Freeport copper expansion not good news: Analysts

Freeport copper expansion not good news: Analysts

LONDON (Reuters): Plans by Freeport McMoRan Copper & Gold Inc to increase its Indonesian mine's copper output by 43 percent did not bode well for the price of the metal, analysts said on Thursday.

Freeport announced earlier on Thursday that it would "hunker down and go" and bring forward production increases at its Grasberg operation in Indonesia due to current market conditions.

The company said it expected to sell 770,000 tons of copper this year, a huge increase on 1997 sales of 535,000 tons and first quarter estimates of 594,000 tons.

Freeport originally intended to increase production to over 700,000 tons only in a couple of years' time.

Metals analyst Nick Moore of Flemings Global Mining Group said Freeport's plans did not spell good news for the copper price.

"Once this thing comes on stream and it is even bigger than we saw, and the Collahuasi mine. This cannot be construed as good news in any shape or form for the copper outlook," Moore said.

Chile's giant Collahuasi copper mine is 60 percent completed and the mine will reach maximum capacity in 1999, producing 380,000 tons of contained copper a year.

The London Metal Exchange price of copper moved higher on Thursday on the back of production cutbacks announced earlier in the day by Boliden and Asarco totaling around 40,000 tons.

The LME's flagship three-month copper contract was last trading at US$1,826 on the exchange's floor from the Wednesday's close at $1,782.

But Moore said the increase was just a small rally.

"We are talking of a two to three year bear market for copper. This is nothing more than a small rally in a downtrend and there will be more tears before bedtime, particularly in the second half of the year," he said.

Analysts said the planned (McMoran) increase would wipe out much of the output cuts already announced by producers under pressure by already low prices.

"This is a huge rise which wipes out most of the production cuts announced so far. What's more it would appear that the increase will be immediate whereas some of the (production) cuts will be phased in," said Billiton Metals Ltd analyst Angus MacMillan.

In a market report at the start of this week researchers at Macquarie Equities estimated total output cuts to have reached 218,000 tons.

MacMillan said the market did not immediately respond to the Freeport news because it was not entirely driven by fundamentals.

He said news of the movement of metal to China was at the forefront at the moment and there had been a lot of fund short- covering.

But he said once this was out of the way, the market may take a fresh look at the situation.

The LME's benchmark three-month copper contract has fallen more than 30 percent in the last nine months as a result of increased production in the U.S. and South America and weakening demand in Asia.