Copper mining costs are rising, but producers are still keen to expand production

Issuing time:2016-06-22 16:09

 - Barclays Bank quoted research firm Wood Mackenzie in a report on Saturday saying that although the marginal operating cost of miners producing nickel, aluminum and zinc has basically stabilized at 0%, 8% and 17%, respectively, since the 2008 economic crisis Since the production cost of copper mines has risen by 87%, it is shocking.

     But copper producers such as Southern Copper are betting that the copper market is welcoming big opportunities, and economic growth in advanced economies will accelerate in the next few years.

     As Raul Jacob, CFO of Southern Copper, said: Advanced economies will indirectly become the largest copper consumers.

     The most important reason for the increase in operating costs of copper mines is the doubling of energy expenditures caused by rising prices, the increase in labor, service and technology costs. In addition, the tight supply of energy also erodes the profitability of producers.

     Barclays Bank said in the report: "This means that the marginal profit of copper mines is eroded, threatening the decision-making and future investment capabilities of miners."

     The report added: "Although the decision of miners to invest in new mines should theoretically be based on long-term potential returns rather than fluctuations in short-term revenue streams, this is usually not the case, especially for small miners."

     Wood Mackenzie estimates that the production cost of copper in 2014 is $6,955 per ton.

     But where there are rules, there are exceptions, and risks are usually accompanied by opportunities.

     Southern Copper operates copper mines in Mexico and Peru, and is planning to invest $2.3 billion in 2014 to expand capacity, up 35% from its $1.7 billion investment in 2013.

     Raul Jacob, the company's chief financial officer, told the Wall Street Journal: "Our development of the full potential production capacity of Southern Copper is underway, and we have sufficient funds to support the plan and its operations."

     The company plans to invest $1.6 billion in 2015, $900 million in 2016, and $500 million in 2017, which means 2014 will be the year of the company's biggest investment.

     Obviously, Southern Copper is not the only company that is competing for the “profit cake” of the long-term expansion plan.

     Codelco, the world's number one copper producer, announced plans to increase production by $27 billion as early as 2013. This is the largest investment plan in Codelco's history.

     Codelco's October 2013 report shows that it is also keen to invest overseas in Brazil, Ecuador and Colombia.

     Meanwhile, Freeport Macquarin Copper and Gold, the world's second-largest copper producer, said in its 2012 annual report that it may invest $275 million in exploration and research activities in 2013.

     Goldman Sachs said in January that after rising in 2016, the global average copper price in 2017 is expected to be about $7,500 per ton.

     In addition, Barclays Bank recently estimated that China's copper demand growth will slow down this year, from 12% in 2013 to 7.5%, and the goal of 10% increase in power grid construction spending is expected to partially offset the weak demand from other consumer industries. influences. (This article is translated from Commodity Online)