U.S. mining equipment manufacturer Caterpillar Inc (CAT.N: Quote) said on Tuesday its largest customers are looking for a return to growth in the mining industry in the next 18 months and view the price of copper as a key indicator of a turnaround.
U.S. copper futures on the New York Mercantile Exchange's COMEX division have risen from $1.38 per lb at the start of 2009 to current levels above $1.65 a lb.
When copper sinks below $1.10 a lb, more miners shut some operations completely, and copper at $1.40 serves as a break-even level for many producers.
It's really the copper price that we watch, Chris Curfman, president of Caterpillar's global mining division, told the Reuters Global Mining and Steel Summit. At $2.00 (a lb), I'd go on a camping trip. But it's got to get up to $1.80. Once I see that level I'll feel really comfortable.
Curfman said Caterpillar is close enough to the big copper producers to see at what price level they would become active again, and $1.60 a lb seemed a threshold prompting some miners to put idle equipment back to work.
When copper went to $1.65 (per lb) last week, (Freeport's) Bagdad copper mine put their trucks, which were parked, back in the dirt. He said copper at $1.65 isn't all bad, depending on the ore quality.
While some mining customers seem convinced that copper will slide as low as 90 cents, Curfman thinks demand from China and other infrastructure-building countries will keep the price from falling much further than its recent four-year low around $1.27 a lb.
If you talk to the copper producers, they think that because of China and India and the urbanization process, copper is going to come back. It's just a matter of how quickly, he said.
Given the rapid downturn in metals mining recently, the Peoria, Illinois-based heavy equipment manufacturer was hit with an onslaught of delays and cancellations.
Though he declined to put a number on cancellations, Curfman said they were substantial in North America and Australia as well as emerging markets where greenfield projects were not being funded over the next year to 18 months.
But he said Caterpillar has several thousand delayed customer orders. Where possible, customers opted to delay rather than cancel for fear of losing their place in the queue when the industry does turns around.
It's simply a delay, because a lot of people think this thing is going to bounce right back up, Curfman said.
With mine plans running 10 to 20 years, some of Caterpillar's largest customers, like BHP Billiton (BHP.AX: Quote, Profile, Research, Stock Buzz) (BLT.L: Quote, Profile, Research, Stock Buzz) and Newmont Mining (NEM.N: Quote, Profile, Research, Stock Buzz), are expecting 18-month delays on some mine projects and remain optimistic longer-term.
We are seeing some cancellations. We are seeing a clump of orders still being sat on by most of our big alliances. They are reluctant to cancel for fear of losing their position on the order board, which are out 2010, 2011, 2012, he said.
We're still negotiating with the big guys and still doing deals, but for delayed activity.
Still other customers are adding new orders, mostly among gold miners in Latin American, he said.
(Additional reporting by Matt Daily, Cameron French, James Kelleher, Steve James, editing by Matthew Lewis)
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