March 20, 2018 / 12:16 PM / a month ago

HIGHLIGHTS-Top trading houses speak at commodities conference

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LAUSANNE, Switzerland, March 20 (Reuters) - Executives from the world’s largest trading houses and mining companies are discussing market trends at the FT Commodities Global Summit in Lausanne, Switzerland, this week.

The following are Tuesday’s highlights:

ROBERT FRIEDLAND, IVANHOE MINES, EXECUTIVE CHAIRMAN/FOUNDER

In reference to the future of the copper market, Friedland sees tightening and higher prices.

“It’s a lot harder than you think to find a really large copper mine - one that’s at the bottom of cost break - and a long-term arrangement with local people. We went through that in Mongolia. The world needs probably five or six absolutely tier-one copper mines in the next decade to be discovered and brought onstream but we just don’t see them.”

Referring to the political climate in the Democratic Republic of Congo and the newly signed mining law:

“We’re willing to agree to higher royalties as long as it helps the local people. We don’t negotiate publicly.”

“If (President Joseph) Kabila oversees a democratic election, we will look back at him as having made a great achievement. I think there will be a democratic election, I think capital will flow there, not only from China. We’re bees to honey for metals there. In its best days OPEC never achieved 50 percent of global production ... Congo controls 70 percent of the world’s cobalt.”

He added that the DRC’s copper should not be overshadowed by interest in cobalt as the country was a larger producer than Chile in the 1970s.

WILLIAM REED, CASTLETON COMMODITIES CEO

On the topic of possible consolidation, Reed sees traders as complementary to a degree as they specialise in different areas.

“There is some significant overlap but there is also some specialisation, whether it’s geographic or different positions on the logistics chain or paper transactions.”

TORBJORN TORNQVIST, GUNVOR CEO

“There’s remarkably little activity by ship owners to have scrubbers built. It’s too late now to have a profound impact on the fleet.”

Tornqvist was referring to new rules by the International Maritime Organisation to cut sulphur content in fuel for global shipping in 2020. Scrubbers are installed on ships to remove sulphur.

“Refiners will adapt, some will have to stop.”

JEREMY WEIR, TRAFIGURA CEO

“We see continued growth in the oil market at least until 2035.”

“Global production of cobalt is about 100,000 tonnes ... but you’re going to need in excess of 200,000 tonnes to meet consumption. In terms of impact, electric vehicles do not have a big impact on oil but a big one on metals.”

Over the next few years, Weir expects more consolidation in trading.

“The bigger will get bigger - there will be consolidation but also a rise of small niche players.”

MARCO DUNAND, MERCURIA CEO

“Only 0.2 percent of cars are electric. Even if you have tremendous growth, it will still be a small impact on oil for now.”

Dunand added that Mercuria wants to be part of the transition to cleaner fuels and that gas and power account for 50 percent of the trader’s turnover.

Dunand also expects more consolidation among trading houses.

“Generally speaking we work on a basis of net profitability of half a percent over turnover. Now that’s a very small margin and there’s little margin for error.”

ANDREW MACKENZIE, BHP CEO

“When you think about electrification and what it will do to the demand for oil from 2030-2040 onwards, and certainly when we look at investments in oil we want to have ones that will pay back before that period.

“The backdrop for commodities is pretty optimistic ... In China, they have got a real sense to pursue the supply side of reforms and address environmental concerns.”

Global population growth will be the most important driver for commodities markets in the years to come with the world spending $3.7 trillion annually on upgrading infrastructure.

China’s One Belt, One Road initiative is expected to push steel demand up by 150 million tonnes over the next decade.

The main challenges for the commodities market include even tighter financial conditions and a greater disparity in corporate tax around the world, volatility in exchange rates and a rise in protectionism.

Mackenzie said BHP was not affected by planned U.S. steel and aluminium tariffs as it was a small exporter to U.S. markets.

On China: “They opted for real stability and that makes forecasting for us easier.”

On potash: “When we look super long-term and given a substantial rise in population ... there is an opportunity there that we can take seriously. But they are just options that have to compete for capital with other divisions within our business.” (Reporting by Dmitry Zhdannikov and Julia Payne, editing by Louise Heavens, Jason Neely and Dale Hudson)

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