Landslide sparks copper supply concerns

By Roslyn Retkwa

Last week was quite a week for copper. By the end of the week, the premium being paid for spot Comex copper in the U.S. market was edging up due to a massive landslide in a major mine in Utah, but the price of LME copper fell below $7,000 a ton for the first time in 18 months.  

On Tuesday, in its first quarter 2013 operations review, London-based Rio Tinto announced that the April 10th landslide at the Bingham Canyon mine in Salt Lake City Valley, run by its Kennecott Utah Copper division, would cut refined copper production by “approximately 100,000 tons.”

That was a major loss since that mine – the second-largest producer of copper in the U.S. – produced 163,200 tonnes of copper in 2012, while also producing gold, silver, and molybdenum.

On that announcement, by the end of the week, the premium on spot Comex had moved to plus 6 to 7 cents a pound, up from plus 5.5 to 6.5 cents a week earlier, according to Platts Premium Assessment for Copper Cathode. “People are starting to talk about the 7’s, and some people are speculating that it could go up to 10,” said an industry source, who asked not to be named, but also noted that the scrap market was starting to tighten as companies scrambled to find alternative sources of copper. 

By Thursday, American Metal Market was reporting that the premiums being paid for the copper that is being stored in LME warehouses in Chicago, New Orleans, and St. Louis had “skyrocketed” to $50 to $60 per tonne, “up from between $30 and $45 per tonne in St. Louis previously and a far cry from the $5-to-$10-a-tonne range reported in Chicago and New Orleans prior to the mine collapse.”

Kennecott Utah has suspended ore production at Bingham Canyon, and declared force majeure – the “act of God” clause in a contract that can be invoked to cancel its obligations to deliver metal due to circumstances beyond its control. It said that the “timing to restart ore production remains under evaluation,” but apparently, that won’t be anytime soon. According to press reports from the scene, the open-pit Bingham Canyon mine – which the company touts as “the largest man-made excavation in the world” – had two-thirds of its pit base buried, and the landslide also buried roads and buildings, though no one was harmed. The site had been evacuated a day earlier since there were warning signs of a landslide.

Meanwhile, mid-week, three-month copper on the London Metal Exchange fell to $6,800 a metric ton, its lowest level since October 2011, on a mix of  economic news, ranging from European car sales sliding to a 20-year low to disappointing news about the growth in China’s gross domestic product, according to Bloomberg. 

In 2012, global mine production of copper rose by 4% to 16.669 million  tonnes, the highest annual increase since 2004, Thomson Reuters GFMS said, when it released its Copper Survey 2013 on April 9th at CESCO Week in Santiago, Chile, the No. 1 event of the year for the copper industry. World refined copper supply also increased by 2% to 20.059 million tonnes in 2012, while total production of scrap was 3% higher at 3.6 million tonnes, it said.  

But demand rose by just 1% year-over-year, resulting in what it estimates was a surplus of 214,000 tons in 2012.

Consumption barely grew because of “the sharp slowdown in the rate of expansion in Chinese demand,” it said, though it also said the Eurozone was “the major area of weakness.” The report cited growing demand from the electrical and electronic products sector – up 2% – as a bright spot for copper producers, “driven by growth in demand from the power utilities sector in the emerging economies and in particular China.”

Thomson Reuters GFMS delivered its report the day before the landslide in Utah, but said, “growing negative market sentiment weights risk to the downside, with around $6,500 as a potential level of support if selling intensifies.”  


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