CRU STRATEGIES a division of CRU International Limited
31 Mount Pleasant,
London
WC1X 0AD
UK
Tel: +44 20 7903 2000
Fax: +4...
CRU STRATEGIES
2
“Uranium is the next great China story.
What China did for iron ore in the last decade,
it will do for ur...
CRU STRATEGIES
Uranium demand to 2035
0
60,000
120,000
180,000
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021...
CRU STRATEGIES
4
“Our demand versus long-run marginal cost analysis out to
2035 suggests that only those tonnes that lie w...
CRU STRATEGIES
5
“Copper prices are supported by demand from China which
never fails to deliver – and by supply from the m...
CRU STRATEGIES
6
“Everything has its limit – iron ore cannot be educated into
gold”.
Mark Twain
“You’re still the one”
Sha...
CRU STRATEGIES
7
Gold – The Rise & Stall of Australian Gold
From De Assuncao 2013
CRU STRATEGIES
8
Ore Grades &
Labour/Mining
Costs
Resource
Nationalism &
Public
Perception
Environmental
Concerns &
Govern...
CRU STRATEGIES
9
CRU STRATEGIES
Grade decline can result from a combination of geological,
mining and economic factors act...
CRU STRATEGIES
0.5
0.6
0.6
0.7
0.7
0.8
0.8
0.9
0.9
1.0
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
20...
CRU STRATEGIES
Porphyry
86.5%
IOCG
7.0%
VMS
0.4%
Other
6.2%
Major Cu mine projects
Porphyry
61.7%
VMS
8.5%
IOCG
6.2%
Sedim...
CRU STRATEGIES
0.1
1
10
100
1000
0.1 1 10 100 1000 10000
Closed Mine
Operating Mine
Development
Feasibility
Exploration
St...
CRU STRATEGIES
The Economic Context
The Future of Mining
CRU
CRU STRATEGIES
The OECD still reeling from the Global Financial Crisis (GFC)
80
84
88
92
96
100
104
-6 -4 -2 0 2 4 6 8 10 ...
CRU STRATEGIES 15
Steady economic recovery forecast…..
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2012 2013 2014
February May August Long...
CRU STRATEGIES
16
16
0
2
4
6
8
10
12
2013 2014 2015
China OECD
Rest of World World
Data: OE, CRU
GDP growth, % y/y
Growth ...
CRU STRATEGIES
0
200
400
600
800
1000
1200
1400
2010 2011 2012 2013 2014 2015 2016 2017
RefinedCopperConsumption‘000t
Indi...
CRU STRATEGIES
0
2000
4000
6000
8000
10000
12000
2010 2011 2012 2013 2014 2015 2016 2017
RefinedCopperConsumption‘000t
Ind...
CRU STRATEGIES
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Stronger dollar
Weaker energy
High stocks
in China
...
CRU STRATEGIES
Selected Market Outlooks
20
The Future of Mining
CRU
CRU STRATEGIES
Consumption of copper Global balance
milliontonnes
-6%
-3%
0%
3%
6%
9%
12%
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
20...
CRU STRATEGIES
-10%
-5%
0%
5%
10%
15%
20%
25%
-100
-50
0
50
100
150
200
250
2001 2003 2005 2007 2009 2011 2013 2015 2017
y...
CRU STRATEGIES
-10%
-5%
0%
5%
10%
15%
20%
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2001 2003 2005 2007 2009 2011 2013 2015 2017
yoy c...
CRU STRATEGIES
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
-20
0
20
40
60
80
100
120
140
160
180
2001 2003 2005 2007 2009 2011 ...
CRU STRATEGIES
Commodities to heat up again by 2017: Prices will increase
17% on average.*
Hot
> 15%
Warm
5% to 15%
Cold
-...
CRU STRATEGIES a division of CRU International Limited
31 Mount Pleasant,
London
WC1X 0AD
UK
Tel: +44 20 7903 2000
Fax: +4...
CRU STRATEGIES a division of CRU International Limited
31 Mount Pleasant,
London
WC1X 0AD
UK
Tel: +44 20 7903 2000
Fax: +4...
