EY Canadian Mining Eye index drops 29% in first quarter of 2020

20 May 2020 Consulting.ca

The EY Canadian Mining Eye index saw a substantial 29% decline in Q1 2020 over Q4 2019, which had seen a previous 11% gain. The Covid pandemic has rocked the index, which tracks Canadian mining sector performance of 100 TSX and TSXV mid-tier and junior companies with market capitalizations between $125 million and $2.3 billion.

Mining companies across the globe have been facing disruptions to their supply chains, parts, and consumables as a result of government policies in response to Covid-19. Many operators in Canada have shut down mines, put them into care and maintenance, or have been operating with reduced workforces focused on critical activities.

According to the EY report, this will have a major impact on supply, and is expected to lead to lower guidance from companies – though the scale of impact is as of yet unclear, as the pandemic continues.

The pandemic crisis has caused price declines in base metals, with copper being hit hardest, the report found. Copper prices declined 20% in the last three months mainly because of slowdown in China’s construction activity. The country consumes half of the world’s copper, and is expected to have demand growth for copper fall to 3.8% from a previously projected 5.8%, according to GlobalData.

EY Canadian Mining Eye index drops 29% in first quarter of 2020

EY expects copper prices to be subdued in the short term due to Covid, but prices are expected to recover over the long term on the back of an expected stimulus package from the Chinese government.

Nickel prices declined by 18% in Q1 due to lower demand from the stainless steel industry, which has seen temporary production shutdowns. Prices will be under pressure in the short term, but in the long term nickel will see gains from electric vehicle demand growth and an expected supply deficit. The impact of lower oil prices on EV growth remains unknown, however.

Zinc prices fell by 17%, reaching July 2016 levels, due to decreased demand from the automotive and construction industries. Zinc prices will be stifled in the short term due to factory shutdowns in China and elsewhere, and will decline further in the long term because of a projected market surplus.

“The suspension or reduction of global business activity in automotive and construction sectors is lowering demand and pegging uncertainty on the outlook for copper, nickel and zinc,” said Jeff Swinoga, co-leader of EY Canada’s mining & metals sector. “Base metals, for the most part, are expected to remain under pressure in short-term, but the full scale of the impact remains unclear as the pandemic continues.”

Gold prices, meanwhile, grew by 6% in Q1 after a 3% gain in Q4, as investors head for the ‘safe haven’ of the precious metal in uncertain economic times. Gold reached a seven-year high in Q1, and is expected to have further growth momentum as global markets slow and interest rates decline.


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