Resource commodity outlook more hot than not – CRU’s Trench

Mines & Money Hong Kong got off to a good start with a positive view on metals and minerals presented by Dr. Allan Trench of CRU Strategies.

Author: Lawrence Williams
Posted: Monday , 18 Mar 2013

Hong Kong -

Mines & Money Hong Kong has now kicked off with the first of two conference-only days. The associated exhibition where mining companies (mostly) promote their wares to a largely eastern financial audience doesn’t start until Wednesday. The conference itself lasts for five days – a long time in modern day investment conference terms and as we noted in our earlier article leading up to the event – there are plenty of strong keynote speakers to hold the audience over the conference duration. Indeed if one uses a paper magazine analogy for a conference, these keynotes, and associated panels are the equivalent of editorial, while the 10-minute presentations from a plethora of smaller miners and explorers the advertising. The key is to pull the audience in with the editorial and hope it stays to listen to the advertisers who provide the conference organisers’ bread and butter.

So saying, the conference kicked off this morning with an interesting presentation from Dr Allan Trench from CRU Strategies, Australia predicting a third-wave mining boom due to a mixture of ever-growing demand, and declining ore grades and exploration successes, but primarily driven by continuing Chinese demand. Conference Director, Leo Stemp, noted in introducing Dr Trench that China’s new leader today (Monday) promised that the key nation in resource demand was aiming for 7.5% growth – perhaps below its peaks but in a nation the size of China still hugely significant for the global resource sector.

Starting off his presentation Dr Trench alluded to whether the markets should be looking for their main growth from China short – those resources for which China needs to import perhaps the bulk of its supplies, or China long – those mostly minor metals and minerals for which China itself has long been the major global supplier, but now finds itself in a position of having to limit supplies to meet its own needs – his conclusion was that indeed both were significant. While China short (commodities like the base metals and iron ore) might provide the bulk in total dollar terms, China long commodities could provide much higher price volatility as demand ebbs and flows.

China though still is the key, as he sees it, in any price growth in the metals and minerals commodities markets going forward. It already accounts for around 40% of the global market and with the OECD countries in an at best flat growth position China’s growing economy will continue to drive metals and minerals consumption and eclipse other economies. Overall, because of China’s impact CRU sees metals and minerals outlook between now and 2017 as ‘more hot than not’.

Of the principal base metals, Dr Trench noted that the CRU analytical team felt that zinc and tin offered the greatest pricing growth opportunities moving forward as the demand growth looks to outrun the likely production volume quite dramatically, and would probably exceed that of the bellwether metal, copper. Copper demand though was more balanced, but even so the demand curve would require not only the probable projects going forward to come to fruition on time (never a foregone conclusion in mining, particularly at a time of financial austerity and tight bank lending, particularly on new megaprojects), but also those that are only classified as possible projects to brought in too. Nickel fundamentals were looking mildly positive too although he did not foresee nickel prices moving forwards getting anywhere near its peaks of 2006/7, but overall fundamentals looked to be improving.

He didn’t see the big bulk commodities – iron ore and coking coal in particular – making such a positive contribution though as projected supply would exceed demand meaning that only the best projects – in terms of grades and location – would really succeed.

Looking at what CRU analysts deem as the top metals hotspots, Dr trench picked out palladium, tin and zinc at the top and potash and silver at the bottom – but as far as the latter is concerned this is presumably based on fundamentals and perhaps not on possible investment demand should there be any kind of blowout politically or economically causing precious metals to rise through the investor ‘fear’ element and drive them towards safe haven investment. One can be sure that Eric Sprott, due to speak here on Wednesday, will come up with a rather more bullish viewpoint on silver in particular.

All in all, Dr Trench’s presentation was overall decently positive, at least as far as industrial metals and minerals were concerned, but perhaps not so much so on precious metals, but as noted above these tend to move on rather a different variety of price drivers. China remains the big driver, but if China does falter in its growth and this drops below the higher single digit level things could be a little different, but the gist of his presentation is that he didn’t see this happening. India was another potential price driver, but its industrial usage looks to be far less efficient than that of China and he was thus not really a believer that India might pick up the slack if Chinese growth does not come up to expectations.

Overall this year’s Mines & Money Hong Kong has already got off to a positive start. The conference hall was well filled for the opening presentations and the organisers are expecting upwards of 3,500 attendees with a particularly strong representation from the institutional investment sector, mining entrepreneurs, brokers and analysts and even the odd media representative. The first day is largely being devoted to bulk, base and industrial minerals and some of the other speakers will be looking more closely at some of the individual metals and minerals in other featured presentations.

http://www.mineweb.com/mineweb/content/en/mineweb-base-metals?oid=182351&sn=Detail