Pretenders vie for Chile’s copper crown but can’t replicate boom – by Rosalba O’Brien and Silvia Antonioli (Reuters U.K. – June 16, 2014)

http://uk.reuters.com/

SANTIAGO/LONDON – (Reuters) – As top copper producer Chile starts to lose market share, players are betting on fledging suppliers to help feed hunger for the red metal, but no single country is likely to replicate the South American nation’s boom of the last century.

Chile produces about a third of the global supply of copper, a key raw material for construction and power that is vital for industrialisation. With consumption rising 4 percent yearly, the country’s output growth is not enough to meet additional demand.

Its market share is being eroded by spiralling costs at ageing deposits, with neighbouring Peru and Africa’s Democratic Republic of Congo (DRC) and Zambia gaining ground.

While those countries are poised to become large suppliers in a more fragmented market, the emergence of a single, giant challenger to Chile is unlikely in the foreseeable future due to geological, political and infrastructure constraints.

“Is there ever going to be another source of supply as good as Chile? No,” Bernstein Research analyst Paul Gait said.

“Collectively Peru, the DRC and Zambia have half the geological endowment of Chile. They are great copper locations but they won’t be able to do what Chile did to the copper market in the 20th century.”

Chile accounted for almost 34 percent of global output of the metal in 2010 but its share fell to less than 32 percent in 2013, according to data from Cochilco, a body that advises Santiago on matters concerning copper.

Thomson Reuters GFMS forecasts Chile’s contribution will decline to less than 30 percent in 2016.

CHILE ENDOWMENT

Riven along its length by a crack in the Earth’s crust that makes it one of the world’s most seismic zones and creates the perfect conditions for large porphyry copper deposits, Chile became the top copper supplier in the 1980s, after the closure of high-cost mines in previous No.1 the United States.

The discovery in the 1980s of deposits such as Escondida, now the world’s largest copper mine, proved the country was rich in the metal that it could produce cheaply and export quickly.

However, ore grades are falling, mines are getting deeper, water availability is scarce and energy is expensive.

Even replacing existing supply is extremely costly.

To increase capacity from 2012’s 1.7 million tonnes to 2 million tonnes by 2021, state-owned Codelco, the world’s No.1 copper producer, needs to invest some $30 billion.

A seawater desalination plant to provide Escondida a steady water supply, necessary to process the metal, will cost global miner BHP Billiton $3.4 billion.

Some costly expansion projects have been delayed after a 30 percent drop in copper prices in the past three years due to slowing economic growth in top consumer China.

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