Tuesday, November 4, 2008

Teck sees 'softening' copper, zinc demand from China

By: Liezel Hill, 23rd October 2008

TORONTO (miningweekly.com) – Chinese demand for copper and zinc metal is “softening”, Teck Cominco base-metals marketing VP Andrew Stonkus said on Thursday.

Vancouver-based Teck posted third-quarter net earnings of C$424-million on Thursday, 13,4% lower than a year earlier, after lower copper and zinc prices took their toll on profits.

Further, if spot prices for base metals remain at current depressed levels throughout the fourth quarter, the group estimates that it would have to make negative pricing adjustments of about $150-million after tax, CFO Ron Millos told analysts and investors.

Copper sunk to a three-year low on Thursday, to $3 815/t, while zinc was trading as low as $1 076/t at one point in the day, as global financial turmoil and recession fears spur uncertainty over ongoing demand for industrial metals.

Nonetheless, Stonkus said that demand for imports of copper and zinc concentrate in China, the world's biggest metals consumer, remained generally “robust”.

COAL PRICING

With regard to Teck's coal business, metallurgical coal VP Boyd Payne said that he did not expect prices to come under pressure in the short to medium term.

“I think what we are going to see this year is more segmentation by quality in the market,” he commented.

“I think the lesser qualities [of coal] will come under some pressure, but the we are operating globally at maximum on the high-quality side. So there are still difficulties there keeping enough product in the market.”

He conceded that the group did expect to see limited effects of a series of steel plant closures announced in recent weeks, but would “just have to see how it plays out over the next six months”.

Payne said that he did not expect the next round of metallurgical coal contract negotiations to begin until November or December.

“I would guess that if I was a buyer right now, I wouldn't be in a hurry.”

Teck's revenue from its coal business leapt 171,5% year-on-year in the third quarter of 2008, to C$600-million.

The group is in the process of buying the assets of Fording Canadian Coal Trust, in a move to dilute its exposure to zinc, and expects the transaction to close on October 30, CEO Don Lindsay said on Thursday.

Teck announced in July that it would offer $82,00 in cash and 0,245 of a Teck Cominco class B subordinate share for every Fording unit, in a deal that would make it North America's biggest exporter of metallurgical coal, and the second-largest in the world.

When the deal was announced, Fording owned 60% of the Elk Valley Coal Partnership, while Teck owned the remaining 40% of Elk Valley and was the operator of the partnership, as well as already holding just under 20% of Fording Canadian Coal.