“New supply is very limited in these commodities, and we don’t see big new mines being built around the world”
Iron ore, gold and coking coal have been among the glamour commodities of 2016, but Glencore chief commodity trader/miner Ivan Glasenberg’s optimism is directed elsewhere. “We believe the outlook for commodities such as copper, cobalt, nickel, zinc and thermal coal is still very strong going forward,” he told an investor briefing in London last week.
After strong price gains of 20% for copper, 15% for nickel, and 10% for zinc in the month of November, Glasenberg’s comments added to the positive mood around base metals heading into 2017. He said China’s demand for the metals remained strong, but “supply does look tighter and we don’t see massive new supply coming into the market”.
Glencore was among the big miners that scaled back zinc and copper output as prices plunged in 2015, lopping substantial zinc supply from the market, in particular. Glasenberg said restoration of production would not occur in response to higher prices. “It’s not a matter of price,” he said. “We will not bring tonnes into the market where we will be the one creating a negative by pushing down price.”
Glasenberg said copper production cuts in South America and elsewhere were offsetting gains.
Barclays Bank said last week the recent rally in the copper market was also supported by fresh supply disruptions (including protests at mines in Chile, and weather events in Turkey) “after an abnormally quiet year”.
“Chilean 2016 copper production has struggled and, after a poor October, is now down 4.7% year-in-year in the year to date,” Barclays said. “While overall disruptions are still below our allotment for the year, the recent upturn in disruptions has noticeably affected sentiment towards the copper supply side.
“We conservatively estimate 415,000t of disruptions so far this year.”
Meanwhile, Glencore’s Glasenberg also pointed to nickel usage in electric cars becoming a key factor for future pricing of the metal if EVs snared 10% of the global automotive market. That would see nickel usage in automotive batteries quadruple to about 400,000 tonnes per annum – one-fifth of current global output.
Cobalt has also strengthened on growing battery demand.
Investec, though, questioned Glencore’s sums. “We calculate that Glencore’s numbers imply an average of nickel contained in each EV at around 28kg. This is considerably higher than the implied figure of around 10kg calculated using data given by Norilsk,” it said.
“Whatever the correct number proves to be there is no doubt that the rise in EVs represents a considerable boost to nickel demand going forward.”