“We have been concentrating so much on the digital expansion, and developing new platforms, that the world has neglected the physical side of the global economy.” Small Caps AU- December 22,2020
Mining Companies Log Stellar Performance in December 2020
An “epic commodity boom” or supercycle is about to unfold in 2021 according to Steen Jakobsen, the chief investment officer and economist at Saxo Bank in Denmark. Jakobsen cites underinvestment or “malinvestment” in mining operations throughout recent decades, and over-emphasis on global digitization platforms as the culprits leading to shortages in “real world” physical products.
The Small Cap Au report is pointing investors to “the stellar performance of the mining companies” in December 2020, and the surge in mined commodities prices in the S&P/ASX200 Index. These include:
- Copper is hovering near $8,000 USD per ton for a 7-year high.
- Zinc is climbing close to $3,000 USD per ton
- Nickel is up to $17,500 USD per ton
- Even obscure tin has risen above the $20,000 USD per ton mark
- Iron ore is going at a respectable $158.50 USD per ton
Copper and iron ore both reached multi-year highs in November, with a boost of investor confidence from encouraging vaccine availability news. Steen also points out that the Covid 19 pandemic and stimulus and relief packages triggered the transfer of “immense volumes of money” from government sectors to private hands which in turn resulted in “unleashed spending”.
And now there’s more to come.
Stimulus and the 2021 Supercycle
Now with President Trump’s warp speed vaccine distribution well underway and the next round of Covid 19 relief approved and injecting another $900 billion into the US and global economy, conditions are even more ripe for the commodities supercycle anticipated by Saxo Bank economist Jakobsen. Critical shipping container shortages in the EU will continue to drive strong demand for iron ore and steel. Copper demand will follow the surge in electric vehicle production mandated by “green government” policies around the world targeting fossil fuel emissions with aggressive decarbonization regulations that affect industries across the board.
Copper Demand, Going Green, and the Global Economy For the 2020s Decade
In the UK the target date to eliminate all vehicles powered by gasoline or diesel fossil fuels is now just a decade away, set at 2030. That benchmark alone more than triples the demand for copper required for each EV. While a modern gas or diesel powered vehicle requires 25 kg of copper to accommodate the increased use of onboard electronics, a comparably sized EV requires more than 3 times as much copper at 80 kg per vehicle. Other EU nations have set ambitious decarbonization goals to reduce emissions by 55% as compared to 1990 levels, again with 2030 as the target date.
According to an informative report at Money Control, Copper prices may rise further on Chinese demand, decarbonization efforts, China’s 2021 recovery in the automotive and manufacturing sector will also play a key role in copper prices that has savvy fund managers betting long on copper and other physical mined commodities.
Data from the US Commodity Futures Trading Commission, shows that the net position on copper has risen to a 3-year high. Luke Smith, the portfolio manager at Sydney-based Ausbil Investment Management predicts that Australia is now in the early stages of a multi-year bull cycle for mineral resources.
Much of that Australian commodities bull cycle will be fueled by heavy demand from China, sustaining the 75% increase in copper prices since it slipped to $4,500 last March, for a 25% year-on-year gain overall. That is if China’s dubious CCP doesn’t attempt to bottleneck the Australian mined commodities supply as they have with Australian coal.
China’s Copper Consumption
Lack of investment in new mines combined with China’s enormous air conditioner and freezer production is a key indicator of the “robust demand” for copper according to ING and CITI analysts. The CITI investment bank assigns China’s freezer output as “the primary reason” for the increase in copper consumption since production there increased by a whopping 80%. That caused an increase in copper tube and pipe use of 4.28% month-on-month last November.
The tight copper supply in China is also strained by demand from the construction sector in Beijing. New EV sales set records in September and October, all part of China’s 11% growth and the 3.6% increase in copper demand. With forecasts anticipating only a 3.5 % boost in 2021 global copper production, the world would still see a copper deficit of 2.43 lakh (100,000) tons.
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