00:00Australia's resources sector that is in the spotlight with Rio Tinto set to release half
00:04year results on Wednesday ahead of reports from BHB Fortescue next month. Bloomberg Intelligence
00:09thinks that gains in copper and aluminium prices may drive a lift in Rio's earnings. Let's bring
00:14Bloomberg's metals and mining reporter Paul Alain Hunt for more. So what have we learned when it
00:19comes to some of the operations report from the big miners ahead of these earnings?
00:25So yeah you're right we've just come out of the quarterly season I guess and for the two major
00:30miners BHB and Rio Tinto something that really stood out was a decline in copper production
00:37quarter on quarter and compared to the previous year. Looking at those two companies in particular
00:45BHB had warned maybe two years ago that production from its key Chilean copper portfolio was starting
00:52to decline and would decline for for many years because the grade of ore that they're mining has
00:59fallen. It seems like it took investors a little bit by shock perhaps they just needed a reminder that
01:06this was happening in Chile but it really does bring home you know how these two major miners with their
01:13focus on on copper are trying to boost production or maintain production and it's coming with a huge
01:20spend. The other thing that was interesting to take away was the resilience of iron ore. So iron ore the
01:28cash cow that accounts for you know has traditionally accounted for the majority of both BHB and Rio Tinto's
01:35earnings and profits and is sort of fueling their move in to diversify and grow their copper portfolios.
01:44The iron ore prices remained relatively stable over the last six months and that's despite negotiations
01:50with China's China resource state buyer.
01:58We've also got the world's second biggest minor earnings of course tomorrow when it comes to Rio
02:02specifically what are you looking for out of that half yearly?
02:07Well I think we can expect possibly an uptick that's at least what analysts are saying in profits and that's
02:15based on
02:16commodity prices. I mean one of Rio's biggest commodities is aluminium and we've seen significant price hikes due to the
02:25US-Iran war there. Also that resilience as I mentioned in iron ore and a much higher copper price too.
02:33We are going to also be looking at Rio Tinto's growth options in copper. You know that is one of
02:40their key pillars
02:41in terms of growth but other than Outogoy, one of their major mines in Mongolia, there isn't much
02:49there in terms of the near term and copper mines take you know seven years to develop from scratch.
02:55So that does bring into question you know things like M&A, that's certainly something that we'll be
03:00we'll be looking at. Of course Rio earlier this year held talks with Glencore and that's something that
03:06you know we'd be interested in seeing whether that remains on the table or not. It's obviously too
03:12early to say and of course strategy, Rio Tinto's strategy to divest non-core assets, things like
03:20infrastructure and its restructure internally. You know it had a huge head count, it'll be interesting
03:26to see those numbers tomorrow. Bloomberg's metals and mining reporter Paul Alain Hunt there joining us
03:33from Melbourne. Let's get some more analysis with Grant Spohr who's a mining and commodities analyst at
03:37Bloomberg Intelligence. And Grant we were just talking with Paul Alain about the dynamic for the copper
03:42market right. It's quite an interesting one because I wouldn't say you know consistently that we're
03:46seeing risk-free for the global economy but at the same time that's perhaps being balanced out by
03:52tightness in the market. Yeah undoubtedly so copper has been I'd say despite all the potential risks to
04:02global growth copper prices have been very very strong over the past six months and have held
04:09consistently above $13,000 a tonne. I think fundamentally if you look at supply demand fundamentals the
04:17market looks perhaps balanced to if if if now maybe slightly um oversupplied but it's still a very very
04:25tight market and as Paul alluded to one of the key things that's holding it uh or keeping it uh
04:32elevated
04:32uh is uh the supply side. I mean that has been um you know the miners have struggled to deliver
04:40new
04:40tons uh and indeed the industry is still recovering from uh a couple of you know serious setbacks that it
04:48had last year um and those tons uh those mines like Grasberg haven't returned to full production
04:55uh and that's that's keeping the the mine supply pretty pretty tight so we're lucky to see if we're
05:02going to see any growth in mine supply across the sector at all this year it's likely to be flat
05:08to
05:08maybe half a percent up if we're lucky so that's certainly one of the aspects that's keeping the market
05:14tight. So you'll focus more on the gains as a result of copper of aluminium as well when it comes
05:22to these
05:22Rio Tinto numbers that we're expecting uh what's the dynamic going to be and do you expect that strength
05:28to to be able to be maintained um the the the strength of the aluminium price does more or less
05:39depend on on uh on how the trajectory of the u.s iran war continues so you know if we
05:47get a resolution
05:47and it sticks um then aluminium prices might come under a little bit of pressure in the second half
05:53of the year uh partly because you know that opens up the straits of Hormuz uh and we can get
