The global copper-mining industry needs to expand to new regions if producers are to bring supply back into line with unprecedented demand, according to a mining- studies group in Chile, the world’s largest producer.

So far, the industry’s reaction to record prices has been slow because of declining ore grades, the need for deeper mines and higher costs, Juan Carlos Guajardo, executive director of the Center for Copper & Mining Studies, said yesterday.

The global copper market faces a 377,000 metric ton deficit this year, according to the International Copper Study Group, as demand, led by China and other emerging markets, outpaces supply. Copper futures in London surged to an all-time high in February.

“Since mining is a long-term industry, more time is needed to reach a new equilibrium in the copper market,” said Guajardo, speaking at a Shanghai Futures Exchange conference. By 2015, a further 2.1 million tons of capacity is needed, he said.

Copper for delivery in three months on the London Metal Exchange climbed to a record of $10,190 a ton on Feb. 15 after gaining 30 percent last year and more than doubling in 2009. The contract for three-month delivery closed at $9,199 a ton on May 27, rallying 2 percent after Chinese stockpiles dropped.

Guajardo’s assessment is similar to the outlook from Rio Tinto Group, the third-largest mining company. New supply is particularly dependent on opening up so-called greenfield projects and is moving to higher-risk regions, Matthew Holcz, general manager of business development at the London-based company’s copper unit, said in an October 2010 presentation.

China’s Growth

Copper is used in pipes and wires. Demand has jumped as China builds more infrastructure and emerging-market consumers buy more appliances. Demand from China’s power industry may expand 5 percent this year, while transport-industry use may grow as much as 10 percent, Mark Loveitt, secretary-general of the International Wrought Copper Council, said at the conference.

There have been “significant production disappointments” in the global copper industry over the past five years driven by falling ore grades, power and water shortages, strikes and extreme weather events, UBS AG said in a report on May 18. As a result, mining companies are targeting mergers and acquisitions rather than developing new sites, the report said.

“Exploration is the most relevant way, but it takes time, while the maximization of current capacity is limited,” said the Center for Copper’s Guajardo.

Chile’s Outlook

Copper prices are expected to remain high even if China’s economy slows, Chile’s President Sebastian Pinera said in an interview with Bloomberg Television on May 25. While economic growth in China may slow to 7 percent to 9 percent, that would still be enough to keep commodity prices high for “a very long period of time,” Pinera said.

“China’s emergence as a major consumer of copper, most of which is imported, is now the major swing factor in the copper market, as is the issue of how fast supply additions can come into the market,” the UBS report said.

Kazakhmys Plc (KAZ), the biggest Kazakh copper company, said May 4 that its first-quarter production of finished copper fell from a year earlier on lower ore grades. A day earlier, Boliden AB (BOL) reported lower copper output. Codelco, the world’s biggest producer, said May 3 output at its largest mine will drop “strongly” during conversion into a subsurface operation.

“The market has been reminded about how tight the supply side looks for copper,” said Gayle Berry, an analyst at Barclays Capital in London. “The Q1 production results for a number of copper miners underperformed people’s bleak expectations. It does further illustrate how tight the raw materials market is for copper.”

Copper in London may rise this week after the mining companies’ comments on production, according to a Bloomberg survey. Seven of 13 analysts, investors and traders questioned by Bloomberg, or 54 percent, said prices will gain this week, while three predicted a drop and three forecast little change.

SHANGHAI – Chinese demand for gold bars and coins as private investments could push bullion imports above 400 tons in 2011, the leading global consultancy GFMS said on Friday.

Increased appetite for silver investment products too, combined with a forecast 16 percent annual growth in industrial demand, means China’s total silver consumption could outstrip domestic supply this year, said Philip Kalpwijk, executive chairman of GFMS.

“There is a widening demand for silver as an investment in China because of its lower entry point. It is also being increasingly recognized as an physical investment asset, which will support demand,” Kalpwijk told a conference in Shanghai.

The Chinese government does not publish official statistics on gold imports but the World Gold Council said the country produced 340 tons in 2010.

Last year, total consumption was about 700 tons, leaving a gap of around 300 tons made up either by imports or sales of existing stocks.