CRU STRATEGIES
-10%
-5%
0%
5%
10%
15%
20%
-4
-2
0
2
4
6
8
2001 2003 2005 2007 2009 2011 2013 2015 2017
yoy change (mt)
yoy...
CRU STRATEGIES
-3%
0%
3%
6%
9%
12%
-200
0
200
400
600
800
2001 2003 2005 2007 2009 2011 2013 2015 2017
yoy change (000kt)
...
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Allan Trench, University of Western Australia - Mineral Commodities Outlook

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Allan Trench, University of Western Australia delivered the presentation at the 2013 Mining the Territory Conference.

Mining the Territory Conference is part of the Northern Territory Resources Week. It provides the perfect platform for stakeholders in the NT mining industry to hear the latest information on this booming region.

For more information about the event, please visit: http://www.miningnt.com.au/miningnt2013conference

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Allan Trench, University of Western Australia - Mineral Commodities Outlook

  1. 1. CRU STRATEGIES a division of CRU International Limited 31 Mount Pleasant, London WC1X 0AD UK Tel: +44 20 7903 2000 Fax: +44 20 7278 0003 517, Tower 2, Bright China Chang An Building, 7 Jianguomennei Avenue, Beijing 100005, China Tel: +86 10 6510 2206 Fax: +86 10 6510 2207 Augusto Leguía Norte Nº 100 of.506, Las Condes, Santiago, Chile Tel: +56 2 231 3900 Fax: +56 2 231 4314 PO Box 1269, Langley, WA 98260 USA Tel: +1 360 321 4707 Fax: +1 360 321 4709 Level 2, Kalpataru Synergy, Opp. Grand Hyatt Santa Cruz (East), Mumbai 400055, India Tel: +91 22 3953 7395 Fax: +91 22 3953 7200 Mineral Commodities Outlook Mining The Territory Conference September 2013 Allan Trench
  2. 2. CRU STRATEGIES 2 “Uranium is the next great China story. What China did for iron ore in the last decade, it will do for uranium in the coming decades”. A Trench & D Packey Australia’s Next Top Mining Shares – Major Street Press Uranium
  3. 3. CRU STRATEGIES Uranium demand to 2035 0 60,000 120,000 180,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 tonnesU3O8 USA Japan Europe China - Mainland India Russia RoW Uranium
  4. 4. CRU STRATEGIES 4 “Our demand versus long-run marginal cost analysis out to 2035 suggests that only those tonnes that lie within the first and second cost quartiles of the project universe will be required to meet demand”. CRU Group Long-Term Outlook for Iron Ore Iron Ore
  5. 5. CRU STRATEGIES 5 “Copper prices are supported by demand from China which never fails to deliver – and by supply from the miners – which frequently fails to deliver”. John Sykes Principal, Greenfields Research Copper
  6. 6. CRU STRATEGIES 6 “Everything has its limit – iron ore cannot be educated into gold”. Mark Twain “You’re still the one” Shania Twain Gold
  7. 7. CRU STRATEGIES 7 Gold – The Rise & Stall of Australian Gold From De Assuncao 2013
  8. 8. CRU STRATEGIES 8 Ore Grades & Labour/Mining Costs Resource Nationalism & Public Perception Environmental Concerns & Governance Infrastructure & Energy Non-mine Supply Factors e.g. Scrap, ETF s Many immediate challenges facing mining industry decision-makers
  9. 9. CRU STRATEGIES 9 CRU STRATEGIES Grade decline can result from a combination of geological, mining and economic factors acting together... CRU Strategies Grade Enhancement Near Surface Mined First Low grade High grade (blind) Enrichment zone General grade decline with depth Surface So Grade Must Fall Over Time.... Enriched cap High grade pod Mine design brings this forward % Cu (eq) GEOLOGY Preferential ‘Bring-Forward’ of High Grade High grade taken first Pit outline 2013 MINING High Prices ‘Creates’ Low Grade Ore ECONOMICS Economic low-grade Final pit outline
  10. 10. CRU STRATEGIES 0.5 0.6 0.6 0.7 0.7 0.8 0.8 0.9 0.9 1.0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Forecast of ore grades at currently operating mines Average ore grade in 2012: 0.65% Cu Average ore grade in 2022: 0.60% Cu Average ore grade in 2002: 0.81% Cu % Cu ……Copper’s future grade challenge is well known Data - CRU
