January 13, 2020
The threat of a long trade war limited mining activity and kept manufacturers from adding to their stocks. The result: Inventories at warehouses tracked by the three international exchanges, a last resort for supply, have shrunk by about 37% since July to just shy of 300,000 tons, equivalent to just 1.2% of global consumption. Meanwhile, mine production fell 0.4% last year from 2018.
That has large international banks largely bullish on the metal. Citigroup Inc. sees demand in China, the top consumer, jumping 2.6% after barely rising in 2019, powered by power grid and automaker investments. Goldman Sachs Group Inc. analysts see prices at $7,000 a metric ton in 2020, according to a December report. That follows a 3.5% gain to $6,174 in 2019.
“Europe and developed Asia have been destocking pretty aggressively over the past six months or so,” said Colin Hamilton, an analyst at BMO Capital Markets, by phone. “You can’t do that forever.”
Copper, a malleable conductor of both heat and electricity, serves as a barometer of global economies because of its broad use in wiring and motors, construction materials, electronics, and in vehicles for everything from radiators and connectors to brakes and bearings.
Copper’s tight supply situation was masked by the trade tensions, according to Darwei Kung, head of commodities at DWS Investment Management Americas Inc., who is bullish on the metal. Now with a preliminary truce between the countries, copper is looking “positive” this year, he said.
But it’s no slam dunk. Traders and analysts surveyed by Bloomberg last week remained neutral on copper, awaiting the signing of the so-called phase-one trade deal between the U.S. and China, as well as further clarity in the U.S.-Iran standoff as Chinese fuel supplies could be substantially impacted.
“Copper seems to have found a good short-term base above $6,000 but a further rally may have to wait” until after the preliminary trade truce is signed, said Tai Wong, the head of metals derivatives trading at BMO Capital Markets.
Some analysts expect the downward trend in China’s gross domestic product growth to continue slowing, despite the recent breakthrough with the U.S. on a first-step trade agreement, limiting copper’s upside.
“You can’t be greedy in this kind of environment,” BMO’s Hamilton said. Any further escalation of geopolitical tension has the potential to dampen economic activity and weaken demand for base metals, Goldman Sachs analysts said after the Iranian crisis.
While recent manufacturing data in key copper-consuming markets -– China, Germany and the U.S. — have been uneven, the fact that they are “not getting worse is actually positive,” said DWS’s Kung.
German manufacturing remains burdened by issues ranging from the U.S.-China trade conflict and Brexit uncertainty to its own struggles to manage the auto sector’s shift to electric vehicles. But its latest industrial output data offered a cautious sign that Europe’s economy may be near the bottom of its manufacturing slump.
In Asia, which accounts for more than 60% of copper demand, manufacturing finished 2019 with a modestly brighter outlook, with fewer economies signaling contraction at factories.
Seiichi Murayama, the head of JX Nippon Mining & Metals Corp., the owner of Japan’s largest copper smelter, last week called copper a “growth metal” driven by the need for infrastructure in emerging Asian countries. But he warned that continued progress is needed between the U.S. and China for the market to continue growing.
In China, the manufacturing sector continued to expand in December, adding to evidence that the world’s second-largest economy is stabilizing.
The manufacturing purchasing managers’ index remained at 50.2, and the outlook for export-oriented firms brightened, with a sub-index of new orders for export rising above the 50 mark for the first time since May 2018. Production recovered for a second month and output prices narrowed their decline.
China’s central bank’s willingness to provide liquidity, reflected by its move earlier this month to trim the amount of cash that lenders must hold in reserve, will also be “helpful for demand and pricing,” said BMO’s Hamilton.
Please find linked and pasted below a recent Mining Journal article discussing a potential copper market rebound in 2020.
Copper rose 6.7% in December. The month saw an average price of $2.74/lb, improving on an otherwise stagnant 2019 for the red metal, which saw an average price of $2.72/lb, down 20c or 7% from its $2.92/lb average in 2018. Last year was one in which copper’s impetus to rise was checked by the US-China trade dispute, despite a growing tightening in copper supply as evidenced by treatment and refining for copper concentrates falling to lows of $67/6.7c.
Mine supply is reducing as lower grades continue to bite, notably at the emblematic BHP-operated Escondida mine in northern Chile, where production fell 8.4% in the nine months through September 2019 to 870,970 tonnes compared with 950,889t produced in the same 2018 period.
With lower prices and lower production, Escondida’s 2019 profits were below previous years. Escondida saw profits fall 20% to $1.1 billion in the nine months to September 2019 while Chile’s state copper company Codelco saw a 57% drop to $603 million in the same time period.
