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SETTING THE GLOBAL STANDARD
LME Metals Seminar 2021
Monday 11 October, London and online
2
Many thanks to our sponsors
3
POLL
First it was toilet roll, then HGV drivers and CO2, and now petrol at the pumps…what’s next for the UK’s lengthening list of shortages?
1.Crisps2.Meat3.Alcohol4.Christmas trees5.Cars6.Good poll questions
Polls sponsored by:
4
POLL 1 RESULTS
Polls sponsored by:
• The recovery so far.
• The outlook for China, US and other major economies.
• The outlook for inflation and monetary policy.
• The long term effects of the pandemic.
• The implications for commodity markets.
1. Agenda
Sources: Refinitiv, Capital Economics
2. Global GDP (Q4 2019 = 100)
85
90
95
100
105
85
90
95
100
105
2016 2017 2018 2019 2020 2021
Sources: Refinitiv, Capital Economics
3. GDP Q3 2021 vs. Pre-Virus Peak (%-diff)
-8-6-4-20246810
-8-6-4-202468
10
Sources: Refinitiv, Capital Economics
4. China GDP (CE Measure, Q4 2019 = 100)
85
90
95
100
105
110
115
85
90
95
100
105
110
115
2018 2019 2020 2021
Actual Pre-virus CE forecast
Sources: CEIC, Refinitiv, Capital Economics
5. China Exports (US$, Dec. 19 = 100)
60
80
100
120
140
160
180
60
80
100
120
140
160
180
2018 2019 2020 2021
Furniture, toys & plastic goods
Electronics (incl. home appliances)
Other goods
Textiles, garments, bags & footwear(incl. face masks)
Sources: Refinitiv, Capital Economics
6. US Imports of Consumer Durable Goods ($bn)
16
18
20
22
24
26
28
30
32
34
36
16
18
20
22
24
26
28
30
32
34
36
2011 2013 2015 2017 2019 2021
Sources: CEIC, WIND, Capital Economics
7. China Fixed Investment (Dec. 2019=100, seas. adj.)
70
80
90
100
110
120
70
80
90
100
110
120
Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Jun-21
ManufacturingInfrastructureReal EstateTotal
Jan. & Feb. data averaged
• The government is prioritising homebuyers, then suppliers in a managed restructuring of Evergrande. Banks, bondholders face losses.
• Many small developers are stressed, but the balance sheets of other large developers are far healthier than Evergrande’s.
• Policymakers have the ability to prevent financial contagion but an economic headwind is inevitable:
• Controls on developer financing have led to a drop in project starts. New property sales are declining despite price cuts.
• Further ahead, a structural slowdown looms. Demand for new residential property is likely to halve this decade, as urbanization and new household formation slow.
8. Consequences of Evergrande’s Collapse
Source: Capital Economics
9. China Activity Proxy (% y/y)
0
2
4
6
8
10
12
14
0
2
4
6
8
10
12
14
2010 2012 2014 2016 2018 2020 2022
CE forecasts
Sources: Google, Apple, Capital Economics
10. CE COVID Mobility Trackers in Selected DMs (% Diff. from Pre-Virus Level, 7D MA)
-80
-70
-60
-50
-40
-30
-20
-10
0
10
20
-80
-70
-60
-50
-40
-30
-20
-10
0
10
20
Mar Jun Sep Dec Mar Jun Sep
Germany US UK
Sources: Refinitiv, Capital Economics
11. Developed Markets GDP Growth (% q/q)
2016 2017 2018 2019 2020 2021 2022 2023-3
-2
-1
0
1
2
3
-3
-2
-1
0
1
2
3
-10.3
+9.3CE forecasts
• Economic crises tend to leave a legacy of permanently reduced output.
• This is because crises tend to impair household and corporate balance sheets.
• The subsequent need to repair balance sheets depresses demand (e.g. after the 2008 financial crisis).
• But this time may be different…
12. This time is different
Sources: Refinitiv, Capital Economics
13. DM Households’ Currency & Deposits ($trn)
33
34
35
36
37
38
39
40
41
42
33
34
35
36
37
38
39
40
41
42
2018 2019 2020 2021
"Excess" accumulation of cash
Currency & deposits
Five-year trend
$3.5tn
Sources: Refinitiv, Capital Economics
14. Lending to Private Sector (% y/y)
2015 2016 2017 2018 2019 2020 2021-6
-4
-2
0
2
4
6
8
10
12
-6
-4
-2
0
2
4
6
8
10
12USEuro-zoneUK
Sources: Refinitiv, Capital Economics
15. Business Survey Measures of Labour Shortages (Std. Dev. From Long-Run Average, 3m Ave.)
-3
-2
-1
0
1
2
3
4
-3
-2
-1
0
1
2
3
4
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
US (NFIB: % firms finding it hard to fill roles)Euro-zone (EC: % firms labour shortages biggest problem)UK (BoE Agents' score of recruitment difficulties)
Below average since 2000
Above average since 2000
Sources: Refinitiv, Eurostat, Capital Economics
16. Labour Force Participation Rate(55+ Years Old, % Change Since End-2019)
US UK(65+)
Canada Italy France Spain-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
• Most shortages will prove short-lived…
• …but concerns about lower labour supply in the US?
