Copper prices have rallied to all-time highs, with three-months copper on the London Metal Exchange reaching $10,000 a metric ton Thursday for the first time, but that doesn’t mean producers can quickly ramp up output to take advantage of these high prices.
It takes a long time to open new operations, and copper producers must also deal with logistical constraints and periodic disruptions from factors such as strikes and declining ore grades at aging mines.
Some output increases can be expected, but it will be another two years before many of the major projects actually begin churning out copper, analysts said.
There’s an old adage in commodities that nothing cures high prices faster than high prices. This refers to expected efforts by producers--whether corn growers, oil producers or copper miners – to increase output when prices rise, as well as consumers cutting back on buying.
But in the case of copper, analysts cite a number of obstacles for companies wanting to hike output. Charl Malan, metals and mining analyst with Van Eck Global, said normal supply growth tends to be 3% to 5% annually, and he expects no more than this for the next few years despite rising global demand.
“I can’t see all of a sudden a massive jump in supply,” he said.
Malan and Robin Bhar, analyst with Credit Agricole CIB, said it could be at least 2013 before the copper market gets back into a supply/demand surplus. Most of the new projects in the planning stages won’t be finished before then, Bhar said.
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