Iron ore and copper were already well off their post-crisis highs before they were struck by talk of tapering the monetary policy that helped propel their rise. The fall may not be over, but when there is a turn, iron should lead round the bend. It could take two years for copper demand to chew through a global supply surplus. After that, though, geology suggests the red metal is the stronger bet.
Iron ore, now down by a quarter year-to-date, has corrected more than copper, which is down about 17 per cent. Slowing growth in China affects both metals, but iron is arguably less vulnerable to comments from central bankers. It is still overwhelmingly traded by producers and users, while financial speculators play a large role in the copper market.
Right now, copper has a supply problem. The industry needed time to respond to the broad commodity rally that started in 2003, but last year's 3.7 per cent growth in copper output was greater than that of the past four years combined, according to BNP Paribas. Rio Tinto hopes to start shipping ore from its huge Oyu Tolgoi project in Mongolia soon. Most analysts expect a global surplus of copper this year and next. BNP expects another 10 per cent price fall, to about $6,000 per tonne.
More From This Section
Iron ore is quite different. Australia's Pilbara has enough reserves to keep producing at the current rate for about 70 years. While reserves are a moving target, the difference in estimated reserve life when prices of both metals are still relatively high suggests copper prices have to rise more to ensure sufficient supply in the long run.
Iron isn't just abundant, it's also accessible. While copper miners' best prospects are in relatively uncharted territory, like Peru and Democratic Republic of Congo, Rio plans to expand its Pilbara iron ore production by more than 50 per cent in two years, without much sweat for its engineers or lawyers.
Copper may look more wobbly than iron today but in the long run it should prove more durable.