• Some “destruction” of capital (e.g. office space)…
• …but small in the grand scheme and offset by a boost to investment in other areas (e.g. digital tech).
• New ways of working could boost productivity?
17. Will the pandemic damage supply potential?
Sources: Refinitiv, Capital Economics
18. Global GDP (2018 = 100)
60
70
80
90
100
110
120
130
60
70
80
90
100
110
120
130
2005 2010 2015 2020 2025
Global GDP
Pre-GFC Trend
Pre-COVIDTrend
CE forecasts
Sources: Refinitiv, Capital Economics
19. Contributions to Headline Inflation in G4 Economies (%-pts)
Jan 2020 May 2020 Sep 2020 Jan 2021 May 2021-2
-1
0
1
2
3
4
-2
-1
0
1
2
3
4 EnergyFoodOthersTotal Inflation
• Globalisation has peaked and US-China decoupling could contribute to a rise inflation pressures in some sectors.
• Demographics have gone from exerting downward pressure to upward pressure on inflation.
• Firms will face new costs – including to green economies.
• Central banks’ and governments’ attitudes towards inflation is changing (more on this later).
20. Some structural disinflationary forces are fading…
• Labour markets remain highly flexible and workers’ institutional bargaining power remains limited.
• Inflation expectations remain well anchored at low levels.
• New technologies will continue to bear down on capital goods prices.
• The development of the gig economy and remote working points to even greater labour market flexibility in some sectors.
• Structural changes in the global economy mean that inflation pressures are now more likely to show up in asset prices (e.g. housing) than consumer prices.
21. …but some disinflationary forces persist
Sources: Refinitiv, Capital Economics
22. Headline CPI of Selected DMs (% y/y)
0
1
2
3
4
5
6
0
1
2
3
4
5
6
2010 2015 2020 2025 2030
US UK Euro-zone
CE forecasts
Sources: Refinitiv, Capital Economics
23. Policy Interest Rates (%)
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2010 2015 2020 2025 2030
US UK Euro-zone
CE forecasts
• Evergrande problems unlikely to cause China’s economy to collapse but pandemic has deepened structural challenges.
• Advanced economies will stage a full recovery from the pandemic (different from 2008). But best of the recovery now behind us – the hard part lies ahead.
• Inflation is likely to fall back in all major economies next year as bottlenecks ease. But several countries are facing higher medium-term inflation. Risks greatest in US.
24. Three themes for commodity markets
Sources: Refinitiv, Capital Economics
26. CE China Copper Demand Proxy & Copper Price
2008 2010 2012 2014 2016 2018 2020 20222,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
-20-15-10-505
101520253035 CE Copper Demand Proxy (% y/y, 2m Adv., LHS)
LME Copper Price (US$ per Tonne, RHS)
China 'hard landing' fears
Sources: Refinitiv, Capital Economics
27. Long Run Real Price Forecasts (US$ per Tonne)
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100
5,500
6,000
6,500
7,000
7,500
8,000
2020 2025 2030 2035 2040 2045 2050
Copper (LHS) Al umini um (RHS)
China's economicslowdown
Transition to a greener global economy
• Global economy will stage a full recovery from the COVID crisis, but we’re entering the hard part.
• In DMs, supply constraints will remain a brake on growth in 2022. China is facing bigger problems. Global GDP growth will slow next year.
• Inflation is likely to fall back in all major economies next year. But some countries are facing higher medium-term inflation. Risks greatest in US.
• Interest rates will start to normalise – but process will be slow.
