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Plateauing Peruvian copper production seen as new normal

Fast-paced growth in Peru's copper output, which stalled in the past couple of years after a surge in the early to mid-2010s, is unlikely to return with no major new mines expected to come online until 2022 and the subsequent project pipeline looking light, analysts say.

The country's copper production climbed from about 1.19 million tonnes of copper in 2011 to about 2.39 Mt in 2017, according to S&P Global Market Intelligence data. Growth from new mines, such as MMG Ltd.'s majority-owned Las Bambas copper mine, a US$10 billion development commissioned in early 2016, and Chinalco's Toromocho copper mine that achieved commercial production in 2015, transformed Peru into the world's second largest copper-producing country after Chile as of 2017.

But production from Peru plateaued in the past couple of years, with output dropping slightly in 2018 over 2017 to an estimated 2.33 Mt. The fall came as first-quarter output from Las Bambas faltered, down about 10% year over year after locals blocked a road to the mine and instability in an open pit wall curbed access to ore.

Analysts expect Peruvian output to recover somewhat in 2019, but do not see strong growth in the cards. S&P Global Market Intelligence copper analyst Keval Dhokia recently estimated Peru output will grow 5.1% in 2019 to 2.49 Mt, 1.4% in 2020 to about 2.53 Mt and 4% in 2021 to about 2.63 Mt. The 2019 estimate puts Peru's output at about the same level as 2017 output.

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Without major mines coming online in the next few years, BMO Capital Markets analyst Colin Hamilton sees Peru's copper growth as stagnating. "Overall we have things more or less flat," he told S&P Global Market Intelligence. "There are no big projects coming through at the moment, after the surge from Las Bambas, Toromocho, etc."

Analysts say Peru output this year may grow moderately with production from Las Bambas recovering after a rocky 2018 as well as new copper output from Southern Copper Corp.'s Toquepala copper mine expansion. But beyond that the pipeline is thin.

"We expect to see growth continue, but not at the same pace," Bernstein Research analyst Paul Gait told S&P Global Market Intelligence. "At the same time, depletion will start to become a headwind for Peru in the same way as it is for Chile. The larger the output the greater the depletion rate and the harder you have to work just to stand still."

The next sizable copper mine set to come online in Peru is not expected to begin production until 2022, when Anglo American PLC's Quellaveco joint venture is slated to start ramping up annual production to more than 100,000 tonnes of copper in concentrate. Beyond that, analysts see little copper growth on the horizon for Peru.

Peru's lack of growth mirrors expectations for the broader copper market, with analysts anticipating deficits with few beefy projects in the works. "With only a handful of new mines in construction through the next three to five years, the industry requires further investment in projects with completed feasibility studies," Dhokia recently noted.