Lower profits and sub-$3-3.50/lb prices mean copper miners are hesitant to invest in new capacity. However, Chile’s Cochilco copper research agency reported that the country would see $10.4 billion in mining investment in 2020, some 57% more than in 2019, with 85% of that earmarked for copper projects.
“From a more macro point of view, there remains a deep disconnect, relatively speaking, between low prices and low inventories of metal held in warehouses. One does not need to spend a great deal of time doing an in-depth analysis of the markets to see the incongruity, just glance at where inventories were for each [base] metal a few years ago, and where they stand now and you will see our concern,” said copper consultant John Gross in the Copper Journal Monthly Report published in early January.
Peru, meanwhile, expects $6.2 billion in mining investment in 2020 in seven projects, although the majority of that investment will be in precious metals projects and base metals other than copper.
This includes a $579 million brownfield expansion at the Corani silver mine in Puno by Bear Creek Mining to lift its production to 9.6 million ounces a year. In northern Peru, the Yanacocha Sulphides project represents investment of $2.1 billion to optimise tailings storage at the gold mine, which from 2023 will produce 350,000oz/y and 544,000t of copper. Polymetallic miner Buenaventura is also expected to start construction of its San Gabriel gold project in Moquegua with an investment of $431 million.
Glencore subsidiary Minera Antapaccay plans to invest $590 million in the Coroccohuayco copper project in Cusco, which aims to extend the life of the Tintaya mine and see it process 20,000 tonnes per day to produce 105,000tpy of copper.
On the exploration front, Peru’s SNMPE national mining, petroleum and energy association, foresees exploration spend falling in 2020 for a second consecutive year.
“As a result of delays in obtaining permits and the different administrative and bureaucratic obstacles, investment in mining exploration maintains worrying contractual trends. Thus, while in 2018, $413 million in investments were reported, this year we will hardly approach $360 million,” executive director of the SNMPE, Pablo de la Flor, said in a statement.
Exploration expenditure rose to $625 million in 2014.
Please find linked and pasted below an article published by Bloomberg discussing the copper market outlook for the new year.
By Aoyon Ashraf, December 16, 2019
Copper, often called “Dr. Copper” due to its correlation with the economic cycle, could be the trade of 2020, as most industry analysts expect a “lift-off” for the metal as global demand recovers.
Gold miners had a blockbuster year in 2019 owing to expectations of U.S. Federal Reserve rate cuts and as geopolitical tension mounted between the U.S.-China. But concern about dampened global demand as a result of trade threats left base metal miners limping into the new year.
But that might reverse next year thanks to improved demand, making copper “poised for liftoff,” according to Jefferies analyst Christopher LaFemina. Low copper inventories, high short positions, supply constraints and better demand are creating conditions for the metal to rally, he wrote in a note to clients.
Joining LaFemina in his optimism is Goldman Sach’s Jeffrey Currie, who thinks copper is “set to inflect” in 2020 due to strong growth out of China. Morgan Stanley, Bank of America and Citi also have positive expectations for copper and an improving global economy.
History shows that base metal miners have often caught up with gold equities after precious metals outperformed. The S&P/TSX Equal Weight Global Base Metals Index (TXBE) underperformed the S&P/TSX Equal Weight Global Gold Index (TXGE) in 2016, but caught up by the end of 2017. If analysts are right about the outlook for copper in 2020, the same trend may be coming soon.
Here is what the analysts are saying about what to expect for metals and mining in 2020:
The firm is most bullish on copper miners for 2020 as current supplies won’t be able to meet “even a modest cyclical recovery in demand,” LaFemina wrote. Expects Freeport-McMoRan Inc., First Quantum Minerals Ltd. and Glencore PLC to benefit most from the copper price recovery. Freeport and First Quantum are his top picks. Also expects select iron ore miners such as Anglo American PLC, Vale SA and Rio Tinto PLC to outperform as prices are expected to remain high, peaking at more than $100 per ton in the near-term. The firm is “least bullish” on gold.
“Copper is our most bullish view,” for 2020, according to the commodity team. Copper demand in China has been particularly restrained by “poor performance in the grid, property and transportation sectors” and that’s likely to change heading into 2020. “We expect strong completion growth in the next two years, continuing a positive trend in the property sector since August,” and grid investment is likely to pick up strongly in the first quarter of 2020 thanks to the government infrastructure stimulus. Meanwhile, the “strategic case for gold” is still strong.
Most bullish on alumina, copper and coking coal in 2020, while bearish on zinc and iron ore. Thinks commodities will benefit from modestly higher global growth, with much of the improvement coming from emerging markets. The commodities team is also bullish on gold in the medium-term. The bank’s equity analyst upgraded Teck Resources Ltd. to buy on better a coking coal outlook and valuation.
