Monsters of Rock: Is the green metals supercycle still years away?

Are we getting ahead of ourselves with all the supercycle chatter?

The commodities team at Capital Economics thinks so.

Despite supply shortages emerging in nickel, copper, lithium and more analysts at Capital, led by Caroline Bain, say the promise of the green demand boom is still years away.

A bigger factor, they say, is the “structural slowdown” in China’s economy which could weigh on commodity prices, driving iron ore to halve to US$70/t by the end of 2022 and fall even further to US$50/t by year end 2023.

‘Green metals’ like nickel and copper, which have drawn US$24,000/t and US$12,000/t 12 month targets from Goldman Sachs, will pull back as well from recent highs, Capital Economics says, with lead, tin, aluminium and zinc to follow suit.

“Despite the strong performance of commodity prices over the last year or so, we are sceptical that we are on the cusp of a new ‘supercycle’,” they said.

“Some metals used intensively in the green economy to benefit from a rise in demand later this decade, but over the next few years we expect prices to ease back as the structural slowdown in China’s economy deepens.”

Supply fears have been the main factor behind barnstorming commodity prices, with mine re-openings and weaker import demand from China to hit metals in 2022, Capital Economics thinks.

“Low stocks of copper through the latter parts of 2021 helped to put a floor under prices, but recently stocks have started to rebuild,” they said.

“The reopening of the Las Bambas mine in Peru, which accounts for over 2% of global copper ore output, is helping to shore up supply. What’s more, China’s imports of refined copper fell in 2021 as construction activity cooled. We expect this to continue and weigh on copper prices in 2022.”

That should remain the key driver for industrial metals until the middle of the decade, but electric vehicle adoption will be a central theme beyond that point.

“The outlook for metals from the adoption of EVs will be mixed,” according to Capital Economics.

“On the one hand, demand for palladium and platinum in autocatalysts and lead in batteries of ICE vehicles will diminish.

“On the other hand, EV’s contain significantly more copper and aluminium per unit compared to conventional ICE vehicles.

“As a result, by 2030, we think demand for copper and aluminium will start to rise sharply, which should translate into upward pressure on prices later this decade.”

Capital Economics is especially bearish on iron ore, forecasting long term 2025 prices of US$30/t, a price at which even Rio Tinto (ASX:RIO) and BHP (ASX:BHP) could conceive of a threat to their margins.

It is most constructive on cobalt, a sparse but important commodity in the battery sector, predicting 2025 prices of US$80,000/t, up from US$31,998/t in 2020 and US$70,193/t in 2021.

Forrest puts Western Areas bidding war in play

Twiggy Forrest has already recorded one underdog nickel win after outpointing BHP (ASX:BHP) last year in its ‘mano e mano’ with the mining giant over $600 million target Noront Resources in North America.

The iron ore magnate has now put himself in the frame to spoil IGO’s (ASX:IGO) growth plans and its $1.1 billion buy out of Western Areas (ASX:WSA).

Western Areas shares climbed 2.6% as of 2.30pm AEDT after a notice late Tuesday emerged showing Forrest’s Wyloo Metals had tipped $31.5 million to bump its stake in the nickel miner up from 6.29 to 9.14%.

While that is not enough to block IGO’s scheme bid — which requires a 75% yes vote from WSA’s shareholder base to be approved — it could convince them they stand to make more.

Forrest’s big buy over Friday and Monday came at an average price of $3.42, a 6c premium to the $3.36 consideration offered by IGO, which desperately needs new sources of nickel to avoid running dry with the depletion of its Nova nickel mine expected within five years.

That’s good news for WSA holders who have caught a whiff of a bidding war.

Their shares are now worth $3.52 each having touched $3.57 intra-day.

WSA sold 4511t from its Forrestania nickel mines at a price of$12.48/lb Aussie in the December quarter, but rather than the ageing Flying Fox and Spotted Quoll mines its prized resource is the Cosmos Nickel Complex, which it bought for peanuts off Glencore/X-Strata in 2015.

The long life Odysseus mine is set to enter production at the end of this year. The company said in its quarterly report today that it has almost completed the offtake arrangements for the first two years of product from the mine in the Northern Goldfields.

Lower grades and labour shortages have impacted its cost base, with Western Areas saying it expects costs to come in at the upper end of guidance or even up to 5% above, but higher nickel prices will help soften the blow.

Prices surged 14.5% over the first three weeks of the year to more than US$24,000/t before a pullback to US$22,300/t this week, still around 11 year highs.

Elsewhere in nickel world, Indonesian nickel pig iron producer Nickel Mines (ASX:NIC) will pay a 2c per share final dividend after producing 10,087t of nickel metal at its Hengjaya and Ranger nickel operations in the December quarter.

It comes ahead of its development of the Oracle and Angel nickel projects this year, which will triple its production capacity to over 100,000t, 88,000t of which will be attributable to Nickel Mines itself.

It will place the upstart Aussie based Indo nickel miner among the 10 largest producers of nickel metal in the world, in a market likely to be responsible for carrying the burden of increasing global nickel stocks as stainless steel and EV demand explodes over the next decade.

BHP, IGO, WSA and NIC share prices today

Champion Iron remains profitable in iron ore’s downtime

Champion Iron (ASX:CIA) turned over a C$132.5 million profit in the December quarter despite a big drop in iron prices as low costs and the premium for its high grade 66% plus product counteracted lower benchmark prices and high freight rates.

That was down on the C$212.4m generated in the same period a year earlier as average prices hit C$138.1/t (US$109.50/t), down from C$174.2m (US$134.50/t) a year earlier with C3 Cape freight rates eating into margins.

That remained wildly profitable on a per tonne basis compared to low-grade mid-tiers, who are currently seeing large discounts for their product.

Champion made C$757.8m in the nine months to December 31, compared to C$540.6m in 2020, with prices up from C$154.9/t in the 2020-21 financial year to C$196.1/t in 2021-22.

The dual Toronto and ASX-listed iron ore miner, which is nearing the completion of an expansion program that will increase the capacity of its Bloom Lake mine from 7.4Mtpa to 15Mtpa, will pay a C$0.10 a share dividend.