Grupo Mexico Sees Copper Prices Rising on China

Tuesday, May 25, 2010

Grupo Mexico SAB, the largest mining company in Mexico, expects copper prices to extend their recovery amid “very strong demand from China.”

“In May, we expect an extremely good copper import demand from China,” Chief Financial Officer Daniel Muniz said in an May 21 interview. Possible Chinese monetary policy changes “will not impact Chinese copper demand,” he said.

Demand from China, the largest consumer of the metal used in power cables and electrical wire, has helped copper prices to more than double since 2004. While demand from the Asian nation will continue to gain, Muniz said, supply will be constrained.

There are only a few copper developments “and these are facing increased regulations, labor challenges,” Muniz said in a conference room with a copper-colored ceiling at the company headquarters in Mexico City. “Most of the copper companies will be pleased if they can keep their production level.”

Copper has dropped 8.5 percent this year, partly on concerns that China’s government will act to cool its economy and damp metal demand. On May 20, the price touched $2.9005, the lowest level since Feb. 9, as global equities tumbled.

Muniz said there will be a copper deficit this year, without elaborating. “Inventories keep falling,” he said. “The inventories are very low in respect of global demand.”

Inventories monitored by the Shanghai Futures Exchange dropped for a third straight week, the longest slide since October. China imported 309,772 metric tons last month, the second-biggest amount since June, the government said.

No Hedges

“In order to be congruent with our positive vision, we’re not hedging this year,” Muniz said. “We believe there are very strong fundamentals to support the price.”

In 2008, Grupo Mexico hedged about 35 percent of its copper production. The Mexican company didn’t buy any copper hedges last year. Companies hedge against fluctuations in prices for commodities.

Copper futures for July delivery climbed 7.30 cents, or 2.4 percent, to $3.1340 a pound on the Comex in New York.

Muniz said the company forecasts the price of copper to rise above $3.25 a pound this year.

Grupo Mexico is waiting for government law enforcement support to reopen its Cananea copper mine, the world’s largest deposit of the metal. The company has 2,000 contractors to start working in the mine once safety conditions are met, Muniz said.

Union Workers

Union workers at Cananea have been striking repeatedly for about three years. Union members threatened to blow up the mine after the workers organization lost an appeal to a lower court’s ruling that allowed Grupo Mexico to fire striking workers.

There are no legal proceedings pending for Cananea, company spokesman Juan Rebolledo said during the interview with Muniz. Authorities need to set the conditions so “we can get in to the mine,” he said. Grupo Mexico could start work in Cananea as soon as this quarter, Rebolledo said, with a “good portion” of production starting by the end of the year.

 

Source: Business Week