Low prices don’t undermine technology metals stories
It feels like déjà vu all over again. Back when rare earth prices began to start their (long, as it turned out) decline in 2012, I argued that startled investors should take into account the general commodity cycle that was then also going off the boil.
True, other factors were to intervene so far as rare earths were concerned but, while you clearly could not quantify it, there seemed little doubt that a general downturn in demand for industrial metals (with consequent price declines) affected the rare earths business, too. We can’t separate REE or any other technology material from the general health of the global economy.
In her engaging InvestorIntelReport for June posted yesterday by our publisher Tracy Weslosky, she notes that the average share price for InvestorIntel graphite and graphene clients in Canada and Australia was down 21.51% last month.
There’s nothing wrong with the graphite and graphene stories: what is wrong is the commodity scene generally, and these two materials are just caught up in the big picture. As are rare earths, base metals, all the technology and specialty metals (just look at what has been happening to tellurium and bismuth: they are at multi-year lows). On the graphite scene, Flinders Resources is stockpiling its output in Sweden waiting for better flake prices.
The Greek situation looks bad, but it is just the most dramatic manifestation of the underlying problems in the world economy. If I were you, I would be more worried about the frantic flailing going on in Beijing as the authorities try every trick in the monetary and fiscal book to keep markets there from keeling over.
I mean, when you have the Shanghai Stock Exchange losing 30% of its value in two weeks, you really do need to be worried. (As this being written, Asian markets are a few hours into their Wednesday trading sessions; all are up slightly – except Shanghai, which is off another 3%, and Hong Kong – a proxy for China – is down more than 1%.)
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If you think REE, graphite, tungsten, molybdenum and antimony prices are looking pretty wretched, take a look at the major base metals as traded on the London Metal Exchange. (And you wouldn’t want to be getting in the coal mining business right now; and also spare a thought for the uranium guys who have had it tough since Fukushima.)
Copper on Tuesday dropped another $169/tonne to $5,759 a tonne. In December 2008, as the global financial crisis was extending its icy grip, copper was trading at $3,100/tonne. It has since hit $10,000. So, we are now back on the gloomy side again.
Nickel on Tuesday closed at $12,000/tonne. That’s quite a way from its high of $50,000. Tin, an increasingly important technology metal and with a serious shortage not too far into the future, finished on Tuesday at $14,350. No new tin mines will be brought into production at that price.
You have to remember, too, that many metals are influenced by investment plays rather than physical demand. London’s The Financial Times is reporting that much of the copper bought in China last year was for collateral against loans. “Some Chinese executives estimate that as much as 70% of China’s imports of refined copper were used to obtain financing rather than for consumption,” the paper said. (Soybeans and rubber stockpiles were also serving a similar financial role.) This week we have seen one of Australia’s “Big Four” banks, the ANZ (for Australia & New Zealand) suggest investors should buy into the palladium market because shorting has driven the price too low and it will rebound.
So while we can recognize that the technology metals we follow are being influenced by forces far more powerful than just the supply-demand balance each individual commodity, one also has to acknowledge the prospect of this situation being reversed in the very short term is bleak.
Today British investment bank Investec has stated it sees no meaningful recovery in commodity prices until at least 2017. Investec said the near-term economic outlook was overshadowed by weak signals from China, lower-than-expected U.S. growth and the Greek debt crisis.
So, it looks as if we are in for tight times. But, as with all commodities, the strong companies will survive and be in a position to capitalize on global economic recovery.
If I look at the Australian rare earths scene, many of the companies may have had their timetables delayed by economic turbulence but they are still on track to become important global producers. Similarly for the emerging graphite players, along with companies pursuing niobium, tungsten and other technology metals, only the timing should be affected, not the underlying stories.
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