EDITOR: | July 7th, 2015 | 7 Comments

Low prices don’t undermine technology metals stories

| July 07, 2015 | 7 Comments
image_pdfimage_print

Future-Rare-EarthsIt 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%.)

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.


InvestorIntel

Editor:

InvestorIntel is a trusted source of reliable information at the forefront of emerging markets that brings investment opportunities to discerning investors.


Copyright © 2017 InvestorIntel Corp. All rights reserved. More & Disclaimer »


Comments

  • Tracy Weslosky

    Robin – I believe that we are presently in a junior resource depression and have no idea how some of these companies will survive until 2017 if Investec is correct in their forecasts. For someone that has published over a dozen+ books on investing in resources, and watched more than 3+ decades of economic activity closely: do you believe we are in a depression in the junior resource sector? If not, where are we in the cycle? Also, Investec says we should not see a recovery until 2017 — do you agree?

    The demand for instance for uranium is very real — how can we not see a pop in prices and associated stock interest? This is just defying the laws of gravity, and am interested in what y-o-u think….

    Or do I need to read your latest book? I clearly need a copy ASAP. Thanks. Tracy

    July 7, 2015 - 9:21 AM

  • Robin Bromby

    Tracy

    My main “expertise” (carefully in quotation marks) derives mainly from longevity — that, is, I have been writing about mining stocks and commodities since the aftermath of the 1987 stock crash (and first began writing about REE in 1996), so have been on the scene during the 1990s (which was pretty depressing for everyone in the mining business), the start of the commodity boom, the boom of the boom, the GFC, the 2009 “miracle” recovery (no miracle really, just the power of printing money) and down to the present day.

    I do think, however, this is a moment of reckoning for some juniors. Many were saved by the shortness of the GFC; they were able to lie low for several months and then things started picking up again. This present situation has a different feel, as if it will be a long, hard grind. There will be casualties, I suspect, as it becomes impossible to raise survival money. But, in a Darwinian sort of way, the strong and those with strong stories, will emerge tougher and meaner when the cycle picks up. Look at Australia and REE: those with early-stage and marginal projects got out as 2012 progressed. But Alkane, Arafura, Northern Minerals and Hastings are still going and getting nearer their goals.

    On uranium, I can only point that something similar is happening on the Australian scene (I cannot speak for Canada, obviously). I am astonished to see how several of the stronger companies are still highly active, some are expanding their ground holdings, most are advancing projects and, what is more, are raising money. There is little doubt about the long-term outlook so far as those companies are concerned.

    In other words, all is far from lost.

    July 7, 2015 - 5:42 PM

  • Robin Bromby

    Re China (and the real big things to worry about), read this just posted on Marketwatch:

    “Amid a heavy market selloff, 203 mainland-China-traded companies announced separately Tuesday that trading in their shares had been suspended. This brought the total number of shares in trading halt over the past seven days to 651, or about 23% of the entire pool of 2,808 listed stocks, the Securities Daily reported Tuesday.”

    No wonder “The Financial Times” in London has that as its lead story today.

    Two days ago, Bloomberg television was making much of the imposing a Wall Street in 1929 graph on the present performance of the Shanghai bourse. Eerily similar.

    July 7, 2015 - 5:51 PM

  • Simon_Strauss

    Robin I think you have hit the sweet spot! Your last paragraph (of the article) says it all. All but for a list of the companies that you think will do well. So is it now time to “buy fear” as it is clearly the dominant emotion?

    July 8, 2015 - 2:33 AM

  • Simon_Strauss

    Robin if you include Lithium as a “technology metal” I wonder if you have had a chance to have read through ASX: CXB’s new process and could give a comment.

    July 8, 2015 - 2:41 AM

  • Robin Bromby

    Simon: sorry, but I am not qualified to express opinions about individual companies. But it is certainly an interesting announcement

    July 9, 2015 - 2:52 AM

  • Simon_Strauss

    Sorry Robin, likely my question wasn’t worded well. I was asking if you thought the process itself to be viable.

    July 9, 2015 - 3:37 AM

Leave a Reply

Your email address will not be published. Required fields are marked *