2024 Base Metals Outlook Report
Get ready to capitalize on the dynamic world of base metals with our exclusive 2024 Outlook Report. From copper to zinc, we delve into market dynamics, price forecasts, and key drivers influencing the sector."
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A Sneak Peek At What The Insiders Are Saying
“Global nickel consumption is expected to increase due to recovery of the stainless steel sector and increased usage of nickel in EV batteries. Batteries now account for almost 17 percent of total nickel demand, behind stainless steel."
— Ewa Manthey, ING
"We expect zinc’s price to be supported by concentrate market tightness in 2024, although the prospect of refined metal surpluses is likely to constrain bullish sentiment."
— Helen O’Cleary, CRU Group
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Base Metals Outlook And Investing Opportunities
Table of Contents
Copper Price Update: Q1 2024 in Review
Copper Price Update: Q2 2024 in Review
Nickel Price Update: Q1 2024 in Review
Nickel Price Update: Q2 2024 in Review
Zinc Price Forecast: Top Trends That Will Affect Zinc in 2024
Zinc Price Update: H1 2024 in Review
Iron Price Forecast: Top Trends That Will Affect Iron in 2024
Lead Price Forecast: Top Trends That Will Affect Lead in 2024
Copper Price Update: Q1 2024 in Review
Copper prices on the London Metal Exchange (LME) saw upward momentum in the first quarter of the year on the back of tightening supply and increasing demand from the energy transition.
After bottoming out at US$7,800 per metric ton (MT) in the fall of 2023, copper prices bounced back to start 2024 in higher territory, but elevated supply kept the red metal trading in the US$8,000 to US$8,500 range until mid-March.
Since then, copper has seen strong gains, reaching a quarterly high of US$8,973 on March 18. With increasing market volatility since the start of April, prices continued trending up to reach US$9,365 on April 10.
How did copper prices perform in Q1?
At the start of 2024, analysts expected copper prices to be rangebound. A surplus was anticipated, even with lowered supply due to the shuttering of a major mine and guidance cuts elsewhere. Deficits weren’t expected to start forming until 2025 as supply came under more pressure due to increasing demand from the energy transition.
At the time, independent metals and mining consultant Karen Norton told the Investing News Network (INN), “With the market now looking more finely balanced, prices are likely to prove more susceptible to broader swings in either direction in the advent of significant news that affects the market.”
Copper price, Q1 2024.
Chart via the London Metal Exchange.
Copper's price uptick in March came as the market felt the loss of First Quantum Minerals' (TSX:FM,OTC Pink:FQVLF) Cobre Panama mine, as well as guidance cuts from Anglo American (LSE:AAL,OTCQX:AAUKF) and steady declines at Chile’s Chuquicamata mine. Together they caused concentrate supply to become increasingly tight.
In mid-March, top Chinese smelters announced plans to work together to cut production. Limited supply had forced them to lower their treatment and refining charges (TC/RCs), but this stressed their profitability.
In an email to INN at the beginning of April, Exploration Insights Editor Joe Mazumdar said, “The concentrate market balance is accurately reflected in the fall of TC/RCs. To ensure the profitability of the domestic smelters, the Chinese manufacturers have decided to cut production, bring maintenance work forward and/or delay further expansions.”
According to Mazumdar, the cuts to smelter capacity will begin to put pressure on the availability of refined stockpiles and push copper closer to a deficit position sooner than expected.
This supply bottleneck caused significant gains for the metal’s price through the last half of March and into April.
While this is largely good news for copper producers as high prices and low TC/RCs improve margins, Mazumdar thinks the price will need to stay elevated to have any real impact on investment into the industry.
“Companies may need a longer period of higher prices to incentivize them to build projects given the capital expenditure blowouts witnessed by the construction of projects such as Quebrada Blanca 2 by Teck Resources (TSX:TECK.A,TECK.B,NYSE:TECK) in Chile,” he said.
First Quantum not giving up on Cobre Panama
The event that has had the biggest impact on copper supply recently is the closure of the Cobre Panama mine in Q4 2023. The mine’s annual output of 331,000 MT of copper accounted for 1 percent of global production — a significant number for an industry set to face increasing demand and a lack of incoming new supply.
Cobre Panama became a contentious issue during the year as First Quantum and the government of Panama renegotiated a company-friendly contract that dated back to 1997. Panama ultimately approved a new deal in October 2023 that guaranteed the country would receive at least US$375 million annually from First Quantum, and the company received a 20 year extension to continue operations at the mine.
However, public sentiment deteriorated after the approval, leading to protests. The deal was ultimately overturned by the Supreme Court and Panamanian President Laurentino Cortizo ordered the mine to close.
First Quantum announced in December 2023 that it had launched international arbitration proceedings to challenge the court’s ruling, but so far no date has been set for the commencement of talks.
Panama will be holding elections in May as Cortizo completes his second and final term, meaning the country will soon have a new administration. Mazumdar told INN that First Quantum intends to negotiate with the incoming administration in the hopes of striking a deal that is favorable to both parties.
“The current president will not stand in the next election in May 2024; therefore First Quantum plans on working with whomever is elected to try and restart the mine and avoid the arbitration. Cobre Panama represents about 5 percent of the GDP of Panama and employs 30,000 to 40,000 people directly and indirectly,” he said.
Governments recognize copper's critical status
In 2022, the US government established the Minerals Security Partnership (MSP), which is now made up of 14 countries, including the US, Canada, Australia, Estonia, Japan, South Korea and Sweden, as well as the EU.
Among its goals is advancing critical minerals projects that meet ESG standards.
In February, the MSP announced the signing of a memorandum of understanding between Gecamines, the Democratic Republic of Congo’s state-run mining company, and the Japan Organization for Metals and Energy Security. The deal will create a framework for the two to coordinate and cooperate in mineral exploration, development and production in the Lobito Corridor, where Gecamines currently oversees the production of 1.5 million MT of copper cathode.
This past March, the MSP held a forum on the sidelines of the Prospectors & Developers Association of Canada convention to discuss matters around mineral security with a focus on shoring up the supply of commodities that are critical to the energy transition, including copper, and to advance the development of domestic supply chains.
At the meeting, the group confirmed it was working on 23 projects covering a breadth of minerals critical to the energy transition, including copper. Sixteen of the projects involve upstream mining and mineral extraction, while seven center around midstream processing and another seven focus on recycling and recovering. As for location, six are in the Americas, five are in Europe, 13 are in Africa and three are in the Asia-Pacific region.
This work comes amid increasing geopolitical tensions between the US and China over key issues, including the latter’s increasing buildout of mining assets in Africa. Russia’s war with Ukraine has also caused a tricky landscape.
For its part, the US is encouraging manufacturers to use minerals from nations with which it has free-trade agreements, like those in the MSP, as part of the Inflation Reduction Act (IRA), which was introduced in 2022.
