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Will copper remain profitable for BHP and Rio?

Copper has seen its largest rise in three weeks, aided by stronger than expected economic data being released by China, however, analysts are expecting that those gains will only be short-lived.

The commodity rose 2% to US $7,238 per tonne on the London Metals Exchange on Tuesday following the release of the Chinese purchase managers’ index (PMI) data, however, with the globe producing more and more copper, supply should soon be in surplus.

For instance, according to estimates by Barclays, Chinese producers will increase their production to 7.68 million tonnes next year, which represents an increase of 14%. Meanwhile, Australia’s mining heavyweights BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) have contributed around 3.4 million tonnes of the refined metal to the global supply chain since 2003.

In BHP’s full-year report released last month, the miner stated that copper production from its Escondida project in Chile had increased by 28% for the year.

According to The Australian Financial Review, copper gained more than 13% over the last month.

Foolish takeaway

Like other commodities, copper has risen substantially in recent times, but as producers around the world ramp up their supply, a downwards pressure will be applied to the price, making production less profitable. As such, companies will need to continue to focus on cutting costs to make mining the commodity worthwhile.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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