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It will be interesting to see where Copper goes from here....a break above 3 or a retrace......still holding OZL, watching for a test of 488

and still holding PNA waiting for a higher offer....entered RXM on Friday at .11 for no reason other than it is back above .10 and the

Buy side looks good......the 1 million buyer at .10 seems to have pulled his buy order on close Friday


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  • 6 months later...

speaking at a Bloomberg Summit, Rio Tinto director Megan Clark talked up the prospects for copper, which hit a six-year low this week.


Research by Rio has found that renewables require much more copper than traditional fossil-fuel-based generation.The average wind turbine contains two tonnes of copper for every Megawatt of generation. This compares to about 1.3 tonnes per Megawatt for a coal power station. Even higher copper intensities are seen in nuclear (2.5 tonnes per MW) and solar (6.8 tonnes per MW).


Another green reason to think copper demand will rise in China is the government's edict that China have the capacity to support 4.5 million electric cars by 2020, compared with the current capacity of 500,000.


Copper inventory has fallen to between 800,000 tonnes and 900,000 tonnes, which is only about 13 days of supply to meet global copper consumption.


But beyond the forecasts of copper demand is a more sinister theory for why copper and other commodities have collapsed in price over the past five years. It is all about the financialisation of commodity markets caused by the explosion of investment in the sector using exchange-traded funds.


Twenty years ago commodity derivatives and futures markets were used by industrial and mining companies to manage their long-term contracts and hedge against uncertainties.


But as investors called on investment banks and fund managers to provide liquid vehicles for investing in a broad range of commodities there was a disconnection between physical markets and the derivatives.


Commodity-based exchange-traded funds grew in size to about $US360 billion in 2010-2011. These funds used commodity derivatives to meet their commitments to investors.


This fed into the physical demand for commodities.


But when sentiment towards commodities turned the selling of commodity ETFs had a negative effect on physical demand.


Commodity ETFs have experienced about $US300 billion ($422,000) in selling over the past four years and that has contributed to the route in commodity markets.


Over the past two years the selling of ETFs has coincided with a wave of short selling in China-linked companies. Stocks such as Rio Tinto, BHP Billiton and Glencore have been victims of the negative view of China's economy.

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  • 3 months later...
  • 3 weeks later...

Rio Tinto has a new boss, and he was head of Copper for three years prior to stepping into Sam Walsh's shoes

....the big question for investors is: "What is the outlook for Chinese copper demand?" Jean-Sebastien Jacques is upbeat.


"Looking through the window in Beijing, does it seem like an economy in recession? I can see a lot of cranes in front of me," he jokes. "On a more serious note, there is no doubt that there is a slowdown of the Chinese economy, but the real question is on the underlying growth."


Jacques points to Oyu Tolgoi, Rio's massive copper mine in Mongolia. "It's just across the border. Today I don't have any issues placing material from OT into the Chinese market."


Iron ore and coal have been crucial to the first investment-led phase of China's growth, but copper is key to the second, consumption-led phase that the Asian giant is slowly transitioning to. And, unlike iron ore, it appears the world is a long way from peak copper.


In the 30 years to 2010, world copper demand almost doubled. Since the 1990s, the amount of supply has doubled too. But Rio is betting that there will be a huge shortfall of copper globally in the next decade ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ to the order of six to eight million tonnes.


To put that in context, the biggest copper mine in the world in Escondida, a joint venture in Chile between Rio and BHP, produces about 1 million tonnes a year, and took almost 25 years to reach that level of production.


"We are very bullish about copper in the long term. It's a combination of two things. One is demand on the back of more and more electricity demand going forward, bearing in mind, if you put aside the precious metals, copper is the best conductor in terms of electricity and heat," Jacques says. "And there will be ongoing demand for copper. The real attractiveness of the industry and why everyone is hot on copper ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ is the fact that supply will become very challenging going forward."


Everyone wants tier one copper assets ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ large, low cost, high quality ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ and in stable jurisdictions.


Jacques... says under all the scenarios Rio has run he's "pretty confident" that there will be a deficit, and is tipping 2018-2019 as the turning point."Rio always works with different scenarios. We always move back to a deficit (in the planning)," he says. He also argues that not many big miners have the balance sheet to pull off the copper deals they want to do.


"The point is everyone would like to invest in copper but the truth is that the pipeline is not that big ...I'm not sure everybody has many options to invest. "Clearly copper is a very capital-intensive business, therefore you need to have a very strong balance sheet to be able to invest in a material way over a long period of time," he says, pointing to Oyu Tolgoi, where it took 18 years for the first lot of copper ore to be shipped. "I'm not sure all the players have a strong balance sheet at this point in time."


