Rio Tinto and BHPBilliton are amassing vast copper holdings in a push tocapture a greater chunk of the $140 billion world market,apparently aiming to squeeze out high-cost producers just asthey did in the global iron ore business.
Separately and in joint ventures, Rio and BHP intend to mine millions of additional tonnes of copper,despite seeing an oversupplied market for the next few years.
“For both companies, this is about wielding the greatestinfluence possible over the global marketplace,” said GavinWendt, senior resources analyst for Sydney-based consultantsMineLife.
“Having said that, unlike in the highly concentrated ironore space where the focus is squarely on one market owned inlarge part by Rio and BHP – China, copper is sold much morewidely, leaving room for smaller producers to stay in the game,”Wendt said.
Several smaller producers contacted by Reuters declined tocomment, saying it was too early to gauge the impact of theexpansions.
There have been no suggestions that BHP and Rio are workingin concert to seize overriding control of global copper supply.
A worldwide supply surplus of 300,000 tonnes is forecast in2015 by Australia’s Bureau of Resource and Energy Economics, equivalent to half a year’s output by South Korea.
Rio’s copper division head, Jean-Sebastien Jacques, toldinvestors in December a shift back to a deficit in the marketwas unlikely before 2018 and that the company was now strivingto “gain a clear advantage” against competitors and “build abusiness model that creates value through the economic cycles”.
BHP sees copper usage growing sharply in the next decade,partly on the back of a shift to renewable energy sourcesrequiring copper-intensive apparatus. The metal has beendesignated a core pillar of growth by BHP’s board.
“The market has been generally cautious for 2015-16, butbeyond that, most are comfortable with the long-term story,”said UBS commodities analyst Daniel Morgan.
While it is unlikely Rio and BHP will hold the same degreeof dominance over copper that they do in iron ore – for theforeseeable future Codelco, Glencore andFreeport McMoran will remain bigger producers – theirinfluence on global supply will be enhanced.
The strategy of mass output introduced this year aimed toflood the world with cheaply mined iron ore and drive pricesdown.
The result in iron ore so far, where Rio and BHP now controlhalf the sea-traded market, has been the elimination of some 125million tonnes of annual capacity – a tenth of world demand – byhigher-cost producers.
The drive in copper could give BHP and Rio an advantage overrival Vale of Brazil, whose exposure to the red metalis less than half that of BHP and Rio and stagnating as itconcentrates on its main iron ore business.
In regions as diverse as North and South America, Australiaand Mongolia, BHP and Rio are digging new mines or expanding oldones, some requiring billions of dollars of investment, othershardly anything.
OBAMA IN LOOP
In Arizona, the jointly owned Resolution project could alonemeet 25 percent of overall U.S. copper demand for decades.
Rio Tinto Chief Executive Sam Walsh went out of his way todiscuss plans to dig the Resolution mine during a meeting withU.S. President Barack Obama during last month’s G20 summit.
“I mentioned to President Obama that the Resolution projectis an important one because copper is going to be in shortsupply. The world is going to need more,” Walsh said in aninterview.
BHP Chief Financial Officer Peter Beaven has said BHP holdsthe largest copper resource base in the world, with manydeposits containing enough metal to run a hundred years or more.
Beaven said $4 billion in construction work at the Escondidajoint venture with Rio in Chile, plus expansion of the whollyowned Olympic Dam mine in Australia, could yield hundreds ofthousands of additional tonnes of copper annually within a fewyears.
On its own, Escondida will be able to produce 1 milliontonnes of copper a year – nearly 5 percent of world output – forat least a decade, with little ongoing capital costs, Beavensaid.
For its part, Rio Tinto is allocating $6 billion to extendthe Oyu Tolgoi copper mine in Mongolia and is in the earlystages of developing its La Granja mine in Peru, regarded asLatin America’s largest unexploited copper deposit.
Source: Reuters (Editing by Alan Raybould)