Commodities | Sep 24 2020
A glance through the latest expert views and predictions about commodities. Tin; thermal coal; battery materials; gold; and iron ore.
-China ramps up imports of tin ingots
-Short-term thermal coal market remains difficult
-Stricter emissions regulations to drive EV demand
-Macquarie incorporates material uplift for gold earnings
-Citi becomes more constructive on Chinese steel demand
By Eva Brocklehurst
Macquarie observes more optimism in the tin market as refined output has been reduced in several countries. China has been attempting to supplement its ore supply from Myanmar and sourcing concentrates from Australia's Renison mine in Tasmania.
China has been importing large amounts of tin ingot with much of the additional material going to Shanghai. Macquarie attributes this to securing a raw materials base for the large electronics manufacturing sector of which tin solder is a key component.
Given China's willingness to stockpile a range of other commodities Macquarie is not surprised tin is on the list. Hence, the broker finds enough reasons to adjust its supply/demand balance estimates and anticipates the tin market will move slowly into deficit over the next few years.
Macquarie also highlights the Yunnan provincial government's announcement it is willing to finance up to 80% of 40,000t of tin reserves, assessing such an accumulation, if it occurred, would lead to severe shortages and a sharp rally in the price. Nevertheless, it is likely to be difficult for Yunnan to pursue this course and the broker keeps stockpiling expectations moderate.
UBS notes Platts assessment that thermal coal prices are now supported by the cost curve, although there is limited upside potential in the December quarter because of weak demand.
Platts expects coal in the global energy mix to decline over the decade to 21% by 2030 from 24% in 2020. However, net coal consumption is likely to be stable as overall energy consumption grows.
Platts has pointed to new demand in Asia from markets in Vietnam, Bangladesh and Pakistan. India is expected to be an importer for at least the next five years and the analysts suspect the government's intension to reduce reliance on imported coal will be harder to accomplish than many expect.
Still, the pandemic remains a significant headwind to power consumption and demand looks challenged over the short term. Supply from the largest seaborne supplier of thermal coal, Indonesia, has eased in line with the decline in demand, and supply reductions have been noted out of Russia and Colombia.
Platts also assesses Glencore's curtailment of output at some of its Australian coal mines over a three-week period in September-October will improve fundamentals. UBS believes prices are challenged, given the patchy recovery in demand and weak sentiment, which poses downside risk to second half 2020 consensus pricing of US$55/t that compares with a spot price of US$50/t.
UBS estimates the penetration of electric vehicles (EV) in new car sales is likely to reach 16.5% by 2025. Hence the broker remains positive on nickel and envisages a deficit of high-purity nickel required for EV batteries. The broker is also positive about lithium although excess supply has meant short-term pressures.
Graphite generates mixed feedback, with UBS observing synthetic is preferred over natural from a performance perspective. In a call with London-based research agency Rho Motion, the broker notes subsidies are envisaged driving short-term demand although stricter emissions regulations will emerge through the next decade as the real driver of EV demand.
Rho Motion expects hydroxide demand to outperform carbonate demand in terms of lithium, provided battery chemistry continues to move towards higher-nickel formats. Natural graphite penetration should also lift because of tight synthetic supply although increasing silicon content poses a headwind.
UBS prefers IGO ((IGO)) for nickel in its coverage while Galaxy Resources ((GXY)) is preferred for lithium exposure. Meanwhile, Syrah Resources ((SYR)) offers a pure exposure to the natural graphite market.
Macquarie reviews its gold forecasts, which entails a material uplift for earnings estimates for all gold stocks under coverage, although this is tempered somewhat by the stronger Australian dollar for local producers. [Note: the Aussie has since retreated considerably - Ed]