18 Nov

Copper Executives Chime In on Copper Industry Outlook

WRITTEN BY Mohit Oberoi, CFA

Outlook

Previously, we looked at various copper producers’ 3Q15 financial results. Now we’ll look at what senior industry executives have said about the outlook for the copper industry during their respective 3Q15 earnings conference calls.

Copper Executives Chime In on Copper Industry Outlook

Supply cuts

According to Teck Resources (TCK), “Operational issues at copper mines continue to impact current and future mine production. As a result of these supply disruptions and price related mine suspensions, large copper surpluses originally forecast for 2015 and 2016 have moved closer to balance despite weaker demand growth.”

Raul Jacob, Southern Copper’s (SCCO) CFO (chief financial officer), had similar views on the copper industry’s outlook. He said, “We have noted production cut announcements, for a total of 520,000 tons in the last quarter. And we should expect some more production cuts if this price environment persist. I want to emphasize that this is a new factor that, by itself, will significantly vary the market trend towards a copper deficit.”

Outlook

Southern Copper expects the Chinese copper demand to rise 3% in 2015 and 4% in 2016. Both Southern Copper and Freeport-McMoRan (FCX) cited falling industry capital expenditure as a long-term positive for copper prices. According to Southern Copper, “Copper prices at current levels are not sufficient to promote the necessary future supply growth, thereby improving the strong long-term fundamentals of our industry.”

Currently, Freeport and Newmont Mining (NEM) form ~3.7% of the Materials Select Sector SPDR ETF (XLB).

Though the long-term copper story looks much better compared to steel and iron ore, there seems to be more short-term pain as is apparent in the falling copper prices. Copper producers were expecting copper prices to rise after the productions cuts. However, the goodwill failed to last beyond a month, and copper prices have resumed their downside, hitting fresh 2015 lows. Lower copper prices would likely dint copper producers’ 4Q15 earnings.

Visit Market Realist’s Copper page for the other recent developments in this space.

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