Copper: Volatility will keep a lid on prices: Arriagada chief

Copper’s winning streak took it to two-year highs last week, but volatility could constrain its upward reach.

Escondida is expected to ramp up production to make up for ground lost during a strike.

Copper’s winning streak took it to two-year highs last week, but volatility could constrain its upward reach in the short term, according to the CEO of one of the world’s biggest copper miners.

“There is volatility in the short term, which means that prices could eventually stay at the levels they are today or even reduce,” said Ivan Arriagada, chief executive of Chilean mining company Antofagasta, which is listed on the London Stock Exchange with a market cap of £9.17 billion ($15.3bn).

Mr Arriagada told The Australian that adjustments in China, geopolitical instability and protectionism were potential risks for the copper price in the near term.

Over the long term, Mr Arriagada believed it would increase progressively, but rather than speculate on how high it could go, he said “a new floor exists under the copper price and it’s unlikely to drop below $US2.50 (a pound)”.

Copper prices hit a two-year high of $US2.88 last week after rising steadily in 2017 on the back of supply disruptions and expectations of increased demand from China. It hit a high of $US4.62 in 2011, but Mr Arriagada thought it “a bit bullish” to expect prices to go back to that level soon.

“In the shorter term, we think the market is gradually moving to a tighter demand-supply position, which increases the likelihood of a small market deficit sooner rather than later,” he said at a Melbourne Mining Club lunch.

While there may be short-term volatility, the outlook for the metal in the mid to long term was positive, he said.

“The underlying fundamentals in the mid to long term are very favourable and on the back of this we expect demand growth to be between 1 and 2 per cent a year,” he said.

Despite the recovery in prices, Mr Arriagada did not expect a flood of M&A deals to hit the market as a result.

“Some of the companies that were more stressed on the debt side have been able to get cashflow relief. I don’t expect, in an environment where there is more cashflow in the sector and the balance sheet of companies is less stressed from that point of view, that there will be more M&A coming out of this turn.”

On the anticipated ramp-up in production at BHP and Rio Tinto’s Escondida copper mine in Chile, Mr Arriagada said he did not think it would affect the market too significantly.

“(A) strike at Escondida removed production that was expected to be in the market in the first half of the year, so the projection is that supply this year is going to be lower than expected. Presumably they’re ramping up production to make good some of that deficit. But that doesn’t change the overall picture for the year,” he told The Australian.