Recent trading has revealed just how fractured the metals scene is with silver a stellar performer rising almost 19% compared to a week ago, even better than gold’s 10% gain, but a more mixed picture was evident in base metals.
By Tuesday, copper, zinc, lead and nickel had lifted on the short wave of euphoria gushing out of Wall Street, but tin dropped after a brief rally last week.
This seems to be a feature of the metals’ world in the shadow of the COVID-19 virus.
The latest Resources and Energy Quarterly from the Department of Industry, Science, Energy and Resources noted that during the first quarter of this year the virus had caused many price drops (oil and base metals notably) but with gold moving in the opposite direction.
However, editor David Thurtell (a former head of commodities research at Commonwealth Bank) does offer investors hope.
“Assuming China’s economy is back to normal by the second half of 2020, these moves are likely to be fully unwound by then,” he said. “Thereafter, supply issues will largely drive price moves.”
And, in one surprise, the report is bullish on that most beaten down of all commodities, uranium.
The report also indicated Australia could become number one gold producer next year.
By late Wednesday, silver had reached US$14.46/oz, gold rose by similarly and was last trading at US$1,612/oz.
Meanwhile, on Tuesday, London Metal Exchange copper was attracting US$4,789 per tonne – up from US$4,617.5/t the day before.
Nickel lifted to US$11,075/t, and zinc was up marginally to US$1,822/t following a large fall over the weekend.
Following a similar weekend drop, lead inched up marginally to close Tuesday at US$1,617/t.
During the same period tin slid from US$13,975/t on Monday to close the next day at US$13,450/t.
Zinc still in the doldrums
When looking at the outlook for many metals in the latest quarterly the prediction for small cap companies in the zinc business is not great.
Mr Thurtell and his team expect zinc prices in real terms to decline over the next five years as production starts to respond to the high prices of recent years.
The projection is that zinc will sink from the US$2,605/t average in 2019 to US$1,864/t (again, in real terms). And that 2019 average was down 16% on 2018’s performance.
Zinc has been impacted by US-China trade tensions and the resulting downturn in manufacturing and car sales.
It all depends on China, which refines a large amount of the world’s zinc, and that output could be impacted by worker shortages.
However, on the plus side, the reports revealed the “wildcard” for zinc prices was the increasing potential for zinc-bromine based batteries as an alternative to lithium-ion ones, especially in the energy storage space.
It is still early days but if that development occurs it will put upward pressure on zinc prices.
Price rises on horizon for uranium
Tight supply conditions — including the closure of Australia’s Ranger mine next year — will force a lift in uranium prices, the report forecasts.
Interestingly, the spot uranium price has already begun moving upwards, with the last reported quote at US$25.90 per pound, but still nothing like what is needed to get uranium juniors sweeping off the cobwebs from their development plans.
The price has had a floor of around US$25.00/lb placed underneath it following production cuts in Kazakhstan and Canada. The resources quarterly said that buying has picked up among smaller firms.
“With supply remaining constrained, reactor constructions in Asia, the Middle East and Eastern Europe should push prices up slowly with a levelling out above US$40/lb by 2024,” it added.
However, the resources team warns that many mining projects have been abandoned or placed in hiatus in recent years, and uranium mines can take significant time to start or restart.
Lithium prices to lift after 2021
The lithium hydroxide price (delivered to China) eased by 18% in the December quarter, coming down to US$7,750/t – over the year 2019, the fall was 49%.
The report said prices should rise by 2025 to around US$10,400/t on the back of higher electric vehicle sales, with shortages of this chemical possible by 2023.
Global lithium consumption is projected to rise from 291,000t in 2019 to around 750,000t by 2025
As for Australia, there is expected to be a strong rise in spodumene ore output in 2022 and 2023.
“Spodumene production in Australia has scaled back sharply in recent quarters, but capacity to refine lithium hydroxide is ramping up,” the report noted.
This country’s export earnings are projected to more than double by 2025 as world battery production increases and the demand for lithium hydroxide leads to supply shortages.
Australia to become world’s largest gold producer
World supply of gold (including scrap) is forecast to reach a peak of 4,962t in 2021 (adding further fuel to the arguments whether we are headed for “peak gold”).
The resources quarterly said global mine production will rise 2% this year to 3,533/t, then another 1.9% to 3,600/t next year.
The big news is that the department expects Australia to overtake China as the world’s largest gold producing country in 2021 (with our mines to supply 383t for the year) as miners respond to record prices.
Chinese output has been affected by the COVID-19 outbreak and increasing environmental regulation.
Batteries to lead nickel
The use of nickel in battery manufacturing is expected to rise through to 2025 as both the scale of battery manufacturing expands and the nickel intensity of batteries rises.
“Technological advances are facilitating the manufacturing of batteries with a higher amount of nickel, which is favoured for its efficiency, longevity and cost-effectiveness,” the report revealed.
Battery making now accounts for around 4% of nickel usage. The speed of increased use will be dependent on the trajectory of EV sales.