  11. 11. CRU STRATEGIES Porphyry 86.5% IOCG 7.0% VMS 0.4% Other 6.2% Major Cu mine projects Porphyry 61.7% VMS 8.5% IOCG 6.2% Sediment 12.4% Other 11.1% Existing Cu mine operations Geology by production from existing operations; geology by potential capacity at 97 major copper projects …with a coming shift in the geology of copper mine supply
  12. 12. CRU STRATEGIES 0.1 1 10 100 1000 0.1 1 10 100 1000 10000 Closed Mine Operating Mine Development Feasibility Exploration Stalled Pre-Mined Resource (mt ore) Grade(kgU3O8/t)The future grade (& scale) challenge is not limited to copper - Uranium example
  13. 13. CRU STRATEGIES The Economic Context The Future of Mining CRU
  14. 14. CRU STRATEGIES The OECD still reeling from the Global Financial Crisis (GFC) 80 84 88 92 96 100 104 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 index of OECD IP GFC Mid-1970s Early 1980s Early 2000s Early 1990s months after cyclical peak
  15. 15. CRU STRATEGIES 15 Steady economic recovery forecast….. 1.0 1.5 2.0 2.5 3.0 3.5 4.0 2012 2013 2014 February May August Long-run trend Data: CRU World GDP forecasts 2013 and trend growth, y/y %
  16. 16. CRU STRATEGIES 16 16 0 2 4 6 8 10 12 2013 2014 2015 China OECD Rest of World World Data: OE, CRU GDP growth, % y/y Growth to no longer be just a China story 0 2 4 6 8 10 12 2013 2014 2015 China OECD Rest of World World Data: OE, CRU IP growth, % y/y
  17. 17. CRU STRATEGIES 0 200 400 600 800 1000 1200 1400 2010 2011 2012 2013 2014 2015 2016 2017 RefinedCopperConsumption‘000t India India x 2 Source: CRU Group India has a strong demand outlook too, take copper….
  18. 18. CRU STRATEGIES 0 2000 4000 6000 8000 10000 12000 2010 2011 2012 2013 2014 2015 2016 2017 RefinedCopperConsumption‘000t India India x 2 China Source: CRU Group But India is no replacement for China….
  19. 19. CRU STRATEGIES 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 Stronger dollar Weaker energy High stocks in China Macro uncertainty stronger US$ Investment Factors $1,625/tCopper Fundamentals $6,075/t Source: CRU Stocks/ Demand Relationship Short term Investors Hedge Funds Index Funds Total Price Physical ETFs China Balance EnergyCurrency However not just the economy drives prices: Investor influence can accentuate fundamentals LME Copper Cash Price Constituent Analysis – 2013 Example
  20. 20. CRU STRATEGIES Selected Market Outlooks 20 The Future of Mining CRU
  21. 21. CRU STRATEGIES Consumption of copper Global balance milliontonnes -6% -3% 0% 3% 6% 9% 12% -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2001 2003 2005 2007 2009 2011 2013 2015 2017 yoy change (mt) yoy change % 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 2009 2010 2011 2012 2013 2014 2015 2016 2017 www.crugroup.com Copper – price battered, but solid support seen at $6,650/t 21 Executive Summary • CRU has increased its 2013 refined market surplus after adjusting for lower consumption projections and a large drawdown of Chinese bonded stocks. • CRU’s market balances remain unchanged from 2015. Lower consumption and lower prices are offset by delays to production increases. • CRU’s mine output growth has been lifted from 2.4% to 3.7% in 2013. Despite the Bingham Canyon wall collapse in April, there have been few mine disruptions this year. 43% Chinese copper consumption as a proportion of global consumption in 2013 30% Chinese copper production as a proportion of global production in 2013 $151bn CRU calculated value of global copper metal production in 2013 milliontonnes
