Base Metals Weekly Round-Up: Coronavirus Takes its Toll

In the base metals sector this week, prices across the board trended down as the COVID-19 coronavirus scare tightened its grip on the entire world.

Having seemingly jumped to community transmission in jurisdictions outside of China, the coronavirus panic has come down hard, wiping US$5 trillion from global markets.

Through the week, base metals were suffering — much like the rest of the global economy — with every metal posting dramatic drops in value.

“Doctor Copper” had poor things to say about the global economy. Although the red metal was still trading above its 2020 low, which it hit back at the end of January, it was down all through this week.

Having started the week at US$5,657 per metric ton, copper fell by 0.7 percent to US$5,617 by Thursday (February 27) — a loss that erased up to half the gains made since the end of January.

Zinc’s story was more consistent with the rest of 2020, meaning that it has posted new lows all through the last five days of trading, finally punching below US$2,000 per metric ton on Thursday.

Zinc started 2020 at US$2,297, and, after a short journey upwards through the first half of January, it’s been all downhill from there, falling from US$2,038 to US$1,998 from Monday to Thursday this week.

Nickel continued its trend of wiping away any recoveries made after its January losses and went further down this week, posting new lows much like zinc.

The base and battery metal was valued at US$12,275 per metric ton by Thursday — a relative shade below its Monday value of US$12,350 and a far cry from its 2020 starting price of US$14,070.

The only base metal with a relatively happy story was lead. On Thursday, lead was trading a full US$4 above where it started on Monday. However, the story looks less happy when you consider where it was trading during the week. Between Monday and Tuesday it jumped from US$1,862 per metric ton to US$1,921 — or 3.17 percent.

It has since had (most of) those gains wiped as COVID-19 gives the sector a good whacking. As a result of demand falling away, stockpiles of base metals have seen considerable increases in Shanghai.

Looking at base metals news around the world during the week, Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO)announced that it will be spending US$1 billion to reach net zero emissions by 2050.

“Climate change is a global challenge and will require action across nations, across industries and by society at large,” Rio Tinto CEO Jean-Sébastien Jacques said. The company’s absolute emissions have declined by 46 percent since 2008, mostly as a result of divestments.

Commenting on Rio Tinto’s pledge, Julian Kettle, Wood Mackenzie’s vice chairman of metals and mining, said the company’s plans to decarbonize are a small but significant step in the right direction.

“However, changes need to be far bolder at a corporate, government and societal level,” he said. “Setting Rio Tinto’s US$1 billion in context, this represents just 16 percent of the dividend it distributed in 2019 or just under 5 percent of its reported EBITDA of US$21.2 billion for the same year.”

Kettle added that miners are caught between a rock and a hard place currently as COVID-19 takes its toll.

“The coronavirus, falling prices and the spectre of oversupply across most mined commodities are issues that are not conducive to a massive expansion of capex or expenditure that will take years to provide a ‘green dividend,’” he said.

In Indonesia, the government warned that the coronavirus and its side effects are likely to delay US$11 billion in projects in the country and have a pronounced impact on nickel infrastructure.

“(The coronavirus) will have impacts on the projects and in turn affect exports that should have started this year … some of them will be delayed by months,” said Indonesia’s coordinating minister overseeing maritime resources and investment affairs.

One of the operations likely to be affected is Chinese nickel giant Tsingshan, which operates the Morowali stainless steel complex on Sulawesi. Tsingshan made news in 2018 when it announced plans to construct a high-pressure acid leach (HPAL) plant at the complex. HPAL technology is used to increase the grade of nickel to a level at which it can be used in battery technology.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.