Disruptions Wipe Out Expected Copper Surplus in 2008

Sluggish copper mine output and disruptions in Latin America have wiped out an expected surplus this year, while energy supply problems have cut a predicted aluminium surplus, a Reuters survey showed.

The poll of 22 commodity analysts around the world carried out over the past month shows the 41-million-ton per year aluminium market in a slight surplus of 148,500t in 2008 compared with 325,000t in the January survey.

In 2009, the market is seen with a larger-than-expected deficit of 144,500t due to power problems.

The copper market is seen in a deficit of 68,000t this year versus an expected surplus of 160,000t January.

"Supply has clearly underperformed against the markets' forecast - it has been a difficult year or two in Latin America," said analyst Daniel Hynes at Merrill Lynch.

A strike in Peru, the world's second largest copper producer, took futures prices to a record $8,940 a ton in July.

Strikes have also hit the world's number one producer Chile.

"We did see a cut in production from China as well," Hynes said, adding that concentrate - raw material for copper production - was tight.

Falling ore grades, delays in bringing new projects online, rising capital expenditure and labour unrest would persistently keep the raw materials market tight, analysts said.

"Poor performance relative to expectations is nothing new for copper supply over the past few years, but global mine production is now falling in absolute terms," said Gayle Berry at Barclays Capital.

In 2009, the copper market was seen moving into a surplus of 141,825t, lower than the 154,000t surplus predicted in the January poll.

The market was in a deficit of 42,000t last year, against a surplus of 287,000t in 2006, according to figures from the International Copper Study Group.

ALUMINIUM - A TIGHT MARKET

In the energy-intensive metal aluminium, a shortage of electricity in China and South Africa reduced the expected surplus in both 2008 and 2009.

Energy accounts for up to 45% of total production costs when producing aluminium in smelters.

"They were offline in China for a couple of weeks and it takes a long time to ramp up after the power is back on - there was a lot lost there, and in South Africa BHP Billiton had to cut back output as well," Merrill Lynch's Hynes said.

The aluminium market has swung in and out of deficit in recent years with the market in a 311,000t surplus last year, according to metals consultancy CRU.

By Anna Stablum, Reuters