Base metals market analysis and investment climate: Outlook from aluminium to zinc by Philip Newman,...
-
Upload
mines-and-money -
Category
Documents
-
view
646 -
download
1
Transcript of Base metals market analysis and investment climate: Outlook from aluminium to zinc by Philip Newman,...
Philip Newman CEO
CRU Strategies
CRU STRATEGIES a division of CRU International Limited
What’s driving commodity prices now?
Mines and Money London 2012
Phil Newman CRU Strategies London December 4th 2012
31 Mount Pleasant, London WC1X 0AD UK Tel: +44 20 7903 2000 Fax: +44 20 7278 0003
517, Tower 2, Bright China Chang An Building, 7 Jianguomennei Avenue, Beijing 100005, China Tel: +86 10 6510 2206 Fax: +86 10 6510 2207
Augusto Leguía Norte Nº 100 of.506, Las Condes, Santiago, Chile Tel: +56 2 231 3900 Fax: +56 2 231 4314
PO Box 1269, Langley, WA 98260 USA Tel: +1 360 321 4707 Fax: +1 360 321 4709
2911 West 54th Street, Minneapolis, MN 55410, USA Tel: +1 612 922 9092 Fax: +1 612 920 3225
Level 2, Kalpataru Synergy, Opp. Grand Hyatt Santa Cruz (East), Mumbai 400055, India Tel: +91 22 3953 7395 Fax: +91 22 3953 7200
CRU STRATEGIES
1. Demand trends...
2. Looking across the markets – is there a direction to the market?
3. Assessing investment opportunities – back to basics
Commodity demand is determined by economic growth & industrialisation trends
CRU STRATEGIES
80
84
88
92
96
100
104
-6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54
months after cyclical peak
Early 2000s
OECD IP fell off a cliff and copper prices reacted slowly and then simply ignored it...
Index of OECD IP
GFC Mid-1970s
Early 1980s
Early 1990s
It will take over 6 years for full OECD recovery => mid-2014 Jan 2008
0
20
40
60
80
100
120
140
160Copper price (indexed to Jan 2008)
…“because of China, stupid!”
CRU
CRU STRATEGIES
Eurozone: we have two scenarios, bad and terrible
USA: 107% of GDP debt (Eurozone is 91%) can’t be ignored but the fiscal cliff will be avoided (for now)...
China: they’re doing OK, they will do what’s right for China...
Policymakers hold the key, now more than before The markets don’t ignore them so neither should we...
CRU STRATEGIES
China (…still) – Urbanisation continues
– Subtle changes in metal needs
India ? – Steady growth but: from a low base and they won’t “do a China”
Investors ?
Recovery in OECD – Is the US the place to build stuff?
Besides policymakers, what drives demand today?
CRU STRATEGIES
China is the dominant commodity consumption region Chinese consumption as % of global consumption
CRU
0%
10%
20%
30%
40%
50%
60%
2000 2005 2010 2015
CopperAluminiumIron OrePotash
CRU STRATEGIES
Don’t get confused by lower growth rates from China as % Index of Chinese consumption, 2007=100 and 2012 = 100
50
60
70
80
90
100
110
120
130
140
150
160
170
180
2007 2008 2009 2010 2011 2012
CopperAluminiumIron OrePotash
50
60
70
80
90
100
110
120
130
140
150
160
170
180
2012 2013 2014 2015 2016 2017
CopperAluminiumIron OrePotash
Note: Shapes in gold 2007-2012 equivalent index
CRU
CRU STRATEGIES
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
Aluminim Copper Potash
2007-12 2012-17
...as the picture in absolute tonnage still looks good Growth in China’s annual consumption over 5-year period
CRU
0
50
100
150
200
250
300
350
Iron Ore
Thou
sand
s of
tonn
es (k
t)
Mill
ions
of t
onne
s (m
t)
CRU STRATEGIES
India needs reform if it is going to make a difference in our world (metals)
0
200
400
600
800
1,000
1,200
1,400
2010 2011 2012 2013 2014 2015 2016 2017
Ref
ined
Cop
per C
onsu
mpt
ion
‘000
t
India India x 2
CRU STRATEGIES
India needs reform if it is going to make a difference in our world (metals)
0
2,000
4,000
6,000
8,000
10,000
12,000
2010 2011 2012 2013 2014 2015 2016 2017
Ref
ined
Cop
per C
onsu
mpt
ion
‘000
t
India India x 2 China
Adding China puts that optimistic forecast into perspective!!
CRU STRATEGIES
0%
10%
20%
30%
40%
50%
60%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,00019
8019
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
1020
1220
1420
1620
1820
2020
2220
2420
2620
2820
3020
3220
34
IP s
hare
of G
DP
(%)
IP (2
005
USD
Bill
ion)
China IP India IP China IP share India IP share
Smaller % of a large number still delivers (much) more metals consumption in China than India
CRU, Oxford Economics
forecast China IP 2013-35: Ave 5.3% Adding $5.1Trillion India IP 2013-35: Ave 8.0% Adding $1.3 Trillion
Industrial production is a higher proportion of GDP in China
CRU STRATEGIES
Fore
cast
US
$/M
T
Investment Factors $4,305 Copper Fundamentals $5,325
CRU Copper Price Perspective, March 2011.
Supply Demand Inventory
Short term Hedge Funds
Index Funds
Total Price
Market Shortage
China Balance
Energy Currency
MARCH 2011 COPPER
EXAMPLE
It wasn’t that long ago when investors had a large influence on the copper price....
