Last month Scotiabank's Vice President of Economics and Commodity Market Specialist, Patricia Mohr, received the 2012 Metal Bulletin Apex awards for the top gold and overall precious metals price forecasts. Mohr received top honors for her gold forecast, which she estimated with 99.63% accuracy. Mohr has also become well known for introducing in 1987 the Scotiabank Commodity Price Index, a U.S.-dollar-based index of key Canadian commodity prices in export markets. Mohr recently took time out to speak with The Northern Miner about her outlook for copper.
The Northern Miner: Can you speak generally about the state of the copper market today?
Mohr: This has been a part of the market that has performed extra well for mining companies around the world for quite a number of years now and I think the price is going to hold up at quite lucrative levels; we’re averaging a cost of US$3.54 per lb. It’s weakened a little just in recent weeks and I think the developments in Cyprus and concerns again about Euro zone growth and financial markets have really dampened prices just in the past few weeks. Today the LME cash price for copper is US$3.24 per lb. — still quite profitable — and gives you a 39% profit margin over full break-even costs including depreciation, so I don’t think anyone can complain about those numbers.
The Northern Miner: What's going on in China?
Mohr: Recent industrial production numbers in China, although they remain favorable, have actually weakened a little compared to late last year. For the Jan-Feb 2013 period industrial activity was up 9.9% year-over-year but it was more than 10% late last year so it kind of slowed just a little bit as we moved into this year. Of course their economy revved up again in the fourth quarter, there was a fair amount of restocking of iron ore and steam coal. Their imports of steam coal [for electricity generation] were a record high in the fourth quarter. I don’t see a lot of information on steam coal, but China’s imports were very high in the fourth quarter.
The Northern Miner: What about copper supply and demand?
Mohr: I think we’re kind of on the cusp of a fairly substantial increase in brownfield copper mine expansion. We’ve been waiting for this for a number of years now and it hasn’t happened, but I think copper mine production is going to start to rise in the second half of this year and going into next year and for that reason I have copper prices moving down to US$3.20 per lb. in 2014 and possibly a little lower in the several years after 2014. I think that we have probably seen the peak in copper prices, although you never know.
The Northern Miner: What about global GDP growth?
Mohr: We do assume that global economic conditions are somewhat better next year with world GDP growth up 3.8% in 2014 compared to 3.2% in 2013. The 3.2% is only marginally higher than in 2012, when it was 3.1%, roughly. So we have economic conditions in the slow lane in the first half of the year but improving as we move through the year, and I hope that that’s the way it’s going to be. Things look a little better in the US. They’ve had some quite robust motor vehicle production and sales, with the production coming back up to pre-recession levels. Some of this is because of variable vehicle stock in the U.S., so you’re getting replacement demand for vehicles. The [U.S.] housing sector has also started to firm up and we would expect that it will firm up further through 2013 and 2014, and 2015 for that matter. And they use a fair bit of zinc in residential homes, some aluminum, and a lot of copper, and the same could be said for autos, so things are picking up a little in the U.S., not gangbusters, of course, but better.
The Northern Miner: How much copper is expected to come on stream in the next few years?
Mohr: There’s a fair amount of skepticism in the copper industry about just how much copper is going to come on stream, but I do think that there are many brownfield expansions, which we are going to see, and global mine output was up about 4% for refined copper in 2012. There was a measurable increase in Chile and also in Peru. In 2014 we expect global mine production to be up about 8% for copper. There will be some greenfield copper mine developments—Mt. Milligan in Canada, a small operation; Oyu Tolgoi in Mongolia, which has been constructed so we’re just waiting to see production start there; several projects in the Democratic Republic of Congo. Between 2013-2016 there are at least two greenfield projects in the DRC, one in Botswana, four in Peru, two in Chile, and one in Panama...I think the [copper price] level will remain profitable particularly for this year but probably we can expect some new mine capability, both brownfield and greenfield, for the next several years, and prices will ease back a little. But in the second half of the decade I think things will ramp up again on the price side.
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