Rio Tinto Forecasts `Strong' Copper Price Amid Supply Deficit

Feb. 14 (Bloomberg) --Rio Tinto Group Chief Executive Officer Tom Albanese standing for a photograph in London. Photographer: Matthew Lloyd/Bloomberg  Rio Tinto Group, the world’s third- largest mining company, forecasts high copper prices will continue amid rising demand and before output from new projects eases a supply shortfall.

"We will see a continued period of strong copper pricing, largely because many of the large mines, including our own, are seeing declining grades, deepening pits,” Tom Albanese, chief executive officer of London-based Rio Tinto, told Australian Broadcasting Corp.’s Inside Business television program.

Copper in London surged to a record last week and gained 52 percent in the past year as the global economic recovery gathered pace, boosting demand for the material used in construction and electrical appliances. Substitution of other metals for copper is accelerating as costs rise, aluminum- producer Alcoa Inc. said last month.

The global copper supply deficit will reach 822,000 metric tons in 2011, more than double last year’s shortfall, Barclays Capital said on Jan. 20. JPMorgan Securities Ltd. and Macquarie Bank Ltd. have also predicted a deficit, and Australia & New Zealand Banking Group Ltd. and Morgan Stanley have boosted their price forecasts.

"We’re working on several new projects around the world and I know, certainly our competitors are working on their own projects,” Albanese said in a transcript of the program, which was broadcast yesterday. The longer that copper prices stayed at high levels, the more new supply would be induced, he said.

Price Gains

Three-month copper on the London Metal Exchange gained 0.2 percent to close at $9,961 a ton on Feb. 11 after rallying to an all-time high of $10,160 on Feb. 7. Rio Tinto rose 1.6 percent to 4,623.5 pence at the 4:30 p.m. close of trade in London.

Rio Tinto’s expansion plans include the Oyu Tolgoi copper project in Mongolia, while the company also had "additional opportunities” in South America and North America and at its Northparkes mine in Australia’s New South Wales state, Albanese said.

Rio Tinto posted record 2010 net income of $14.3 billion on Feb. 10, boosted by iron ore and copper prices. The company raised its dividend and announced a $5 billion share buyback.

The 2010 global refined copper deficit is expected to increase through 2011 and 2012, leading to more talk about substitution with other materials, Rio Tinto Chief Economist Vivek Tulpule said in a report released with the earnings.

"The prospects of rapid and significant material switches are expected to be limited in the near term given the substitution that has already taken place,” he said. The introduction of exchange-traded funds in copper could also have a "significant impact” on copper prices in the coming year by adding to investment demand, Tulpule said.

Consumption trends over the next 15 to 20 years would lead to a doubling in demand for iron ore, copper, aluminum and other commodities, Albanese said in a results briefing on Feb. 10.