Grupo Mexico Sees Copper Prices Rising on Demand From China

May 24 (Bloomberg) -- Grupo Mexico SAB, the largest mining company in Mexico, sees copper prices extending their recovery amid "very strong demand from China."

"In May, we expect an extremely good copper import demand from China," Chief Financial Officer Daniel Muniz said in an interview May 21. Possible Chinese monetary policy changes "will not impact Chinese copper demand," he said.

Demand from China, the largest consumer of the metal used in power cables and electrical wire, has helped copper prices to more than double since 2004. The metal's production will remain weak, Muniz said.

There are only a few copper developments "and these are facing increased regulations, labor challenges," Muniz said in a conference room with a copper-colored ceiling at the company headquarters in Mexico City. "Most of the copper companies will be pleased if they can keep their production level."

Copper has dropped 8.5 percent this year, partly on concerns that China's government will act to cool its economy and damp metal demand. On May 20, the price touched $2.9005, the lowest level since Feb. 9, as global equities tumbled.

Muniz said there will be a copper deficit this year, without elaborating. "Inventories keep falling," he said. "The inventories are very low in respect of global demand."

Inventories monitored by the Shanghai Futures Exchange dropped for a third straight week, the longest slide since October. China imported 309,772 metric tons last month, the second-biggest amount since June, the government said.

No Hedges

"In order to be congruent with our positive vision, we're not hedging this year," Muniz said. "We believe there are very strong fundamentals to support the price."

In 2008, Grupo Mexico hedged about 35 percent of its copper production. The Mexican company didn't buy any copper hedges last year. Companies hedge against fluctuations in prices for commodities.

Copper futures for July delivery climbed 11.65 cents, or 4 percent on May 21, to $3.061 a pound on the Comex in New York, the biggest gain for a most-active contract since Feb. 16.

He said the company forecasts the price of copper to rise above $3.25 a pound this year.