Sydney, Australia — 23 May 2012 – Global miner Xstrata is betting that sluggish copper demand in China will pick up in the second half of the year as it makes plans to boost production of the metal by 60%, shrugging off more cautious approaches by rivals.
Reuters reports that Xstrata is the world’s no. 4 copper producer, but has designs on becoming number one, unseating Chile’s Codelco, BHP Billiton and Rio Tinto over the next three years.
BHP has retreated from plans to spend US$80 billion on new mine projects and other sector majors are also demonstrating more caution in the face of economic weakening in China.
Xstrata copper division head Charlie Sartain said a US$7 billion capital expenditure programme to beef up copper mining, mainly in Chile, Peru, Argentina and Australia, was proceeding.
Xstrata sells 30 to 40% of its copper to China, where metals warehouses are said to be so full that workers are starting to stockpile copper in car parks.
China’s implied consumption for refined copper fell 6.8% in April from a month earlier, according to Reuters calculations based on official customs data.
“We typically see a cyclical return to demand in the second half of the year in China. We still have a view that the first half was always going to be slower from a copper demand point of view,” Sartain told reporters on the sidelines of a conference promoting mining in Latin America.
He said new economic stimulus plans announced this week by Chinese Premier Wen Jiabao to bolster economic growth would also filter down to higher copper consumption. Second-half growth in copper consumption could run as high as 6%, he said.
Copper prices tumbled to a four-month low last week but this week were showing modest gains, which metals traders link to China’s stimulus measures.
Sartain also downplayed the impact of Europe’s debt crisis on copper’s fortunes. “From a market point of view, Europe is relevant, but not a major copper consumer,” he said. “We’ve factored in very flat market conditions in Europe.”
Slumping commodity prices and escalating costs are squeezing cash flows, leading BHP Billiton and Rio Tinto to rethink long-term expansion timetables on major projects, but mining contractors say they have plenty of work.
“We’re still seeing a nice healthy addressable market going forward,” said Hamish Tyrwhitt, chief executive of Australia’s Leighton Holdings, which supplies contract mining personnel and equipment to companies. “We have US$29.57 billion of tenders we’re undertaking and around US$8 billion where we’re in a preferred position,” he added.
Australia has more than US$400 billion in new resource projects in the works and in Latin America US$300 billion is allocated for the sector, Sartain said.
Source: Reuters. For more information, click here.