Ultimately, the goal of the MSP, the IRA and other regional programs is to help accelerate critical minerals projects by working with government and industry to help secure funding, provide diplomatic support and diversify supply chains.
Investor takeaway
Copper's supply stresses look likely to continue in 2024 and beyond due to a lack of new supply in the pipeline, and slow permitting times for assets that are underway. At the same time, the red metal is expected to see higher demand from renewable electricity generation, electric vehicle production and increasing infrastructure needs.
However, now that more governments are labeling copper a critical mineral, there's hope that bottlenecks in supply may lessen and new projects may be able to make progress. Overall, a landscape is emerging that could benefit investors who are looking for long-term plays in an industry facing immense supply-side constraints in the coming years.
Still, given the challenges in discovery, permitting and approval, investors should do their due diligence, researching all aspects of a company, including its biggest projects and the risks associated with them.
Don’t forget to follow us @INN_Resource for real-time news updates!
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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Copper Price Update: Q2 2024 in Review
The second quarter of 2024 saw copper prices surge on the London Metal Exchange (LME) on the back of supply bottlenecks and elevated demand, particularly from the energy sector.
Copper prices began the period at US$8,728 per metric ton (MT) on April 3, but supply and demand dynamics provided critical support for the base metal — by the end of the month, copper had climbed to US$9,973.50.
With an improving macroeconomic environment in the US increasing the likelihood of an interest rate cut and continued cuts at Chinese refiners in May, copper encountered a perfect storm that helped it set a record high on the LME of US$11,104.50 on May 20. It hit an even higher price on the COMEX of US$5.20 per pound, or US$11,464, the same day.
Copper prices pulled back to end Q2 at US$9,418. Although the metal had retreated to US$9,051.50 as of July 22, it remains at elevated levels, with conditions likely to continue providing support for the near future.
Copper price chart, January 1 to June 30, 2024.
Chart via the London Metal Exchange.
Copper supply struggles lead to tight market in Q2
Both a loss of existing supply and a lack of incoming supply are supporting copper prices this year.
The closure of First Quantum Minerals' (TSX:FM,OTC Pink:FQVLF) Cobre Panama mine in Panama has weighed on supply; it accounted for approximately 1 percent of global copper supply when it was operational.
The mine is currently in care and maintenance, with negotiations halted. José Raúl Mulino, Panama's new president, has said his government won’t engage in new negotiations unless First Quantum drops its arbitration claims.
In an interview with the Investing News Network, Joe Mazumdar, editor of Exploration Insights, spoke briefly about the situation in Panama. “From what I understand, most of the people that ran for presidential election were all against the project,” he commented. “I don’t think there’s anybody there that is for the project winning. So then it’s all about arbitration, which will drag on for a while as it's a big number, US$20 billion.”
He believes the situation will impact investment decisions elsewhere as well. “It will also make people and companies rethink spending significant capital in jurisdictions if they don’t have government support,” he said.
Elsewhere in the copper sector, the news has been mixed at best. Despite predicting lower grades and reduced production at its Quellaveco mine, Anglo American (LSE:AAL,OTCQX:AAUKF) saw an 11 percent year-on-year increase during the first quarter as the mine achieved its highest throughput rate.
Even so, the major miner has set its copper production guidance at 730,000 to 790,000 MT for 2024, substantially lower than the 826,000 MT of copper output it recorded in 2023.
“We’ve also had a secular negative trend in production with the largest copper producer, which is Codelco. They’ve got problems with large amounts of debt, so their ability to fund their expansions is problematic,” Mazumdar said.
Codelco, Chile’s state-run mining company, saw production slump to 25 year lows in 2023. This year, the firm is struggling to meet its 2024 production targets as a new mandate from the Chilean government has prioritized lithium production, and the Chuquicamata and El Teniente mines continue to be plagued by long-term debt issues.
Lower production levels have stressed treatment charges since the start of the year, forcing Chinese refiners to begin their own production cuts earlier in the year. However, these cuts have done little to raise margins, and producers have begun to plan for additional cuts in Q3 as lower rates begin to affect annual deals that benefit refiners.
Mazumdar said that the majority of mines produce copper concentrate, for which 50 percent of the smelting capacity is in China. The end price is dictated by treatment and refining charges, which he said have gone low and nearly turned negative due to the lack of concentrate available after Cobre Panama was suspended.
The Exploration Insights expert went on to say that the other price to look at when analyzing copper markets is copper cathode premiums, which reflect cathode supply and demand.
“So there’s the cathode price. That’s stated in the LME, and Shanghai and the COMEX in the states. But if the market is tight in any of those regions locally, you will see a cathode premium … over the price of the copper,” he said. “People are willing to pay more to incentivize people that have copper inventory to release it into the market.”
According to Mazumdar, if both treatment and refining charges are low and the cathode premiums are high, that is indicative of a tight near-term market.
Electrification helping to drive copper demand
Higher prices also reflect a recovery from the manufacturing sector, as well as higher demand from industries tied to the global energy transition. Electricity generation in general is a large driver of copper demand, and renewable energy options such as solar and wind consume even larger amounts of copper.
According to the US Energy Information Administration, US electricity generation increased 5 percent during the first six months of 2024 compared to H1 2023; during H2, electricity generation is expected to be up 2 percent.
The report also indicates that solar generation is currently the fastest-growing source of electricity generation. Solar generation was up significantly in the US year-on-year in the first half of 2024, and the Energy Information Administration expects it to grow 42 percent year-on-year during the second quarter.
This comes alongside increases in installed solar and wind, particularly in China, which saw record-setting installations of wind and solar projects as installed solar costs dropped below prices for any other energy source.
Renewable usage is also increasing with corporations. S&P Global Commodity Insights notes that corporate renewable capacity increased by 15.8 gigawatts worth of contracts signed in the first quarter, representing a 36 percent increase from the same time in 2023. Of those, solar led the way and made up roughly half of the deals signed.
The report indicates that the mineral extraction sector saw strong renewable growth, including 2.5 gigawatts of deals signed by Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO) as it works to improve its carbon footprint at its Australian operations.
Significant copper demand has also been coming from electric vehicle (EV) producers. Although reports about EV sales slowdowns have been rife since 2023, many US carmakers have experienced strong growth in 2024.
During the first half of the year, US EV sales saw an 11.3 percent increase over 2023, with 330,463 units sold. Globally, sales were even stronger, increasing 20 percent to 7 million units sold.
China held its position as the strongest EV market, accounting for 4.1 million of those sales.
EVs can use as much as 60 kilograms of copper versus the 25 kilograms in traditional internal combustion engine cars, and 29 kilograms in hybrids. Electrical demands on the grid will require even greater amounts of copper.
A May report from the International Energy Forum, a body established to facilitate dialogue between energy-producing and energy-consuming countries, suggests that current goals for 100 percent EV production by 2035 are unrealistic. Instead, it recommended the goal be moved to the manufacturing of hybrids instead.
