Base metals rediscover spark
LME Week launches in London on Monday, Associate Director Peter Klinger explains why it is arguably one of the best environments for base metals in many years.
Zinc is on a tear, copper is turning around, cobalt is out of this world and nickel has begun to capture the attention of the battery materials investors.
And lithium will attract lots of prominence during discussions at Monday’s LME Week Seminar, one of the week’s two headline events. (The other is the high-powered, invites-only LME Annual Dinner on Tuesday.)
Monday’s all-day seminar, which is expected to attract at least 600 mining and investment community participants, includes presentations from Freeport-McMoRan Americas president Red Conger (on copper), Benchmark Mineral Intelligence’s Simon Moores (lithium/battery materials), BMO Capital Markets head of commodities research Colin Hamilton (focus on zinc) and Marex Spectron global head of market analytics Guy Wolf (nickel).
There are arguably two drivers at work here.
The first is general global growth, as always dominated by China, and the supply side response to metals such as zinc and copper.
Following the zinc price’s gradual collapse – the LME cash price dipped to around $US1469/t less than two years ago – the supply side response was drastic with a shutdown or curtailment of production. This response is now clearly coming home to roost.
Today’s LME zinc cash price sits around $US3299/t, levels not seen since 2007 and up from $US2552/t since the start of this calendar year.
Producers and promotes are struggling to get new supply into the market, and this rapid recovery looks set to suit those with near-development projects, resource upside and proximity to zinc smelters. Energia Minerals (ASX: EMX) is a good example.
Copper, at $US6964/t, is trading at its best levels since 2014. Although the price was not as run-down as zinc’s, there have been market concerns about copper oversupplies coinciding with weaker economic growth conditions.
Some of those concerns are easing and the metal price is up from $US5573/t at the start of this year.
Those already in production are enjoying the uptick, and those who have discovered the next resource to be mined are fast-tracking development options. Few companies have both though Brazil-focused Avanco Resources (ASX: AVB) fits the bill while Aeris Resources (ASX: AIS) has seen its share price jump more than 40 per cent since July.
The second driver for the positive metals outlook is the batteries boom.
Ironically the LME, the centuries-old bastion of metals trading and pricing, does not run prices for the various lithium products that are front and centre of the batteries boom.
But the LME does quote nickel and cobalt prices, and the performance is interesting.
The LME price of cobalt, a key batteries material and with supply dominated by mines in the Democratic Republic of Congo, stands at $US58,700/t – a level not seen since the LME introduced a price in 2010. At the start of this year, cobalt was trading at $US32,500/t.
It explains why Australian Mines (ASX: AUZ), which is developing the Sconi cobalt-nickel-scandium project in northern Queensland, is starting to attract serious investor attention.
Since the start of this month, Australian Mines’ shares have soared 300 per cent. In the past week alone, 25 per cent of its share register was turned over as investors jostled for a position.
Various nickel miners are highlighting that their ore bodies contain cobalt. But over the past three months, in particular, the industry has highlighted how important nickel is to the modern batteries world. The focus has been on the production of nickel sulphates, which are most economically derived from nickel sulphide ore bodies.
Best of all is that pig iron and ferronickel products – the arch enemies of the nickel sulphide market – are no match for nickel sulphate’s contribution to cutting-edge batteries.
The nickel price, so long in the doldrums, is starting to show signs it is ready to hit through $US12,000/t again.
At last check LME’s cash nickel price was $US11,840/t, up from $US10,200/t a year.
There are similarities to zinc in terms of the supply side response: the prolonged price slump has discouraged investment in new nickel projects at a time when existing mines have been shut – just take a look at the inaction in the Kambalda region.
The nickel price has not traded above $US12,000t since 2015, and even then it enjoyed those levels only briefly.