Brazil Readies New Copper Mines as Demand Grows

Brazilian copper output is set to more than double in three years, metal the market will welcome at a time of fast-growing domestic demand and tighter global supplies that have driven up prices.

Though a top player in iron ore exports, Brazil ranked just 21st among copper producing countries in 2009.

That is about to change. A host of new mines should boost annual output to around 500,000 tonnes by 2014 up from 230,000 tonnes last year, or about 1.5 percent of world supply.

The increase could make Brazil part of the solution to tight supplies on the world copper market, with production in coming years set to outgrow strong domestic demand.

From hot water pipes to power lines, Brazil's construction industry is gobbling up copper products as it builds homes for an emerging middle class and prepares the country to host the 2014 soccer World Cup and 2016 Olympic Games.

"It's not just expansion in infrastructure and civil construction, there is the extension of the power grid and more sales of durable goods and cars with increased access to credit," said Brasilia-based mining consultant Luciano Borges, a former secretary at the mining ministry.

Most member companies in the association of copper product makers, or Sindicel, said in a recent survey they expected demand to rise more than 10 percent this year.

"If these forecasts are confirmed, we'll have a good year," said Sindicel president Sergio Aredes.

Brazil's GDP grew an estimated 7.5 percent last year and analysts see growth around 4 percent in 2011 due to higher interest rates and massive budget cuts. Imports of finished copper products soared 56 percent last year to $944 million while exports of raw copper rose by around a quarter.

Brazil is expected to become nominally self sufficient this year and generate copper surpluses in subsequent years.

"SMALL CHINA"

Brazil's biggest copper miner, Vale (VALE5.SA)(VALE.N) will add 127,000 tonnes annually to Brazil's output with the Salobo I mine opening in the second half of 2011. It is located near Vale's biggest iron ore mine in the northern state of Para.

A second phase opening in 2013 will add the same amount again.

Several other small Vale projects will contribute nearly 150,000 tonnes in total by 2015 and a further 30,000 tonnes will be added by local miner Caraiba Mineracao's Boa Esperanca mine, due to open in 2014.

Brazil's national mining department says higher copper prices have renewed interest in deposits previously dismissed as not viable.

Of all the new copper projects and mine expansions set to begin producing worldwide in the next two or three years, 60 percent of these supplies will come from Latin America.

LME copper prices CMCU3 soared 260 percent from a December 2008 low to a record high of $10,190 a tonne in February but have eased to around $9,600 since at the London Metal Exchange.

Codelco [CODEL.UL], the biggest miner in top world copper producer Chile, is exploring two copper deposits in Brazil and sees the country as a firm source of future demand.

"Brazil could be a sort of a small China in the region because of its steady growth and expansion of the middle class in coming years," Chilean miner Codelco's CEO Diego Hernandez told Reuters during the CESCO/CRU copper conference in Chile this week.

In anticipation of continued demand growth, Brazil's main copper refiner and cathode producer Paranapanema (PMAM3.SA), based in the northeastern state of Bahia, is investing 290 million reais ($180 million) to raise refining capacity to 280,000 tonnes per year from 230,000 tonnes currently.

Higher copper prices have made business tougher for Brazil's copper products manufacturers, on top of a local currency widely perceived as over-valued that is raising competition from imports.

"We can't pass this price rise on to the market quickly enough, which means smaller margins for the industry," Sindicel's Aredes said.