The forum also notes that the average copper production output of the top 10 mines is 472,000 MT per year, and in order to maintain current increases to demand, 1.1 new mines will need to be added every year until 2050. When EVs and their demands on the electric grid are factored in, that rises to 1.7 new mines per year, or 54 new mines by 2050.
What can copper investors expect in 2024?
In the short term, there is still copper supply in the market, but the situation could quickly change.
The Chinese real estate market, which has traditionally been a major demand generator for copper, hasn’t recovered yet, and a shift there could send an already tight market over the edge. Chinese officials have made attempts to revive the flagging sector, but the initiatives have had little effect and are threatening to drag the economy down further.
However, softer copper demand from the Chinese housing sector has largely been offset by increased demand from EVs, as well as the country's attempt to move away from fossil fuel to meet its energy needs.
As for incoming supply, Mazumdar noted that funding for copper projects is tentative due to rising costs and the fact that copper prices haven't been conducive to building new projects. Additionally, projects that have seen development won’t come online in time to fill gaps in production as they've been held back.
He suggested that copper producers are looking to avoid the kind of cost overruns experienced with Teck Resources' (TSX:TECK.A,TECK.B,NYSE:TECK) Quebrada Blanca 2 expansion, which has ballooned from US$4.7 billion to US$8.8 billion. However, Mazumdar said it is encouraging that Freeport-McMoRan (NYSE:FCX) announced a decision to expand its El Abra copper mine in Chile for US$7.5 billion.
Additionally, while M&A is taking place in the industry, it has largely been focused on producing assets.
“They don’t mind paying a premium for a producing mine because it's permitted for the tailings and other footprints, and the capital has been spent, so there is little capital escalation risk,” Mazumdar said.
He also suggested that permitting issues are a major factor for timelines, causing investors to rethink where their capital flows to. These long permitting times are resulting in companies turning to jurisdictions with more government support for critical metals, as with Barrick Gold's (TSX:ABX,NYSE:GOLD) projects in Pakistan.
“Why spend a premium on a project that might take 10+ years to permit when you can spend as much or less on a project that you can get funded in an area that might take half the time to put into production,” he said.
With limited supply and little to be done to ease permitting times, copper demand is likely to keep the market bullish. This demand may be good news for investors looking to find opportunities in the resource sector, as copper is critical in the medium and long term to energy transition goals around the world.
Don’t forget to follow us @INN_Resource for real-time news updates!
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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Nickel Price Update: Q1 2024 in Review
At the start of the year, experts were predicting that nickel prices would be rangebound in 2024.
With the first quarter in the books, that story seems to largely be playing out. After opening the year at US$16,600 per metric ton (MT) on January 2, nickel was stable during January and February. However, March brought volatility to the sector, with strong gains pushing the base metal to a quarterly high of US$18,165 on March 13.
Nickel's price rise failed to hold, and it once again dropped below the US$17,000 mark by the end of the month. Ultimately, the metal fell to US$16,565 on March 28, resulting in a slight loss for the quarter.
Indonesian supply dampens nickel prices
Lackluster pricing in the nickel market is largely the result of the metal's ongoing oversupply position.
The largest factor is elevated production from Indonesia, which is the top producer of the metal by far. The country produced 1.8 million MT of nickel in 2023, according to the US Geological Survey, representing half of global supply.
Indonesia's output has climbed exponentially over the past decade, and has been exacerbated by government initiatives that placed strict limits on the export of raw materials to encourage investment in production and refinement.
In an email to the Investing News Network (INN), Exploration Insights Editor Joe Mazumdar wrote, “The growth in electric vehicle (EV) production and the escalating demand for nickel in batteries prompted the Indonesian government to mandate increased local refining and manufacturing capacity from companies operating in the country.”
Despite the lower quality of material coming from Indonesia, the investment was made to shore up supply lines for Chinese battery makers and was earmarked for EV production. However, EV demand has waned through 2023 and into 2024 due to high interest rates, range anxiety and charging capacity, increasing nickel stockpiles.
A report on the nickel market provided by Jason Sappor, senior analyst with the metals and mining research team at S&P Global Commodity Insights, shows that short positions began to accumulate through February and early March on speculation that Indonesian producers were cutting operating rates due to a lack of raw material from mines.
The lack of mined nickel, which helped push prices up, was caused by delays from a new government approval process for mining output quotas that was implemented by Indonesia in September 2023. The new system will allow mining companies to apply for approvals every three years instead of every year. However, the implementation has been slow, and faced further delays while the country went through general elections.
The nickel market found additional support on speculation that the US government was eyeing sanctions on nickel supply out of Russia. Base metals were ultimately not included in the late February sanctions, and prices for the metal began to decline through the end of March as Indonesian quota approvals accelerated.
Western nickel producers cut output on low prices
According to Macquarie Capital data provided by Mazumdar, 35 percent of nickel production is unprofitable at prices below US$18,000, with that number jumping to 75 percent at the US$15,000 level.
Mazumdar indicated that nickel pricing challenges have led to cuts from Australian producers like First Quantum Minerals (TSX:FM,OTC Pink:FQVLF) and Wyloo Metals, which both announced the suspension of their respective Ravensthorpe and Kambalda nickel-mining operations. Additionally, major Australian nickel producer BHP (ASX:BHP,NYSE:BHP,LSE:BHP) is considering cuts of its own.
Nickel price, Q1 2024.
Chart via the London Metal Exchange.
Meanwhile, the nickel industry in French territory New Caledonia is facing severe difficulties due to faltering prices.
The French government has been in talks with Glencore (LSE:GLEN,OTC Pink:GLCNF), Eramet (EPA:ERA) and raw materials trader Trafigura, which have significant stakes in nickel producers in the country, and has offered a 200 million euro bailout package for the nation's nickel industry. The French government set a March 28 deadline for New Caledonia to agree to its rescue package, but a decision had not yet been reached as of April 11.
Earlier this year, Glencore announced plans to shutter and search for a buyer for its New Caledonia-based Koniambo Nickel operation, which it said has yet to turn a profit and is unsustainable even with government assistance.
For its part, Trafigura has declined to contribute bailout capital for its 19 percent stake in Prony Resources Nouvelle-Caledonie and its Goro mine in the territory, which is forcing Prony to find a new investor before it will be able to secure government funding. On April 10, Eramet reached its own deal with France for its subsidiary SLN’s nickel operations in New Caledonia; the transaction will see the company extend financial guarantees to SLN.
The situation has exacerbated tensions over New Caledonia's independence from France, with opponents of the agreement arguing it risks the territory's sovereignty and that the mining companies aren’t contributing enough to bailing out the mines, which employ thousands. Reports on April 10 indicate that protests have turned violent.
While cuts from Australian and New Caledonian miners aren’t expected to shift the market away from its surplus position, Mazumdar expects it will help to maintain some price stability in the market.