The surge in imports, which jumped fivefold last year, has turned China, already the largest bullion miner, into a major overseas buyer. GFMS forecasts imply that imports will continue to grow at a robust pace despite high gold prices.

The explosive demand has been stoked by concerns about inflation and poor returns in the stocks and property sectors. It also been aided by Beijing’s encouragement of retail consumption, such as expanding the number of banks allowed to import bullion.

GFMS said China’s investment demand for gold could hit 300 tons this year, up from 200 tons in 2009. Investment demand for silver stood at around 260 million tons in 2010, the group said.

China National Gold Group Corp predicted that China’s bullion output could reach 400 tons by 2014, a gain of nearly 19 percent from 2010. Consumption was set to grow by nearly a quarter to 700 tons, implying a supply shortfall of about 300 tons in three years.
Demand from China, along with inflation concerns amid a weak dollar, has pushed gold prices to a series of record highs.

Bullion struck a record above $1,575 in early May. Silver touched a record at $49.51 in late April before falling sharply on a broad sell-off in commodities and after exchange operators in Shanghai and New York raised the amount of money required to trade.

Gold’s decade-long price rally could take the metal above $1,600 an ounce by the end of the year, GFMS said.

The investment frenzy in China has also led to booming trading volumes in the spot and forward markets on the Shanghai Gold Exchange (SGE), said the exchange’s president Wang Zhe.

Total gold traded on the exchange rose 28.5 percent from a year ago to 6,051.5 tons in 2010, while the total turnover jumped 57 percent. The trading volume for silver was 73,615 tons in 2010, a meteoric 353 percent rise from a year ago, Wang told a conference on Thursday.

The SGE, China’s only specialized precious metals exchange, started a trial of over-the-counter trading in April and is studying ways of establishing a platform to provide open gold lease rates in China.

China National Gold Group’s President Sun Zhaoxue said Beijing’s move to consolidate the gold-mining sector, improve technology and encourage exploration at depths exceeding 1,000 metres would combine to boost underground reserves and output.

China’s gold output in the first three months of 2011 totaled 73.4 tons, up 4.6 pct from the same period in 2010, the Ministry of Industry and Information Technology said.

Chinese gold demand could rise over 22 percent in the next three years and sharply outpace domestic production, the head of the country’s largest state-owned gold miner China National Gold Group said on Thursday, signalling room for a strong ramp up in imports.

Gold production should reach 400 tonnes by 2014, a gain of nearly 19 percent from 2010, but consumption is set to grow by nearly a quarter to 700 tonnes, Sun Zhaoxue, president of the group, told reporters at the sidelines of a conference in Shanghai.

“I’m very optimistic about the future of China’s gold market,” Sun said.

China produced 340 tonnes of gold in 2010 and investors locally bought 571.5 tonnes, according to official data, for a gap of 231.5 tonnes made up by either imports or sales of existing stocks.

The proportion of imports is not available because China doesn’t regularly publish gold-trade figures and rarely comments on its reserves.

China has seen a spike in demand for gold and silver since late last year as investors looked to precious metals over stocks, property and savings.

India remains the world’s largest gold buyer, but China is closing in and from a low base with room to grow quickly as income rise, Sun said, noting gold buying per capita stood at just 4 grams, much lower than other industrialised nations.

In April, Shanghai Gold Exchange, China’s only specialty precious metals exchange, started a trial for over-the-counter trading, providing an easier tool for institutional clients to trade large quantities of gold.

Sun said Beijing’s move to consolidate the gold mining sector, improve technology and encourage exploration at depths exceeding 1,000 metres would combine to boost the country’s underground reserves and output over the coming years.

China’s gold output in the first three months of 2011 totalled 73.4 tonnes, up 4.6 pct from the same months of 2010, the Ministry of Industry and Information Technology said.

Gold’s decade-long price rally could take the metal above $1,600 an ounce by year-end, metals consultancy GFMS said in a widely anticipated industry report as investors’ appetite for gold sharpens further.

Separately, Sun said the group was still considering whether to inject its copper assets into its Shanghai-listed China Zhongjin Gold.

“Some don’t support the idea of an injection. We are the fifth-largest copper producer in China and they think it may be better to spin off our copper assets,” Sun said, adding the firm was also in talks with regulators on the subject.