... "I hope the deficit comes earlier but I think a deficit coming back in 2018-19 is a good assumption. Better to be cautious," Jacques says.


But he argues that whether the deficit hits in 2017, 2018 or 2019 doesn't really matter for Rio because the miner invests in long-term projects, and low-cost assets. Oyo Tolgoi, for example, is a "50 to 75 year project".


Given that, does Rio face a lag of one to two years before it could start to capitalise on the supply shortfall? "Yes and no," is Jacques' answer.


He says the company's Kennecott copper mine in Utah, and its Escondida mine in Chile, are "pretty well positioned". Rio is waiting for a desalination plant at Escondida to be commissioned in about a year's time. At Kennecott, Rio has agreed to extend the life of the mine to at least 2030.


But with its Grasberg mine in Indonesia, and Oyu Tolgoi, there will be "a lag of maybe of a couple of years before we can fully harvest the next cycle". Rio's board is expected to approve a $US5 billion expansion of Oyu Tolgoi, which Jacques secured financing for in December. But additional production from the planned underground mine ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ where 80 per cent of the project's value lies ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ would not come online before 2020.


"When you put all that together, by the time you get to 2020, 2021, we should be in a pretty good position to harvest the next copper cycle. We can't bank on M&A in any fashion at this time."


While the long-term supply-demand picture might look rosy to Rio, and many other majors, in the short-term, the price is very volatile.


Jacques says it's "fair to say price is not always based on fundamentals". "Most of the analysis is that the market is more or less balanced as we speak, but the price is primarily driven more or less by sentiment, and fluctuates a lot from one week to the other. "This feature of the market will remain for another two or three years, when you reach a point where the market moves back into a structural deficit position."


Jacques says the market was in balance for two main reasons ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ demand is softening on one side, and on the other, the industry has taken capacity out.


....... One wild card for the short-term market is the amount of copper held in inventory in Chinese warehouses, which has been increasing in recent months. But Jacques cautions it is too early to call it a trend, particularly given Chinese New Year."We monitor the market very closely, and yes, the inventory has been picking up in the last month or so. At same time, inventories in aluminium and comex went down too. I think it's important (to wait) for a few months after Chinese New Year before we can try to identify a pattern or a trend."


Jacques is thinking long term ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ and trying not to think what might have been in copper. "As far as I'm concerned, the past, I can't change. So I look forward, not backward. We want to grow in tier one assets. Low cost, long life assets - wherever you are in the cycle you can generate cash and therefore create value for shareholders."

BHP's Andrew Mackenzie and his chief financial officer, Peter Beaven, have made it clear they are hunting copper and conventional oil, with Mackenzie arguing it could be cheaper to buy than build. But this depends largely on what assets come onto the market.
When asked if there will be enough distress in the sector to deliver the kind of assets to market that Rio is seeking, Jacques says it is unclear.


"Clearly, we have a watching brief. We all know what the tier one assets are ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ you've got five or six of those. None of those assets are for sale at this point in time." "But the real point is, if one of those assets were to be put up for sale, what is the price and the premium you would have to pay to secure it. And therefore can you create value for your shareholders? And I think the answer here is not obvious."


Jacques pointed to the $US1 billion Antofagasta paid for a 50 per cent stake in copper mine Zaldivar late last year and to the $US1 billion Sumitomo paid for a 13 per cent stake in Morenci this year. Neither are tier one assets. Both were huge prices.


"So even tier two or three assets are selling at a full price and a premium," Jacques says. "Yes for sure we would look at those (tier one) assets if they were to be put up for sale. But the real question is: Can we create value for shareholders? And the answer will be taken on a case by case basis, and I can't answer it at this point in time."


BHP's Beaven also made that very point about M&A. "We have spoken a lot about opportunity but I want to be clear - we have got a very high hurdle for assets that make it into our portfolio so those tier one assets are very rare and very closely held, even at this point in the cycle," he said.


The consensus view is that the copper market will enter a deficit in the next few years ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ but the verdict is out as to exactly when, with the debate putting the range between 2017 to 2019.

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  • 10 months later...
Copper prices surged to their highest in more than 20 months on Friday after BHP Billiton declared force majeure due to a strike at the world's biggest copper mine in Chile.


Benchmark copper on the London Metal Exchange surged 4.6 per cent to close at $US6090 a tonne, the highest since May 29, 2015.


BHP issued an official warning of supply disruptions after workers at the Escondida mine in Chile walked out on Thursday, bringing production to a standstill

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