28. Conclusions
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Contact Us
34
Moderator: Yang Liu, Head of China Sales, London Metal Exchange
Panellists:• Xiao Amelia Fu, Head of Global Commodities Strategy, Bank of China International• Nick Snowdon, Goldman Sachs• Yanchen Wang, General Manager, SMM UK
China’s role in the global metals market
Questions:Ask a question using the Q&A box on the “Main stage”
Scan the QR code on the back of your badge to access the app
35
China’s Economic Indicators Showed Signs of Slowdown
35
Source: BOCI Global Commodities, Bloomberg
China Manufacturing PMI Recovered First, But
Fell Below 50 in Sep
China’s FAI Decelerated, But Infrastructure FAI Could
Improve in Q4 and 2022 to Stabilize Growth
3636
China Monetary Guidance Shifted to Stability with Easing
Source: BOCI Global Commodities, Reuters
China’s LPR Remained Stable for 17 months
37
37
China’s EV Sales Continued to Increase
Source: BOCI Global Commodities, Bloomberg
China’s EV Share of New Passenger Vehicle Sales
China’s EV Sales Continued to Rise Strongly in 2021
0%
5%
10%
15%
20%
25%
30%
2015 2017 2019 2021 2023 2025
3838
China’s EV Sales Long Term Trends
China’s EV Sales Long Term Bullish
Source: BOCI Global Commodities, Bloomberg
China’s EV Share of New Passenger Vehicle Sales
Could Reach Close to 80% in 2040
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2020 2025 2030 2035 2040
-30
-20
-10
0
10
20
30Investment Actually Completed in Fixed Assets, Accumulated Growth Rate Y/YTotal Retail Sales of Consumer Goods Y/YTotal Value of Exports Y/Y
Growth rates of domestic consumption and export value
%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
0
50
100
150
200
250
300
350
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2019 2020 2021 2021 Y/Y (RHS)
Total value of exports from ChinaBillion US$
Data source: SMM, NBS
Note: 2021 growth rates are two-year average rates against 2019
Strong export is a crucial driver of China’s economy recovery in 2021
China primary aluminium GHG emission curve
0
2
4
6
8
10
12
14
16
18
20
0 500 1000 1500 2000 2500 3000 3500 4000
Indirect power-related emissions (Scope 2)
Direct power-related emissions (Scope 1)
Direct non-power-related emissions (Scope 1)
Cumulative production (10kt)
Primary aluminium GHG emissions curve, Scope 1 and 2t CO2e/t Al
Data source: SMM
The proportion of thermal power will continue decreasing in Chinese power market
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Hydropower Thermal Nuclear Wind Solar
Chinese electricity generation by power source
%
Data source: SMM, NBS
Chinese aluminium and copper scrap imports
-100%
-50%
0%
50%
100%
150%
200%
250%
0
20
40
60
80
100
120
140
160
180
200 US Hong Kong Malaysia Others Y/Y(RHS)
Chinese monthly aluminium scrap importskt
-100%
-50%
0%
50%
100%
150%
0
20
40
60
80
100
120
140
160
180
200Malaysia Japan EU27 US
Hong Kong Others Y/Y(RHS)
Chinese monthly copper scrap importskt
Data source: SMM, China Customs
Strong growth of Chinese NEVs market since H2 2020
Data source: SMM, CAAM
0
50
100
150
200
250
300
350
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2018 2019 2020 2021
Monthly NEVs output in Chinak units
-50%0%50%100%150%200%250%300%350%400%450%
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2018 2019 2020 2021 2021 Y/Y(RHS)
Monthly auto production in ChinaM units
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2018 2019 2020 2021E 2022E 2023E 2024E 2025E
NEVs output (LHS)
2018-2025 NEVs output in ChinaMillion units
New energy vehicle penetration rate:
5.4% 22%4.5%
Y2018 Y2020 Y2025E
CAGR:+35%
Real estate market in China
-60%
-40%
-20%
0%
20%
40%
60%
80%
0
50000
100000
150000
200000
250000
Floor Space of Real Estate Started This Year, Accumulated(10000 sq.m)Floor Space of Real Estate Completed, Accumulated(10000 sq.m)Y/Y of Floor Space of Real Estate Started, Accumulated(%)Y/Y of Floor Space of Real Estate Completed, Accumulated(%)Y/Y of Development and Sales of Real Estate, Land Space Purchased, Accumulated(%)
Accumulated floor space of real estate started and completed in China10,000sq.m(LHS), %(RHS)
Data source: SMM, NBS
051015202530354045
05
101520253035404550 Premiums of battery-grade nickel sulphate over first-grade nickel briquette(LHS)
Battery-grade nickel sulphate (RHS)
Nickel sulphate premium again refined nickel remains high`000 yuan/t Nickel content `000 yuan/t Nickel Sulphate
-2,000-1,00001,0002,0003,0004,0005,0006,000
-30000
-20000
-10000
0
10000
20000
30000
40000Production Imports Demand Exports Balance(RHS)