05:59more
05:59materials in and the golf smelters start to to ramp back up again um uh if it you know if
06:07it drags on
06:08then then then the price of aluminium is you know is sustainable and at a higher level than we have
06:15seen
06:15um i would add though that we have seen a supply response from other parts of the world so china
06:21has exported a lot more uh in the form of semi-fabricated goods as well as and some uh some
06:28places like
06:29india and indonesia are ramping up production um and you know that is starting to tell on the market
06:35so the market will balance itself despite risks to the gulf so i'd say aluminium yes so in the short
06:43term
06:43it does really depend on the trajectory of the war um copper certainly i think the price current
06:48price is sustainable uh around about 13 000 tons again you know if the war does drag on and we
06:55do
06:55start to see rate hikes and we do start to see a big drag on global growth which up to
07:01now we haven't
07:02really noticed too much um then that may be a risk to to copper prices um but if we do
07:09get a sort of a
07:10resolution and it and it's you know it's it we had the whole straits of hormuz open up then i
07:15think
07:15certainly copper is is you know is is is looking well underpinned at these levels so there's a war
07:23impact there's also the china impact right as we continue to see steel mill stockpiles climbing
07:29there's a clear bifurcation when it comes to the k-shaped recovery in the chinese economy at the moment
07:35how's that playing out when it comes to demand for iron ore
07:43well i think there's been quite a lot of in terms of of the demand for iron ore if we
07:48look at the
07:48chinese steel market sure the it looks as though you know demand certainly on the on the on the
07:54construction side of the uh of the of the economy is is is weaker um but that is sort of
08:01the chinese
08:02production has found a home in exports um and you know whilst i mean we and a lot of the
08:10market we're
08:10expecting a bit of a a a slowdown in chinese steel exports um that doesn't you know that hasn't really
08:17materialized so the demand for for iron ore in china is still particularly you know still being particularly
08:24strong um imports are still very very good um so in terms of demand um we're not seeing you know
08:32a
08:33major pullback in terms of of iron ore uh demand and that keeps it reasonably well supported at about
08:40a hundred dollars a ton there's also a a cost support there as well um there's quite a lot of
08:47cost
08:48sensitive producers that you know whenever the price drops below a hundred dollars a ton for any length
08:56of time a lot of those those producers start to pull back from the market um and you know that
09:03just
09:03seems to be uh quite a good cost support level both with internally in china and you know the sort
09:10of
09:10smaller producers um obviously not the majors we have a much better cost structure um start to pull
09:17back um and you know we've seen that time and time again uh and that's you know one of the
09:22reasons
09:23why iron ore prices have sort of kept keep on surprising on the upside and have been particularly
09:29resilient as we get those bhp numbers as well as rio this this week and going into next month as
09:38well
09:39what are your expectations when it comes to commentary around mna right obviously we had bhp walking away
09:45from anglo again uh with such sort of the large major development has that interest been quite
09:51tepid for this cycle um so look i mean look along with cash uh sorry cost control cash conversion
10:03capital allocation is going to be a key focus in these upcoming results um and with that you know the
10:09discussion around mna is going to be you know is is going to surface again look i suspect the the
10:18the miners or bhp and rio you know um are really focused on on prioritizing copper it's a primary
10:26growth driver across the sector so they're going to prioritize it as they keep you know key strategic
10:32focus um and i think though that the challenge is to find you know um targets that where the valuations
10:42are compelling and and i think both in in rio's experience with with with glencore and indeed bhp's
10:50experience with anglo-american you know valuation was probably a key sticking point um and so and i so
10:59and i don't see that actually disappearing so i think valuations for the major miners in terms of
11:05conducting mna is always going to be a challenge and and we've seen bhp sort of talk about their you
11:12know their sort of project pipeline one to you know maintain or at least to restore output uh in at
11:20escondida one of their biggest mine so that's going to be i think a key a key focus for bhp
11:25um and as
11:27paul alluded to earlier you know um rio does need a a bit more of a medium term uh copper
11:34growth story it's it's it's ramping up orya togoi which is doing very very well and that still has
11:40some some runway to uh they still have some runway ahead of them to lift output um but over the
11:47medium
11:47term they do need some perhaps potentially some more developed um copper growth options
11:55grant really great to have you with us grants board mining and commodities analysts at bloomberg
11:59intelligence we do have more on australia head every tuesday at 10 40 a.m if you're watching in
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