“The most recent forecast projects demand (7 percent CAGR) will grow at a slower pace than supply (8 percent CAGR) over the next several years, which should generate more market surpluses,” he said.
Miners seek "green nickel" premium for western products
In an email to INN, Ewa Manthey, commodities strategist at financial services provider ING, suggested western nickel producers are in a challenging position, even as they make cuts to production.
“The recent supply curtailments also limit the supply alternatives to the dominance of Indonesia, where the majority of production is backed by Chinese investment. This comes at a time when the US and the EU are looking to reduce their dependence on third countries to access critical raw materials, including nickel,” she said.
This was affirmed by Mazumdar, who said the US is working to combat the situation through a series of subsidies designed to encourage western producers and aid in the development of new critical minerals projects.
“The US Inflation Reduction Act promotes via subsidies sourcing of critical minerals and EV parts from countries with which it has a free trade agreement or a bilateral agreement. Indonesia and China do not have free trade agreements with the US,” he said. Mazumdar went on to suggest that the biggest benefactors of this plan will be Australia and Canada, but noted that with prices remaining depressed, multibillion-dollar projects will struggle to get off the ground.
Western producer shope their material may eventually see a "green nickel" premium that plays into their focus on ESG. However, this idea hasn’t gained much traction. The London Metal Exchange (LME) believes the green nickel market is too small to warrant its own futures contract, and Mazumdar said much the same. “There is little evidence that a premium for ‘green nickel’ producers or developers has much momentum, although an operation with low carbon emissions may have a better chance of getting funding from institutional investors in western countries,” he noted.
Even though there might not be much interest in green nickel on the LME, there are vocal proponents, including Wyloo’s CEO, Luca Giacovazzi. He sees the premium as being essential for the industry, and has said participants should be looking for a new marketplace if the LME is unwilling to pursue a separate listing for green nickel.
The calls for a premium have largely come from western producers that incur higher labor and production costs to meet ESG initiatives, which is happening less amongst their counterparts in China, Indonesia and Russia.
Western producers were caught off guard early in March as PT CNGR Ding Xing New Energy, a joint venture between China’s CNGR Advanced Material (SHA:300919) and Indonesia’s Rigqueza International, applied to be listed as a “good delivery brand” on the LME. The designation would allow the company, which produces Class 1 nickel, to be recognized as meeting responsible sourcing guidelines set by the LME.
If it is approved, which is considered likely, the company would be the first Indonesian firm to be represented on the LME. There has been pushback from western miners on the basis of ESG and responsible resourcing challenges.
Investor takeaway
As the nickel market faces strong production from Indonesia, experts expect more of the same for prices.
“Looking ahead, we believe nickel prices are likely to remain under pressure, at least in the near term, amid a weak macro picture and a sustained market surplus,” Manthey said. The continued surplus may provide some opportunities for investors looking to get into a critical minerals play at a lower cost, but a reversal may take some time.
Don’t forget to follow us @INN_Resource for real-time news updates!
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
Additional information on Base Metal stock investing — FREE
Nickel Price Update: Q2 2024 in Review
The first quarter of the year saw the nickel price under threat from a market glut as Indonesian supply flooded the market, forcing western producers to begin cutting production amid low profitability.
March brought a great deal of volatility, with nickel breaking through the US$18,000 per metric ton (MT) mark; however, by April 1 the base metal had once again slumped, opening the second quarter at US$16,568.
As Q2 progressed, commodities saw broad gains and nickel hit a year-to-date high of US$21,615 on May 20.
After reaching that high point, nickel couldn't find support and fell rapidly to close the second quarter at US$17,291. Since then, the price of nickel has continued to decline, approaching yearly lows of US$16,090 on July 30.
Nickel prices, April 1 to August 8, 2024.
Chart via Trading Economics.
Russian nickel faces western sanctions
During Q1, nickel prices were negatively affected as Indonesian producers continued to flood the market; however, the base metal began seeing positive momentum as the country experienced delays in approving mining output quotas, and amid speculation that Russian nickel could be sanctioned by the US and UK.
Ultimately, nickel wasn't sanctioned by those countries at the time, and as mining quotas began to work their way through Indonesian red tape, nickel prices once again experienced declines.
However, momentum began to shift again for nickel at the start of Q2. On April 12, news broke that Washington and London had banned US and UK metal exchanges from admitting new aluminum, copper and nickel from Russia. Taking immediate effect, the prohibitions also halted the import of those metals.
In July, the London Metal Exchange extended trading sanctions to Russian miner Norlisk Nickel’s Finnish operations for the trading of briquettes and cathodes; these restrictions are set to come into effect in October.
Joe Mazumdar, editor of Exploration Insights, suggested this move will have little impact on the sector.
“That nickel is still going to make it into the market, it’s just going to go to a different exchange, probably Shanghai … So I could still see that nickel moving and getting consumed in the global market — it’s just not coming to the west,” he explained to the Investing News Network in an interview.
Nickel continued to climb through April and May as a combination of factors drove metals prices more broadly. Dovish statements from the US Federal Reserve helped provide momentum, as did cooling inflation data.
Ultimately nickel prices fell back, with London Metal Exchange stockpiles of the metal increasing through the second quarter, rising from 77,604 MT on April 1 to 95,436 MT on June 28.
Western nickel producers cut output amid low prices
The overhang in the nickel market caused producers to begin curtailing their production in the early part of the year. This trend continued into the second quarter as more producers started to slow output or shut mines altogether.
Among the hardest-hit regions in the latest round of closures has been Australia, where low prices and high operating costs forced First Quantum Minerals (TSX:FM,OTC Pink:FQVLF) to place its Ravensthorpe operations on care and maintenance at the end of April. The mine had been operating at lower capacity through the start of the year as it worked through aboveground stockpiles and used a lower-cost atmospheric leach circuit to process ore.
BHP (ASX:BHP,NYSE:BHP,LSE:BHP), which had been considering cuts earlier in the year, announced on July 11 that it would be suspending operations at its Nickel West operations and West Musgrave project.
In its announcement, it cites oversupply in the global nickel market and indicates consensus that nickel prices will be lower over the next half-decade due to growth in alternative, low-cost supply. BHP said it would begin transitioning its operations starting immediately, with the full suspension being completed between October and December of this year. The company notes that the closure is temporary and said it will review its decision in February 2027.
Mazumdar explained that Indonesia has a competitive advantage, but as more operations begin to cut production it will start to eat into the market surplus, which will be a positive for the nickel market.
“They can’t compete on a cost basis with Indonesia, nobody can. So Indonesia continues to oversupply the market, and now there’s an overhang. What happens is once you get these production cuts, there’s less supply in the market and then that overhang will recede. That’s the best thing that can happen to the nickel market,” he said.
Can government incentives boost western nickel output?
Amid these challenges, the US has set up a number of programs, including tax credits through the Inflation Reduction Act (IRA), to bolster domestic and allied production of nickel and other critical minerals.
