Copper Faces at Least Two More Years of Pain, Rio Estimates

The copper market is facing two or three years more of pain, though the good news for the metal, which hit a six-year low this week, is that it will recover faster that other commodities, according to Rio Tinto Group.

Copper has tumbled 27 percent this year as China’s faltering expansion curbs demand and with the dollar trading near its highest level since at least 2005, making commodities more expensive for buyers in other currencies.

Rio is becoming confident the market could move back into deficit by the end of 2017-2018, Jean-Sebastien Jacques, chief executive officer for copper and coal, said Thursday in an interview at the Bloomberg Address.

“The one commodity we expect to recover faster than others is likely to be copper,” Jacques said. “In the next two or three years we can see the light at the end of the tunnel as far as copper is concerned.”

China’s slowest pace of economic growth in a quarter of a century is weighing on metals to energy prices and eroding profits for producers. The Bloomberg Commodity Index of returns on 22 raw material has this month touched a 16-year low and is heading for the fifth straight annual loss, the longest slide on records dating to 1991.

Coal faces a longer path to a price revival, according to Jacques. “For coal it’s a different horizon,” he said in the interview. “It will take much more time for coal to recover.”

China Growth

While China will have a rate of growth that’s slower than in the past, Rio still expects the nation’s gross domestic product to rise 7 percent in 2015, Jacques said. Chinese President Xi Jinping said Nov. 3 that average annual growth should be no less than 6.5 percent in the next five years.

“We expect subdued prices to remain in the short term but we are optimistic about long term demand,” Jacques said in his speech notes for his address. “There is over capacity in many commodities due to investments over the last five or more years.”

“We’re seeing a slowdown in demand as the global economy slows, particularly commodity intensive economies like China,” Russ Koesterich, global chief investment strategist at BlackRock Inc., the world’s largest money manager, said Wednesday in a Bloomberg TV interview. Industrial metals and energy commodities are “significantly oversupplied” and it’ll take time to bring supply and demand back in to balance, he said.

Rio, the sixth-largest copper producer, holds stakes in or operates mines in Utah to Mongolia and last month forecast full- year mined copper production of about 510,000 metric tons in 2015. Codelco, the world’s top copper producer, is targeting annual output of 1.6 million to 1.7 million tons.

 – Bloomberg [David Stringer]