🌈💰Cobalt: An Investor's Dream Play💰🌈“What a difference a year makes,”
John Butcher, principal economist at commodity consultancy Wood Mackenzie exclaimed during a technical programme at the Prospectors and Developers Association of
Canada’s yearly convention this week.
While global economic growth came in at a disappointing 2.3% in 2016, and with growth for 2017 pegged at 2.5% and 2.7% for 2018, several analysts outlined bullish long-term scenarios for base and precious metals, pointing to growing supply gaps from 2020 onwards in key economic inputs.
Butcher questioned whether the $1-trillion infrastructure plan promised by US President Donald Trump would materialise, noting, however, that it paled in comparison with about $3-trillion in spending plans announced by China. He noted, moreover, that retaliatory measures could lead to a trade war between the two key trade partners, risking disruption and currency volatility.
From a global financial perspective, the growth outlook is positive, but ‘borrowing from tomorrow to save today’ has the potential to derail prospects, said Butcher. Global growth has improved from a year ago.
The short-term outlook is relatively positive, owing to a stronger US economy and a recovery in commodities, but Europe remains a cause for concern.
US gains are driven by the labour market. The verdict is out on whether Trump policies will support further acceleration or lead to the next downturn. “Risks are high,” Butcher warned.
Despite the new normal being slower global economic growth on the back of an ageing workforce, urbanisation is expected to create significant new metals demand.
OIL & GAS
Butcher expects crude oil to broach deficit territory by 2020, after which prices will rise steadily if a supply gap of about eight-million barrels a day cannot be filled with new projects.
Oil prices are expected to start rising from 2018 onwards as capacity peaks in the next few years.
COBALT
CRU Group multicommodity projects and information and knowledge management director Paul Robinson agreed with Butcher that the macroeconomic outlook has improved, boosted by cautious market optimism.
He noted that the CRU basket of 36 mining, metals and fertiliser price forecasts is expected to rise 12% this year, with cobalt, copper and zinc are expected to outperform. “Cobalt leads a country mile while metallurgical coal is off the pace,” he said. Cobalt demand is expected to gain 5.2% this year, copper 2.2% and zinc 2.6%.
The cobalt price is expected to gain 60% in 2017; copper 7%; zinc 6%; and aluminium 2%. “Cobalt is the commodity that has almost all things investors want to see in a commodity play,” he advised.
However, the price of metallurgical coal is expected to halve, following a strong rally in the second half last year. The nickel price is forecast to give back 9%; and iron-ore prices will likely fall 2% in 2017.
NICKEL
CRU Group’s New York-based principal consultant Alex Laugharne outlined a stronger medium-term outlook for nickel, which gained about 11% in the 12 months to December 2016. He noted that prices had been driven down by persistent oversupply and a substantial stock overhang.
London Metals Exchange (LME) inventories of nickel are high, with about one-billion tonnes in storage, despite a modest inventory drawdown starting January last year.
Meanwhile, more than half of nickel producers have been cash negative as costs rise and prices decline.
The nickel price has been volatile, ranging between $8 500/t and nearly $12 000/t in the past 12 months, with recent price swings mainly driven by policy instability in major producers Indonesia and the Philippines. Indonesia has imposed new export rules relaxing certain beneficiation requirements and allowing low-grade nickel ore to be exported, while the Philippines has closed many operations on environmental grounds.
The market is expected to be balanced in 2017, with prices improving towards the $15 000/t level in years to come, as greater supply deficits emerge.
URANIUM
Ux Consulting Nicolas Carter outlined a dire year for uranium, citing weak market demand, strong production totals and elevated secondary supplies contributing to a price decline. 2016 saw a supply overhang of more than 18-million pounds in a 208-million pound market.
Abundant low-cost supplies, continued slow progress in the restart of Japanese nuclear reactors following the Fukushima disaster, lower utility demand owing to high inventories and a strong US dollar weighed on the price of yellowcake.
The analyst expects the 12-month price outlook to range between $18/lb and $28/lb, finding a support level at $20/lb. He sees a supply overhang of 16-million pounds this year, highlighting the need for more production cuts, while new production at Namibia’s Husab mine is ramping up to add 15-million pounds a year to the already oversupplied market.
COPPER
Copper has broken out of a six-year downtrend – the longest on record – ending 2016 strong and seeing further gains so far this year, said Michael Schwartz of Canada’s Teck Minerals. He noted that the low price had affected the mining industry and its services industries severely, with impacts to be felt for years to come.
Prices have fallen into the cost curve, driving spending cuts. Prices have reached the ninetieth percentile of C1-plus-sustaining-costs against the LME copper price range, with cuts on sustaining and expansion capital expected to limit mid-term growth.
Output growth is expected to contract 4% this year, with 5% of capacity disruption already under way. In 2017, five mines will make up 83% of growth, with the two largest mines currently under suspension.
By 2020, a further 1.1-million tonnes will be added, with 80% coming from five mines and one greenfield project, Cobre Panama, which he said is really the last new project to come on stream for the foreseeable future.
Schwartz foresees a structural deficit emerging in 2019, noting that projects delayed today will not be ready by 2020 to fill the gap. By 2024, the supply gap could widen to more than five-million pounds.
ZINC
Wood Mackenzie analyst Andrew Thomas noted that zinc had outperformed its base metal peers in 2016, rising 70% in 2016 alone to about $3 000/t. Price-induced cuts, planned closures and Glencore’s unexpected strategic cuts resulted in a record drop in global mine output in 2016.
Mine cuts have created a zinc concentrate shortage and disrupted concentrate flows. The growing deficits in China and the rest of the world have depleted concentrate stocks and forced treatment charges lower.
About 500 000 t of additional mine closures and steady demand growth will create the need for 2.25-million tonnes of new mine capacity by 2021.
Global demand for zinc is expected to rise 2.4% a year between 2017 and 2021, pulling the price northwards towards historic highs around $4 000/t.
PRECIOUS METALS
The basket of precious metals comprising gold, silver, platinum and palladium have performed positively in 2016, with palladium gaining 23% to $781/oz on February 28, and silver gaining 18% to 18.28/oz in the same timeframe.
EWT Associates founder and chief analyst William Tankard noted that there is more room for near-term upside for gold than the other precious metals, benefiting massively from political uncertainty in the near term. He expects gold to move largely sideways this year and average a price of $1 150/oz.
Silver’s supply and demand fundamentals point to the market being in broad balance this year, with retail investors showing some interest. It is likely to mainly take influence from gold and remain volatile. Improving economic growth prospects and new uses theoretically favour silver, and industrial demand growth is key to a rise in the gold:silver ratio. Tankard expects silver prices to average $17/oz this year.
Meanwhile, platinum faces near-term challenges, with only a fractional deficit expected this year. European growth being on a better footing would offer some optimism for platinum, but this would be undone by high metal availability.
He said the diesel automotive sector is facing a public relations crisis and petrol engine substitution will favour palladium. The palladium market remains physically tight. He said ‘Trumpflation’, if deliverable, should also favour palladium.
He forecasts a 2017 average price of $975/oz for platinum and $750/oz for palladium.
https://www.miningweekly.com/article/what-a-difference-a-year-makes-analysts-outline-mostly-strong-commodity-fundamentals-despite-uncertainty-2017-03-07