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Message: Global copper output growth still far behind demand
Chris Kelly, 18:43, Monday 8 November 2010

* Companies boost copper output on average 4 pct in Q3

* Supply-side response too little, too late

* China/emerging-market demand to continue to outpace

NEW YORK, Nov 8 (Reuters) - Some of the world's top copper miners raised production by 4 percent last quarter, a Reuters analysis based on earnings results so far showed on Monday, suggesting growth may fail to meet booming global demand.

The companies reported represent about one-tenth of global mined copper production. Codelco [CODEL.UL], which accounts for around 11 percent of the world's mined copper, has yet to report third-quarter results. The company's first-half output rose 2 percent to 799,000 tonnes from year-earlier levels.

Slow to bring capacity back on line after 2008's economic downturn, some of the largest copper producers turned more aggressive in the quarter, reopening idled mines and ramping up production in response to a China/developing world-led global economic recovery.

"People were paralyzed in 2008-2009 when copper got below $3,000 per tonne. They deferred things just to see how the situation would turn out," said Edward Meir, metals analyst with MF Global.

"In the last six months to a year, they have been reasonably reassured that the growth story, at least in the emerging markets, is still intact.

"You're seeing a bit more of an aggressive supply-side response," he said.

(Graphic: http://r.reuters.com/xyk83q )

Catherine Virga, senior base metals analyst with CPM Group in New York, agreed, but questioned the strength of that supply-side response.

"Mines are going to continue to strive to bring improvements on the supply side, but it's just now a question of whether or not that's going to be able to outpace demand," Virga said.

Operational constraints and cutbacks initiated in 2009 are projected to constrain mine production to 16.2 million tonnes in 2010, the International Copper Study Group (ICSG) said.

Looking to 2011, increased economic activity is expected to boost end-user demand for the metal much faster than production, pushing the global market deeper into deficit of about 400,000 tonnes.

"The significant level of production disruptions from project delays, technical problems, and labor and political unrest that has become the norm in recent years is expected to continue to reduce output," ICSG said in a recent forecast.

Chilean disruptions are already having an impact, boosting the metal near record highs at $8,940 per tonne in London and above $4.00 per lb in New York.

A work stoppage at the world's No.3 copper mine, Chile (CHILE.SN - news) 's Collahuasi, entered its fourth day on Monday as employees argued over wages with owners Xstrata (LSE: XTA.L - news) and Anglo American . [ID:nN08181304]

Replacement workers have helped maintain normal mine output, but industry sources said production could be affected if the strike extended beyond one week. [ID:nN05111737]

(Graphic: http://r.reuters.com/zur52q )

"These miners are very attuned to where the price of copper is. They're going to hold out for much more sizable increases in pay than what they have in the past," said Anthony Young, an analyst with Dahlman Rose.

"Copper has this labor situation and will possibly have other labor situations on the horizon ... not necessarily anything of this magnitude, but I think you are going to see other work stoppages, given the high market prices," he said.

The demand side of the equation could receive an additional boost from growing interest in copper exchange-traded products (ETP), analysts said. [ID:nN27567082]

A copper ETP could take a large chunk of the metal out of an already tight market. Analysts expect the copper market, estimated at 19 million tonnes, to be balanced or see a small deficit this year. [MET/POLL]

With few new projects expected in 2011, incremental increases in supply to offset any shortfalls at other projects are limited and should continue to lag demand, the analysts said.

"New mine development is a long process ... it's a 10-year project," Justin Lennon, an analyst with Mitsui Bussan Commodities, said. "The demand out of China just overwhelmed planned and scheduled (production) growth in the copper industry.

"The rise in third-quarter production is too little, too late," he said. (Editing by Dale Hudson)

Source: http://uk.finance.yahoo.com/news/global-copper-output-growth-still-far-behind-demand-targetukfocus-57e7210cf5d5.html?x=0

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