Nickel sulphate market balance in ChinaT(Nickel content)
Data source: SMM, China Customs
High premium supports refined nickel consumption for Ni sulphate
-80%-60%-40%-20%0%20%40%60%80%100%120%
0
5
10
15
20
25
30
35 Australia Russia Canada NorwaySouth Africa Others Y/Y(RHS)
Chinese monthly refined nickel importskt
0
1,000
2,000
3,000
4,000
5,000
6,000
0
10
20
30
40
50
60Australia Papua New Guinea New CaledoniaFinland Turkey IndonesiaCuba Others Average price(RHS)
China's nickel hydrometallurgical intermediate products importskt(LHS), US$/t(RHS)
0
10
20
30
40
50 Cobalt ores and concentratesCobalt Mattes And Other Intermediate Products
Cobalt imports from DRCkt
406080100120140160180
050
100150200250300350400450500
SMM refined cobalt (LHS) SMM tricobalt tetraoxide (LHS)SMM cobalt chloride (RHS) SMM cobalt sulphate (RHS)
Refined cobalt and cobalt compounds prices in China`000 yuan/t
Data source: SMM, China Customs
China remains overdependent on DRC cobalt supply
0
10000
20000
30000
40000
50000
60000
0
2000
4000
6000
8000
10000
12000Unwrought cobalt (LHS)Cobalt intermediate products (LHS)Cobalt ore (LHS)Average import price of cobalt intermediate products (RHS)
China's cobalt products imports (metal content)T(LHS), $/t(RHS)
-1,000-800-600-400-20002004006008001,000
-8,000-6,000-4,000-2,000
02,0004,0006,0008,000 Output Demand Export Balance(RHS)
Cobalt sulphate market balance in ChinaT
-20
-10
0
10
20
30
40
50
60
70
80
0
20
40
60
80
100
120
140
160
180
08/2
019
09/2
019
10/2
019
11/2
019
12/2
019
01/2
020
02/2
020
03/2
020
04/2
020
05/2
020
06/2
020
07/2
020
08/2
020
09/2
020
10/2
020
11/2
020
12/2
020
01/2
021
02/2
021
03/2
021
04/2
021
05/2
021
06/2
021
07/2
021
08/2
021
SMM lithium hydroxide LCE price - SMM battery-grade lithium carbonate price(RHS)
Lithium carbonate price(LHS)
Lithium hydroxide price(LHS)
Lithium carbonate and lithium hydroxide prices in China`000 yuan/t (RHS, LHS)
-6000
-4000
-2000
0
2000
4000
6000
8000
10000
-40000
-30000
-20000
-10000
0
10000
20000
30000
40000 Output Imports Demand Exports Balance (RHS)
Lithium carbonate market balanceT
-2000
-1000
0
1000
2000
3000
4000
-20000
-15000
-10000
-5000
0
5000
10000
15000
20000Output Imports Demand Exports Balance (RHS)
Lithium hydroxide market balance in ChinaT
Data source: SMM
Strong demand pushes the lithium market into deficit
48
Moderator: Yang Liu, Head of China Sales, London Metal Exchange
Panellists:• Xiao Amelia Fu, Head of Global Commodities Strategy, Bank of China International• Nick Snowdon, Goldman Sachs• Yanchen Wang, General Manager, SMM UK
China’s role in the global metals market
Questions:Ask a question using the Q&A box on the “Main stage”
Scan the QR code on the back of your badge to access the app
49
POLL
Which metal carries the most upside potential for the year ahead?
1.Aluminium2.Copper3.Lead4.Nickel5.Tin6.Zinc
Polls sponsored by:
50
POLL 2 RESULTS
Polls sponsored by:
51
Moderator: Mark Burton, Journalist, Bloomberg
Panellists:• Aluminium – Tim Weiner, Vice President Aluminum Pricing & Risk Management, Harbor Aluminum• Copper – Vanessa Davidson, Director of Base Metals Research and Strategy, CRU• Lead and zinc – Duncan Hobbs, Research Manager, Concord Resources• Nickel – Jessica Fung, Head Strategist, Pala Investments• Tom Mulqueen, Head of Research, Amalgamated Metal Trading
The Metals Debate
Questions:Ask a question using the Q&A box on the “Main stage”
Scan the QR code on the back of your badge to access the app
Copper Outlook 2022: Market loses some of its sparkle
October 2021
Vanessa DavidsonDirector of Copper Research & Strategy
LME Seminar – The Metals DebateQEII Conference Centre
This presentation is private and confidential. It must not be disclosed in whole or in part, directly or indirectly or in any other format without the prior written permission of CRU International Limited.
CRU International Limited’s responsibility is solely to its clients and its liability is limited to the amount of the fees actually paid for professional services.
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53
0.0
1.0
2.0
3.0
4.0
5.0
0
2,000
4,000
6,000
8,000
10,000
12,000
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Actual Annual Average
Copper price has doubled since March 2020 lows…
Review of 2021: Copper price peaks at record high in May
54DATA: Comex, LME, SHFE, Bank of Japan, ECB, PBoC, US Federal Reserve, CRU
05
101520253035
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Federal Reserve ECB Bank of Japan PBoC
…supported by expansionary monetary & fiscal policy...
