Australia Exploration

Comments of particular interest are noted with ‘*’.  

Matau’s Comments:  

  • Coronavirus:
    • China is resuming industrial and commercial activities, though many of the workforce upon return have to undergo a further 14 day quarantine.  Whuan’s rail networks are being re-opened.  
    • The rest of the world is entering a high infection rate and fatality rate phase of the COVID-19 pandemic with rates escalating, particularly in countries that have not taken early enough nor aggressive enough precautionary actions.  
  • Gold prices have restored the perception of ‘safe haven’ status.  
  • Base metals: comments on supply chains by Reuter’s columnist Andy Home are relevant:  
    • all the base metals markets are more focused right now on the collapse in global demand, both at the first-use fabricator and the end-use consumer stage.
    • Supply disruptions due to mining lockdowns and logistics bottlenecks are still playing catch-up with the demand shock rippling around the world.  Moreover, Chinese importers are probably carrying sufficient supplies of raw materials to ensure production over the short term.  But the longer lockdowns go on, and there are plenty of indications that they will be extended for as long as it takes to control the spread of the virus, the greater the potential for supply chain disruption.
    • Nickel, cobalt and tin markets have the highest supply concentration and thus are the most exposed to supply tensions / disruption. 
    • Lead’s lesson for the rest of the industrial metals complex is that freezing the entire supply chain during an extraordinary demand shock leaves the entire market in better shape once demand comes back.  
    • As the biggest buyer of metallic raw materials, this is a ticking time-bomb for China’s metals producers.  President Xi may be keen to stress that China is open for business as usual, but it’s far from being business as usual for miners around the world.  The pressure on the country’s raw materials supply chains is only going to get worse.
    • Matau adds, that while China is restoring industrial production operations, its major export customers are still in the throes of lockdowns attempting to contain the COVID-19 pandemic and presenting reduced demand until they do. 
    • Base metal prices are expected to languish until the world shows clear signs of recovery, or disruptions become severe.  
    • The novel coronavirus is rewriting the commodities’ rule-book.  This might be the time to rewrite the supply response rules as well.  
  • Oil markets have been roiled by recent abandonment of production agreements and recently with USA president’s comments refuted by Russia and Saudi Arabia. 
  • Investors should identify and evaluate commodities, and companies, that they plan to invest in when global economies and sectors recover.   
    • This environment is remarkably volatile with many jumping to conclusions on thinly detailed data.  
    • Analysis needs to be rigorous, and the commodities and companies robust.  
    • Turning points may be executed quickly, so investors need to have intended investment targets already understood.  

SUMMARY   

Copper  Outlook grim, but (virus driven) supply constraints reducing surplus, supporting deficit by 2023. 

Cobalt  EV production growth forecast constraints (by 2023) by undersupply of battery metals (Li & Co).   

Nickel  Market supply & demand forces faced with political decisions vs fundamentals and seasonal trends.

Zinc & Lead  Zn mine disruptions rising, TC’s reducing.   Pb mkt structure the most resilient (must read).

Tin  Sn has a stressed Chinese supply chain.  Outcomes of lockdowns on demand yet to become clear.   

Aluminium  Chinese producers yet to see impacts of return to work & stimuli, vs slowdown in export demand.

Gold  Gold appears to have restored its ‘safe-haven‘ status.  

Platinum & Palladium  Auto-date looks bleak.  Zimbabwe passes new Bill to facilitate new Resources businesses.

Oil  OPEC+ now delayed, to meet Thursday to discuss market output issues.  

Coal  JFY20-21 thermal contract price settlements.  Japan diversifying sources of thermal coal.  

Iron Ore  Brazilian steel makers pressured to reduce output, plus many tails dams declared not certified.  

Shipping  Freight rates mixed, responding to high iron ore demand and COVID-19 lockdowns.  

General  

Australia – Mineral & Petroleum Exploration Spending:  growing since 2016.

USA – Purchasing Managers’ Index:  Significant slump in outlook (as USA faces COVID-19)

USA – Durable Goods, Vehicles, Electronic goods:  Marginally -ve growth for each segment. 

USA – Construction Spending:  +ve growth for residential & private spend (pre-COVID-19). 

Japan – Industrial Production:  -ve with +ve growth in electronics segments, -ve for vehicles.