COVID-19 has been charging the whole world and dragging the economies. The first of its essence is felt in the commodity space where base metal and oil and gas faced pressured with the outbreak in the Q1 2020.Though economic turmoil has increased the gold price further at the start of the quarter, the future seems to be dicey with economy rebounds.
To quantify, copper LME price fell by 22% from US$6165 per tonne on 2 January 2020 to US$4821.5 per tonne on 2 April 2020. Similarly, Brent crude (BZ: NMX) tumbled by 55% in the same interval to US$29.94 per barrel. Contrary to the base metal, gold surged by 6% in the same time frame from US$1525.5 to US$1612.1 an ounce.
The S&P/ASX 300 Metals and Mining index fell by 30% from A$4503.735 on 2 January 2020 to A$3163.004 as on 16 March 2020. The index recovered a bit to A$3580.499 as on 2 April 2020.
The worldwide spread of COVID-19, first emerging in China, has impacted the commodity market heavily. Lunar New Year (LNY) holidays, travel restrictions inhibiting the return of workersand affecting the operations played a role in twining the commodity prices.
Having said that, settling the cloud of COVID-19, China has resumed the majority of work which is likely to be fully operational by the end of June 2020. The influence on commodity prices due to China is the testimony to its massive metal consumption capacity and key role in the supply chain.
The uncertainty is not over yet as the world except China is facing the wrath of COVID-19 now.
Even if we take all the optimistic factors into account and believe that the phase of the virus will be over by first half 2020, then also other major macro factors will come into play driving the pricesin the commodity space.
On such example can be the US Presidential election in September 2020, where the US president is anticipated to pledge to leave the Paris agreement in November 2020. Hence, we can expect some of the major policy changes for 2021 in the field of emissions and other environmental regulation driving the industry.
Let's now gauge through the commodity one by one to understand its stance in future with respect to price and production. All the data is taken from the Department of Industry, Science, Energy and Resources, Australia.
Copper: With economy rebound after COVID-19, the consumption of copper is anticipated to outpace the production providing support to the commodity price. The copper price is likely to be in the range of US$5,990 a tonne in 2020 and US$6,900 a tonne in 2025. Similarly, earnings from copper export of Australia is expected to increase to A$13 billion in FY25 from A$10 billion in FY19.
Globally, copper production is projected to increase by 2.5% CAGR from 20,512kt in 2019 to 23,805kt in 2025.
Nickel: Solid demand from stainless steel in the near future is likely to boost the nickel consumption supporting the price. The price is expected to be around US$ 15,300 per tonne in 2020 and US$15,800 per tonne in 2025. The rise in price is likely to increase the export earnings from A$3.7 billion in FY19 to A$6.6 billion in FY25.
Nickel total mine production is likely to increase with CAGR of 2% from 2,558kt in 2019 to 2,885kt in 2025.
Zinc:The price of zinc is anticipated to fall in the near future due to the high-grade zinc production building up on stock due to lower price in 2020 which may further pressurise price in the next five years. The zinc price is forecast to reduce from US$2,605 per tonne in 2019 to US$1,864 per tonne in 2025. Unlike the above two commodities, export earnings of Australia is likely to fall from A$4 billion in FY19 to A$3.1 billion by FY25.
The mine production of zinc is projected to surge with CAGR of 0.3% from 12,929kt in 2019 to 13,158kt in 2025.
Lithium: Battery metal lithium is likely to increase due to the demand coming from EVs. It is anticipated that the price will surge to US$10,400 per tonne by 2025. The export earningsisexpected to fall in FY21 and then rebounding in FY25. The earnings in FY19 was A$1.6 billion, which is likely to fall to A$0.6 billion in FY21 and then rebounding to A$3.0 billion in FY25.
In the same duration, lithium production is expected to rise from 495kt in 2019 to 858kt in 2025 with a CAGR of 9.6%.
Iron ore: Iron ore price is forecasted to fall with the production resuming gradually, disrupted in 2019 with Brumadinho tailings dam collapse in Brazil and cyclones in the Pilbara, WA to mention few. The price is anticipated averaging around US$78 per tonne free on board (FOB) Australia. The Country earnings from exports is likely to increase from A$79 billion in FY19 to A$101 billion in FY20 and then anticipated to fall to A$84 billion in FY21, and $72 billion in FY25 due to price easing.
The total world trade of Iron ore is likely to increase with CAGR of 1.4% from 1,760Mt in 2019 to 1,908Mt in 2025.
Gold: Though gold has traded seven years high (US$1,475 an ounce), it's expected to fall post-2020 when the economy rebounds to post the victory over COVID-19. The price of gold is anticipated to be sliding to US$1,220 per ounce by 2025. On similar lines, export earning of Australia will reduce from A$26 billion in FY20 to A$21 billion in FY25.
World gold mine production expected to increase 3,464t in 2019 to 3,596t in 2025 with CAGR of 0.6%.
Dynamic Commodity space and recovery from COVID-19 is closely looked by resource players in order to gauge the project expansion plans, exploration and production campaigns and devise drilling strategies. Investors are also keenly eyeing the market in order to time their investments for potentially attractive opportunities. The investments from businesses and market players and the pricing trajectory is now dependent on virus containment and the recovery from the pandemic, upping the demand and supply game eventually.