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A delay in the construction of Rio Tinto’s (ASX:RIO) Oyu Tolgoi copper mine in Mongolia will build even more pressure into the supply side.

Yesterday Rio told shareholders that it would need to delay “sustainable production” at the mine by 16 to 30 months after it ran into construction challenges on the ground.

The mine is already producing some copper, but it was slated to produce 560,000 tonnes per year once construction is complete.

While the delay will cost Rio between $1.2 billion and $1.9 billion, it’s the effect the pushing back of production will have on copper prices that market watchers will be interested in.

The price of copper has been held somewhat under wraps as the result of the ongoing trade tension between the US and China, but it has been building an undersupply which could alter the thinking of commodities traders.

READ: Why copper will remain tight

The pushing back of half a trillion tonnes of supply in the market by at least 16 months will give them further pause for thought.

Global output totals around 25 million metric tons annually, but the market is expected to record a deficit of 190,000 tons this year, widening to 250,000 tons in 2020, according to the International Copper Study Group, an organisation of copper-producing and -consuming countries. 

Many analysts think that will deepen next decade according to the Wall Street Journal.

The tightening market will likely make anybody with a copper resource that can be brought to market within the next few years an attractive target.

For example, Caravel Minerals (ASX:CVV) is a copper exploration and development company focused on a new porphyry district discovered in a previously unexplored part of Western Australia’s Central Wheatbelt.

In fact, the Caravel Copper Project is the largest copper resource in Western Australia – at 1.86 million tonnes contained copper at 0.28 percent cut-off.

Earlier this year it outlined a scoping study for the project which predicted it would generate $3.1 billion in free cash flow.

 

This content is produced by Star Investing in commercial partnership with Caravel Minerals.  This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.