ONE in five cars to hit the road this year will be electric. That’s one million new cars a month, which will take the adoption rate of the technology to about 30% in China and 20% in Europe. Consumers, it seems, are getting their heads around some of the negative factors such as performance and range that used to dissuade them, according to S&P Global Commodities. Even affordability without government subsidies is improving, the research house says.
For commodity markets in general, and nickel and copper in particular, continued EV growth is good news (especially the nickel price which is under huge pressure currently). After a moderate to disappointing price performance for so-called battery metals in 2023, the trend this year is a friend for the likes of Glencore. In the context of robust demand it only then takes a surprise disruption to supply to tip the scales in favour of a huge deficit and a handsome price run.
Look no further than the dying weeks of December when Anglo American slashed its copper production forecast for this year and Panama shut down Canada’s First Quantum Minerals’ Cobré Panama after a long-standing court dispute about its licensing. In a heartbeat an expected 250,000 ton surplus in copper turned into a 500,000t deficit, according to SP Angel, a UK stockbroker.
But for South Africa, a healthy market for electric vehicles brings mixed tidings. Thriving copper prices is exactly the news emerging miners such as Orion Minerals and Copper 360 require as they finance new production. However, a thriving EV market is bad news for the country’s platinum group metals (PGMs) producers — whose metals remove noxious emissions from internal combustion engines.
Shares in the country’s flagship PGM producer, Anglo American Platinum (Amplats), collapsed last year as prices plummeted — palladium and rhodium especially — while platinum was static. That was despite supply deficits in all three metals, and platinum in particular, where the deficit reached a record one million ounces.
The presence of above-ground stocks and investor shorting outweighed physical shortages, according to Metals Focus, which analyses precious metals markets. A reduction in Chinese PGM imports this year and continuing concerns about the rate of China’s growth is set to continue the theme of depressed metal prices in 2024. “Looking ahead to this year, we anticipate a continuation of these dynamics,” it says in a report published this month.
Golden tidings
At best, the palladium and rhodium prices are likely to stabilise. Gold, too, is set for a quieter year, according to Metals Focus. “Looking ahead, we expect downward pressure to persist in the first half of 2024,” it says. “This view rests upon a belief that the first rate cut by the Fed will come later than currently priced in by the financial markets.”
Still, the outlook for gold isn’t as pessimistic as for PGMs, even if record central bank gold purchases in 2022/2023 will be hard to match this year.
Gold will stabilise below $1,900/oz, about 10% beneath its current value, partially owing to geopolitical pressures in Ukraine, the Red Sea and Middle East, Metals Focus says. “The drop in real yields and pressure on the dollar, plus the abundance of systemic risks, still turbulent geopolitics and richly priced equities, should all favour fresh gold investment.”
Coal comfort
According to the Minerals Council, nearly 27% of total South African mineral sales in 2022 was from coal, making the sector the second-largest contributor to revenue from mining. For this year, however, coal prices are expected to continue a price correction that kicked off in 2023.
A report by the International Energy Agency estimates global coal demand will fall 2.3% between now and 2026, even in the absence of governments announcing, and implementing, stronger clean energy and climate policies. “This decline is set to be driven by the major expansion of renewable energy capacity coming online in the three years to 2026,” the agency says.
Thungela Resources, a coal producer housing the assets demerged by Anglo American in 2022, saw a 38% decline in its share price last year. Another producer — Exxaro Resources — fell 7%. While the flagging fortunes of the fossil fuel will hardly come as a surprise to either company, it will certainly hasten their efforts to diversify: Exxaro into renewable energy, Thungela into offshore markets, lessening its exposure to Transnet, the failure of which will continue to be manifest in 2024.
Richards Bay Coal Terminal is due to publish its export numbers for 2023 on January 25. No prizes for guessing the picture that will paint. It’s quite possible exports will hit a record low after registering a 30-year trough in 2022 of just over 50Mt.
In that regard the performance of Transnet is an outlier for South African mineral exporters. Anglo American CEO Duncan Wanblad reckons Transnet will continue to underperform, capping potential price peaks for bulk minerals iron ore, manganese and coal itself.
This article was first published in the Financial Mail.
