Engineering & Mining Journal

MAR 2019

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

Issue link:

Contents of this Issue


Page 65 of 67

64 E&MJ • MARCH 2019 MARKETS The fundamental outlook for copper in 2019 remains very positive, according to Wood Mackenzie. The market is set to register a sizeable defi cit and with stocks drawn down to well below-average levels, from a fundamental perspective, Wood- Mac expects average annual copper pric- es to trend higher throughout the year. If 2018 is anything to go by, howev- er, copper's fundamentals could be over- shadowed by events on the global stage. The specter of a slowing global economy continues to mount, underpinned by the unpredictable trade antics between Chi- na and the USA. The ongoing uncertainty around Brexit will add to the volatility, as will the growing concerns over the health of some of Europe's economies. This un- certainty is keeping investors on the side- lines for now, despite the fundamentally robust outlook for copper this year. Wood- Mac expects prices to take their cues from the associated macroeconomic and fi nancial news fl ows. The U.S. dollar's performance played a signifi cant role in commodity price di- rection throughout 2018 and is likely to do so again this year. The U.S. dollar should continue to weaken as the U.S. Federal Reserve holds off on rate increas- es. Not only will this support commodity prices, including copper, but it will also be good for emerging markets. Copper's fortunes will continue to be infl uenced heavily by developments in the world's second-largest economy, not least due to the tariff issues but also the addi- tional uncertainty around the Chinese gov- ernment's decisions to revise its policy on scrap again. Participants will look carefully for Chinese macro news fl ows and clarity on scrap. In 2018, tightness in scrap was partly attributable to the upward revision to WoodMac's refi ned consumption num- bers. Despite the potential upside again in 2019, any slowdown in the Chinese econo- my could cap that country's requirements. Meanwhile, disruptions to the supply side, be they mine or smelter stoppages, will provide upside support to prices, giv- en that the copper market is not fl ush with visible inventories, which are currently at levels last seen back in January 2015. Following a near 3% increase in mine production during 2018 to 20.7 million metric tons (mt), WoodMac expects this rate to slow in 2019, with growth of only 0.3% after applying a 5% disruption al- lowance. Supply increases in 2018 were driven by higher contributions from ex- isting base case mines. Between them, Grasberg and Escondida produced around 430,000 mt more last year, close to 65% of the global net increase on 2017. De- spite the startup of greenfi eld projects such as Cobre Panama, Mirador and Car- rapateena in 2019, their contribution will be more than offset by lower production from existing mines, and by Grasberg in particular. This Indonesian operation is expected to deliver less than half the amount of copper it produced in 2018, as it transitions from the end of open-pit mining to additional contributions from underground block caving. With a little more than 3% of disrup- tions in 2018 identifi ed to date, this begs the question as to whether there will also be a shortfall in mine disruptions in 2019. There are only a handful of new greenfi eld projects to be commissioned this year. Therefore, the scope for industry to miss guidance due to slow ramp-up of output is limited. There are at least 15 labor contract renewals due for negotiation in Chile during 2019, which is signifi cantly less than in 2018. Regardless, last year demonstrated the frequency of contract renewals is not necessarily a reliable indi- cator for predicting industrial action. Looking at 2019, however, WoodMac believes heightened global political risks could impact supply. This year, elections are due in Indonesia (April) and the Phil- ippines (May). Meanwhile, there has been a recent change in government in Mexico, with a new mining code already proposed. The results of the DRC election, which took place in late December, are currently being contested. Once resolved, Presi- dent Joseph Kabila will step down after 18 years in offi ce. There are also ongoing concerns over the impact of the new tax policy in Zambia. Curtailments have been announced recently at First Quantum's Sentinel and KCM's Nchanga operations and it is expected the Copperbelt will be featured frequently in the news this year. Copper at the Crossroads Gold and silver prices provided by KITCO Bullion dealers ( Platinum group metals prices provided by Johnson Matthey ( Non-ferrous base and minor metal prices provided by London Metal Exchange ( Iron ore prices provided by Platts Iron Ore Index. Currency exchange rates were provided by (March 15, 2019) Precious Metals ($/oz) Base Metals ($/mt) Minor Metals ($/mt) Exchange Rates (U.S.$ Equivalent) Gold $1,302.30 Aluminum $1,868.00 Molybdenum $27,610 Euro (€) 1.133 Silver $15.26 Copper $6,410.00 Cobalt $30,000 U.K. (£) 1.323 Platinum $832.00 Lead $2,053.50 Canada ($) 0.749 Palladium $1,560.00 Nickel $12,845.00 Iron Ore ($/dmt) Australia ($) 0.709 Rhodium $3,200.00 Tin $21,340.00 Fe CFR China $86.12 South Africa (Rand) 0.069 Ruthenium $270.00 Zinc $2,839.00 China (¥) 0.149

Articles in this issue

Links on this page

Archives of this issue

view archives of Engineering & Mining Journal - MAR 2019