Moderator: Max Court, Senior Commodities Analyst
Panelists: Simon Redmond, Director, Corporate Ratings of S&P Global Ratings, Colin Hamilton, Managing Director, Commodities Research of BMO, David Netherway, Non-Executive Chairman of Altus Strategies, Neil Gregson, Portfolio Manager of J.P. Morgan Asset Management.
Five key takeaways:
1. Bankers continue to increase demand estimates of commodities yet supply is increasingly lagged in response. For example, some banks expected flat growth in Chinese crude steel production year over year for 2018, yet the same growth is now widely estimated at around 5%.
2. Physical premia are increasing whilst headline exchange prices for base metals (copper particularly) are decreasing. Physical copper premia have risen to US$100/t C&F China since the beginning of October according to Platts, yet headline LME prices have remained lower at below US$6,300/t. This suggests that the financial industry is short-selling despite robust demand (primarily from China).
3. Majors now account for more than 50% of measured exploration budgets and junior spending on exploration is currently at a 16 year low. Only 30% of juniors' spend relates to Greenfield development. Not enough investment is being channeled into new deposits (particularly copper) and the exploration and production of key metals is becoming too centralized with major producers.
4. Nickel prices spiked to almost US$16,000/t in the first half of 2018 due to bullish positions on the global consumer trend. However, sluggish stainless steel prices – which account for over 65% of nickel’s end use – meant that the base metal’s price gains were not linked to physical demand and nickel prices have since pared back gains. This is partly explained by the market’s realization that electronic vehicle estimates are overblown for the near-term.
5. Uncertainty and trade wars help no-one and US-led tariffs on trade are more destructive than constructive. These actions threaten global growth and China’s export sector contracted slightly as revealed by a September export Purchasing Managers Index, or PMI, of 48.0 – a reading below 50.0 denotes contraction.
