Copper to Rebound as Demand Grows, Output Drops, Freeport Says

By Alex Emery

Nov. 24 (Bloomberg) -- Copper, headed for its biggest annual price drop in at least two decades, will rebound as demand grows and mine output drops, Freeport-McMoRan Copper & Gold Inc. Chief Executive Officer Richard Adkerson said.

“There is going to be a need for copper as China, the rest of Asia, Eastern Europe and Latin America’s standard of living rises,” Adkerson said Nov. 21 while attending the 21-member Asia-Pacific Economic Cooperation forum in Lima. “Mines are aging, so the industry is challenged from a supply standpoint.”

Copper futures fell 49 percent this year in New York as a U.S. recession eroded demand for raw materials including copper used in electrical wiring and plumbing. Adkerson said the growth of emerging economies will more than make up for reduced demand in the U.S. and Europe.

Mining companies, including BHP Billiton Ltd., Anglo American Plc and Phoenix-based Freeport, the world’s largest publicly traded producer, are having difficulty finding new deposits, and rising costs are forcing them to trim output from higher-cost mines, Adkerson said. Freeport plans to delay expansions of its mines in Chile, the U.S. and Peru, and will cut output from its Henderson molybdenum mine in Colorado.

“We’ve been pushing to produce marginal volumes because we earned such great margins on them” during the six-year rally in prices that sent copper to a record in May, Adkerson said. “Now that prices have come down, we’re going to curtail marginal production.”

Economic Slump

Tighter credit is limiting economic growth after a collapse in the U.S. housing market brought an end to the construction boom that sent copper futures to a record high of $4.2605 a pound in New York on May 5. Since then, the price dropped 63 percent on the Comex division of the New York Mercantile Exchange, including a 7.9 percent decline last week to $1.579 on Nov. 21. The price is headed for the biggest annual drop since at least 1989, exchange data show.

“Costs have been the huge issue for the industry in 2007 and 2008,” Adkerson said. “Now a lot of costs are coming down: energy, steel, sulfuric acid. That’s helping mitigate to some extent the drop in copper and molybdenum prices.”

The company will continue to develop its Tenke Fungurume copper mine in Congo and work on further expansion studies at its Cerro Verde mine in Peru, Adkerson said. Freeport tripled capacity at Cerro Verde in an $850 million upgrade last year.

Labor Agreement, Earnings

Freeport earlier this month signed a three-year labor agreement with workers at Cerro Verde, Peru’s third-largest copper mine. The agreement will give the mine greater operating stability, he said.

Third-quarter net income fell 33 percent to $523 million, or $1.31 a share, Freeport said Oct. 21. Profit was hurt by lower copper prices and a 23 percent jump in production costs to $1.29 a pound. Costs this year are expected to be $1.17 a pound, the company said.

Freeport rose $1.73, or 9.8 percent, to $19.33 on Nov. 21 in New York Stock Exchange composite trading. The shares are down 81 percent this year.

To contact the reporter on this story: Alex Emery in Lima at aemery1@bloomberg.net