As copper prices oscillate between US$1.95/lb and US$2.31/lb in recent months and following a four-year slide from over US$4.50 lb in 2011, miners are cutting costs and fighting to survive until predicted price improvements take hold toward decade end. Despite a US$2.08/lb closing price last Friday few miners are cutting production. Instead, their strategy is to defer expenditures, trim staff and maximize production grades wherever possible. The consensus thinking is to survive over the next few years until improved demand ushers in better times. Realistically, companies deciding to shutter a mine face devastating financial and political consequences. The recently issued annual ‘GFMS Copper Survey 2016’ (GFMS), predicts that production will grow in the next few years, albeit at a slower pace than in the recent past, as miners continue to deliver on investments made during the super-cycle years. World copper mine production was up 3.5% in 2015, compared with a 2.1% rise in 2014. Lingering hopes of significant output cuts to offset slower demand growth from top consumer China, which consumed 45% of supply last year, were dashed this week. Delegates at the 15th annual gathering of the copper industry elite in Chile have come to the conclusion that a focus on cutting costs to survive low prices will dominate the agenda for some time. Analysts at GFMS expect lower Chinese demand growth – as the country transitions to a more consumer-based economy – to continue downward price pressure in 2016 for the fifth consecutive year. At today’s copper price of US$2.08/lb ($4586 tonne) and using the 2015 global cost curve, about 50% of global miners are making money on a total cost basis while about 20% are losing money on a cash cost basis. Moderating demand growth and the supply overhang will cause surpluses for the next few years. Following last year's 363,000 tonne and GFMS’s predicted 150,000 tonne surpluses in 2016 and 2017, analysts at the CRU Group also foresee surpluses extending through 2018, followed by a strong supply deficit by 2020. World mine production surges in the last three years are at odds with a decline in Chinese output to 1.66 Mt in 2015, which accounted for 8.7% of global supply of just over 19 million tonnes last year. After a 28% production surge in 2015 predicted to continue this year as the giant Las Bambas mine ramps up production, Peru is set to knock China out of the number two spot behind Chile, the world’s largest producer. Chile's State copper miner Codelco is slashing spending by $6-billion over the next five years in response to low prices and lower demand growth from China. Nelson Pizarro, chief executive, restated on Tuesday that the company was aiming to reduce costs further to $1.26 a pound this year, having reduced them to $1.39 a pound last year. While top miners such as Anglo American plc. and Glencore plc. are selling iron ore, coal and agricultural assets to pay down debt amid a rout in commodity prices, they are reluctant to part with their best copper resources. That’s because it’s one of the few metals expected to be in shortage by the end of this decade as cooling investment means not enough mines are built. One obstacle for copper asset buyers is that even indebted miners want to hold onto what has become the crown jewel of industrial metals. Anglo American, the first major London-based miner cut to a junk rating by credit-assessment companies, insists it will hold on to the giant Los Bronces and Collahuasi copper mines. Referring to mines in the upper end of production costs and if low price volatility continues, Nelson Pizarro, CEO of Codelco said, “I don’t think those in the third or fourth quartile are going to be able to survive this period of volatility”. While the world’s miners appear to have a consensus about the way forward and are practically locked into production moderation and cost cutting, copper metal inventory continues to overhang the market. Of particular concern is finished metal inventory in China rumoured to be in the order of one million tonnes in all categories. Responsible disposition of that surplus is essential to avoid further price impact. (Written by: Peter Jones, Executive Vice President, Century Global Commodities Corporation)