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Metals market shows sudden signs of life

But it remains unclear if higher metals prices will spark new push to expand production

Marshall Helmberger
Posted 9/7/17

REGIONAL—After three years in the doldrums, the base metals market is suddenly hot again, and that’s a change that most analysts never saw coming.

As recently as mid-summer, prices for …

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Metals market shows sudden signs of life

But it remains unclear if higher metals prices will spark new push to expand production

Posted

REGIONAL—After three years in the doldrums, the base metals market is suddenly hot again, and that’s a change that most analysts never saw coming.

As recently as mid-summer, prices for industrial metals like iron ore, copper, and nickel had the industry in a funk and most analysts were predicting more of the same for the foreseeable future.

But the market had other ideas. Since late June, the metals market has experienced a broad-based rally that has pushed prices for iron ore up to the mid-$70s/ton range, a sharp improvement over the $50-$60/ton range of the past two years.

Iron ore did spike at $96 a ton in January on hopes of significant infrastructure spending in the U.S. in the wake of the election of Donald Trump, before falling back to the mid-$50s per ton by June.

Copper, meanwhile has topped the $3 mark, reaching a three-year high of $3.08 per pound. Nickel has also improved, to about $5.35 per pound, up from the $4.50 per pound range earlier in the summer. That’s still a long way from nickel’s peak at over $22 per pound in 2007.

This latest price spike appears to be driven by three factors, say analysts, including the weaker dollar, renewed confidence that China’s strong economic growth will continue, and effective measures to limit global production of most metals.

Rising metal prices have provided a boost to many mining and metals stocks. A share of Cleveland-Cliffs, which had sold for $5.69 back on June 2, hit $8.47 last week. U.S. Steel and ArcelorMittal have seen similar improvements over the same three months.

But improvements in the stock prices for existing producers isn’t necessarily translating into an improved outlook for new mining ventures, which would have the effect of increasing global supply and potentially suppressing metals prices once again. PolyMet stock, for example, remained close to its historic low, at 63¢ per share as of last week. Stock in Nevada Copper, which has been seeking to finance a new copper mine in Nevada since receiving its permits in 2014, was selling at 66¢ per share. The company’s proposed Pumpkin Hollow mine would produce more than twice as much ore per day as PolyMet’s proposed NorthMet site near Hoyt Lakes, with copper percentages more than twice that documented at NorthMet. The company, however, has been unable to raise the capital necessary to begin construction of the facility.

Meanwhile, the improvement in copper and nickel prices is good news for existing producers of copper. Since June, Antofagasta’s stock price has risen from $751 per share to over $1,000 per share by the end of August.

While the bull run in the metals market is the most promising in a decade, prices remain well below the levels reached before the 2008 financial collapse. But they do reflect the highest prices since the metals market collapsed in 2014. Metals markets tend to fluctuate significantly based on economic conditions, particularly in China, so the future of the sector will depend on continued growth in the world’s second-largest economy.