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CESCO: INTERVIEW: Chinese hedge funds driving

copper price volatility - Anglo American copper ceo
April 17, 2015 - 01:25 GMT Location: Santiago, Chile
KEYWORDS: Copper , Anglo American , Chinese hedge funds , CESCO
Chinese hedge funds will continue to drive volatility in the copper market for at least the next two years,
according to the head of copper at Anglo American.
Noting the dramatic influence on prices that Chinese hedge funds have had on copper over the past six to twelve
months, Hennie Faul said that it has become even more important for producers to be low-cost and agile.

"We see quite a lot of volatility in the copper market over the next two to three years, based on the big
involvement of the Chinese hedge funds. This causes price volatility, and we need to be agile to adapt to and be
able to go through any spikes that we see, as there is certainly a lot more short term volatility in copper than
we've ever seen in the past," he told Metal Bulletin.

"We have to make ourselves agile in order to be able to weather a certain price fluctuation. We believe there
can still be further downside even this year in the price, driven by Chinese speculative moves rather than the
fundamentals, and we also believe the market [price] can come back this year," he said.

"So there's still volatility this year and next, although I'm not too sure whether it'll last two years or three. But
certainly speculation is going to play a bigger role going forward," he added.

Faul, who has run the copper business for London-listed Anglo American since October 2013, said the company
had debated whether the activity of the Chinese funds was linked to the purchasing patterns of China's State
Reserve Bureau (SRB), but concluded that it was impossible to know.

Ultimately, however, he said the underlying fundamentals would win through, particularly given expectations for
an increasingly tight market going forward.

Currently, the copper market is in a small surplus, although its exact size is difficult to determine, Faul said.

"My view is that it's not a big supply surplus - but there is some surplus and again, we don't know if the SRB is
holding stocks, we don't know if anyone is holding stocks - this is quite a black box and it's difficult to determine,"
he said.

"But we believe there's not a huge oversupply in the market, and we believe that this will move in the next two to
three years into a supply deficit," he added.

Speaking in an interview during the annual CESCO industry week in Santiago, Chile, Faul said that a lack of new
projects will help this move into deficit. But perhaps more importantly, the current price is failing to act as an
incentive to companies or investors, he noted.

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"Based on where the copper price is now, there is some indecision to approve projects, or decisions to put
projects that you can put back on the rack for a time when the copper price picks up," he said.

"Particularly for people executing big projects right now, it must be a strain on the balance sheet on existing
operations; so approving future ones is just a tougher decision to make and you need to prioritise much more on
where you're going to spend your capital," he added.

Anglo American is undergoing a rigorous overhaul of its projects in a drive to focus on costs and productivity, a
programme of alignment that has come at exactly the right time for the company's copper division: "It's flowing
through at the right time, when we are all faced with severe price scenarios," Faul said.

"We may be in a lower price scenario for copper but we have been spared a bit if you compare the price decline
with that facing coal and iron ore. This is just a good opportunity for us to further reinforce what we started last
year, which was a focus on cost and productivity. I see this as a really good opportunity to continue the
relentless focus on productivity," he added.

He remains confident that China will continue to play a vital role in demand growth, even though the country's
own internal growth engine has slowed.

"The short-term picture is volatility, and we don't know how that will play out on a month-to-month basis. But
looking two to three years ahead, even based on a slow growth in China, that demand will still be there," he
added.

There are few bright lights elsewhere, however; Faul said the US economy is "crawling back" at a slow but
steady rate, while the company "doesn't bank on Europe playing a major role" in copper demand right now.

In India, meanwhile, Faul said the new government will help create growth and eventually drive copper demand
through infrastructure and other development programmes. "India is not as organised as China but will play a role
going forward," he noted.

"These countries and regions are all players in copper, but there's not one of them that is currently a standout to
us. Obviously China is still one of the big players, but standing out as something to take exceptional note of?
No," he said.

Andrea Hotter
ahotter@metalbulletin.com
Twitter: @andreahotter

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