Slow, bumpy market recovery on the cards for most commodities

Slow, bumpy market recovery on the cards for most commodities

Photo by Bloomberg

22nd June 2017

By: Henry Lazenby

Creamer Media Deputy Editor: North America


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VANCOUVER ( – The global commodity market is probably in for a slow, drawn-out recovery following the five-year bear market, S&P Global Market Intelligence director for reports on the metals and mining sectors Dr Chris Hinde said during a webcast on Wednesday.

According to S&P’s ‘State of the Market’ report, there was a mixed performance for mined commodities during the first three months of this year, following the “encouraging” price increases last year.

The March quarter overall saw a healthy increase in the price of aluminium and steady improvements in the prices of gold, zinc and copper, but flat performances for nickel and iron-ore, and a significant price fall for coal.

“Activity in the mining industry reflects the global economy generally and industrial production in particular. This reflects the uncertain political and economic environment but, fortunately, China has started the New Year with its strongest performance in six quarters,” he noted.

The first 100 days in office of US President Donald Trump added to increased market uncertainty, but the US dollar remained strong during the quarter, and interest rates globally are rising.

In the first quarter, the mining industry benefited from a continued, but slow, improvement in the global economy, which generally pushed metals prices higher. Hinde characterised the US economy as “resilient”, with equities at record levels. Importantly, the Eurozone posted growth outstripping that of the US, and seems to have escaped the doldrums.

However, several key risks remain, among which are the threat to Europe from Brexit, the Chinese economy continuing to be “a cause for concern”, and continuing signs of weakness in the oil and steel markets, with the prices of iron-ore and coal now falling.

An area of apparent encouragement in the first quarter was the number of initial resource announcements, which rose by one to 14, when compared with the same period a year earlier. However, the total value of these new resources slumped from $62.3-billion in the December quarter, to an all-time low of $5.9-billion.

Base and other metals bore the brunt of this decline, falling from $52.1-billion to under $1.9-billion, with 11 of the 14 new resources being for gold projects, the analyst advised.

After improving in the final quarter of 2016, S&P Global's Pipeline Activity Index (PAI) fell in the first three months of 2017. This fall is largely attributable to seasonal factors (the index has fallen in the first quarter for each of the past five years) but three of the four indicators used to measure PAI – drill results, project milestones and significant financings – fell during the March quarter, offset only by a slight increase in initial resources.

In the latest quarter, S&P Global Market Intelligence recorded only 29 significant deals of at least $5-million in value, compared with 31 in the December quarter. The value of these deals fell to $3.32-billion, compared with $5.74-billion in the December quarter. Half of the deals in the latest quarter were for gold assets, which accounted for more than 40% of the combined total.

According to statements made by mid-April, funds raised in the three months to end-March totalled $9.57-billion, compared with a restated $7.14-billion in the December 2016 quarter and only $5.14-billion (restated) in the first quarter of 2016. A total of 762 financings have been reported to date for the three months to end-March, compared with 894 in the December quarter.

He said there has been a general improvement in the amount of money raised. Interestingly, the mining landscape is dominated by small-cap juniors, accounting for about half of all listed mining companies globally. Most of them also have less than $1-million in cash holdings and are burning through it fast.

Canada accounted for about 22% of funds raised, followed by Australia at 16%.

Hinde added that the improved economic environment is reflected in analysts' expectations of higher average annual metals prices this year and next.

“Indeed, compared with the average prices recorded last year, only gold is expected to average less this year. In 2018, only cobalt, iron-ore and tin are expected to average less than in 2017 – with the first two of these metals expected to continue falling in 2019,” Hinde said.

Edited by Creamer Media Reporter




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