The IRA was announced in 2022, but more recently, the Biden administration authorized the US Department of Energy’s Clean Energy Financing Program, which establishes a US$72 billion fund that will be used to provide guaranteed loans to “projects that increase the domestically produced supply of critical minerals.”
Mazumdar doesn’t think incentives like this will be enough to get new projects into the nickel space.
“The west can offer cheap loans to get people to build it, but they’re not going to make any money to pay back the loan no matter how cheap it is unless they give them a grant,” he said.
He explained that to get these projects off the ground, the nickel price would need to go higher to incentivize development, or governments would need to provide a guaranteed price to buy the nickel and build their own stockpiles.
Back-and-forth pressures between government initiatives and Chinese dominance have created a bifurcated market and left Indonesia with few options to diversify its exports, even as it negotiates a trade partnership with the US.
This has led to attempts from Indonesia to restructure investment deals with Chinese firms that would allow Indonesian nickel products to qualify for incentives under the IRA.
What factors are driving nickel demand?
Despite the nickel market's oversupply, there is still high demand, much of it from China.
China is the largest consumer of nickel in the world, accounting for around 65 percent of total consumption, with the bulk of it destined for steel products. However, as China’s real estate market has stalled out, so too has demand for steel products, with consumption slumping 3.3 percent during the first half of the year.
Total 2024 consumption is projected to fall to around 900 million MT, down from 933.4 million MT in 2023.
Despite the decline, nickel demand has been bolstered by increasing sales of battery electric vehicles (BEVs) in recent years. Even though reports indicated that demand for BEVs had waned at the start of 2024, growth in the segment has remained resilient, with BEVs' global share of the light vehicle market expected to reach 19.2 percent in 2024.
In China, the uptake has also been enormous, with sales from Chinese BEV producer BYD (OTC Pink:BYDDF,SZSE:002594) projected to exceed those of North American rival Tesla (NASDAQ:TSLA) in 2024.
Additionally, demand for hybrid vehicles is expected to exceed demand for traditional internal combustion engine (ICE) cars. While batteries for hybrids aren’t as large, they still use more nickel than ICE vehicles.
The amount of nickel used in batteries has been increasing in recent years as consumers demand greater range. BEVs use 25.3 kilograms of nickel on average, while hybrids use an average of 6.5 kilograms.
What will happen to the nickel price in 2024?
While production cuts should bring the market more into balance, the nickel price is likely to be determined by supply coming from Indonesia and demand from Chinese steel and battery production.
Even though governments have created initiatives to stimulate western production, they’re not likely to have much ability to increase mining operations as long as nickel prices remain depressed.
As pricing for nickel bottoms out, there may be opportunities for investors who are willing to be patient; however, it could be some time before prices rebound sufficiently for miners to begin restarting their operations.
Long-term predictions show nickel in the US$17,000 range for 2024, slowly improving to US$23,000 level in 2028.
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Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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Zinc Price Forecast: Top Trends That Will Affect Zinc in 2024
2023 saw the zinc price take a slide as the market entered surplus territory.
The expectation at the start of 2023 was that zinc would see modest demand growth during the year. “The recovery of China and the resilience of demand from countries such as India will help return global consumption to growth after it fell in 2022,” Jonathan Leng, principal analyst at Wood Mackenzie, told the Investing News Network (INN) at the time.
However, after forecasting 2023 zinc demand growth of 2.1 percent in April, the International Lead and Zinc Study Group cut its projection to 1.1 percent in October. By the year's end, CRU Group was estimating a contraction of 0.4 percent.
Zinc demand was affected by flagging post-COVID recovery in the Chinese economy, which accounts for 60 percent of global metal demand. Meanwhile, the zinc market was met with increased supply of refined products from Europe as energy prices dropped and allowed many of the continent’s smelters to return to production.
In terms of prices, BMI Research predicted in early 2023 that zinc would average US$3,000 per metric ton (MT) for the year; it revised its forecast down to US$2,550 midway through the period. Zinc closed the year at US$2,658.
What will happen to the zinc price in 2024?
Base metals price declines are expected to continue in 2024 amid depressed global economic activity.
Zinc specifically is expected to continue contending with too much supply in the face of weak demand. While mine production was relatively flat in 2023, the International Lead and Zinc Study Group said in October that it expects an increase of 3.9 percent in 2024, with output from operations around the world coming to 12.91 million MT.
On the demand side, various factors that weighed on zinc in 2023 are seen persisting in the new year, including challenging global economic conditions; in particular, high interest rates in North America and Europe have dragged down overall investment in real estate and capital projects, hurting base metals usage.
China's slow post-COVID recovery is also pushing demand for zinc lower. The country’s real estate and manufacturing sectors stumbled through much of 2023, and although stimulus measures created some momentum toward the end of the year, the full effects are unlikely to be seen until the second half of 2024.
“Renewed concerns over the growth outlook for China next year given real estate sector weakness is acting as a drag on base metals prices. Our expectation is that interest rates in the US and Europe will not start to fall until 2024 Q2,” Helen O’Cleary, CRU Group's principal analyst, base metals, told INN via email.
However, downward pressure caused by oversupply in the refined zinc market is likely to be met with zinc concentrate deficits in 2024. “We expect zinc’s price to be supported by concentrate market tightness in 2024, although the prospect of refined metal surpluses is likely to constrain bullish sentiment,” said O’Cleary.
Industry participants may have to make choices to ensure the financial viability of their operations. “Refined metal premia also slumped in 2023, and this, coupled with lower treatment charges, is putting pressure on smelters. Price-related smelter cutbacks cannot be ruled out, and this would be bullish for zinc’s price in 2024,” she added.
Zinc producers have already started to reign in supply. In September, Almina-Minas do Alentejo closed its Aljustrel operation in Southern Portugal until mid-2025, citing low zinc prices. This was mirrored by Trafigura subsidiary Nyrstar (EBR:NYR), which suspended operations at the end of November at its two zinc mines in Tennessee, US.
In the longer term, zinc is expected to get a demand boost from the energy transition. Its use in protective coatings in solar panels and wind turbines will be a critical driver. It will also provide benefits for electric vehicle (EV) producers as they begin to look for alternatives to traditional lithium-based batteries, including zinc-air batteries.
Beyond EVs, zinc is more widely used in the auto industry for non-corrosive coatings and galvanized steel. Global car sales are projected to increase in 2024, returning to pre-pandemic levels of 88.3 million units, while car production is expected to see a slight decrease to 89.4 million units, down from 89.8 million units in 2023.
All told, excess supply and lowered demand from key industries will continue to suppress the price of zinc, with the World Bank predicting a 4 percent decline in 2024 before a rebounding of 4 percent in 2025. This price outlook is echoed by Fitch Ratings in a December 11 report — it sees the price coming in at US$2,500 in 2024.
