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Resources: The next 30 years
The world could consume as much copper in the next two to three decades as it has in the whole of human history, Tom Albanese, CEO, Rio Tinto told investors today.
Addressing a packed audience of investors at the Credit Suisse Asian Investment Conference today, Mr. Albanese gave his insights into the future of the commodities sector and explained the profound effect commodities will have on the emerging and developed markets.
Giving a brief history of the supply and demand of copper, Mr. Albanese highlighted the fact that the industry has moved on significantly since the Newsweek headline article of the 1980s entitled: ‘The Death of Mining’.
“At the demand rate we are seeing now, at the GDP growth that everyone would be projecting for China, India, South East Asia, Brazil and other emerging market countries, we could be in an environment where over the next 20-30 years the world will consume as much copper as it consumed for the whole of human history,” he said. “I could make the same [prediction] for steel, aluminum and everything else we produce.”
Whilst most of the growth in supply would come from China, he predicts that growth in Chinese demand will slow over the next three to five years, but that there would be new supply coming from India and South East Asia. There may be a short period of over-supply but post 2015 this would be balanced out by demand, he added.
The key issues facing the sector are the constraints on supply, and in particular the resources that are needed to bring commodities to the market.
He noted it was taking longer for companies such as Rio Tinto to bring commodities to the market due to the depth of mining, more challenging locations, a lack of infrastructure, difficult governance, increased stakeholder engagement and ‘my backyard’ attitudes.
This has implications for capital expenditure, which is significantly higher than it was five to 10 years ago. In addition, companies are having to invest in at least five years of environmental and biodiversity research.
Putting this into context, Mr. Albanese said that in almost 50% of projects, copper resources are being delayed due to non-economic and non-technical reasons, a trend that he does not see ending. Typically, the supply response for a new project from exploration to producing revenues is likely to be about five to 10 years, indicating that mining companies need to view new projects as long term investments.
In spite of these constraints, he predicts that over the next 20-30 years, there will be a steady demand pull that will help to keep prices and margins higher than in the period prior to 2003.
Mr. Albanese summarized the session by saying that the mining sector is at a unique point in time. Increased demand for metal, energy and resources to fuel the world’s demand for consumer goods is a growing trend, which is unlikely to go away.
“The question we may ask ourselves is how long can this party last?” he said.
“I do believe that the demand pool we are seeing in China and other parts of the world, particularly in the emerging and developing countries, is one that will continue to be a predominant factor in our sector for a long time and will continue to provide an overall positive trend.”
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Day 3: Photo Album
