Xstrata sees phenomenal demand for commodities like copper

Charlie Sartain, chief executive for copper at Xstrata, one of the world’s largest mining companies, said the growth in Chinese demand for all commodities was “just phenomenal,” and prices may rise for the next few years as a result.

Demand for copper in China may increase 8 percent to 10 percent this year compared with last year, Sartain said. “We do see, across all commodities, phenomenal growth,” he said.

China, the world’s fastest-growing major economy, has spurred a five-year rally in commodity prices as manufacturers use more steel, nickel and tin. The price of copper on the London Metal Exchange rose to a record $8,800 a ton last May. China is the world’s largest user of copper.

The “Chinese economy will keep growing strongly and so will commodities demand, including copper,” said Chen Yue, an analyst at Guotai Junan Securities in Shenzhen. “We are bullish on copper prices for the next few years.”

Demand for copper, which is used in pipes and wires, was also rising in the Middle East and Europe, especially Germany, Sartain said.

“The other part of the equation is supply, and over the last two to three years, we’ve seen the increase in supply has been significantly lower than the market was expecting,” he said.

“China’s industrial growth is just spectacular,” Sartain said. Output in the country rose 18.5 percent in January and February, the National Bureau of Statistics said March 15, beating the 15 percent median estimate of 20 economists surveyed by Bloomberg News. Output gained 14.7 percent in December.

Sartain’s comments are the latest in a series of remarks from mining executives about the resilience of the growth in demand for commodities in the world’s most populous country.

Bret Clayton, head of copper at Rio Tinto Group, another of the world’s largest mining companies, said last week that Chinese economic growth was “absolutely mind-boggling.” Josã© Pablo Arellano, executive president of Codelco, the world’s largest copper company, said last month that there was “unimaginable” new construction in the country. Richard Adkerson, chief executive of Freeport-McMoRan Copper & Gold, the world’s second-biggest copper producer, said last week that the Chinese economy was “going strong.”

The Chinese economy grew 10.7 percent in 2006, the fastest pace in 11 years. The rate of growth would slow to 10 percent this year, the central bank’s research bureau forecast in a report published in the China Securities Journal last week. Prime Minister Wen Jiabao last month set a target of 8 percent for growth in 2007.

Anhui Tongue Copper Stock, the listed arm of the biggest copper maker in China, said March 14 that it expected global economic growth to keep copper prices “at high levels” this year. Sales in China would grow more than 5 percent to exceed four million tons in 2007 because of higher demand from the power, cable and wire and automobile industries, the company said.

Still, the increases in demand and commodity prices were contributing to a surge in costs faced by miners, Sartain said.

Information from: www.iht.com