0
400
800
1,200
1,600
00 02 04 06 08 10 12 14 16 18 20
LME COMEX SHFE non-bonded
…at a time of very low volumes of exchange stocks
LME 3M Price (nominal), $ /t (LHS) and $ /lb (RHS)
End of month LME, Comex and SHFE exchange stocks, ‘000 t
Selected central bank assets, $ trn
-800
-400
0
400
800
1,200
2015 2016 2017 2018 2019 2020 2021
…which underpinned a rapid recovery in copper demand…Annual change in world refined copper consumption, ‘000t
www.crugroup.com
55
2022 Demand: Onwards and upwards but regional shift underway
16,000
19,000
22,000
25,00020
10
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Global Linear (Global)
Global refined copper consumption, ‘000 t
5,000
10,000
15,000
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
China Linear (China)
Chinese refined copper consumption, ‘000 t
10,000
11,000
12,000
13,000
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
World ex-China Linear (World ex-China)
World ex-China refined copper consumption, ‘000 t
DATA: CRU www.crugroup.com
Longer term demand: Green energy transition is gathering pace
56DATA: CRU. ICE = Internal combustion engine, HEV = Hybrid electric vehicle, PHEV = Plug-in hybrid electric vehicle, BEV = Battery electric vehicle, FCEV = Fuel cell electric vehicle, NEV = New energy vehicle
1
7
15
29
43
52
57
0
10
20
30
40
50
60
70
0
20
40
60
80
100
120
2015 20 25 30 35 40 45
ICE HEV PHEV BEV FCEV NEV share
Global LDV sales by powertrain, Units M NEV (PHEV + BEV) share, %
2
5
9
16
20
0
5
10
15
20
25
20
22
24
26
28
30
2015 20 25 30 35
Total excluding green energy Electric vehicles
Renewables Grid (incremental)
Green energy share
Global refined copper consumption, Mt Green energy share, %
www.crugroup.com
2022 Supply: Growth in mine output reliant on new projects
57
7.9%
2.3%
4.3%
5.6%
-0.1%
2.9%
0.0%
-0.7%
3.6%
2.9%
-2%
0%
2%
4%
6%
8%
10%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Global copper mine production y/y growth; %
DATA : CRU, NOTE: (1) Mutanda due to restart in 2022. Since this is treated as an existing operation, it is not included in our list of projects.
Mine projects (capacity >= 50,000 t/y), ‘000 t
0 50 100 150 200 250 300 350
Zone 5 StarterMina Justa
Sicomines Exp.Timok
QulongSpence Sulphides
Kamoa-Kakula I
Pinto Valley Ext.Los Pelambres Exp.
Toromocho Exp.Aktogay Exp.
UdokanKamoa-Kakula II
QB2Quellaveco
CommittedOperating
2021
2022
www.crugroup.com
0%
2%
4%
6%
8%
10%
12%
00 02 04 06 08 10 12 14 16 18 20
Mine disruption rate, % (LHS)
Longer term supply: Project approvals slow – more needed
58DATA : CRU
Oyu Tolgoi
El Teniente NML
Mirador
Oyu Tolgoi Exp.
Carrapateena,Spence
Aktogay Exp.
Toromocho Exp.
QuellavecoQB2
Mina Justa,Yulong
Los Pelambres Exp.
Kamoa-Kakula 1 & 2
Bingham Canyon Ext.
Timok
Qulong
Rajo Inca,Carrapateena BC
Kamoa-Kakula 3
Tenke FungurumeSulphides
Prominent Hill Exp.,Telfer Exp.
0
2,000
4,000
6,000
8,000
10,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
LME 3M copper price, $/ t, and timeline of project approvals20
23
2024
2025
2026
0
100
200
300
400
500
OT
II
El T
en. N
ML
Car
rap'
na B
C
Salv
ador
Ext
.
Kins
ever
e S.
Man
to. S
ul.
Tenk
e F.
Sul
.
Mut
anda
Sul
.
Mal
myz
h
Ak-S
ug
Kans
ansh
i III
Sant
o D
om.
Sung
un II
I
Cob
re P
. Exp
.
Agua
Ric
a
Dez
iwa
II
Pum
p. H
. OP
Kisa
nfu
Col
l. 21
0 kt
pd
Cor
occo
'co
Sier
ra G
Opt
.
Eva
- Clo
n'ry
Elan
g
Kam
oa-K
. III
Bing
'm C
. Ext
.
