The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
Most metals analysts predict more pain for the sector before base, precious metals prices tick upward during second half of 2016
The mining sector entered 2015 in the midst of a deep bear market, and conditions grew worse as the year wore on. Metals prices continued a multi-year downward trajectory, dragging the market value of miners and explorers along with them.
With continued slow growth in China and a strengthening U.S. dollar, most analysts don't see the plight of the mining sector improving much in 2016.
"Commodities prices are now at or even below 2009 levels. And absent significant production cuts, we don't see prices improving over the next several quarters," cautioned Carol Cowan, senior vice president, Moody's Investors Service.
Unfortunately for the mining sector, this bearish sentiment seems to cut across both industrial and precious metals.
Basement metals prices
The slow economic growth, not only in China but globally, coupled with a strong U.S. dollar has been particularly rough for base metals, the building materials of modern society.
The price of copper, often considered a bellwether of global economic health due to its widespread domestic and industrial use, dropped from roughly US$2.90 a pound going into 2015 to around US$2.10/lb. at the end of the year. This 27.5 percent drop comes on top of steady declines since early in 2011, when this important metal topped US$4.50/lb.
Goldman Sachs, a global leader in commodities banking, expects copper prices to remain around US$2.00/lb. through 2016.
Morningstar Inc. is even more pessimistic about the prospects for a recovery in "beaten-down copper prices." Analysts for the global investment research firm "expect ebbing Chinese demand, which accounts for approximately half of the global total, to push prices below $2 in 2016 and 2017."
Citigroup Inc., on the other hand, sees prices for the red metal rising steadily through 2016, ending the year at about US$2.50/lb.
"Citi's outlook for end-2016 projects higher prices for U.S. natural gas, crude oil, all base metals but especially copper and nickel as well as platinum and palladium," analyst Ed Morse inked in a recent report.
Citigroup foresees even stronger growth for copper, other base metals and oil in 2017.
Zinc was perhaps the most disappointing of the base metals in 2015. While the roughly 32 percent drop in the price of this galvanizing metal was not much worse than copper, there were high hopes that supply constraints would push zinc prices upwards this year.
With supplies already in deficit and two of the world's largest zinc mines scheduled for closure, some analysts were forecasting zinc prices to average US$1.10/lb. in 2015. While zinc prices did hit US$1.10 in May, it quickly retreated from this high mark and has descended steadily to below US$70 cents/lb., where it currently sits.
In October, Glencore PLC, the world's largest zinc producer, announced plans to slash its annual zinc output by roughly a third, or about 1.1 billion lbs.
"The main reason for the reduction is to preserve the value of Glencore's reserves in the ground at a time of low zinc and lead prices, which do not correctly value the scarce nature of our resources," the Switzerland-based company explained.
Glencore's curtailment, combined with the closures of the Century Mine in Australia and the Lisheen Mine in Ireland, removes roughly seven percent of the world's zinc supply from the markets.
The World Bank predicts zinc prices will average around US95 cents/lb. in 2016 and make modest but steady gains out until 2020.
Gold, silver fare better
Relying less on economic expansion, the prices for gold and silver have fared better than those for their industrial metals brethren.
Gold, which was selling for $1,172 per ounce when the calendars turned to 2015, quickly shot up to US$1,296/oz. before January came to a close. After this brief reprise, however, the safe-haven metal continued a four-year downtrend.
This slide has stalled at just above US$1,000/oz. Many analysts, however, are calling for gold prices to break through this major psychological barrier.
Citigroup's believes strong U.S. dollar sentiment will be enough to push gold below the US$1,000 mark. The banks research arm is now predicting the yellow metal to average US$995 an ounce in 2016.
While many other banks and analysts agree that gold could slip below US$1,000, most are more optimistic than Citi.
ScotiaMocatta - part of Scotiabank Global Banking and Markets and a global leader in precious and base metals trading - believes the fall in the gold price has neared its end.
"We would not be surprised if gold prices fall further, but not much further," the Canada-based bullion trader wrote in a recent report. "We expect physical demand to pick-up in 2016 and firmer prices also should instill confidence."
ScotiaMocatta analysts, which were on target with their 2015 forecast, expect gold to sell in a range between US$950 to US$1,280 in 2016.
Silver prices typically follow gold's lead and 2015 was no exception.
At the turn of the calendar, silver was selling at US$15.71/oz. before making a healthy climb to US$18/oz. before the end of January. The price of "poor man's gold" fell to US$13.71/oz. by mid-December, but has since recovered to above US$14/oz.
ScotiaMocatta says the current weakness in silver price do not reflect the sound supply-demand fundamentals for the white metal.
The bullion dealer expects demand to increase by about two percent in 2016, while production is expected to fall about 2.7 percent for the year.
"Given that we expect another year of supply deficit and the potential for a price recovery to lead to restocking and a pick-up in investor interest we would not be surprised to see prices move up to the $18/oz. - $19/oz. range," ScotiaMocatta wrote in its 2016 silver forecast report.
The company, however, would not be surprised to see silver dip to US$12/oz., considering the bearish sentiment across all the metals.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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