Electric vehicle adoption to benefit long-term nickel, copper, and cobalt prices
Accounting and consulting firm EY recently released its second quarter Canadian Mining Eye report. The consultancy relates that mining exploration grew for the first time in five years on the back of rebounding metals prices. The report also highlights that prices of metals involved in battery production are expected to rise due to demand from growing electric vehicle production and constricting supply.
With metal prices having rebounded by 15% in 2017, exploration spending is also consequently expanding. According to S&P Market Intelligence research, global exploration for non-ferrous metals – including gold, cobalt, copper, and zinc – is expected to grow by 15-20% in 2018. EY’s quarterly Canadian Mining Eye index report relates that last year was the first year of exploration increase after four years of decline. Gold exploration in Canada accounted for 73% of annual gains in exploration last year, and Barrick Gold expects its mine exploration spending to increase to US$218 million in 2018 from the US$149 million spent last year.
“Gold was one of the primary drivers contributing to increased exploration budgets – which rose last year after four consecutive years of declines in the sector,” remarked Jim MacLean, EY Canada Mining & Metals Leader. “Companies globally are looking to keep the exploration spend booming in 2018, underscored by positive trends in metal prices.”
However, gold prices actually decreased by 5% in Q2 compared to growth of 2% in Q1. Decline in prices was related to the strength of the US dollar and the US Federal Reserve rate hike of 0.25% in June. The possibility of more rate hikes (which strengthen the US dollar and lower gold prices) and concerns about Trump’s trade policies (which raise gold prices by pushing investors to the ‘safe haven’ of the metal) mean that gold prices could be bound to a very tight range for the rest of 2018.
Overall, EY’s Canadian Mining Eye index increased by 1% from Q1 2018, while the S&P/TSX Composite Metals and Mining index grew by 6%, and the Mining Majors index rose by 2%.
Nickel prices increased 12% in Q2, building on the 4% gains in the first quarter. EY expects prices to trend higher in the long term due to falling supply in 2018 and growing demand for the metal used in rechargeable batteries in electric vehicles (EVs).
On the other hand, zinc prices decreased by 11% and copper fell by 1% in Q2. However, the consulting firm’s report expects the metals to grow in value at the hands of changing demand and supply market disruptions in the future. Zinc is expected to benefit from a supply deficit and strong demand from Chinese automotive and consumer goods industries. Copper prices are also projected to grow due to EV vehicle adoption and supply disruptions due to labour negotiations and political uncertainty in Africa.
Meanwhile, EY projects cobalt – the primary component in lithium-ion batteries – to also benefit from EV adoption, which is expected to grow from 3.7 million vehicles in 2017 to 130 million in 2030. EVs are expected to account for about 61% of cobalt demand by 2022. The Democratic Republic of Congo (DRC) produced 58% of the global supply of cobalt, followed by Russia, Australia, and Canada producing about 4-5% each. However, the DRC recently increased royalties and taxes on miners, which may benefit Canadian cobalt miners.
“Mining and metals companies are expressing more interest in the potential for battery technology, but we haven’t seen any significant investment by large players in the cobalt space yet,” said Jay Patel, EY Canada Mining & Metals Transactions Leader. “First, they need to understand the impact changing attitudes and technologies will have on demand for new and traditional metals. Then, evaluate the right avenues for strategic growth that will position their portfolios to effectively respond to changing markets.”
