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Codelco Says Chinas tightening measures to slow demand for copper this half
Codelco, the world’s largest copper producer, said demand in China for the metal will slow in this half because of government measures to tighten lending and curb inflation.
Prices will “fluctuate” at current levels, Chief Executive Officer Diego
Hernandez said in an interview in Shanghai today. The Chilean
state-owned company may consider sales agreement with Chinese companies,
though it won’t sell stakes in its mines, he also said.
Steel and copper demand in China, the biggest consumer, has slipped as
the government tightened real-estate lending and cracked down on
speculation since mid-April. The weakest manufacturing data in more than
a year for July indicates the world’s largest exporter is having a
“slowdown not a meltdown,” according to HSBC Holdings Plc economist Qu
Hongbin.
“The Chinese are worried about controlling inflation, and they want to
have a GDP growth target at 9 percent, not 11 percent,” said Hernandez.
“That could slow down the demand a little, but I don’t see it for a long
period.”
Copper futures in Shanghai rose 0.6 percent to 57,770 yuan ($8,534) a
metric ton at 2:30 p.m. local time. Construction accounts for a quarter
of demand, according to the Copper Development Association.
“The big bull run we’ve experienced in 2003-2008 may not occur again,”
said Pang Ying, an analyst at Shenzhen Rongtuo Trading Co. “China,
Europe, and the U.S. expanded at a fast pace at that time, and we
probably won’t see that again in the next few years.”
Accelerating Inflation
China’s inflation accelerated to 3.3 percent in July, the fastest pace
in 21 months, according to economists’ median estimate before an Aug. 11
announcement. The banking regulator told lenders to include worst-case
scenarios of property prices dropping 50 percent to 60 percent in cities
where they have risen excessively, a person with knowledge of the
matter said.
Property stocks fell the most in three weeks in Shanghai yesterday as
the test assumption signaled the government may be growing more
concerned about the health of the market.
Still, Codelco is “optimistic” about the copper market because new
supplies will be crimped as mining companies are reluctant to take on
debt for expansion plans, Hernandez said.
The global financial crisis was a “tough experience” and has made the
industry “very conservative,” he said. Producers need to know prices
will stay at similar levels to current rates to fund new investments, he
said.
Debt Funding
“I don’t think the industry is ready to increase their debt to finance
those projects,” said Hernandez. “That in a way is also delaying
investment decisions and keeping supply and demand quite tight.”
Codelco plans to invest $15 billion over five years to increase its output to about 2 million metric tons.
The company plans to get $1 billion to $1.5 billion a year from bank
loans and bonds, and the balance of the spending will come from its own
cash, Hernandez said today. The state-owned company is prohibited by law
to sell equity stakes, he said.
“For this year and next year, the balance of the money will mainly come
from the financial market, and on the medium and long term, we need to
see how our owners want to recapitalize,” he said.
The company is focused on expanding its copper mines now, though it
plans to look at overseas ventures outside of its main business in three
to four years, Hernandez said.
Codelco wants to increase its proportion of concentrates output to the
metal, and may trim utilization at its smelters, he said. The company
doesn’t plan to invest in new smelting capacity or shut plants, he said.
Source: Bloomberg
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