Jose
mar
ia
Alem
ao
Col
l. Bi
ol'c
h
Que
brad
ona
Committed Probable Possible
Tiers 1 & 2 Project Pipeline (>50,000 t/y Cu), 2023-26
2023
2024
2025
2026
www.crugroup.com
59www.crugroup.com
2022 Price Outlook: Average price lower but remains historically elevated
4,000
6,000
8,000
10,000
-300
-200
-100
0
100
200
300
2014
2015
2016
2017
2018
2019
2020
2021
2022
Balance LME 3M price
Tendency towards surplus persists in 2022Global refined copper balance, ‘000 t Cu (LHS); LME 3M price, US$ /t (RHS)
-4
0
4
8
12
15 16 17 18 19 20 21 22
CPIPPIShort term i/r10Y T-Bond
US inflation indicators, %
DATA: Oxford Economics, CRU
1.05
1.10
1.15
1.20
1.25
1.30105
110
115
120
125
15 16 17 18 19 20 21 22
TW$ [LHS} $:€ [RHS]
Exchange rates
2022 Conclusions: Price and margin high relative to previous cycles
60
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
1983 86 89 92 95 98 01 04 07 10 13 16 19 22
Margin fLME 3MNet of by-product cash costs, 90th percentile
Producers to enjoy record marginsCopper price, costs and margin, $/ t (nominal)
World demand growth slows in 2022, after recovery in 2021
Growth in mine supply decelerates; projects important
Small market surplus forecast (<0.5% of global consumption)…
…keeping stock levels low
Average 2022 prices edge down but…
…downside is limited; price volatility persists
Green energy transition & lack of supply attract investors
Record producer margins in 2022 and beyond
2022 Key Indicators:
DATA: CRU www.crugroup.com
CRU International LimitedLondon | Sydney | Tokyo | Beijing | Shanghai | Singapore | Mumbai | New York | Pittsburgh | Sao Paulo | Santiago
Registered in England No.940750. Registered office: Charles House, 108-110 Finchley Road, London NW3 5JJ
Vanessa DavidsonDirector of Copper Research & Strategy+44 20 7903 [email protected]
Concord Resources LimitedDuncan Hobbs – Research Director
LME Week Seminar metals debate: Zinc & lead
LME Week SeminarLondon & online – 11th October 2021
Disclaimer
63
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October 2021
LME Week Seminar metals debate – zinc & lead
64
Zinc market
Lead market
Summary
Zinc marketA year ago the world zinc metal market was widely expected to run a surplus in 2021
65
Surplus
Deficit
Note: Original forecasts published September-October 2020. Latest estimates published June-October 2021.Source: CHR, CRU, ILZSG, Concord Resources Limited, October 2021
Latest estimates still show a surplus on paper, but reduced vs original expectations as market imbalance narrows
Zinc marketWorld zinc metal demand has rebounded strongly in 2021
66
Note: Automotive output – cars and light trucks. Construction activity – gross value added at market exchange rates.Source: CRU, ILZSG, LMC, OEF, Concord Resources Limited, October 2021
Galvanised steel production (±50%) and brass making (±17%) are key first use markets in primary zinc consumption
Automotive output and construction activity are key markets for galvanised steel and zinc diecast alloys
Zinc marketA year ago world zinc mine output was widely expected to rise sharply in 2021
67
Note: Chart on left – original forecasts published October-December 2020. Latest estimates published April-October 2021. Chart on right – zinc mine revenues basis spot market terms, annual averages, 2011-2021 YTD. Source: CHR, CRU, FM, ILZSG, SHFE, Concord Resources Limited, October 2021
Latest estimates of the expected increase in world zinc mine output this year have fallen vs original expectations
In China, the relationship between zinc mine revenue and output growth has been breaking down in recent years
Zinc marketPhysical zinc market price signals have been mainly positive this year to date
68
Note: Spot premiums for special high-grade (SHG) zinc ingot. China data series CIF Far East 2005-2016, CIF China 2017FF. Spot TCs for standard clean zinc concentrates.Source: CRU, FM, LME, Concord Resources Limited, October 2021
Spot zinc metal premiums have recently spiked to multi-year highs in USA & Europe (don’t forget freight impact), but lagging in China
Spot zinc treatment charges have recently ticked up but levels remain towards low end of long-run range
Zinc marketWorld zinc consumption driven by industrial production and intensity of use
69
Note: Industrial production and zinc consumption data 1998-2020. ZAM – Zinc-Aluminium-Magnesium. ZM – Zinc-Magnesium.Source: CPB, CRU, ILZSG, SteelConsult, Concord Resources Limited, October 2021
YoY change in industrial production statistically explains majority of YoY change in world zinc consumption over the long run
Structural change curbing zinc use in key markets. ZAM / ZM 20%-40% lighter than free-zinc coatings in continuous galvanising
Lead marketPolarised – China overloaded, ex-China short
70
Aggregate world lead metal market supply adequate but distribution skewed, reflected in exchange stocks
SHFE lead metal stocks now around record high, LME lead metal stocks at lowest in over a decade
Note: Month end data to September 2021Source: LME, SHFE, Concord Resources Limited, October 2021
Lead marketChina’s metal output up sharply this year, led by secondary producers; rest of world output weak
71