  22. 22. CRU STRATEGIES -10% -5% 0% 5% 10% 15% 20% 25% -100 -50 0 50 100 150 200 250 2001 2003 2005 2007 2009 2011 2013 2015 2017 yoy change (000kt) yoy change % Consumption of nickel -60 -40 -20 0 20 40 60 80 100 120 2009 2010 2011 2012 2013 2014 2015 2016 2017 Global balance www.crugroup.com Nickel – fundamentals to improve after 2015 Source: CRU Nickel Market Outlook, Jul 2013 thousandtonnes Executive Summary • The nickel market is in oversupply, with little sign of any significant production response outside of China. The only supply response, from Chinese nickel pig iron producers, not been sufficient to address the market imbalance. • The low nickel price environment is slowing development in new capacity outside China. This will result in a need for higher NPI production to limit the shortfall. • CRU has increased primary nickel demand growth to 7.1% in 2013. CRU expects stronger Chinese consumption, due to robust stainless steel output. 50% Chinese nickel consumption as a proportion of global consumption in 2013 33% Chinese nickel production as a proportion of global production in 2013 $28.5bn CRU calculated value of global nickel metal production in 2013 thousandtonnes
  23. 23. CRU STRATEGIES -10% -5% 0% 5% 10% 15% 20% -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2001 2003 2005 2007 2009 2011 2013 2015 2017 yoy change (mt) yoy change % Consumption of zinc -0.75 -0.50 -0.25 0.00 0.25 0.50 0.75 1.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 Global balance www.crugroup.com Zinc – squeeze still in sight 23 Source: CRU Zinc Market Outlook, Jul 2013 milliontonnes milliontonnes Executive Summary • CRU’s expectation that mine exhaustions will lead to a late-decade metal squeeze remain intact. This will happen without further mine closures or cutbacks. • With their profitability under pressure, Chinese smelters are presently unwilling to produce any metal for which there is no domestic market. This has again delayed the commissioning of new capacity and led to renewed cutbacks. • The new Chinese leadership confirm is serious about rebalancing its economy. This has caused CRU to trim estimates of current zinc consumption and, more importantly, our expectation for the period ahead. 43% Chinese zinc consumption as a proportion of global consumption in 2013 39% Chinese zinc production as a proportion of global production in 2013 $24.8bn CRU calculated value of global zinc metal production in 2013
  24. 24. CRU STRATEGIES -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% -20 0 20 40 60 80 100 120 140 160 180 2001 2003 2005 2007 2009 2011 2013 2015 2017 yoy change (mt) yoy change % Iron Ore Demand 0 200 400 600 800 1,000 1,200 1,400 2009 2010 2011 2012 2013 2014 2015 2016 2017 Australia India Brazil Iron Ore Exports www.crugroup.com Iron Ore – 3 digit prices hold 24 Source: CRU Iron Ore Market Outlook, Jul 2013 milliontonnes Executive Summary • To 2017, further price falls are forecast as demand growth eases and low-cost supply ramps up, squeezing marginal Chinese production, despite new capacity being planned. • Oversupply in the Chinese steel sector, negative EBITDA margins at mills and bearish sentiment pressurized miners into lowering Q2 2013 ore prices. • Aggressive growth in low-cost Australian supply has added downward price pressure to ore. In part, however, this ramp up has offset a weak performance in Brazilian and Indian exports. 57% Chinese iron ore consumption as a proportion of global consumption in 2013 17% Chinese iron ore production as a proportion of global production in 2013 62% Chinese seaborne iron ore imports as a proportion of global seaborne exports in 2013 Milliontonnes
  25. 25. CRU STRATEGIES Commodities to heat up again by 2017: Prices will increase 17% on average.* Hot > 15% Warm 5% to 15% Cold -5% to 15% Freezing < -15% Mild 0% to 5% Cool 0% to -5% Sulphuric Acid, Uranium, Tin, Palladium, Zinc, Nickel, Coking Coal, Cobalt, Lead, Platinum, Aluminium, Coke Molybdenum, Alumina, Phosphate DAP, Bauxite Oil, Ferrochrome, Urea Copper, Manganese Gold, Potash Sulphur, Ammonia, Iron Ore, Phosphate Rock, Silver This is a relative story, prices will still be down by ~20% from their cyclical peaks† * 2017 annual average price forecast over 2013 Q2 average actual prices † annual average price high 2014-2017 over quarterly average 2000-20013Q4