CRU STRATEGIES
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Investment Factors $2,190/t Copper Fundamentals $5,975/t
CRU Copper Price Perspective, October 2012
Supply Demand Inventory
Short term
Investors Hedge Funds
Index Funds
Total Price
Physical ETFs
China Balance
Energy Currency
..and although still important, less so.
LME Cash Price – October 2012 MTD Average $8,165/t
Fore
cast
US
$/M
T
…last 18 months: price down ~$2k; investors down ~$4k, fundamentals up ~$1k
CRU STRATEGIES
• Cheap gas
• Skilled labour
• Infrastructure
• Rule of law (at least you know what you have to do!)
• Labour flexibility?
USA – a resurgence?
++ ++ ++ ++ ??
CRU STRATEGIES
Different commodities have different drivers Is it as simple as putting commodities into boxes?
Fertilizers+Uranium • Ammonia
• DAP
• Potash
• Sulphur
• Sulphuric acid
• Urea
• Uranium
Steel related • Cobalt
• Coking Coal
• Iron Ore
• Manganese
• Met Coke
• Vanadium
• Zinc
Precious Metals • Gold
• Silver
• Platinum
• Palladium
Industrial metals • Alumina / Aluminium
• Copper
• Lead
• Palladium
• Platinum
• Tin
CRU STRATEGIES
1. Demand trends...
2. Looking across the markets – is there a direction to the market?
3. Assessing investment opportunities – back to basics
Commodity demand is determined by economic growth & industrialisation trends
CRU STRATEGIES
60
80
100
120
140
160
2011 2012 2013 2014 2015 2016 2017
Industrial metals fare well... Indexed to Q3 2012 = 100, nominal
CRU
CRU Index - Steel
CRU Index – Industrial Metals
CRU Index – Fertilizers and Uranium
CRU Index - Precious
Note: all forecasts are weighted to market value
CRU STRATEGIES
Looking across all 23, we have a number looking strong to 2016 – although generally modest growth (+13%) Base metals registers the strongest growth with the exception of copper
Hot > 15%
Warm 5% to 15%
Cold -5% to 15%
Freezing < -15%
Mild 0% to 5%
Cool 0% to -5%
* 2016 annual average price forecast (nominal $ or benchmark) versus 2012 Q3 average actual prices
Palladium, Tin, Zinc, Uranium, Alumina, Nickel, Aluminium, Platinum,
Lead, Vanadium, Coking Coal, Cobalt,
Phosphate DAP,
Iron Ore,
Manganese, Urea, Sulphuric Acid, Gold, Met Coke, Potash,
Copper, Ammonia, Silver, Sulphur
CRU
CRU STRATEGIES
60
80
100
120
140
160
180
200
2011 2012 2013 2014 2015 2016 2017
‘Industrial metals’ do well, even though it is dragged down by worries about copper... Indexed to Q3 2012 = 100, nominal
CRU
Tin
Lead
Palladium
Copper
Alumina Aluminium
Platinum
Palladium and Tin face tightness but both have substitution risks
Copper pessimism driven by supply – will it materialise?
CRU STRATEGIES
60
80
100
120
140
160
180
2011 2012 2013 2014 2015 2016 2017
Fertilizers generally have weaker outlooks (albeit from current highs), Uranium is a supply story Indexed to Q3 2012 = 100, nominal
CRU
Potash Sulphur
Uranium
Ammonia
Phosphate DAP Sulphuric Acid Urea
Uranium has supply concerns although a weak 2012 may alleviate / delay this
Sulphuric acid facing falling demand
Exc. Uranium and ferts are down 15% !
CRU STRATEGIES
80
100
120
140
160
180
200
2011 2012 2013 2014 2015 2016 2017
Steel holds pace with inflation – Zinc looks hot (have heard that before!!) Indexed to Q3 2012 = 100, nominal
CRU
Vanadium Iron Ore
Zinc
Coking Coal
Cobalt
Manganese Met Coke
Steel more or less holds its own, +13% - although this means ~zero% REAL growth
If any graph shouts “COST CONTROL” – it is this one....
CRU STRATEGIES
40
60
80
100
120
140
160
180
200
2011 2012 2013 2014 2015 2016 2017
Precious metals – uncertainty set to ease and price falls for Au and Ag; Pt and Pd have supply issues.. Indexed to Q3 2012 = 100, nominal
CRU
Platinum
Silver
Gold
Palladium Take out PGMs and Au/Ag are down 15% (only hope this means uncertainty does really abate...!)
CRU STRATEGIES
1. Demand trends...
2. Looking across the markets – is there a direction to the market?
3. Assessing investment opportunities – back to basics
Commodity demand is determined by economic growth & industrialisation trends
CRU STRATEGIES
…you just need a few things to fall into place. Finding a good project is easy...
Skilled labour
Growing resources
Good grades
Low political risk
Consistent geology Clear tax rules
CRU STRATEGIES
• Economic uncertainty is not going away immediately, investors have to be truly prized away from their cash!
• China is still supporting our industry, the worlds 2nd largest economy is growing at 7-8% p.a.
• The mining industry has always been risky – isn’t that why we like it?
What next...?
“Of all those expensive and uncertain projects, however, which bring bankruptcy upon the greater
part of the people who engage in them, there is none perhaps more perfectly ruinous than the search after
new mines”. Adam Smith “The Wealth of Nations” p.562
CRU STRATEGIES a division of CRU International Limited
Thank-you Phil Newman CEO CRU Strategies [email protected]