A copper-supply crunch that’s sent prices soaring as producers scale back operations on coronavirus restrictions could still worsen, according to Rio Tinto Group, one of the world’s top miners.
Covid-19 related disruptions have impacted about 3% to 4% of annual copper supply and that could increase further, the producer said Friday as it reported its own production of the metal fell 3% in the second-quarter.
Raw materials demand in China, the top consumer, has improved and is stabilizing, though the U.S. copper market remains weak and there’s likely to be a muted rebound in other regions even as they begin to ease virus curbs, according to the company.
While employment and trade uncertainties remain, China’s “construction and infrastructure sectors are performing well; house prices and stock markets are also recovering, lending support to consumer confidence,” Rio said. Its demand for iron ore continues, while the recovery in Japan and Europe is yet to begin meaningfully and is likely to be subdued when it does. A second wave of infections remains a key threat for advanced economies, it said.
Suppliers could seek to boost raw material shipments to China, with the demand recovery slower elsewhere and the nation already lifting imports of iron ore and copper concentrate, Bloomberg Intelligence analyst Yi Zhu said in a Friday note.
Some of the largest copper mines have curtailed activities or operated at reduced rates as Covid-19 accelerated among their workforces, though there are now signs that Chile -- the top producing nation -- is slowing the rate of new infections. There’s also the prospect of strikes over wages at two mines.
Weaker demand as a result of the virus is also exacerbating challenges in the aluminum sector, though there are some initial signs of a recovery in auto-industry purchases of value-added products, Rio said.
The producer is holding talks with energy providers “to ensure the sustainability of our smelters in Australia and Iceland,” and continuing to review options including the closure of the ISAL operation, Rio said. The company confirmed last week it would shut a loss-making smelter in New Zealand on low prices and high energy costs.
Iron ore demand remains strong in China, where Rio’s move to add port-side trading has won 61 new customers, the company said. Work is progressing on the Simandou mine project in Guinea, and China-based design institutes are updating designs for a trans-Guinean rail line and assessing shipping methods.
The producer also said it has implemented new controls following the destruction of ancient Aboriginal heritage sites in May to make way for a mine expansion. It’s an issue that could impact future mine approvals in Australia, Goldman Sachs Group Inc. said this month.
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