Commodity producers don’t have much control over commodity (DBC) prices. When commodity prices start falling, high-cost producers become unprofitable much sooner than peers who are better placed on the cost curve.
Low-cost producers are able to weather economic cycles better. It becomes prudent for commodity producers to control their unit production costs. In this part of the series, we’ll look at various copper producers’ projected 2016 unit cash costs.
Unit cash costs in 4Q15
Freeport-McMoRan’s (FCX) unit copper cash costs after by-product credits were $1.45 per pound in 4Q15. The company’s 4Q15 unit production costs have fallen slightly compared to the corresponding quarter last year. Teck Resources reported unit cash costs of $1.37 per pound in 4Q15, a year-over-year (or YoY) fall of 19%. According to Southern Copper (SCCO), it was the lowest-cost copper producer in 2015, with unit operating cash costs after by-product credit of $1.12 per pound.
Freeport-McMoRan expects its copper unit cash costs after by-product credits to be $1.10 per pound in 2016. This would mean a YoY reduction of more than 28%. Glencore (GLNCY) also expects its unit cash costs to fall to $1.10 per pound in 2016 from $1.42 per pound last year. However, Teck Resources (TCK) expects its unit cash costs after by-product credits to rise slightly in 2016.
Nonetheless, most copper producers have seen their unit cash costs fall over the last few quarters, and most copper producers expect their unit costs to fall further. In the next part, we’ll explore the different factors that could help copper miners to further reduce their unit cash costs in 2016.