Resource World Magazine

J U N E / J U L Y 2 0 1 9 www.resourceworld.com 19 COPPER The primary applications of copper, i.e., electrical wiring, roofing, plumbing, and industrial machinery have remained robust, but now, new technologies, espe- cially electric vehicles (EVs), battery storage, and renewable energy infrastruc- ture that use more copper than their fossil fuel predecessors, are increasing the demand for the metal. China remains the world's largest con- sumer of copper and consumed more than half of the estimated 23.5 million tonnes of copper produced in 2018, according to Chile copper agency Cochilco, and consumption is expected to increase despite China's lower growth profile in recent years. This increasing demand coupled with a deficit of supply driven by declining average grades, less frequent discoveries of higher-grade deposits, greater country risks, infrastructure challenges in remote locations and limited exploration funding is beginning to move the market towards a supply/demand deficit. This deficit is fore - cast to grow over the next few years and is expected to impact on prices driving the copper price back above US $3/lb perhaps as early as next year. NICKEL The primary use for nickel remains in the making of stainless steel although, as consumers embrace the EV market, there may be an added boom in nickel demand. According to recent research by McKinsey, if annual EV production reaches 31 mil - lion vehicles by 2025 as expected, then demand for high-purity Class 1 nickel is likely to increase significantly from 33 Kt in 2017 to 570 Kt in 2025. Class 1 nickel is the "high purity" nickel that is used in electric vehicle lithium ion batteries. (The stainless steel industry uses both Class 1 and lower purity Class 2 nickel). McKinsey also said that "a shortfall in Class 1 nickel production seems increas - ingly likely as current low nickel prices do not support Class 1 nickel capacity expan- sions and alternative strategies. As a result, not only will nickel prices likely need to move towards incentive pricing but the future pricing mechanism is likely to reflect two distinct nickel products: Class 1 and Class 2." Class 2 nickel, primarily for use in stainless steel production, would trade at a lower price that reflects its abundant supply. Class 1 would trade at LME prices or above for high-end nickel powders and pellets used to make nickel sulfates, the starting point for EV battery nickel production. ZINC In 2018, although global zinc supply increased by 1.5% to 13.4Mt, it was still short, by 1.1Mt, of the global demand of 14.5Mt in that year. Over the next three years, global zinc supply is expected to grow at a compound annual growth rate of 3.8% to 15.7Mt in 2022 but the gap between demand and supply is expected to narrow and eventually the market will move into a surplus in 2022. This will be due to almost 100 new projects commenc - ing operations between 2019 and 2022 where zinc is either a primary or a second- ary commodity being produced. According to a recent report by Wood Mackenzie, for the second consecutive year, the most critical issue facing the zinc market is the performance of zinc smelters – Chinese zinc smelters in particular. In 2018, the revenues and profits of China's smelting industry came under pressure. Tightness in the concentrate market resulted in imported spot treatment charges falling to very low levels and with revenues from the zinc price also falling and failing to compensate for low treatment charges, many smelters chose not to buy imported, expensive and unprofitable concentrate and instead cut utilization rates and production. The difficulties facing Chinese smelters were exacerbated by increased scrutiny from China's environmental agencies and a widespread crackdown forced many smelters to curtail production and, in some cases, to close in order to comply with var - ious environmental restrictions on solid, gaseous and waste water emissions. Currently the price of zinc is around US $1.30/lb, down from its highs of over US $1.60/lb 18 months ago. LEAD China produces around 54% of total mine production in the world followed by Australia contributing at around 12%. The primary use for lead is in the production of lead-acid batteries for automotive indus - try but the rise of the lithium-ion battery developed for use in EVs could be a major factor in the lead market outlook as lith- ium-ion batteries penetrate the automotive and industrial market spaces. Declining combustion engine auto's sales in the US and China will also lower demand. According to the International Lead and Zinc Study Group, the global lead market is forecasted to remain in surplus in 2019 due to increasing mine production and falling demand. They expect lead prices to continue to be bearish. n BASE METALS review by Ron Hall

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