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Material Matters: Super Cycle, Moly & Tin

Commodities | Mar 23 2021

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A glance through the latest expert views and predictions about commodities: Another super cycle?; Molybdenum on the move; oil picks; tin demand; coal prices rising

-Commodity boom …not yet
-Tight supply critical to maintaining molybdenum prices
-Drop in oil price a tactical opportunity, Morgan Stanley asserts
-Solder applications a source of strong demand for tin
-Thermal coal prices at highest level in two years


By Eva Brocklehurst

Super Cycle

While global growth is likely to push demand for most commodities above long-term levels, ANZ Bank researchers also anticipate supply-side issues will limit production growth. As a result prices should be well supported although a long-term cyclical uptrend is considered unlikely at this stage.

While the current cycle has hallmarks of previous booms, in particular synchronised growth in industrial production globally, there are some unique features. Climate change policies are pushing demand for some commodities even higher, while China has indicated it will ease back on stimulus measures later this year.

In sum, the performance of individual commodities will start to diverge and this makes it far from a super cycle, the analysts assert.

A super cycle is considered an extended period of strong demand for a wide range of commodities which leads to a surge in prices that end up facing a collapse in demand and subsequently falling. There have been three booms in commodity market since World War II: 1950-55, 1972-80 and 2005-09.

This time around, after the global economy slumped during the pandemic, fiscal and monetary support meant a relatively quick economic rebound. Yet, labour supply issues have intensified in some areas and decarbonisation is also now in the mix.

Investment in technology and innovation including semiconductors, 5G networks and electric vehicles should stimulate demand for certain metals. These all consume more metal than fossil fuel power generation and conventional vehicles.

The analysts highlight nearly 5-6 times more copper is required to build renewable infrastructure compared with conventional power generation, and electric vehicles need significantly higher amounts of copper as well.

Despite expectations for further gains in oil prices amid the global economic recovery, the ANZ analysts do not expect US oil companies will start chasing volume growth just yet. US output is expected to remain below pre-pandemic levels in 2021.

Moreover, with gasoline and distillate making up around half of all crude oil consumption, developments in the electric vehicle industry are likely to have a sizeable effect on oil demand.

China's transition to a low-carbon economy is also likely to reshape the landscape over the course of 2021. The analysts expect growth in steel demand will moderate over coming years and production will rise only 3% in 2021.

Longer term, the rapid growth in China's urbanisation will come to an end and this is likely to weigh on the price of steel-making raw materials such as iron ore and coking (metallurgical) coal.


Two thirds of molybdenum production is via a byproduct of copper production and can make a big difference to producer operating costs. Molybdenum is a key ingredient in alloy steels and used in construction and process industries, namely transport, oil & gas and power generation.

Macquarie notes a dramatic rise of 11.5% in byproduct production of molybdenum in 2020 as primary production fell by -7.7%. This is all the more remarkable since global copper mine production dropped slightly.

This was accompanied by major rise in prices and an increase in Chinese imports of molybdenum. In summary, the broker points out the entire surplus created by the rise in molybdenum production and collapse in demand outside of China was bought up by China.

Macquarie assesses a major rise in the production of molybdenum containing grades of alloy steels and/or stockpiling of ferromolybdenum has occurred in China.

The main issue for 2021 is whether the buying will continue. Kennecott, Codelco and Armenia are expected to mine less molybdenum this year, which can reduce combined production by -27% year-on-year. Other copper byproduct mines are likely to maximise copper production at the expense of molybdenum because of a rise in copper prices.

If Macquarie's numbers are right, the rise in prices since August 2020 is likely to be sustained. Yet the broker warns, what is critical, is a decline in byproduct supply. If this does not occur as projected, then prices could come under pressure.


Oil prices have fallen significantly just recently, ending a steady rise since November 2020. Morgan Stanley considers this a tactical opportunity, particularly as energy stocks on its calculations are pricing in a low US$50/bbl.

The broker's key choices in the sector are Santos ((STO)), Karoon Energy ((KAR)) and Viva Energy ((VEA)). Morgan Stanley acknowledges Karoon Energy has not had a good year so far in 2021 but expects the discount should narrow as growth programs are delivered.

In terms of catalysts, Santos is expected to push ahead with its Barossa project and there is potential for further farming down that would lower capital commitments and reduce concerns regarding the balance sheet.

For Oil Search ((OSH)) the farming down process in Alaska has commenced so it will take some time before the market can understand how successful the process has been. Morgan Stanley also wonders whether the pandemic in PNG, which remains out-of-control, will further delay Papua LNG.

Meanwhile, Beach Energy ((BPT)) has been under pressure in 2021 amid concerns regarding lower oil production from Western Flank. The broker suspects this will be taken negatively by the market and Western Flank will be "doing well" to remain flat over the near term.


Tin prices have risen quickly, Macquarie points out, amid a supply/demand imbalance because of the pandemic. Prices on the London Metal Exchange have increased 26% over the year to date. The broker envisages positive structural drivers that should sustain for tin demand over the coming years.

Solder applications are a source of strong growth in demand for tin with the key themes of 5G and decarbonisation. Tin consumption is expected to follow growth in semiconductor shipments increasingly closely, benefiting from the roll-out of 5G networks which should accelerate post 2023.

The main issue now is whether the high prices will enable expansion of supply in China and Indonesia. Yinman, one of the largest producers in China, suspended production in February and this removed 500t/month of supply which should resume later in the year.

Against this, Chinese refined tin production capacity should still grow as Yunxi has completed the expansion project to lift total capacity to 70,000tpa. In Inner Mongolia, Weilasituo, with reserves of 58,000t of tin and tin concentrate capacity of 7000tpa, had planned for commissioning in the second half of 2020 but this is now suspended pending a licence issue.

Macquarie ascertains Indonesia, the second-largest refiner of tin, could be a key swing factor for the supply/demand balance and exports will need to be watched, along with shifting LME inventory in Malaysia as a potential proxy for marginal supply changes.


Seaborne coal shipments, overall, led by weakness in South Africa, are down -10% over the year to date. Shipments from Australia are down -6%. UBS notes metallurgical coal prices are continuing to drift and the market remains structurally out of balance because of China's import bans.

Coke prices have been reduced again in China as demand weakens because of limits in blast furnace capacity in Tangshan, while Mongolian supply into China has recently been cut drastically because of coronavirus infections there.

Meanwhile, thermal (energy) coal prices are at their highest since March 2019 as supply is disrupted and demand resumes. Newcastle 6000 calorie thermal prices rose 2.8% over the past week to US$90.50/t.

UBS assesses this will support a higher annual contract price from April, which is currently being negotiated with Japanese buyers. A recovery in global growth is increasing electricity consumption and subdued seaborne supply means the market remains tight.

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