Ground Breakers: Is this a sign copper is poised to break out of the holding pen?

Copper prices fall further into backwardation as physical metal shortage tightens
St Barbara shuffles the decks amid Gwalia sale
Materials sector falls after two-day run

It doesn’t take a genius to work out that commodities have, for the most part, had a difficult start to 2023.

Through the first five months of the year the Bloomberg Commodities Spot Index is down around 30%, something that takes in falls across the base metals, energy and bulks space.

Even lithium, despite commanding what remain extraordinarily profitable prices for Australian producers, is down almost 50% this year, while coal is trading at a third of year end levels.

Copper, the one metal that gauges how everyone’s feeling in the global economy, has basically traded sideways after giving up the China reopening baby gains it made in January.

It’s now fetching US$8255/t and the red metal was down another 1.3% overnight as China’s industrial firms saw profits subside 13% year on year in May.

While that may be a worry, there is plenty of positive news around the supply-demand side of copper that suggests it won’t be on the floor for long.

“While LME copper prices remain under pressure given concerns over Chinese demand and a more hawkish Fed, LME copper spreads continue to strengthen, reflecting some tightness in the prompt market,” ING’s commodity strategists Warren Patterson and Ewa Manthey noted yesterday.

“The cash/3m spread rallied by more than $12/t yesterday to a backwardation of $31/t – the strongest we have seen this spread since November last year.

“Available inventories in LME warehouses continue to fall with on-warrant stocks yesterday falling by 4,400 tonnes to just 25,725 tonnes, the lowest since October 2021.”

Backwardation is a term that means metals are worth more for immediate delivery than for more common future delivery, something which indicates a shortness of physical material in the market.

That shows how vulnerable to demand shocks copper could be if the bearishness around rate hikes recedes.

St Barbs shuffles the decks, again

St Barbara (ASX:SBM) is poised to say goodbye to its long-standing flagship asset, the Gwalia gold mine, in a matter of days after its shareholders and Genesis Minerals’ (ASX:GMD) approved the sale and share issue a few days ago.

Now the soon to be debt-free gold miner will look to revive itself yet again with the Simberi gold mine in PNG and the Atlantic gold operations in Canada.

That has prompted another changing of the guard at SBM, bringing to an end the short but eventful reign of former Western Areas boss Dan Lougher as the CEO and MD of the $370 million capped gold producer.

Stepping in is Andrew Strelein, the company’s chief development officer since August 2021 and a veteran of executive roles at the world’s biggest gold miner Newmont.

Strelein will receive fixed remuneration of $520,000 a year, along with a one off payment of 1 million ordinary shares to be escrowed for a year alongside short and long term incentives.

At the same time CFO Lucas Welsh will step aside on September 30, overlapping with the promotion of finance and procurement general manager Sara Prendergast as CFO.

St Barbara’s shares fell over 2% on the news, but that was in line with gold prices and other major precious metals equities as economic data in the US pointed to the risk of further rate hikes.

The materials sector looks like it will end two days of gains, down 0.36% this morning with Fortescue’s (ASX:FMG) 0.43% gain the most noteworthy of the large cap miners.