Investor takeaway
Expectations for zinc in 2024 are muted. The consensus among experts is that prices for the metal will remain flat, with supply continuing to outstrip demand. After China's economic recovery stalled out in 2023, the country is facing several headwinds in 2024. A failure to diversify the economy to rely less on real estate and manufacturing may have a significant impact on zinc and other industrial metals in the new year.
Additionally, even though central banks are working to get interest rates down to 2 percent, high levels are currently weighing on the real estate sectors in Europe and North America. Elevated rates are also hurting capital investment across diverse business sectors, including the metals and mining industry.
It’s important for investors to keep these factors in mind as they make decisions for their portfolios in the coming year.
Don’t forget to follow us @INN_Resource for real-time news updates.
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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Zinc Price Update: H1 2024 in Review
2023 was volatile for zinc — as the bottom fell out of the market, it approached its lowest point since July 2020.
As 2024 began, the base metal's price was in the US$2,500 per metric ton (MT) range, but it quickly slid to its year-to-date low of US$2,300 on February 5. Though zinc saw gains through March, it ended Q1 relatively flat.
Q2 began with zinc at US$2,479, but it gained as momentum picked up across commodities markets. Zinc reached a year-to-date high of US$3,139 on May 21 before retreating to close the quarter at US$2,937 on June 28.
The zinc price saw increasing downward pressure into July, and was at US$2,685 on August 1.
Zinc price chart, January 1 to August 8, 2024.
Chart via Trading Economics.
What factors drove zinc supply and demand in H1 2024?
Zinc was facing carried-over pressure from 2023 as the year began, still feeling the effects of a surplus.
In 2023's fourth quarter, a number of zinc miners were forced to close or curtail output as high costs and low prices made production unsustainable. However, these adjustments had little impact, and by the end of Q1, London Metal Exchange (LME) zinc stocks stood at 270,525 MT, up from 233,235 MT at the start of the year.
LME zinc stocks had only marginally decreased to 261,850 MT by the end of June.
The buildup in zinc stockpiles this year is supported by data released on June 19 from the International Lead and Zinc Study Group (ILZSG). It shows that refined metal production outpaced zinc demand from January to April. Refined metal production came to 4.52 million MT for the period, with only 4.34 million MT of demand in the market.
Even though refined metal increased year-on-year, mine production was down during the first four months of the year, with the ILZSG reporting that 3.76 million MT were extracted compared to 3.89 million MT during year-ago period.
This oversupply has had trickle-down effects, with treatment and refining charges collapsing at smelting operations.
In a May 9 report, Fastmarkets states that treatment charges at Chinese smelters fell precipitously during the first four months of the year, dropping from US$250 per MT in January to only US$30 at the end of April. This caused some smelters to cut back production or switch to care and maintenance.
As a result, Chinese imports of zinc concentrate fell 24 percent year-on-year through the first four months of the year, with 1.18 million MT flowing in versus 1.54 million MT during the same period in 2023. Conversely, imports of refined material were 143,000 MT — more than four times the 35,000 MT imported in the beginning of 2023.
“A large concentrates deficit and falling treatment charges have defined the zinc market in 2024 H1. The main impact of this has been felt by Chinese zinc smelters, many of whom have cut back due to issues with sourcing raw materials and a lack of profitability,” Helen O’Cleary, zinc market specialist with CRU Group, wrote to the Investing News Network.
Falling treatment charges provided opportunities for some companies to take advantage of lower costs and sign longer-term deals. In early April, Canadian mining giant Teck Resources (TSX:TECK.A,TECK.B,NYSE:TECK) was able to strike a deal with Korea Zinc (KRX:010130) that will see Teck pay US$165 per MT for treatment for treatment charges — the lowest amount since 2021 and a 40 percent discount over 2023.
Zinc price falls after Q2 rally overshoots fundamentals
While zinc has faced headwinds in 2024, a rally saw the metal reach US$3,057 on May 20, a 15 month high.
The surge in pricing came alongside broad gains in commodities and was due to a number of factors.
“Risk-on investor buying led to a sharp rally in zinc prices in April and May, as bullish sentiment on future copper demand related to the energy transition and AI data centres boosted the LME basket of metals,” O’Cleary said.
Other factors that contributed to the run were rule changes in the Chinese market designed to boost its beleaguered housing sector. The changes included the easing of mortgage requirements, allowing local governments to purchase unsold apartments and convert them to social housing, plus the establishment of a 300 billion yuan re-lending facility.
By the end of the quarter, the Chinese housing market had failed to improve — in fact, the slowdown in the sector had accelerated, with the value of new home sales in July slipping 19.7 percent from the same period one year earlier.
Zinc's price rally also came alongside increasing speculation about interest rate cuts from the US Federal Reserve. Lower rates are expected to boost homebuilding, construction and manufacturing in the US, especially in markets connected to the energy sector, where supply remains tight and demand is increasing.
As it is used to make galvanized steel, increased demand from the real estate, construction and automotive sectors could provide a critical boost to zinc demand and prices.
However, ultimately for zinc the fundamental conditions weren’t there to sustain higher prices.
“Zinc’s price was briefly lifted above $3,100/t, but overshot fundamentals, in our view. While we expect the concentrates deficit to be supportive of zinc’s price this year, relatively high refined stocks and a wide contango point to a refined market that remains well supplied,” O’Cleary explained.
What will happen to the zinc price in 2024?
The conditions for zinc aren’t expected to see an immediate rebound.
With investors now considering the impact of a near-term recession in the US following a July jobs report that showed an unexpected weakening in the country's labor market, commodities markets may not find the support needed for gains.
In the meantime, O’Cleary sees the zinc price remaining flat, with supply staying restricted as a buildup in stockpiles begins to work through the market and fundamentals become more balanced.
“We expect zinc’s price to trade on either side of US$3,000/t in H2," she commented.
"A still-tight concentrate market will continue to negatively impact Chinese smelter profitability, and this could lead to an increase in China’s refined zinc imports,” O’Cleary added.
Don’t forget to follow us @INN_Resource for real-time news updates.
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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Iron Price Forecast: Top Trends That Will Affect Iron in 2024
The iron ore market was racked with volatility once again in 2023 as prices rallied, dropped steeply and then rallied again to an 18 month high. Activity in China was a key driver for the sector in that time.
Given its strength and malleability, iron ore is one of the world’s most important industrial metals. While it has many applications, its primary use is in the production of steel, meaning that it responds to economic activity.
As the new year approaches, the Investing News Network (INN) spoke to experts about the main trends in the iron market in 2023 and what the iron ore forecast is for 2024. Read on to learn what they had to say.
How did iron ore perform in 2023?
Iron ore prices hit US$128 per metric ton (MT) in March, but then fell as low as US$105 in May as concerns about a global economic recession dampened the outlook for steel production.
China’s property sector woes were especially troubling for the steel market, and hence iron ore.
