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INTERVIEW: COVID-19 recovery to bring metal price mini-boom, not super-cycle: EY

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Platts Bunkerwire

INTERVIEW: COVID-19 recovery to bring metal price mini-boom, not super-cycle: EY

Самое важное

Heightened metal price volatility foreseen

M&A activity set to rise

ESG set to drive metal price rises

London — The current stimulus-led metals price recovery from COVID-19 lows won't result in a supercycle but rather a mini-boom, with heightened price volatility, Paul Mitchell, Global Mining & Metals Leader at consultancy Ernst & Young, told S&P Global Platts in an interview.

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This may bring more merger and acquisition activity in the sector, particularly in North America and among steel producers and then coal miners, as well as in the gold sector, Mitchell said.

Prices for non-ferrous metals including copper and aluminum and steel products including hot rolled coil in recent weeks exceeded pre-pandemic levels on rising demand for materials for infrastructure projects, fueled by as much as $27 trillion put up by governments worldwide in subsidies, investments and loans in response to the COVID-19 pandemic. The LME cash price for copper, considered a barometer of global economic health, jumped more than 40% between late-March and mid-September, remaining firm at $6,507.50/mt Oct. 5, on a combination of demand from China, mine production disruptions and the move towards "green recovery", which is expected to radically boost demand for copper for charging points for electric vehicles.

"I think we'll see a mini-boom for the next 3 or 4 years...and go back to a time of volatility," Mitchell said. "This will be generally positive, but with lots of ups and downs in prices, as countries change policies and geopolitics and nationalism play out. Half of the world's copper goes to China: if China has a second wave (of coronavirus) the copper price is going to fall; if China continues to invest in infrastructure the copper price is going to be fantastic: there's all these factors that more than usual are out of our control."

Analyst sees mining 'sweet spot'

Analyst Christopher LaFemina, equity analyst with Jefferies, said in an Oct. 6 report that Jefferies expectsmost commodity prices and mining share prices to rise over the next 6-12 months, mainly on steel and metals-intensive infrastructure spend.

"We are heading into the sweet spot of the mining cycle," LaFemina said."We expect prices for copper, nickel and most other commodities to increase in 2021. Iron ore is the outlier as we believe slower Chinese demand will lead to some downside to prices, but we still expect the benchmark price to average at least $100/tonne for 2021. Demand in China should stay strong and demand in most of the rest of the world has slowly recovered from the 2Q trough."

EY's Mitchell said he thought that the mining industry "has dealt remarkably well with COVID." Mining was classified as an essential service including in Australia, the US and Canada, which meant many mines continued producing during the pandemic. While prices for copper, aluminum and even gold have in recent days come off slightly, "if we have supply shocks prices could go up again," he said. "The impact of the virus in Brazil is impacting iron ore pricing significantly."

S&P Global Platts assessed the 62% Fe Iron Ore Index at $123.15/dry mt CFR North China on Oct. 6, stable from Oct. 5, having slipped back from a six-year high of $130/mt late September.

ESG more likely to prompt supercycle

While government stimulus and pandemic-related supply and demand shocks have laid the ground for a mini-boom, a much bigger driver of metals prices over the longer-term will be the infrastrastructure investment needed for ESG (environmental, social and governance)-related investments in carbon-reduction and the green transition, according to Mitchell. This will involve renewable energy infrastructure and the electrification of transport, which will in particular boost demand for copper -- sought after also for its antimicrobial qualities -- and require much more lithium, aluminum, nickel, iron ore and metallurgical coal, as demand for steel for use in wind turbines and solar panels will also increase, he said.

"It's going to be a really interesting challenge...and one that's more likely to lead to a supercycle," he said.

"ESG is a strong point of focus for the Chinese government...the political transition in Germany means we're going to have generational change there...and the US election will also be really critical for ESG," Mitchell said.

Supply chains will see changes, with more pressure to buy locally, with increased nationalism, he said.

North American and European metals producers are now "ripe for some big changes", including mergers and acquisitions, Mitchell said. Last week US miner Cleveland-Cliffs announced plans to acquire most of steelmaker ArcelorMittal's US mine and steel assets. "Massive changes" may occur particularly in the non-ferrous sector, where metals suppliers will need to shift away from the automotive and aeronautical industries -- their focus over the last 10-20 years -- towards infrastructure markets, he said.

"Mining is an industry that's going into further disruption," Mitchell said. "The industry has been relatively stable for some years but 2021 will see further consolidation... and sales of assets, maybe some big mergers after a few in the gold area in the last year, and new mining companies start up."