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Metals prices set for 'super-cycle' says Adriatic CEO: analysts see 'bullish signs'

Highlights

Infrastructure seen supporting prices 4-5 years

Mine supplies deemed inelastic

London — Metals are set for a new super-cycle, with prices to rise for the next four to five years on government post-pandemic stimulus, and silver set to be the star performer, Paul Cronin, CEO of base and precious metals mine developer Adriatic Metals told S&P Global Platts July 29.

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Analysts consulted on Adriatic's statement were wary of the term "super-cycle" due to uncertainties on the speed of economic recovery from the COVID-19 pandemic, but saw signs of a strong upwards movement in commodities prices that could signal a trend. Mike McGlore, senior commodities strategist of Bloomberg Intelligence, said in a Ch AI webinar July 29 that he believed gold and precious metals could already be in a super-cycle but that a broader super-cycle would need to be based on organic demand and not purely government stimulus.

Neal Brewster, manager, strategic consulting, of metals consultancy Roskill, said the current upwards trend in metals might be described as a "positive reward-cycle," while independent analyst Robin Bhar had been surprised at the speed of the rebound in commodities and specifically metals prices since the end of March.

Cronin said in an interview that a super-cycle is likely to occur because government fiscal stimulus will boost metals demand while supply will remain inelastic, not only due to mine production cuts having curbed supplies during the pandemic but also due to the recent lack of investment in new mine capacity, which will continue to curb supplies of some mine products, particularly copper, in coming years. Copper could potentially reach $8,000/mt, up from its present $6,458/mt on short supplies, he said.

While "safe-haven" gold and silver prices have further to climb from recent peaks, base metals are also doing "very well" and all metals with the exception of palladium which is used in diesel vehicles can look forward to higher prices as governments push towards greater infrastructure spending and a greener economy that will boost the electric vehicles sector, Cronin maintains.

"Metals prices of the early 2000s will be reached again," according to the mine developer. He noted that copper, nickel and aluminum prices have all rebounded since the pandemic really hit markets in March, and that notable recent price increases have been notched by zinc, up around 10% last month; silver, which rose 10% last week and 35% so far this year, and gold ,which has reached its highest-ever levels. He said that even lead – typically out of favor in recent years – has started to recover.

"The world is going to spend its way out of this through infrastructure which requires base metals: this has impacted iron ore prices and will impact zinc; copper prices are already moving on increasing electrification in the world, including electric vehicles which also impact nickel prices," Cronin said. "Certainly we'll enter a metals super-cycle. We're at the beginning of this. Both supply and demand will grow but supply is less elastic than demand and takes a long time to recover, so prices could increase quite substantially," the Adriatic Metals CEO said.

Gold, priced at $1,951/oz July 29, could potentially reach $2,000 - $2,500/oz within three years not only on investors' and Central Banks' appetite for this store of value but because a lot of gold oxide deposits are exhausted and recovery costs will grow as production shifts to lower-quality sulphide deposits with greater environmental considerations, according to Cronin. Silver's price could "easily" rise from its present $24.26/oz to $40/oz in the near future and is set to be the best performing metal over the next four to five years because it is a substitute for gold in hedging, has new industrial demand applications in batteries and electronics and also faces a short-term reduction in supply as very few smelters can recover low grade silver from lead concentrates economically, he said.

Adriatic Metals, which listed on the London Stock Exchange last December and is also listed on the Australian Securities Exchange, expects to start up an $180 million polymetallic mine project in Bosnia-Herzegovina in 2022 to produce silver, gold, zinc, lead and copper, and recently acquired Tethyan Resource Corp., a Balkans-focused lead/zinc and silver mine exploration company.

Analysts: too early to call super-cycle

Several analysts have in recent days predicted gold prices climbing higher, with silver shadowing.

"Gold just reached new records and silver has seen a massive rebound in the last few months. There are interesting bullish signals in various commodities, but it is early and maybe too optimistic calling this as the start of a new super-cycle," said Carlo Alberto De Casa of ActivTrades. "There are some elements which could remind us to be cautious as the post-COVID recovery could be not so quick as expected and a second wave of the virus could be detrimental for the whole industrial sector."

For ING Bank's Wenyu Yao, the unprecedented monetary easing and fiscal stimulus after the COVID-19 outbreak are reminiscent of the last cycle following the 2008 Global Financial Crisis. "From the perspective of copper mining cycles, it's always been inelastic compared to its demand cycles. I reckon what we are probably missing right now is that the demand growth from China may not be as strong as we've seen from the last cycle. Those days with two-digits GDP growth are looking a bit distant away as China is faced with an economic structure shift and intensified relations with the US among many aspects," Yao said.

Humayun Sheikh, CEO of tokenized commodities trading platform Mettalex was bullish on commodities. "With growing uncertainty in financial markets in the US and globally, attention is diverting to technology and commodities. Investors are looking for safe haven and economic recovery and with that commodities will be the asset class that fits the bill."

Commodities used in electronic products and industrial markets, which will recover with government stimulus, will be interesting for investors, Sheikh said.