Global copper market to see shortage in 2-3 years: Rio Tinto

Global copper markets could flip into a structural shortage within two to three years as demand from power stations makes it the first commodity to come out of a glut, Rio Tinto said. 

PHOTO: BLOOMBERG

SEP 7, 20155:03 PM

[SINGAPORE] Global copper markets could flip into a structural shortage within two to three years as demand from power stations makes it the first commodity to come out of a glut, Rio Tinto said.

Currently prices of several commodities - including oil, natural gas, coal, iron ore and metals - are near lows seen during the financial crisis of 2008-2009, hurt by the combined impact of stronger output and a sharper-than-expected slowdown in key consumer China.

Copper, however, is expected to be the first commodity to shake the glut off, Rio Tinto's chief executive of copper and coal, Jean-Sebastien Jacques, told Reuters on the sidelines of the Financial Times Commodities Retreat in Singapore on Monday.

"Market conditions are challenging but copper is an attractive commodity. In the next 2-3 years we could move into a shortage," he said.

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Tighter supply would help underpin global copper prices that have plunged 20 per cent in the past two years and hit a six-year low of $4,855 per tonne last month. Analysts in a Reuters poll conducted in July forecast an oversupply of 194,000 tonnes this year and 262,500 tonnes next year.

Despite the current oversupply and low prices, Rio Tinto's Jacques reinforced the policy of mining majors of keeping output high in order to squeeze out smaller higher-cost competitors.

"We are in the business of mining for the long run. We need to create revenue. We are getting through the current challenging phase by saving costs through improving efficiency, not by cutting output," he said.

Shares of the miner plunged to A$46.60 ($32.30) last month, the lowest since 2009, and are down 15 per cent so far in 2015.

Anglo-Australian Rio Tinto plans to produce more than 500 million tonnes of copper this year, accounting for about 15 per cent of its total revenues.

Growth in demand for the metal will be primarily driven by the power sector, where it is used as a conductor, Mr Jacques said.

"The power sector is one of the main drivers for copper, but also coal. No matter how much nuclear and renewables are built you will still need coal if you want to provide electricity to everyone," he added. "Despite the current slowdown there is still significant growth potential in China and at some point also in India and Southeast Asia," Mr Jacques said.

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