The bank’s commodities team expects a moderate rise in demand in 2020, driven by a “mini-cycle recovery” through year-end. Remains constructive on the North American mining sector and particularly favors copper exposure. Sees Freeport-McMoRan and Teck Resources as the best way to gain exposure to bullish copper sentiment. Commodities team is bearish on the aluminum and alumina outlook, but the equity analysts still see some upside in 2020 for Alcoa Corp. The team also expects higher met coal prices as ex-China demand should tighten the market. Bank’s top commodity picks are cobalt and copper, while the least preferred are iron ore, lithium and zinc.
Bank of America
Sees cyclical raw materials benefiting in 2020 from a potential inventory restocking cycle, easier Fed policy and an interim China trade deal, providing an attractive inflation hedge. Thinks that copper and nickel are likely to rally in 2020, while the outlook for gold and precious metals is more cautious.
Click on the link below for timely copper market research from RBC Capital Markets.
If in doubt about the case for investing in copper, whether the metal itself or through a copper-mining company, then the man to ask is the boss of the world’s second biggest gold-miner, Barrick Gold.
Mark Bristow, the straight-talking South African chief executive of Barrick, emerged last week as an advocate for copper as a metal most likely to succeed in a world with an increasing appetite for everything electrical.
A Bigger Copper Footprint
While gold seems likely to remain the backbone of Barrick, it could also have a bigger copper exposure because, in Bristow’s words: “Where we have opportunities to secure or expand our copper footprint, we will.”
Why copper appeals to Bristow is the potential for rapid and significant demand growth at a time when supply seems to be peaking as old mines run short of high-grade ore and new mines prove hard to find and increasingly expensive to develop.
Copper, to Bristow and a number of other well-connected mining experts, is morphing from its traditional role as an industrial metal into a strategic metal which is developing new markets in electric cars (which use four times as much copper as a gasoline-powered car) and in renewable energy systems such as wind and solar which are also copper-heavy.
Until recently, copper was not a hot commodity, marked down by investors because of the potential for a demand decline caused by the China v U.S. trade war.
From a peak price earlier this year of $2.96 a pound copper has slipped to $2.64/lb, though that price is actually up 11c on the low point of $2.53/lb reached last month.
Gold Fades As Confidence Grows
What makes that modest copper-price recovery interesting is that it has occurred as another metal, gold, has been falling – almost as a mirror-image to copper. Gold is down 4% over the past month to $1469/oz, whereas copper is up 4%.
Whether much can be read into the direction of the two metals is an interesting question, especially when the views of seasoned gold-miners liked Bristow are considered along with the new-found interest of other mining leaders in copper.
Brian Gilbertson, another South African with mining in his blood, has nominated copper as a prime target for a new fund he is setting up with the metal trading firm Traxys, which has the asset manager Carlyle Group as its major shareholder.
A former chief executive of BHP, the world’s biggest mining company, Gilbertson is now most closely associated with the private investment vehicle, Pallinghurst Group, which has a range of mining interests and plans to become a significant player in the world of battery metals, a group that includes lithium cobalt, nickel and copper.
The Pallinghurst-Traxys Battery Materials joint venture will look for controlling interests in mines and processing facilities in order to grow exposure to the electric vehicle and energy storage revolution.
In terms of timing, both Bristow and Gilbertson are betting on the rise of battery metals, especially copper and nickel, as signs grow of a possible end to the trade war which, if it happens, will drive demand for basic raw materials.
Boiled down, there appears to be a “risk on” shift which will boost industrial commodities, and a “gold off” move as funds are rotated out of safe havens into segments of the commodity market exposed to growth.
Copper Shorts Shrink
A significant shift in speculative sentiment towards copper was noted last week in a report carried by the Reuters news service. It said a record net-short position in the CME copper market of 74,597 contracts just three months ago had collapsed to just 17,838 contracts with a short position.
Funds and private investors turning bullish about copper coincides neatly with Bristow and Gilbertson naming copper as a metal of interest in their future growth plans – and the decline of gold as the appeal of safe havens fade.
Investment banks are also slowly subscribing to a “copper on, gold off” investment thesis.
Morgan Stanley, for example, has copper as the second hottest metal on its “investment heat” list, topped only by cobalt. It also sees gold being a metal at risk of a sharp correction.
“We see increasing risk to out 2020 first-half (gold price) outlook of $1515/oz, assuming continued progress on a China-U.S. trade agreement is made,” the bank said.
Morgan Stanley now sees the potential for gold to retreat to its bear case of $1394/oz in the first half of next year.
“Funds are starting to turn more bullish on copper” – Andy Home, Reuters
“Barrick gold chief eyes growth in ‘strategic’ copper” – Neil Hume, Financial Times
Please find linked and pasted below a timely commentary on copper markets.