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10
Jan

December Updates

2017 – a bullish year for metals

Prices for most metals will rise in 2017 ‘more sharply than expected’ as a long period of declining prices appears to be bottoming out, according to the World Bank’s Commodities Markets Outlook. It ascribes this to rapid closure of mines, ahead of schedule. However, further slowdown in China could weigh on metals prices, it adds. Metals fell 9% in 2016.

GOLD: prices disappointed fans in 2016, rising by around 9%, as expectations of higher dollar currency and interest rates lured investors away.  Forecasters are expected a return of positive sentiment in 2017, but not until the second half, when gold’s haven appeal should bring a return of investors. Uncertainty is likely to be caused by a string of European elections and referenda; in addition the Trump presidency is not expected to be a smooth one. International investment banks, such as ABN AMRO and RBC, expect the price to average around $1,130 an ounce.

SILVER:  After outperforming gold in 2016, rising by 19%, silver is again seen as a better bet because of its exposure to industrial demand

COAL: The industry’s prospects rebounded in a tumultuous year, 2016’s prices moving up from $81 to over $200 a metric ton, according to Reuters. This was one of 2016’s surprises, coming after a decade of decline.  Behind the surge — or ‘met coal mania’ as it has been dubbed by one bank — are production curbs in China as the government restricted working days at domestic coal mines to 276 a year, down from 330. The impact was magnified by disruptions to Australian supplies. While prices were originally forecast to stabilise in 2017, events may produce further rises. Already Vietnam has been driven by high domestic costs to import and the UN has banned North Korea from exporting to China.

LITHIUM: Soaring prices have brought Africa into the lithium trade, which is dominated by Australia and North America. Australian miners stepped up exploration as a scramble for lithium for batteries followed the widening acceptance of electric cars. This sent the price up 60% in 2016. A few days ago, the Financial Times reported, an Australian miner sold a lithium prospect in West Africa to a Chinese buyer for $78 million, more than 2,000 times what it paid just 11 months ago.

PALLADIUM: markets opened 2017 with a bang after rising 20% in 2016. Prices climbed 9% in the first few trading days. The boost came from strong US and Chinese manufacturing data and bullish sales update from General Motors. Its last year’s outperformance of gold and platinum was driven by demand as a catalyst for petrol-powered vehicles. The same is expected by traders Johnson Matthey in 2017. The outlook for prices, however, analysts say depends on growth in China, the US dollar and further launches of electric vehicles.  International bankers HSBC forecast a price of $850 an ounce.

PLATINUM: Platinum is expected to draw support from what HSBC described as a ‘persistent but narrowing deficit and price-sensitive investor demand’. The platinum supply deficit is forecast to reach 150,000 ounces in 2017, on the back of demand for catalytic converters, compared to an expected 368,000 ounces in 2016, and the price is forecast to reach $1,075.

COPPER: Copper is forecast to see a change of fortunes in 2017, the sudden price spike seen near the close of 2016 continuing to make it the best performer among the metals. Drivers are hopes that President Trump’s promised $500 billion infrastructure plan will materialise, and a pick-up in Chinese imports (the country is responsible for around 50% of world import demand).  Investment bankers Goldman Sachs see bullish markets ‘at least until mid-2017’.  The industry’s Copper Studies Group expects world apparent refined usage in 2016 to increase by 1.5%. This is mainly because apparent demand in China is expected to increase by around 1.5%, although underlying ‘real’ demand growth in China is estimated by others at around 4%.

ZINC:  Zinc prices rose steadily through the year on supply shortages, about doubling over 2016. This was the result of mines reaching the end of their productive lives and as major producers, particularly Glencore idled production. The market is expected to remain in deficit over 2017, according to The Zinc Study Group, but the position will ease as prices continue to rise, making production attractive again. Canadian mining bank Scotia forecasts that prices will average $1.25/lb in 2017 before declining inventories prompt a second rally into the $1.50-1.60/lb range in 2018.

ALUMINIUM: For a metal in chronic state of over-capacity, aluminium prices made surprising progress in 2016. Unless, forecasters say, China brings a halt to the subsidising of aluminium smelters, or the world embarks on a major infrastructure investment boom, the 2017 price is unlikely to stay above the $0.80/lb level for long.

DIAMONDS: In December de Beers had its smallest sale so far this year, as demand was hurt by India’s crackdown on black money. The company sold $418million of diamonds, compared with $476million at its previous offering. It sees the slowdown as ‘temporary’.

GOVERNMENT

TANZANIA: President John Magufuli shocked the mining world in December by cancelling a prospecting licence owned by Barrick Gold subsidiary Acacia Mining (the country’s biggest miner) in favour of small-scale miners. The president wants foreign-owned mining companies to pay more taxes, build local smelters and list 30% of their shares on a local stock exchange. Barrick is looking for a buyer for its 60% stake in Acacia.

SOUTH AFRICA: The Department of Mineral Resources plans to ask mining giant Lonmin for a compliant housing plan. President Zuma said he may revoke the company’s mining rights if it doesn’t receive it.

Production of platinum group metals in South Africa fell 12% last year, according to Statistics South Africa. Manganese ore output fell by 10.5%, other non-metallic metals fell by 14% and gold production fell by 3.7%. Iron ore production, however, improved 5.9% and coal production gained 4.3%.

ZIMBABWE: Finance Minister Patrick Chinamasa announced new mining legislation that will push large mining companies to compulsorily release excess mining ground.

ZAMBIA: Government plans to double copper production in 2017, but the year opened with a strike over pay talks at giant Konkola Mines.

CONGO: Soremi, the local subsidiary of the state-owned China National Gold Group, is expected to start copper production this year.