After conquering iron ore, BHP and Rio move to dominate in copper
Rio Tinto and BHP Billiton are amassing vast copper holdings in a push to capture a greater chunk of the $140 billion world market, apparently aiming to squeeze out high-cost producers just as they 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 greatest influence possible over the global marketplace," said Gavin Wendt, senior resources analyst for Sydney-based consultants MineLife.
"Having said that, unlike in the highly concentrated iron ore space where the focus is squarely on one market owned in large part by Rio and BHP - China, copper is sold much more widely, leaving room for smaller producers to stay in the game," Wendt said.
Several smaller producers contacted by Reuters declined to comment, saying it was too early to gauge the impact of the expansions.
There have been no suggestions that BHP and Rio are working in concert to seize overriding control of global copper supply.
A worldwide supply surplus of 300,000 tonnes is forecast in 2015 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, told investors in December a shift back to a deficit in the market was unlikely before 2018 and that the company was now striving to "gain a clear advantage" against competitors and "build a business 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 sources requiring copper-intensive apparatus. The metal has been designated a core pillar of growth by BHP's board.
"The market has been generally cautious for 2015-16, but beyond 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 degree of dominance over copper that they do in iron ore - for the foreseeable future Codelco , Glencore and Freeport McMoran will remain bigger producers - their influence on global supply will be enhanced.
The strategy of mass output introduced this year aimed to flood 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 125 million tonnes of annual capacity - a tenth of world demand - by higher-cost producers.
The drive in copper could give BHP and Rio an advantage over rival Vale of Brazil, whose exposure to the red metal is less than half that of BHP and Rio and stagnating as it concentrates on its main iron ore business.
In regions as diverse as North and South America, Australia and Mongolia, BHP and Rio are digging new mines or expanding old ones, some requiring billions of dollars of investment, others hardly anything.
OBAMA IN LOOP
In Arizona, the jointly owned Resolution project could alone meet 25 percent of overall U.S. copper demand for decades.
Rio Tinto Chief Executive Sam Walsh went out of his way to discuss plans to dig the Resolution mine during a meeting with U.S. President Barack Obama during last month's G20 summit.
"I mentioned to President Obama that the Resolution project is an important one because copper is going to be in short supply. The world is going to need more," Walsh said in an interview.
BHP Chief Financial Officer Peter Beaven has said BHP holds the largest copper resource base in the world, with many deposits containing enough metal to run a hundred years or more.
Beaven said $4 billion in construction work at the Escondida joint venture with Rio in Chile, plus expansion of the wholly owned Olympic Dam mine in Australia, could yield hundreds of thousands of additional tonnes of copper annually within a few years.
On its own, Escondida will be able to produce 1 million tonnes of copper a year - nearly 5 percent of world output - for at least a decade, with little ongoing capital costs, Beaven said.
For its part, Rio Tinto is allocating $6 billion to extend the Oyu Tolgoi copper mine in Mongolia and is in the early stages of developing its La Granja mine in Peru, regarded as Latin America's largest unexploited copper deposit.