“China's slowdown in 2023 has surprised the commodity market to the downside,” David Cachot, research director on Wood Mackenzie’s metals and mining team, told INN. “In the domestic market, the property recession, rising local government debt and poor consumer and investor confidence threaten China's economic growth.”
As the world’s largest producer and exporter of stainless steel, China is naturally the world’s largest consumer of iron ore. While the Asian nation may also be the third largest iron-producing country, its domestic supply is not enough to meet demand. Hence, the country imports over 70 percent of global seaborne iron ore.
“Markets were disappointed by the weakness of the economy and by the lack of stimuli measures. However, strong steel exports offset weak domestic demand and supported iron ore demand,” analysts at Project Blue informed INN via emailed correspondence. “In 2023, steel exports have been increasing by approximately 35 percent, mainly due to a weak yuan. It offset the weak domestic demand, pushing up steel production and iron ore demand.”
Wood Mackenzie told INN that Chinese steel exports totaled 78 million MT from January to October 2023, up 36.8 percent year-over-year. Mid-year, China’s National Development and Reform Commission announced consumption stimulus measures aimed at auto, property and consumer electronic goods. This was followed in October by news that China is considering issuing a 1 trillion yuan (US$135 billion) sovereign debt plan to bolster its economy.
By mid-December, iron ore prices were back up to US$138 for the first time in a year and a half.
“Iron ore prices have been rallying since August. Fresh Chinese fiscal stimulus to shore up China’s economic recovery significantly impacted iron ore prices,” Cachot explained to INN. “Iron ore prices are once again defying expectations and are notably diverging from recent years' seasonality.”
Another factor contributing to strong steel production in the face of a weak economy in 2023, according to Project Blue, was the Chinese government taking “a laxer stance” on environmental restrictions impacting steel production.
Wood Mackenzie’s Cachot agreed. “In addition, the lack of restrictions on steel output — as economic growth is prioritized and as Beijing appears willing to guarantee support to the largest troubled developers — has further fueled the recent sentiment-driven surge in iron ore,” he noted.
What factors will move the iron ore market in 2023?
What trends and catalysts are likely to influence iron ore supply and demand in 2024?
“Iron ore demand will be, as always, driven by China steel production, and implicitly by China’s macro environment as well as by the property sector,” Project Blue’s analysts said. In addition, the firm said Chinese steel exports, port stocks and environmental regulations will continue to be important factors to watch in 2024.
Cachot said Wood Mackenzie expects to see near-term steel demand in China remain weak. “However, the destocking of iron ore at Chinese ports over the last six months is providing some fundamental support to prices,” he added. Iron ore restocking at Chinese steel mills is likely ahead of Chinese New Year.
A spike in iron ore prices is possible in Q1 if the Chinese steel export levels experienced by the market in 2023 continue into the new year, and if port stocks remain at low levels and are pushed below 100 million MT, Project Blue said.
Outside of China, iron ore supply is typically weaker in the first quarter of the year due to historically low seaborne shipments during the cyclone season in Australia and the rainy season in Brazil — the top two iron-producing countries. Both Project Blue and Wood Mackenzie see this as another supportive factor for iron ore prices in early 2024.
Another important point to watch for the iron ore market in 2024 is of course China’s fiscal stimulus measures. “Additional fiscal measures aiming at stimulating domestic consumption and the property market would be positive for the construction sector, steel production and iron ore demand,” Project Blue noted.
While it's difficult to forecast how much of an influence this may have on steel production and iron ore demand, market watchers may see signs emerging, particularly in Q1 when China’s construction season kicks off.
Cachot is less bullish on demand from a recovery in China’s property market, which he sees as the most critical downside risk for iron ore prices in 2024. “The market continues to bet on China’s policy support to boost downstream steel demand. However, subdued property investment and land sales suggest a further decline of new starts in 2024 and the years ahead, weighing on our steel demand forecast,” he explained. “Having said that, positive growth momentum in infrastructure and manufacturing will partially offset the demand loss, as will a vigorous automaking sector.”
Cachot expects iron ore demand outside of China to improve in 2024, especially with healthy demand from India and a recovery of the steel sector, although subdued, underway in Europe.
On the supply side, the outlook for 2024 seems more predictable than demand.
“Iron ore supply has been only increasing slowly. With Rio Tinto’s (ASX:RIO,LSE:RIO,NYSE:RIO) Gudai-Darri and Fortescue's (ASX:FMG,OTCQX:FSUMF) Iron Bridge mines ramping up, supply could increase at a higher pace in 2024,” the team at Project Blue said. “BHP’s (ASX:BHP,NYSE:BHP,LSE:BHP) South Flank should also reach full capacity next year, but its production increase will be offset by Yandi’s phasing down. Vale’s (NYSE:VALE) production remains the wild card, as the group has been impacted by various operational issues in 2023.”
The firm also said it is keeping an eye on logistical challenges in rail transport and at major ports in South Africa, which is the sixth largest iron-producing country in the world, along with the impact of emission-reduction mandates on the steel sector in India, the fourth largest iron-producing nation.
A supply-side factor that may weigh on iron ore prices is the potential for market control by China Mineral Resources Group (CMRG), a procurement agency established in 2022 to negotiate raw materials purchases with global mining companies. “The purpose is to mitigate market movements' impact on prices,” Project Blue said. “Any sharp price increase could trigger some reaction from CMRG with possible directives in terms of stocks or supply.”
Cachot said Wood Mackenzie views mine supply as a short-term risk in its iron ore forecast, but with upside coming from labor, logistics and weather disruptions. More stringent ESG operating standards are also a supply-side factor. “We expect supply and trade constraints to remain a feature of markets in 2024. Mine replacement to sustain record iron ore production levels is becoming more challenging in the ESG environment miners now operate in,” he said.
One important iron ore project to watch, according to Cachot, is Rio Tinto and the Simfer joint venture's massive high-grade Simandou iron ore project in Guinea, which has suffered a number of setbacks in recent years, including legal battles and high costs in the midst of a low iron ore price environment. Recently, Rio Tinto moved up its first production date at Simandou to 2025, which could later weigh on iron ore prices.
Wood Mackenzie’s iron ore price forecast on a 62 percent Fe fines basis, CFR China, is pegged at US$110 for 2024 and US$100 for 2025.
Don’t forget to follow us @INN_Resource for real-time news updates!
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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Lead Price Forecast: Top Trends That Will Affect Lead in 2024
Lead prices yo-yoed in 2023 as global uncertainty continued to drive volatility.
The industrial metal is an important material for pigments, weights, cable sheathing and ammunition, but its largest area of application by far has traditionally been in lead-acid batteries.
The rise of electric vehicles (EVs) is expected to weigh on demand for this battery type; however, EV manufacturers still use lead-acid batteries to power electrical systems, including lights, windows, navigation, air-conditioning and airbag sensors. Lead-acid batteries also have a role to play in renewable energy storage systems.
