Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr
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BASE METALS Base Metals: What Lies Ahead? A look at current developments and the future potential for copper, zinc and lead By Simon Walker, European Editor For the past decade, the mining world has gotten used to strong prices for base met- als. Even the shock slump of 2009 was short-lived in comparison to the general economic picture, with Chinese customers continuing to absorb virtually everything available. Chinese demand for copper, zinc and lead has supported prices for all three commodities, initially for export-led growth and more recently as the country's domestic market has burgeoned. In response, the world's major mining companies have pushed ahead with new developments, particularly in copper, committing to both new mines and brownfield expansions of existing opera- tions. The big question now, however, is whether their enthusiasm for capacity growth has been well-founded, or whether Chinese demand is set to fall back as the impacts of global economic factors become more widely felt even there. In April, the U.K. newspaper The Daily Telegraph reported that hedge funds had been increasingly cutting back on their exposure to commodities in gen- eral, and to metals in particular, reflect- ing growing concern within the invest- ment community that slower economic growth in China would depress demand. That has, of course, to be placed in the context of the Chinese government hav- ing earlier this year cut its growth target to just 7.5%, the lowest rate in nearly a decade—and one that most other coun- tries would still watch with envy. The Chinese forecast revision followed another from the International Monetary Fund, which suggested 8.2% growth there this year, rising to 9.2% in 2013, driven by increasing domestic demand. Copper cathodes produced at Boliden's Rönnskär smelter in Sweden. (Photo courtesy of Boliden) 88 E&MJ; • JUNE 2012 Copper, the Bellwether As shown in Graph 1, the London Metal Exchange (LME) three-months copper price plunged during the second half of 2009 from a high of nearly $9,000/met- ric ton (mt) to barely $3,000. After that, though, the metal gained ground fairly steadily, briefly breaching $10,000 at the beginning of 2011. A $2,000 slip from around $9,000 to $7,000 in the third quarter of last year has been fol- lowed by a period of reasonable stability, with perhaps the signs of a reaction to concerns over the Chinese economy visi- ble in the graph in March-April. Perhaps more interesting has been the relative performance of cash metal versus three-months, with a brief backwardation spike in late February having been the forerunner of a sustained period of backwardation—rising to more than $100/mt—through most of March and April. According to IntierraRMG in the May edition of its Copper Briefing Report, the cause of this premium for cash metal was unlikely to have been tightness in the world market, since Chinese buyers had been building up stocks over the first www.e-mj.com