Rio Tinto 's (RIO) chief economist says iron ore prices could fall by as much as 33 per cent over the next 18 months as additional supply comes onstream, but insists the key steelmaking ingredient continues to be exposed to supply shocks that also provide scope for rapid price increases.
Vivek Tulpulé, Rio's head of economics and markets, outlined the company's outlook for the global economy and commodity prices in 2013 during a recent presentation in Sydney.
His comments on iron ore echoed those of Sam Walsh, Rio's new chief executive and former iron ore division boss, who warned last month that iron ore's latest price spike was temporary. Spot prices are currently hovering just above $150 (£99.45) a tonne after reaching $159 a tonne in January, up from a low of $87 a tonne in September. Mr Walsh said short-term factors such as restocking by Chinese steel mills and a temporary ban on iron ore exports from India were behind the rise.
Mr Tulpulé also presented a chart that shows the market for copper is expected to head into a short-term surplus soon - if it hasn't already - resulting in somewhat softer prices this year. But, as the chart (pictured below) demonstrates, there is a fine line between surplus and shortfall, and the industry needs to keep building new mines in order keep pace with burgeoning long-term demand.
Global Copper Production and Primary Demand
Source: Wood Mackenzie's Copper Market Service, 2012
The economist suggested commodity prices, and indeed the global economy as a whole, have benefited from a strong start to the year in China. He expects a strong first half in the People's Republic but foresees "moderation in the second half". Mr Tulpulé noted a "sharp increase in bank credit and banker's acceptances is supporting the current pick up", but highlighted that leading indicators of inflation in China, such as residential housing costs, have started to move upward.
