Today, we are sending you an article (below) written by Rick Mills, publisher of the Ahead of the Herd newsletter and website.
In it, Rick has several examples of why he, and other market watchers, see the world’s supply of copper tightening and it takes on the widely reported worries of the impact of a slowdown in economic activity in China. It is based on the newly published inventory of copper held by China. The following quotes provide a primer to the article and caught our attention as the copper price will drive VMS valuations in the coming months, as our soon to be producing Reed Copper project in Manitoba is on time and on budget.
In discussing China's reported 2 million tonnes of copper held in their inventory:
“….2 million tonnes of copper represents just 3 months of consumption by China.”
On the supply side, we see another aspect of this article as particularly positive for VMS Ventures and our Reed Copper Mine Project in Manitoba:
"The metal content of copper ore has been falling since the mid 1990s. A miner now has to dig up an extra 50 percent of ore to get the same amount of copper. As grade drops the amount of rock that must be moved and processed per tonne of produced copper rises dramatically – all the while using more energy that costs several times more than it use to. With the lower grades of ores now being mined energy becomes more and more of a factor when considering economics"
Again, the result should be higher copper prices.
As Reed nears its planned production date, approximately one year from now, the price of copper will, more than any other variable, drive VMS Ventures’ valuation.
We welcome your thoughts on the issue.
Richard (Rick) Mills
Ahead of the Herd
As a general rule, the most successful man in life is the man who has the best information
Fact - China is the world’s largest user of copper.
Copper is critical for China and the country has imported unbelievable tonnages over the years, but according to the copper bears the story could be coming to an end.
There are several reasons investors might question the longevity of China’s copper story:
- Concerns about weak global growth, investors are worried about China’s exports slowing and its implications for industrial metal demand
- China is thought to have high inventory levels of copper
- China’s economic growth has slowed to a three year low of 7.6 percent
- Surplus capacity
- Extraordinarily tight cash
According to the Beijing Antaike Information Development Co. copper consumption is expected to expand this year at the slowest rate since 1997.
Copper Market
“This lack of inventory growth is the hardest indicator that there has neither been a significant negative shock to demand nor a pronounced destocking cycle.”Andrew Keen, Head of Metals and Mining Equity Research for Europe, the Middle East and Africa, CNBC’s Asia Squawk Box
According to the International Copper Study Group (ICSG):
“The apparent refined copper balance for the first half 2012 indicates a production *deficit of 473,000 t (a seasonally adjusted deficit of 292,000 t)…As of the end of August, copper stocks held at the major metal exchanges (LME, COMEX, SHFE) totaled 434,277 t, a decline of 110,334 t from stocks held at the end of December 2011 and a decrease of 14,520 t from stock levels at the end of July 2012.”
*In September, the ICSG projected that global refined copper demand in 2011 would exceed refined copper production by about 200,000 tons, continuing the production deficit experienced in 2010.
The World Bureau of Metal Statistics said that from January to June 2012 worldwide copper demand surpassed production by 129,000 tons.
Also, according to ICSG Copper Market Forecast 2012-2013, in 2012, world refined copper production is projected to increase by only about 2.5% to reach 20.15 million metric tonnes (mmt). Global Industry Analysts Inc. forecasts that the global market for copper is projected to reach 27.5 mmt by the year 2017.
The world will need 7.35 million metric tonnes or 1.47 million metric tonnes of new copper production per year for the next five years to meet anticipated demand. How much copper is that? Thanks to about.com let’s look at copper production figures for 2010 from the world’s top copper miners.
Codelco - the Corporación Nacional del Cobre de Chile – controls about 20 percent of the world's reserves of copper. In 2010, Codelco produced approximately 1.76 million metric tons of refined copper, about 11% of total world copper production.
Freeport-McMoRan Copper & Gold Inc. (FCX) is the world's largest publicly traded copper producer. The company's assets include Grasberg, the world’s largest copper and gold mine in terms of recoverable reserves. FCX produced 1.44 million metric tons (mt) of refined copper in 2010, equal to 9% of the world total.
Xstrata Plc’s copper production in 2010 was over 900,000 metric tons, Rio Tinto produced approximately 700,000 t of copper, Anglo American 645,000 t, Groupo Mexico 645,000 t, Glencore 542,000 t, Southern Copper 542,000 t and KGHM Polska Miedz at 425,000 t.
FCX is the world’s largest publicly traded copper producer – 1.44 million metric tonnes of copper per year, the worlds going to need 1.47 million metric tonnes of new copper production per year, is another Freeport out there? Perhaps another Glencore, Southern Copper and KGHM will be built each year? CLICK HERE TO READ MORE