May 17, 2020

Base metals and mining industry outlook: 2016

Report
outlook
Zinc
Aluminium
Admin
5 min
Base metals and mining industry outlook: 2016
Thomson Reuters has released its annual GFMS Base Metals Review and Outlook which considers the prospects of base metals in 2016, including updated pric...

Thomson Reuters’ has released its annual GFMS Base Metals Review and Outlook which considers the prospects of base metals in 2016, including updated price forecasts for the base metals complex.

Prices, across the board, are lower intra-year and range from a 12 percent drop for lead to a 34 percent fall for nickel, and while we acknowledge that there is plenty of scope for negative sentiment as global growth fears remain, we have started to look for turning points. The rate of recovery, of course, will vary from metal to metal but fundamentally, we are most bullish on nickel, least bullish on aluminium.

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The corporate sector, naturally, has fallen lock-step with the slump in prices. The top ten miners have a combined market value of just over $280 billion which is roughly half what it was some 12 months earlier and almost a quarter of the reading at the peak of the super-cycle in early 2011. Overall, the landscape for the mining sector looks rugged. The clock has turned back commodity prices and revenue to levels last seen in 2008/09, while over the same period debt on the combined balance sheets of the ten miners is more than 50 percent higher. Free cash flow is holding up, but only thanks to drastic cuts to capex, which will partly impact mining flexibility and future growth plans.

• Nickel prices expected to rise nine percent as constraints limit supply whilst demand grows.

• With falling surplus, copper prices to grow four percent on annual average basis, with expectations of significant growth towards the end of 2016.

• Aluminium prices set to struggle as output continues to increase, with expansion of lower cost capacity in China.

• Lead also expected to struggle in 2016.

• Zinc market continues to disappoint currently as deficit fails to materialize again despite mine closures.

It is in this regards that further downside to commodity prices will be much tougher to absorb. The result will be, in our view, better discipline on the supply side with meaningful cuts to marginal cost production which should provide support prices for a number of the base metals. Furthermore, project deferrals and capex cuts will dent future supply growth, and while sentiment remains firmly negative, we are sowing the seeds for the next mining boom, as supply, once again, falls out of sync with global demand growth, albeit at a slower pace this time around. We look forward to substantial price hikes in the medium term, but as for 2016, it will be a largely muted affair, as the rebalancing continues. 

Nickel the standout in 2016, but it’s a field of weak runners

The nine percent increase we forecast for nickel prices next year is predicated on further supply constraint that will coincide this time with stronger consumption from the key stainless steel sector. Demand has been knocked by a prolonged destocking cycle that began in late 2014 and continued into the early months of this year to more than counter lower supply, leaving the market in a forecast 40,000-ton surplus in 2015.

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Considerably more than half of the world’s nickel producers are estimated to be losing money, however, and further curtailments look set to come through that will tip the market into a 30,000-ton deficit. While this is unlikely to set nickel alight given that it will make only a small dent in the continued vast inventory overhang, industry watchers will be heartened by the fact that its fundamentals will be moving in the right direction, with further deficits foreseen in subsequent years.

Copper close to bottom

The copper market is close to bottoming out and we expect it to finally turn the corner next year as the surplus contracts to a little more than 100,000 tons. While prices will improve only marginally by four percent on an annual average basis, the gradual upwards slope will see them end 2016 substantially higher than present levels.

While we have been somewhat cautious on the extent to which recent price-related production cutbacks to date will impact copper supply, they will help to reduce the expected surpluses this year and next. Furthermore, as miners continue to react to current weak prices, further supply response is expected, indicating a return to deficit from 2017. Global copper demand growth, which has been crimped to little more than two percent this year will also play a greater part in improving market fundamentals, helped, despite a degree of caution on the figures bandied around, by investment in China’s power network, as well as by the One Belt One Road policy. 

Others to disappoint...again

The prospects for aluminium, zinc and lead in 2016 look comparatively less inspiring than those for copper and nickel. The former will continue to be plagued by the seemingly relentless rise in output. While we are building in slower supply growth next year than this year’s hefty 7.4 percent forecast, which has been fuelled by continued strong expansion of lower cost capacity in China, this will still leave the market in around a half a million ton surplus. With no sign of deficits on the horizon in the medium term, weak prices remain the order of the day for this metal.

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The zinc market has had to contend with disappointment yet again that the closure of some of the world’s biggest mines is not going to result in a substantial deficit again next year and this is reflected in an expected 7.7 percent decline in prices this year, to be followed by a mere 1.5 percent increase in 2016 to $2,030/ton. The shortfalls forecast for this year and next pale into insignificance in light of both visible and “invisible stocks.

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May 6, 2021

Copper, iron ore surge as Chinese investors unleash demand

Copper
Iron ore
Renewables
EVs
3 min
Iron ore broke $200 a tonne for the first time, while copper approached a record high as Chinese investors unleashed fresh demand following May holiday

The reopening of major industrial economies is sparking a surge across commodities markets from corn to lumber, with tin climbing above $30,000 a tonne for the first time since 2011 on Thursday.

In the wake of mounting evidence of inflation fuelled by higher raw materials prices, investors are also increasingly focused on when the U.S. Federal Reserve might start throttling back its emergency support.

Copper

Many banks say the rally has further to run, particularly for copper, which will benefit from rising investment in new energy sectors. Copper is at the highest in a decade, fueling bets it will rally further to take out the record set in February 2011. Steel demand is surging as economies chart a path back to growth just as the world’s biggest miners have been hampered by operational issues, tightening ore supply.

“The long-term prospects for metals prices are ‘too good’ and point to higher prices in the next few years,” said Commerzbank AG analyst Daniel Briesemann. “The decarbonization trends in many countries, which include switching to electric vehicles and expanding wind and solar power, are likely to generate additional demand for metals.”

Trading house Trafigura Group and several major Wall Street banks including Goldman Sachs Group Inc. and Bank of America Corp. expect copper to extend gains.

Copper rose as much as 1.6% to $10,108.50 a ton on the London Metal Exchange before trading at $10,080 as of 4:07 p.m. in London.

Bloomberg

Iron Ore

Benchmark spot iron ore prices rose to a record, while futures in Singapore and China climbed.

The boom comes as China’s steelmakers keep output rates above 1 billion tons a year, despite a swath of production curbs aimed at reducing carbon emissions and reining in supply. Instead, those measures have boosted steel prices and profitability at mills, allowing them to better accommodate higher iron ore costs.

Spot iron ore with 62% content hit $201.15 a ton on Thursday, according to Mysteel. Futures in Singapore jumped as much as 5.1% to $196.40 a ton, the highest since contracts were launched in 2013. In Dalian, prices closed 8.8% higher.

Erik Hedborg, Principal Analyst, Steel at CRU Group commented: “Recent production cuts in Tangshan have boosted demand for higher-quality ore and prompted mills to build iron ore inventories as their margins are on the rise. Iron ore producers are enjoying exceptionally high margins as well, around two thirds of seaborne supply only require prices of $50 /dmt to break even.”

China

Still, some analysts including Commerzbank’s Briesemann expect a short-term correction as metals become detached from fundamentals. There’s also a risk that China could engage in policies that may cool demand for iron ore and copper.

The metals rally has boosted concerns about short-term Chinese demand. Some manufacturers and end-users have been slowing production or pushing back delivery times after costs surged, while weaker-than-expected domestic consumption has opened the arbitrage window for exports.

Tin climbed as much as 2% to $30,280 a ton on the LME, boosted by rising orders for the soldering metal. Tin is at the highest since May 2011, with a 48% gain this year making it the best performing metal on the LME.

 


 

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