Jan-Jul 2021 China’s output up +9% YoY to ~2.95m tonnes (> 40% of world total), new record; secondary +24% YoY, primary -2% YoY
Ex-China production problems and unplanned outages reported in Germany and UK, plant closure in USA in February 2021
Note: Data to July 2021Source: ILZSG, Concord Resources Limited, October 2021
Lead marketEx-China lead metal demand has been strong in key markets this year, reflected in physical price signals
72
Note: Battery shipment data to June 2021. Spot premiums for secondary 397 lead ingot.Source: BCI, FM, Concord Resources Limited, October 2021
H1 2021 North American lead-acid battery shipments 71m units, +17% YoY; stronger gain than post-GFC, despite lesser base effect
Spot lead metal premiums hit (nominal) record highs this year in key markets ex-China (but again don’t forget freight impact)
Lead marketChina’s lead metal exports limited, in part by surge in ocean freight rates
73
Note: China lead metal exports basis HSC 7801.10.00, 7801.91.00 and 7801.99.00; monthly data, latest August 2021. World spot container freight index; weekly data, latest 7th October 2021. FFE – forty foot equivalent unit.Source: China Customs, Drewry Shipping Consultants, Concord Resources Limited, October 2021
China’s lead metal exports spiked towards decade high in August (~55kta) but remain very small vs market size
Tax treatment has limited China’s lead metal exports since mid-2000s; surge in freight rates has been a further obstacle this year
Lead marketRisks to long-run lead demand loom on the horizon, especially for primary metal
74
Note: China’s e-bike fleet year-end data. Global EV sales monthly data to June 2021.Source: BBG, CHR, Concord Resources Limited, October 2021
China’s e-bikes have been a big driver of lead demand; fleet may have peaked, smaller batteries in new e-bikes, some switching to Li-ion
Electric vehicle sales accelerating fast, taking market share from ICE vehicles; use smaller lead-acid batteries
SummaryLME Week Seminar metals debate – zinc & lead
75
Zinc metal market balance has been ‘better’ (i.e. surplus narrower) than originally expected this year, supporting prices
Industrial production is primary driver of zinc demand, slower growthforecast in 2022 vs 2021; mine supply key point to watch, especiallyChina
Long-run negative risks to intensity of zinc use from changing technology in galv coatings (continuous & batch) and high prices inDCAs, but less ‘scrap’ risk than for other metals (sacrificial corrosion)
World lead metal market polarised; China overloaded, rest of worldshort in 2021. Chinese exports should (eventually) contribute to rebalancing
Major risks to long-run lead demand loom on horizon, especially forprimary metal; possible return to past zinc-lead price ratios
Note: LME zinc-lead price ratio basis cash settlement prices; daily data to 7th October 2021. DCAs – die-cast alloys, mainly zinc-aluminium.Source: LME, Concord Resources Limited, October 2021
Concord Resources LimitedOur markets: every step of the supply chain
76
Aluminum Copper Zinc, lead, nickel
Origination
Storage / logistics
Consignments Prepays/financing Off-take/marketing Tolling
Consignments Prepays/financing Off-take/marketing Tolling
Consignments Prepays/financing Off-take/marketing Tolling
Swaps Prepays/financing Off-take/marketing Tolling
Off-take/marketing By-products from
concentrates
LME system Warehousing Shipping
LME system Warehousing Shipping Blending
LME system Warehousing Shipping Blending
Warehousing Shipping Blending
Vaulting
Alumina, bauxite Precious metals
Consumers
Aerospace Automotive Construction Packaging
Wire and cable Tubing Brass Smelters
Galvanizers Battery makers Stainless & alloy
steelmakers
Refineries Smelters
Banks Smelters
Products
P1020 Billets Alloys Rod
Cathode Copper rod Concentrates
SHG & CGG zinc 397 & 49s lead Primary nickel Concentrates
SGA Raw bauxite
Gold Silver PGMs
Metals
Concord Resources LimitedContact our marketing teams
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London New York Hong Kong
The Great Tin Rally of 2021:To the Moon or Back Down to Earth?
Tom Mulqueen, Head of Research, Amalgamated Metal Trading Ltd.
LME Metals Seminar - 11 October 2021
An AMC Group Company
Important Notice
79
This presentation has been prepared by Tom Mulqueen in conjunction with other colleagues at AmalgamatedMetal Trading Ltd (“AMT”).
The presentation is intended to be for general information purposes only. Any views expressed do notconstitute any form of investment research, research recommendation, financial promotion or investmentadvice, nor should they be regarded as such. Further, they are not intended to promote or encourage anyparticular investment strategy or activity. All investment business undertaken by AMT is strictly on an‘execution only’ basis; AMT does not give investment advice.
The opinions expressed in this presentation are solely those of the presenter and not necessarily those ofAMT. AMT does not guarantee the accuracy or reliability of the information provided herein.
AMT is authorised and regulated by the Financial Conduct Authority in the UK
2
An AMC Group Company
Agenda
80
• Has a Tin Price Boom Been Long Overdue?
• Key Drivers For the Coming Months?
• Are Record Tin Prices Sustainable Long-Term?
