CESCO WEEK 2016 - The best chatter on supply, demand and prices from Chile

print Print this document.  Post this story to Facebook.
Tom Jennemanntom.jennemann@fastmarkets.comSenior North American Correspondent973-204-3383

Santiago, Chile 07/04/2016 - The crowds may been down slightly but it was still a lively affair at this year's Cesco Week, which is always a valuable time to enjoy a hearty local red wine or pisco sour with business associates and friends.

As might be expected, given the low metal prices and the demand slowdown in China, most of the attendees took a bearish view of the current market environment. But people were generally hopeful that a recovery will happen later this decade when there should be a structural copper deficit.

For all of the chatter published earlier this week, please click here and here.

ON DEMAND

"Copper demand will continue to still grow, perhaps not at the same pace of 3.5 percent but it should still be around two percent. That's obviously not where it was a couple of years ago but it's still better than many other commodities were there is negative growth" - Antofagasta CEO Diego Hernández

"Substitution is always an issue but the low-hanging fruit has been picked and this has made substitution harder" - Mark Lovett, secretary-general of the International Wrought Copper Council (IWCC)

"Miners have moved from being overly optimistic in the peak of prices to overly cautious now - I think that they may be overstating how bad things have been" - Lovett, who expects China's demand to grow by 2.5 percent this year

"From 1860 to 1929, the US had something like 17 recessions. The point here is that one recession does not mean that the super cycle is over. It only means that China is going to have a recession and nothing more. This is a natural and common occurrence. If you are in the long-term business of building a mine, why would you even care?" - Benjamin Cox, president and CEO of junior miner Aston Bay Holdings

"We will get close but we're still not forecasting a decline in global consumption in 2016 or any of the next five years. And this does contrast with the past down cycles when there was contraction. In 2008-2009, for example, refined copper demand fell four percent" - Vanessa Davidson, CRU analyst

"But the difference this time has more to do with expectations. The slowdown in Chinese consumption has been sharper and will likely last longer than people anticipated" - Davidson

--------

ON SUPPLY

"[If we sold,] we would then need to decide to exit copper, which we haven't... we will maintain our position in Los Broncos - we had to restate that a few times as there has been lots of speculation. We have no intention to sell and there are no offers I am aware of" - Hennie Faul, head of Anglo American's copper business

"There will be some oversupply for the next two years. Not for demand reasons, like so many people argue. China won't have zero growth in copper - I still think two percent is realistic and, given China's huge consumption base, that's a large amount," - Faul, adding that many small mines are "hanging in", even though they might be losing money at current prices.

"We will continue to invest but will do so in a reasonable way that controls risk. We will not push forward any project that isn't mature enough or where the prices and costs don't reflect the current [challenging] situation" - Codelco CEO Nelson Pizarro

"Companies don't want to divest of copper assets - they want to get rid of other commodities. This is because our fundamentals are better in the medium and long term. Copper was the last commodity to go down after oil and will be the first to go up along with zinc because of favourable supply and demand fundamentals" - Antofagasta CEO Diego Hernández

"This, together with the fact that most desirable Tier 1 assets appear not to be available at any reasonable price, is keeping cash on the sidelines for now" - CRU CEO Nick Morgan

"There will be some who can’t take it anymore and they will go belly-up. But there are many others who still have money looking for good assets - so it will just change ownership" - a copper executive

"The smaller companies, particularly those with high debt, are starting to bleed. There are some really good assets out there and the sharks smell blood and are starting to circle" - a miner

"Everyone is focusing on the weak demand environment but people are underestimating the risk of supply-side disruptions, which are common in our industry and have been price-supportive" - a consultant

--------

ON PRICE

"We need to trust the foundations of the copper industry - and it does have a solid foundation. We hope for a robust price recovery after this uncertain period. We expect that the so-called 'new normal' will give us fruit in the future" - Codelco's Pizarro

"We're preparing for a bear market. There is going to be a lot volatility in the next two years and maybe beyond, where we could see prices bounce between $1.80 and $2.20 per pound"- Anglo's Faul

"I don't see any reason for the price to go down. It could move a couple of hundred bucks in either direction but the bias will be higher. Many projects have been put on hold and that will impact supply. [Also,] the Chinese smelters are increasing capacity at a slower rate" - Aurubis executive Stefan Boel

"We need lower prices because I think that's the right thing. The market needs to rebalance - I'm short now because I want to be bullish later" - a copper trader

"If I'm wrong on my short position, and for some strange reason the market were to rebound, then I will make a loss but my boss would understand. A rally isn't supposed to happen. But I can't go long - if I did that and the market went down, then I would be in big trouble with my boss" - trader

"The conclusion of this whole presentation is that copper is going below $4,000 per tonne and it's going to average about $4,000 in both 2017 and 2018" - Max Layton, Goldman Sachs managing director

"Copper may recover in 2019-20 if China perfectly manages its deceleration. But in history, no other country has ever managed this type of transition without a huge recession. So we think the risk skews to the downside" - Layton

"And all of the other scenarios that I can come up are even more bearish. In essence, you could say that [$4,000 copper] is our bull case," - Layton, adding that prices could fall to $1.30-1.50 per pound should China botch its transition

"Our current view is that the lack mining projects will form the basis for the next upturn in the commodities cycle. We expect that the average annual price will likely bottom out over the next year at a level a little bit above the first quarter average of this year" - CRU's Davidson

"So far, 2016 has been a rerun of 2015. There was a bottoming out in January after aggressive short-selling followed by a modest recovery in the latter two months of the first quarter. But there is a key difference: whereas a year ago we talked about $6,000 tonne, today the price conversation centres around $5,000" - CRU's Morgan

(Editing by Mark Shaw)



Fastmarkets.com
mailto:press@fastmarkets.com
8 Bouverie Street, London, EC4Y 8AX, UK
+44 (0)845 241 9949