Part of the Stock Digest group of websites: Visit Tech Stock Digest  

Copper, nickel outlooks dominate LME Week

VANCOUVER — The annual gathering of London Metal Exchange (LME) Week provides a bellwether for the major trends in base metals and industrial mineral markets over the coming year.

Metals investors, producers and consumers descended on London in early November to discuss emerging themes that include: impending copper and nickel deficits, expanding electric-vehicle (EV) markets, and the impacts of environmental protection in China.

According to Colin Hamilton, managing director of commodities at BMO Capital Markets, copper and nickel dominated many discussions.

Copper has been topical over the past six months, as three-month future contracts gained 20% en route to a $3.10 per lb. close at the time of writing.

For copper, the bullish investment thesis combines declining head grades at major operations, a lack of modern exploration investment, and a limited selection of viable development projects at current prices.

There’s dispute, however, over the timing of any pending copper supply deficit, and its effect on prices.

Hamilton noted that Freeport-McMoRan‘s (NYSE: FCX) large Grasberg copper-gold operation in Indonesia is expected to hit peak production next year, while First Quantum Minerals‘ (TSX: FM; US-OTC: FQVLF) Cobre Panama copper operation, labeled the “last greenfield mega-project,” is scheduled to soon come online.

Milling facilities under construction at First Quantum Minerals’ Cobre Panama copper project in Panama. Credit: First Quantum Gold.

Mill under construction at First Quantum Minerals’ Cobre Panama copper project in Panama. Credit: First Quantum Minerals.

BMO Research concluded there is “general agreement that the copper market will once more be roughly balanced next year,” and essentially no one is forecasting copper prices above US$3.18 per lb. for 2018.

“Looking into 2018, we actually estimate copper has the weakest fundamentals out of all the industrial metals. It doesn’t have a great story in 2018,” added Natasha Kaneva, a metals analyst with J.P. Morgan, during a base metals panel.

“We’ll see that last wave of mine projects coming on stream, and at the same time we believe the global demand will be maintained around current levels. Since we’re seeing a big supply response from the mine sites we expect another surplus,” she said, noting that copper could become a much bigger story during the second half of 2019.

Meanwhile, Hamilton said that “investor interest was clearly piqued by nickel” following positive comments about nickel by majors Vale (NYSE: VALE), Glencore (LON: GLEN) and BHP Billiton(NYSE: BHP; LON: BLT).

The base metal debate at LME Week. Credit: London Metals Exchange.

The base metal debate at LME Week in November 2018. Credit: London Metals Exchange.

Three-month contracts for nickel have gained 27% since early June and closed at US$5.15 per lb. at press time. The metal has benefited from growing demand related to the rise of electric vehicles, similar to rallies in the lithium and cobalt markets.

“Every presentation we saw had a section on electric vehicles and the shift in battery technology toward more nickel-intensive cathodes, the clear topic du jour,” Hamilton noted.

BMO Research pointed out that “nickel fundamentals actually weakened” recently, following a rise in Indonesian ore export licences and the prospect of 8% growth in global supply next year.

Kaneva added that nickel could stand to benefit the most from recent environmental restrictions by Chinese regulators.

Guy Wolf, global head of market analytics at commodity broker Marex Spectron, said, “it’s great that people are excited about electric vehicles again, but if you look at the percentages of nickel that feeds into battery technology, it doesn’t even matter. What does matter is the change in psychology. What really matters is what people believe the fundamentals to be.

“The reason we’re confident today is that the patterns of behavior have changed. There is absolutely no doubt we’re in the early stages of a bull market. What matters is that at the point of transaction, where people vote with their wallets. It makes us confident the supply-demand balance has structurally changed for this cycle.”

BMO’s Hamilton said zinc “remained in vogue,” but speculated the upside for zinc prices is now limited, after having gained 22% over the past six months to a US$1.45 per lb. close at the time of writing.

Click here to continue reading...

Subscribe to the RSD email list and get the latest resource stock activity directly to your inbox, for free.

MARKET SUMMARY

INDICES

Name Last Change
DOW 24792.20 0.57%
S&P 500 2690.16 0.53%
NASDAQ 6994.76 0.83%
TSX 16131.64 0.56%
TSX-V 807.51 0.00%

Resource Commodities

Name Last Change
Gold 1261.70 0.00
Silver 16.05 0.00
Copper 3.11 1.98%
Platinum 911.00 1.61%
Oil 57.30 0.45%
Natural Gas 2.61 2.76%
Uranium 24.25 N/A
Zinc 1.44 0.00%

@RSDigest ON TWITTER

Part of the Stock Digest family of websites
Small Cap Stock Digest