It is hard not to be impressed by Escondida’s scale. From one edge of the world’s largest copper mine, the huge trucks crawling up the other side nearly four kilometres away look like ants scurrying up and down an anthill.
Every year, the mine’s 171 trucks move twice as much earth as was excavated to build the Panama Canal. “Did we think it would be so big? No, we didn’t,” says Edgar Basto, who runs the mine for BHP Billiton, the world’s largest mining group.
But Escondida is big – and growing: BHP has plans to relocate another plant to allow the mine to expand even further. As a result, after several years of falling production, the mine is on track to boost output by 20 per cent in the year to June.
The story is echoed across the copper industry. After a decade of struggling with ageing mines and troublesome new projects, the world’s copper miners are boosting supplies at the fastest rate in a decade.
“A lot of projects were stalled at the back end of 2008. We’re now getting the full effects of the catch-up phase,” says Richard Wilson, chairman of metals at Wood Mackenzie, a consultancy. But investors are not cheering the miners on.
Combined with moderating Chinese growth, the increase in mine supply has inspired many to bet that the so-called “supercycle” of high commodity prices and bumper mining profits may be over.
Investors hold a record number of bearish bets in US copper futures, according to data from the Commodity Futures Trading Commission.
The bearish mood has percolated across the industry.
The vast majority of the miners, investors and traders in Santiago for the annual Cesco week gathering of the copper industry expect copper supply to exceed demand this year.
Copper prices have already fallen to an eight-month low last week, with the benchmark London Metal Exchange contract at $7,331.25 a tonne – down more than 25 per cent from a record high in February. But some traders believe the price could fall below $7,000 in the course of the year, putting further pressure on the profitability of miners such as Freeport-McMoRan or Kazakhmys, as well as big copper-producing countries such as Chile, Peru and Zambia.
Thomas Keller, chief executive of Codelco, the world’s largest copper miner, predicts that prices will stay around current levels, but expects “higher volatility” – often a miners’ euphemism for falling prices.
“There are a lot of projects,” says John Mackenzie, head of Anglo American’s copper division. “With all the investment we have seen over the past few years, that is going to drive a small surplus.”
The situation has not been helped by demand. In Europe, traders say, demand continues to weaken, while in the US it is robust but not spectacular. In China, which accounts for 40 per cent of global copper demand, it is improving, traders and executives agree.
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