On the supply side, lead is typically mined as a by-product of zinc, silver and to a lesser extent, copper. Demand changes and mining disruptions for these metals can play an outsized role in shaping lead sector dynamics.
As 2024 approaches, the Investing News Network (INN) is looking back at the main trends in the lead space in 2023 and what’s ahead for prices, supply and demand in the new year. Read on to learn what experts see coming.
How did lead perform in 2023?
Although they started off the year above the US$2,300 per metric ton level, lead prices quickly shed nearly 11 percent in the first three weeks of 2023 on concerns about weak demand.
Lead touched US$2,300 again in June, which analysts at Wood Mackenzie attributed to the suspension of operations at Newmont’s (TSX:NGT,NYSE:NEM) Peñasquito polymetallic mine in an “already tight” lead concentrate market.
“Strong OE automotive figures were also supportive on the demand side of lead's market fundamentals. However, the wider macroeconomic picture has been less robust recently, particularly in China,” the firm states in a June report.
Although lead prices would test the US$2,300 level again in September, Peñasquito’s return to production in October pushed the metal back down to around US$2,064. Confirmation of the mine's restart coincided with lead prices weakening notably in relation to other London Metal Exchange (LME) prices, as per Wood Mackenzie.
Lead prices hit their lowest point of the year on December 7, coming in at US$1,973.
Lead's price performance in 2023.
Chart via TradingEconomics.
A December report from the International Lead and Zinc Study Group (ILZSG) shows that in the first 10 months of 2023, global supply of lead exceeded demand by 41,000 metric tons.
Worldwide lead mine production rose by 1.5 percent and lead metal production was up by 2.8 percent over the same period in 2022, while consumption of the metal rose by a mere 0.3 percent.
The January launch of production at Galena Mining’s (ASX:G1A) Abra lead-silver mine in Australia, notes the ILZSG, contributed to the rise in mine production. The first major lead-only mine to be brought into production since 2005 has an annual lead production capacity of 95,000 metric tons.
China, which is both the world’s largest producer and consumer of the metal, increased its imports of lead concentrate by 22 percent compared to the first 10 months of 2022, while its exports of refined lead metal grew by more than 64 percent. In the ILZSG’s October 2023 forecast, the group attributes the growth in Chinese demand for lead to a 13.4 percent increase in lead-acid battery output over the first seven months of 2023.
What factors will move the lead market in 2024?
Heading into 2024, what supply and demand factors are expected to drive prices for lead?
"On the supply side, prospects of mine expansions and the potential restart of operations in European smelters will be key factors to watch,” Adrià Solanes, associate economist at FocusEconomics, told INN via email.
The ILZSG forecasts that global lead mine supply will rise by 2.9 percent in 2024 to 4.71 million metric tons, compared to 3.3 percent growth in 2023. Increased lead supply is seen coming out of Australia, the second largest lead-producing country, as well as other top producers such as India and Russia.
Market participants will also be keeping an eye on Peru’s federal elections in April. The country is the world’s fifth largest lead producer, and has a strong project pipeline. However, political instability and ongoing protests against mining projects could have a negative impact on mining investment in the country, states research firm BMI.
New sources of mine supply for lead in 2024 include Adriatic Metals’ (ASX:ADT,LSE:ADT1,OTCQX:ADMLF) Vares silver mine in Bosnia and Herzegovina, which is expected to begin production in January, barring any further delays.
Looking over at global refined lead supply, the ILZSG sees a 2.3 percent increase to 13.14 million metric tons in 2024; that's compared to a 2.7 percent increase on the books for 2023 and a 1.7 percent decline in 2022. The restart of Trafigura’s Stolberg smelter in Germany is expected to contribute to increased refined lead supply for 2024.
As a by-product metal, global supply of lead is also tightly tied to zinc mine production. A too-low price environment for zinc can prompt miners to curtail operations as the cost of production eats into their margins. In 2023, zinc has been the second worst-performing metal on the LME after nickel due to a massive supply overhang amid stilted demand.
With economic uncertainty still weighing on global markets, that supply imbalance is expected to remain. “Regarding the global market balance, the Group anticipates that global supply of refined zinc metal will exceed demand in both 2023 and 2024 with the extent of the surpluses forecast at 248,000 tonnes and 367,000 tonnes respectively,” states the ILZSG.
What about global demand for lead? “Demand-wise, much will depend on the strength of the automotive sector, the health of China’s industrial sector and the pace of monetary easing in western economies,” said Solanes.
Looking at the global automotive market, an S&P Global Mobility report shows a projected 8.9 percent rise in new light vehicle sales for 2023 over the previous year. However, in 2024 that figure is set to drop to only a 2.8 percent increase.
The rising cost of living in many countries due to growing inflation and higher interest rates will still be front and center heading into 2024, which will no doubt hamper consumer demand for vehicles.
"2024 is expected to be another year of cagey recovery, with the auto industry moving beyond clear supply-side risks, into a murkier macro-led demand environment," Colin Couchman, executive director of global light vehicle forecasting for S&P Global Mobility, states in the firm's report.
As the largest consumer of lead, China’s economic health is also a factor for consideration. The World Bank is forecasting 5.2 percent annual growth in 2023 for China, the world’s second largest economy, and calling for slower growth of 4.5 percent in 2024 and 4.3 percent in 2025. The weakest segment of China’s market has been its property sector, with investment down 9.4 percent in 2023. Lead has several important applications in housing and infrastructure.
However, demand for refined lead metal in China is forecast to grow by 2.4 percent in 2024 after projected demand growth of 1.9 percent in 2023, according to ILZSG data. That’s compared to a significant 2023 decline of 6.4 percent in the US; a recovery of 3.1 percent is forecast in the country for 2024.
On a global scale, demand for refined lead metal is set to increase by 2.2 percent in 2024 after a 1.1 percent increase in 2023. Demand for lead is also expected to rise in India, Japan and Korea.
Despite these increases in demand, the ILZSG “anticipates that global supply of refined lead metal will exceed demand by 35,000 tonnes in 2023. In 2024, a larger surplus of 52,000 tonnes is expected.”
What other key trends and catalysts should investors look out for in the lead market in 2024?
“Stimulus policies in China will be a key short-term catalyst of demand for the metal. Timely and substantial support to the industrial and property sector would boost lead prices,” Solanes explained.
In mid-2023, China’s National Development and Reform Commission announced economic stimulus measures to spur growth in the auto, property and consumer goods sectors. Market participants will be watching for any impact they may have for the lead sector, as well as additional measures that may be on the horizon in 2024.
Over the longer term, the transition away from fossil fuels to renewable energy sources presents an avenue of demand in the lead market. “The main underlying trend to monitor is the switch to green and electric energy, as lead-acid batteries are widely used to power both low-voltage and renewable energy systems,” added Solanes.
Don’t forget to follow us @INN_Resource for real-time news updates!
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Galena Mining is a client of the Investing News Network. This article is not paid-for content.
The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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