost as much as 0.7 percent to $9,740 per ton today on concern that surging energy prices may spur inflation and prompt further tightening in China. The nation’s central bank on Feb. 18 announced an increase in reserve requirement ratios for a second time this year.

Global Shortage

Refined-copper production exceeded demand by 5,000 tons in November, the second consecutive monthly surplus, the International Copper Study Group, or ICSG, said in a report yesterday. There was a global shortage of 400,000 tons in the January-to-November period last year, the ICSG said.

Copper in London climbed to a record $10,190 last week, extending last year’s 30 percent rally, on expectation that demand may outpace supplies as the global economy recovers. The world may be short of 435,000 tons of refined copper this year, according to the ICSG.

The copper market will remain “tight” beyond 2012, Freeport’s Chief Financial Officer Kathleen Quirk said in a Feb. 3 interview. BHP predicted on Feb. 15 that commodity demand will remain “robust” in 2011.

“China is hugely short” and needs copper, Gayle Berry, a London-based analyst at Barclays Capital in London, said by telephone yesterday.

More than half of China’s population will be living in cities or towns by the period from this year to 2015, Vice Minister of Agriculture Chen Xiaohua said in a speech last month. Demand for copper is surging as the nation plans to build more homes, autos and appliances and upgrade power-grid networks.

Rising Stockpiles

Copper stockpiles tallied by the LME rose for a sixth day yesterday to 411,475 tons, the highest level since August, while inventories monitored by the Shanghai Futures Exchange jumped to a nine-month high of 161,062 tons last week.

Codelco, the world’s biggest copper producer, is spending $3.24 billion this year as part of a $16.5 billion plan over five years to revamp aging mines in the Chilean Andes.

The Chilean government’s preference is for Codelco to issue bonds, rather than retain profits, for financing a record $3.5 billion investment plan for 2012, as long as the state company retains its investment-grade credit rating, Golborne said.

As part of a new corporate-governance law, Golborne and Finance Minister Felipe Larrain assess Codelco’s spending plans on an annual basis. The two ministers had seats on Codelco’s board before the law was introduced last year.

(Source: http://www.businessweek.com/news/2011-02-22/china-copper-buyers-undeterred-by-record-prices-chile-says.html)