Wood Mackenzie reports that mining project investments have held around $40 billion for the third straight year. This is down more than $120 billion from 2012 and about a third of what it averaged a decade ago.
Investors and portfolio managers are anticipating a tightening supply in metals that may be exaggerated by several other trends, such as the U.S.-China trade war and the growing share of electric vehicles in the automotive market. The key takeaway here is that mining companies are not incentivized to invest towards increasing production when prime metals prices have been underperforming in 2018.
For the year-to-date (through November 14), all of the major base metals at the London Metal Exchange were in negative territory as compared to the end of last year. LME 3-mo. zinc has had the worst year-to-date performance, declining nearly 25%, followed by lead (-22%), copper (-15%), and aluminum (-14%):
Given the declines in primary metal prices, diminished Chinese scrap import demand, stronger dollar, and on-going U.S.-China trade dispute, domestic nonferrous scrap prices have also been pressured lower. American Metal Market was recently listing brass ingot maker copper scrap spreads at 8-9 cents for Bare Bright, 15-17 cents for No. 1 copper, and 33-35 cents for No. 2 copper. Here’s the trend in the U.S. producer price index for copper based scrap (the grey bars indicate recessions):
Looking forward, the International Copper Study Group forecasts the global refined copper market will be in a supply deficit of 92,000 metric tons this year, followed by a supply deficit of 65kt in 2019. Meanwhile, ABN-AMRO reports that “Cochilco, Chile’s copper commission, projected that global copper demand would increase by 450k tons per year through 2050.” Will expectations for improved market fundamentals support copper prices in 2019? Reuters’ survey of 30 market analysts came back with a median LME cash copper price of $6,699 per metric ton in 2019, up from recent trading around $6,100 per ton.