Codelco CEO: Euro-Zone Woes May Create Copper Price Volatility

NEW YORK (Dow Jones)--Euro-zone debt concerns may create volatility in copper prices but any fears will likely be short-lived, according to the chief executive of Chile's state-owned producer Codelco in an interview Wednesday. Diego Hernandez told Dow Jones Newswires that the medium- to longer-term outlook for copper "looks healthy," although he said European debt fears could slow economic growth. "The fundamentals for copper are there in terms of supply demand, with not too much copper coming to the market in the medium-to-long-term and new projects needing a relatively high price to be feasible," he said.

"Of course, Europe's economic issues could affect the world economy in general, and could affect us (Codelco). If they worsen I do see some volatility but that should be related to the volatility in the world markets in general and not specific just to our industry," he added. Diego said he is "quite optimistic in the long term but quite cautious in the short term." Question marks over growth in China, the world's biggest copper consumer, are also overplayed, he said.

"We've had the same issues and concerns about China before and ultimately they didn't happen," Hernandez said. "This doesn't mean that it won't but I think if something does happen [to slow Chinese demand for copper] then it'll be in the short term before it [demand] comes back to normal. If just part of the China story happens, it's good enough for the copper industry," he added.

Hernandez, who joined Codelco in May from BHP Billiton PLC (BHP), said that data surrounding China is difficult to source, and that a new development there is the stockpiling of metal for investment purposes. "In China we're seeing some stockpiling, as investors--not the government, but industry or individuals--want to stock raw materials and won't destock unless they recover the value of their investment," he said. "It's difficult to guess how big these stockpiles are for copper, but there's a little of this happening for sure," he added.

The price of copper, an industrial metal used in housing and construction, has more than doubled since the economic downturn crimped demand. Prices soared through 2009 and this continued in 2010, although euro-zone fears have damped sentiment of late. Copper is currently trading around $7,000 a metric ton on the London Metal Exchange.

According to Hernandez, a consensual copper price of around $2 a pound to $2.20 a pound is about right for the market in the long term. "Projects need this kind of price as a floor for development now. If we have to respond to additional demand, it will need a higher long-term price," he said.

"The old floor of around $1.20-$1.50 a pound is unrealistically low," he added.