Xstrata Says China Commodity Demand Is `Phenomenal’

Global growth – you gotta love it!  It is the basis on my investment strategy.

Source: Bloomberg 

By Luzi Ann Javier and Xiao Yu

April 2 (Bloomberg) — Charlie Sartain, chief executive for copper at Xstrata Plc, the world’s fifth-largest miner, said the growth in China’s demand for all commodities “is just phenomenal,” and prices may rise for the next few years.

Demand for copper in the Asian country may increase 8 percent to 10 percent this year compared with 2006, Sartain said in an interview in Manila. “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 the metal.

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

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

Three-month copper futures in London, which have advanced 22 percent over the past 12 months, traded at $6,860 a ton at 4:40 p.m. Manila time today. Shares in Zug, Switzerland-based Xstrata, which gained 51 percent in the year to March 30, fell 9 pence, or 0.3 percent, to 2,603 pence at 9:42 a.m. London time.

“Just Spectacular’

“China’s industrial growth is just spectacular,” said Sartain. 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, the world’s third-largest miner, said on March 27 that China’s economic growth was “absolutely mind-boggling.” Codelco Executive President Jose Pablo Arellano, who runs the world’s largest copper company, said March 22 that there was “unimaginable” new construction in the country. Richard Adkerson, chief executive officer of Freeport-McMoRan Copper & Gold Inc., the world’s second-biggest copper producer, said March 29 that the Chinese economy “is going strong.”

Economic Growth

The nation’s economy expanded 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 on March 30. Premier Wen Jiabao on March 5 set a target of 8 percent for growth in 2007.

Anhui Tongue Copper Stock Co., the listed arm of China’s biggest maker of the metal, said on March 14 it expects global economic growth to keep copper prices “at high levels” this year. Sales in China will grow more than 5 percent to exceed 4 million tons in 2007 because of higher demand from the power, cable and wire and automobile industries, the company said.

`Costs Concern’

Still, the increases in demand and commodity prices were contributing toward a surge in costs faced by miners, Sartain said, without giving a forecast for the company’s costs this year. “It’s a concern for the whole industry,” he said. Xstrata has “been managing units costs very effectively.”

The company, 35 percent-owned by Swiss commodity trader Glencore International AG, said March 6 full-year profit rose 14 percent to a record $1.95 billion on a consolidated basis.

Sartain was among executives from Xstrata who met today with Angelo Reyes, the Philippines natural resources secretary. Xstrata assumed management control March 30 over the development of Tampakan, the Southeast Asian nation’s largest untapped copper and gold deposit.

Tampakan will produce an average of 540,000 tons of copper concentrate, containing 40 percent copper, and 10 grams of gold a ton, each year from 2011, Indophil Resources NL Managing Director Tony Robbins said on March 29. Indophil, based in Melbourne, is Xstrata’s partner on the venture, which is located in the southern province of South Cotabato.

To contact the reporters for this story: Luzi Ann Javier in Manila at