Five graphics ask if mining is in a supercycle, one screams no

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The latest entry of its kind is from Julian Kettle, senior vice president and vice president of the metals and mining business at Woodmac (read it here). Kettle’s first exhibition at Supercycle request. Are we there already? would be rather disheartening if you are in the bull camp. (A bull? Me?)

Aside from cobalt and nickel, Woodmac’s demand growth projections for this cycle are significantly lower than those for the five-year period from 2003 to 2007, when the great sucking noise of the East became increasingly strong.

We will get there eventually

Even the salt of the day, lithium, will be less flourishing over the next five years than in the early 2000s, when Tesla wasn’t even a spark in Musk’s eyes, Nokia was the mobile company of the future. and Volkswagen was broadcasting a live battery day. It would have sounded as silly as, you know, Volkswagen live streaming a battery day.

As fun as it is to talk about muskmobiles and their effects on mining, it’s worth remembering that EV batteries only overtook cellphones in the number 1 use of cobalt a few years ago, and as Kettle points out, stainless steel will remain the best nickel. application throughout this decade.

These battery metals (sorry lead-zinc, we don’t think of you that way anymore) are also flattered in percentage terms due to the small size of their markets.

ton stowage

Percentage changes only get you so far – mining is a whole different beast than it was 18 years ago and the Woodmac chart below shows in terms of absolute growth that the picture is decidedly pinker, but other than the metals in the battery, they don’t exactly turn off the lights.

And the graphic on the left in exhibit two (better not look at Pilbara; close your eyes Pará) should give even the most ardent supporters in supercycle history a reason to stop.

Prices were high for metals and minerals, but iron ore was by far the most profitable raw material last time around, accounting for two-thirds of the ebitda of the big five diversified companies in 2011, up from 24% in 2007 .

Ore wars

The growing demand for nickel at 200 kt, lithium at 80 kt per year and cobalt at 10 kt will not really make hearts beat in Melbourne, London, Rio or Baar (even more so in Jakarta and Kinshasa).

Not compared to over 50 million additional sea tonnes per year and a benchmark price dropping from $ 13.82 in 2003 (annual benchmark Japan-Australia-Brazil) to $ 191.70 per tonne (62% Fe Fines CIF Tianjin) seven years later.

MINING.COM’s most popular article in 2012 was titled Forget the gold, IRON ORE is the story of the decade which helps explain why hundreds of millions of dollars have been allocated to study projects like Outer Harbor much to the dismay of Natator Depressus fans all over the world.

Outer Harbor wasn’t the only overseas project, either. During the go-go days, the Iron Cow money was invested in all kinds of mega-projects with no railway lines too long to consider construction, ship too big to put into service (warning : the link contains profanity) or overload too massive to be transported. .

Animal spirits have evaporated

Years of shareholder vilification have left an industry very ravaged, and despite a return to top-level mega-earnings, the focus remains on dividends and capital discipline, without preparing for growth.

Even simplistic decisions like those of Jansen of BHP in Saskatchewan and Jadar of Rio in Serbia (despite Djokovic’s double fault, it’s lithium, duh!) Seem to agonize the boards.

Do we really need $ 800 granular Brazil and ballistic lithium prices to overcome investment barriers? Does copper have to rise to $ 30,000 before animal spirits are released?

Judging by this graph of Fitch Solutions, the answer – even after a good adjustment upwards of $ 12 billion from previous estimates – appears to be yes.

Source: Fitch Solutions

At the height of 2013, the top 25 mining companies had spending of $ 117 billion; the second three-digit year. Next year it could exceed $ 70 billion.

All the fields are brown and the sky is gray

During the Beijing boom, exploration budgets (non-ferrous, but really who drills for iron?) Were considerably larger than they are today despite metal prices at similar levels.

Greenfield exploration was one thing – until 2013, half of the ten biggest copper expansion projects were greenfield. Early-stage exploration budgets in 2020 have fallen to their lowest percentage point, and after a slight increase this year, they still only represent 26% of budgets.

Boards of directors have not shied away from frontier markets, either. Now they are finding that what used to be considered safe in South America is degrading faster than excess ore in the Andes. The trial balloons on entering Africa were found to be lead and advancing a project in US jurisdictions remains a life sentence.

Copper investment costs

If iron ore did the heavy lifting in the 2000s and early 2010s, it will be copper to oversize this cycle.

But the top level of copper hasn’t really gone investment mad and when there is spending it’s mostly to keep production stable or meet environmental commitments – another day another desalination plant.

Source: Fitch Solutions

Only a fraction of the 28,000 mining trucks in service around the world emit zero emissions. Lithium-ion batteries don’t get cheaper anymore and even with soft tax incentives like Canada’s, just converting what you already have will take money away from expansion plans.

Price to scare

In a recent report titled Copper: from price to scarcity, Goldman Sachs considers copper the worst-valued commodity. Scarcity is a strong enough word to use in any commodity report.

The investment bank recapped its bullish forecast for copper to an average of $ 11,875 per tonne (just below $ 5.40 per pound) next year and gains of $ 15,000 ($ 6.80 ) in 2025.

But Goldman is a lonely voice.

A monthly survey by FocusEconomics released on Thursday shows large disparities in price forecasts by investment banks, brokers, economists and governments collected from December 1-6.

Among investment banks, the lowest forecast among the 30+ participants for the average price next year is BMO Capital Markets, which predicts copper will retreat to the $ 7,875 (3.60 $) (and $ 6,625 in 2023, ouch!).

RBC and Societe Generale are also firmly in bearish territory with forecasts of around $ 8,250 in 2022, while TD Securities, Capital Economics and Citigroup barely see copper reaching $ 9,000 next year. The consensus forecast for 2022 is on average just over $ 8,900, sliding to $ 8,480 in 2023.

All blame a slowdown in China, especially its real estate sector, for the drop.

We will always have Qingdao

The final chart is six years old and comes from the World Bank’s Commodities Outlook for 2016 (unfortunately no longer available to the public) which rather belatedly predicted a severe decline in Chinese commodity consumption.

China’s economic growth rate may have slowed to its lowest level in 30 years, but in absolute terms, the country’s economy will add the equivalent of Turkey’s GDP this year, economic activity by two South Africa, three Philippines, four New Zealand and no less than five nominal Hungarians.

If you’re talking about tons of metal rather than trends, that should be unadulterated good news. But looking at this graph, 2021 to 2035 can only be short of 2000 to 2014.


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