An AMC Group Company
Record Prices and Backwardation in 2021
81
Demand
LME 3M Tin
Data: LME, Bloomberg
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
Jan
20
Apr 2
0
Jul 2
0
Oct
20
Jan
21
Apr 2
1
Jul 2
1
Oct
21
Cash-3M Spread Backwardation (US$)
-$1,000
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Sep20
Oct20
Nov20
Dec20
Jan21
Feb21
Mar21
Apr21
May21
Jun21
Jul21
Aug21
Sep21
+190% from pandemic low
+83% in 2021
Intraday high of $6,500
An AMC Group Company
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,00020
05
2010
2015
2020
Tin Copper
82
LME 3M Tin LME 3M Copper
Data: LME, Bloomberg
Macro-Influence Illustrated in Copper Alignment
An AMC Group Company
What’s Tamed The Tin Bull Narrative Since 2011?
83 Source: USGS, AMT Estimates, ITA
Solder47%
Chemicals17%
Tinplate12%
Lead-Acid Batteries
7%
Brasses & Bronzes
5%
Other8%
Refined Tin Use By Application, 2020e
Tonnes
0
50
100
150
200
250
300
350
400
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
China Indonesia South America
Myanmar Africa Other
Tin Mine Supply Trends*kt
2. Solder Use Economisation1. Myanmar Filled Supply Gap
An AMC Group Company
Agenda
84
• Has a Tin Price Boom Been Long Overdue?
• Key Drivers For the Coming Months?
• Are Record Tin Prices Sustainable Long-Term?
An AMC Group Company
55
60
65
70
75
1
2
3
4
5
6
7
8
Indonesia Tin Export Indicators
MOT exports Customs 12-Month Rolling MOT
Ex-China Supply On The Recovery Path
85 Source: Indonesia MOT, BPS, ITC
Monthly (Kt) 12-Month Rolling (Kt)
0
10
20
30
40
50
1
2
3
4
5
Jan
19
Apr 1
9
Jul 1
9
Oct
19
Jan
20
Apr 2
0
Jul 2
0
Oct
20
Jan
21
Apr 2
1
Jul 2
1
Customs 12-Month Rolling
Monthly (Kt)
Malaysia Tin Exports
12-Month Rolling (Kt)
MSC operating with 80% workforce as of September 2021
An AMC Group Company
Demand: Near Term Post-Pandemic Pressures
86
China Winter Energy Curbs
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
Jan
20
Apr 2
0
Jul 2
0
Oct
20
Jan
21
Apr 2
1
Jul 2
1
Oct
21
Fading WFH Demand Boost
High Tin Prices
Semiconductor Shortages (And Other Supply Chain Issues)
Fading Fiscal and Monetary Stimulus?
An AMC Group Company
Scarce Inventory: Limited Capacity To Absorb Shocks
87
Tin Exchange Stocks (kt)
Source: LME, SHFE, Bloomberg
-1kt
1kt
3kt
5kt
7kt
9kt
11kt
13kt
15kt20
15
2016
2017
2018
2019
2020
2021
LME SHFE
Means Inability to Run Big Deficits and Scarcity Pricing Tendencies
An AMC Group Company
Agenda
88
• Has a Tin Price Boom Been Long Overdue?
• Key Drivers For the Coming Months?
• Are Record Tin Prices Sustainable Long-Term?
An AMC Group Company
Long-Term Outlook For Demand Is Bright
89
Fading Solder Economisation Headwinds
Decarbonisation
Electronics Proliferation
Pent Up Demand After Supply Chain Issues
An AMC Group Company
New Supply Needs Time and Stable High Prices
90
Recycling
Investors Wary of the Next Black Swan
Time and Price Stability Needed
Fairphone
Artisanal Mining Industrial Mines
Uis, Afritin
An AMC Group Company
Conclusions
91
1. Tin’s vulnerability to acute shortages exposed by the pandemic.
2. Scarcity conditions ongoing, but may ease amid a post-pandemic normalisation.
3. Electronics proliferation and decarbonisation to underpin long-term demand.
4. Return to pre-pandemic pricing unlikely as new supply needs price incentive.
Price Forecast: Extreme short-term volatility to persist. $25-30k by end-2022. Trending upwards from this level long-term.
An AMC Group Company
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92
Experts in Metal Derivatives Trading For Over 100 Years
Custom Solutions for Physical Hedgers, Funds and Financial Institutions of All Sizes Globally
Tom [email protected]+44 (0)20 3960 5907
93
94
POLL
Which metal carries the most upside potential for the year ahead?
1.Aluminium2.Copper3.Lead4.Nickel5.Tin6.Zinc
Polls sponsored by:
95
POLL 3 RESULTS
Polls sponsored by:
96
POLL
What do you see as the most influential factor for the current metals cycle?
1. Chinese government policy2. Chinese demand3. US government policy4. OECD demand5. Supply chain constraints6. Other
Polls sponsored by:
97
POLL 4 RESULTS
Polls sponsored by:
98
POLL
If you are here in the room today, where have you come from? And if you are watching online, where are you watching?
1. Europe2. North America3. South America4. Asia5. Africa6. Australasia
Polls sponsored by:
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POLL 5 RESULTS
Polls sponsored by:
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