Record Copper: Rio Tinto-Glencore Remains on Hold

At today's copper price, buying production tends to cost less than building it. On 9 September, the LME three-month contract set a record of $14,858 a tonne, a day after a previous peak of $14,708.50 1. The restriction period that barred Rio Tinto from returning to Glencore expired in early August, but according to Reuters its chief executive has assured Australian investors that it has no reason to revisit talks 3. Large mining deals are possible again, though not imminent.

Supply is not keeping up. According to Jefferies, miners representing about two-thirds of global output cut production by 3.5% in the first half after a series of operational setbacks 2. Chile, the world's largest producer, recorded its weakest second quarter in at least 19 years 2. Opening a mine takes years. Tonnage already in production becomes the scarce asset.

On Rio Tinto, the timetable is known but there is no rush. The group walked away from Glencore on 5 February, failing to agree on value 4. UK takeover rules then barred any new approach for six months 3. The dated catalysts now come mainly from Anglo-Teck: Anglo American has confirmed that a special dividend of about $4.5bn will follow completion of its merger with Teck 5.

The counter-argument deserves attention. In February, Glencore already judged that the terms undervalued its copper and its projects 4. Record copper makes those assets dearer still, which pushes a deal further away. And Glencore has outperformed Rio since the start of the year (+33% against +18% for Rio's UK-listed shares, as of early August), which, according to Morningstar, would make a share-based offer more dilutive for Rio shareholders 3. Still, the shortage of new projects leaves the majors few other routes to growth 3.

The bottom line

Copper consolidation advances through dated steps: completion of Anglo-Teck, payment of the special dividend, then a possible Rio Tinto return, unlikely in the near term. We see each as a step likely to crystallise value for mid-sized producers with reserves, the natural targets of majors hunting for volume.

What to watch: the remaining regulatory approvals for Anglo-Teck, any Rio Tinto statement on its acquisition strategy, and whether copper holds above $14,000 if US tariffs on refined metal materialise.