Reuters reported that BHP Billiton will tighten global copper supply from late 2013 onward if it postpones work on its single biggest project the USD 30 billion expansion of the Olympic Dam mine in Australia.
A 25% drop in benchmark international copper prices since early 2011 has eroded potential returns from the project and the economic slowdown in top base metal consumer China has dampened the demand outlook.
BHP's scheme to quadruple output from Olympic Dam the fourth largest known copper deposit and largest uranium source in the world is one growing number analysts believe likely to be shelved until markets stabilize.
Mr Gavin Wendt mining analyst with MineLife in Sydney said that "Now is not exactly the right time to be thinking of bringing more copper into the market and BHP knows this. Sure, longer term the market may be there but for the next few years at least, there's plenty of the stuff around."
London copper prices have fallen to around USD 7,650 per tonne from a peak over USD 10,000 in early 2011 as big copper buyers such as car and computer manufacturers’ slow consumption. China cut its interest rates for the second time in weeks on Thursday, stepping up efforts to bolster the world's second largest economy, which last quarter probably saw its weakest growth since the global financial crisis.
Mr Glyn Lawcock mining analyst of UBS said that "Olympic Dam is surely under review. It's not an issue of finding the cash but rather ensuring a good return on the investment.
For BHP's board, the challenge is to time the expansion to coincide with a market providing maximum returns. The board is due to decide by the end of the year whether or not to continue work to transform Olympic Dam from an underground mine to an open pit operation capable of yielding 750,000 tonnes of copper and 19,000 tonnes of uranium a year.
BHP's decision will be complicated by mixed views on the supply and demand balance for copper. This year, supplies are running around 180,000 tonnes behind demand and that deficit could narrow to around 7,000 tonnes in 2013 as new production comes on stream.
As the global economy falters that deficit could become a glut. Increased use of scrap copper could also mean oversupply. Further curbing the appetite for refined copper, BHP now sees recycled scrap meeting up to 50% of China's overall demand in the coming year for the metal, up from 35% now.
Source - Reuters
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