  26. 26. CRU STRATEGIES a division of CRU International Limited 31 Mount Pleasant, London WC1X 0AD UK Tel: +44 20 7903 2000 Fax: +44 20 7278 0003 517, Tower 2, Bright China Chang An Building, 7 Jianguomennei Avenue, Beijing 100005, China Tel: +86 10 6510 2206 Fax: +86 10 6510 2207 Augusto Leguía Norte Nº 100 of.506, Las Condes, Santiago, Chile Tel: +56 2 231 3900 Fax: +56 2 231 4314 PO Box 1269, Langley, WA 98260 USA Tel: +1 360 321 4707 Fax: +1 360 321 4709 Level 2, Kalpataru Synergy, Opp. Grand Hyatt Santa Cruz (East), Mumbai 400055, India Tel: +91 22 3953 7395 Fax: +91 22 3953 7200 Thank you Contacts: Allan Trench (Allan.Trench@crugroup.com) Philip Sewell (Philip.Sewell@crugroup.com)
  27. 27. CRU STRATEGIES a division of CRU International Limited 31 Mount Pleasant, London WC1X 0AD UK Tel: +44 20 7903 2000 Fax: +44 20 7278 0003 517, Tower 2, Bright China Chang An Building, 7 Jianguomennei Avenue, Beijing 100005, China Tel: +86 10 6510 2206 Fax: +86 10 6510 2207 Augusto Leguía Norte Nº 100 of.506, Las Condes, Santiago, Chile Tel: +56 2 231 3900 Fax: +56 2 231 4314 PO Box 1269, Langley, WA 98260 USA Tel: +1 360 321 4707 Fax: +1 360 321 4709 Level 2, Kalpataru Synergy, Opp. Grand Hyatt Santa Cruz (East), Mumbai 400055, India Tel: +91 22 3953 7395 Fax: +91 22 3953 7200 Back-up slides
  28. 28. CRU STRATEGIES -10% -5% 0% 5% 10% 15% 20% -4 -2 0 2 4 6 8 2001 2003 2005 2007 2009 2011 2013 2015 2017 yoy change (mt) yoy change % Consumption of aluminium -1.0 0.0 1.0 2.0 3.0 4.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 Global balance www.crugroup.com Aluminium – inventories ahoy Source: CRU Aluminium Market Outlook, Jul 2013 Executive Summary • Following LME proposals to address queuing warehouses have reduced incentives to attract metal. Premiums are poised for a downward correction. • CRU has downgraded its Chinese consumption growth in 2013 to 8.7% from 10%. Lower GDP and industrial production growth has caused the revision. • CRU believes that 1.0m tpy of production have been curtailed in China in 2013 in response to low SHFE prices. CRU expects that a further 325,000tpy of capacity will be curtailed by the end of the year.47% Chinese aluminium consumption as a proportion of global consumption in 2013 48% Chinese aluminium production as a proportion of global production in 2013 $95.1bn CRU calculated value of global aluminium metal production in 2013 milliontonnes milliontonnes
  29. 29. CRU STRATEGIES -3% 0% 3% 6% 9% 12% -200 0 200 400 600 800 2001 2003 2005 2007 2009 2011 2013 2015 2017 yoy change (000kt) yoy change % Consumption of lead -150 -100 -50 0 50 100 150 2009 2010 2011 2012 2013 2014 2015 2016 2017 Global balance www.crugroup.com Lead – firmer market yet to fire prices 29 Source: CRU Lead Market Outlook, Aug 2013 Executive Summary • Mine cuts on lower metal prices (notably silver) have moved centre stage, adding to the already hard fight for raw materials between smelters, particularly scrap. • CRU’s new lead/zinc mine cost model shows that about 90% of mined lead benefits from a precious metals revenue stream, mostly silver. • After five years of surplus, CRU expects a greater rise in consumption over production will finally move the market balance into deficit next year. The scale of the shortfall will be modest. 44% Chinese lead consumption as a proportion of global consumption in 2013 44% Chinese lead production as a proportion of global production in 2013 $23.6bn CRU calculated value of global lead metal production in 2013 thousandtonnes thousandtonnes

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