“We’ve seen battery chemistry evolve rapidly just over the last five years and as we go through the energy transition process, the technology that we’re going to use to decarbonise in 2038 is probably going to be different to 2018,” Mr Berridge added.
Three-month nickel prices on the LME tumbled 44 per cent last year to trade at $US17,495 and Tribeca’s portfolio manager Ben Cleary does not foresee a rebound anytime soon.
“The Indonesian production has become the cost curve and Australian miners are struggling to compete,” he said. “Until there’s a circuit breaker or a change, it’s going to be tough.” Australia is the world’s fifth-largest producer of nickel.
Amplifying worries, Indonesia’s mining ministry, on Monday said it issued approvals for mining quotas of 145 million tons of nickel ore in a move to address delays in the approval process.
For Vivek Dhar, a mining and energy commodities strategist at Commonwealth Bank, China will be a key determinant for the metal’s future.
He said the biggest risk over the next decade was if Indonesia continued to push prices lower – “what Indonesia has managed to achieve in the last five years has exceeded anyone’s expectations”.
Nickel’s future will depend on economic activity in China, which accounts for 40 per cent to 60 per cent of base metal demand, Mr Dhar added.
The fund managers are also bearish on lithium, though they said that prices had at least bottomed.
EV shock
That’s after lithium prices plunged 85 per cent last year amid an unexpected slowdown in electric vehicles sales which forced producers to cut costs and defer investment projects.
Last week, Mineral Resources said it may curtail the timing of the first production from its Wodgina train in Western Australia, while IGO said that the opening of a processing plant at the Greenbushes site was under review.
“We are at the bottom,” said Mr Berridge of lithium. “The big question is how long will prices go sideways and that depends on demand, rather than supply.”
He added that there was legitimate pain across the industry with sellers “point-blank” refusing to cut prices further because of economics, so the recovery would depend on the outlook of EV sales.
Tribeca expects spodumene lithium prices to “bumble along” between $US800 and $US1200 for the next six to 12 months, from $US910 currently. It was only last year that prices fetched $US8,000.
“I don’t expect prices to bounce back towards where they were,” said Mr Cleary. “But I am comfortable that we could see long-term prices around $US1,200 which would still give Australian producers $US600 a tonne on a 50 per cent operating margin.” Australia is the world’s largest explorer of the battery metal.
Commodity pundits, however, are more upbeat about copper.
Daniel Hynes, a senior commodity strategist at ANZ, forecasts copper production to slip 4 per cent this year as miners struggle with high costs and weakening quality.
First Quantum Minerals shut its Cobre Panama site, one of the world’s largest open-pit copper mines, late last year, while Anglo American and Codelco cut annual guidance. Anglo American also said last week that it was reviewing its mining operations after a 94 per cent tumble in annual profit.
Bright outlook
At the same time, demand from China, the US, and India – three of the top five global consumers of copper – is expected to climb 4.3 per cent this year.
“This is likely to see the copper market returning to deficit this year, which should underpin prices,” said Mr Hynes. He forecasts three-month copper contracts on the LME to reach $US10,000 per tonne in a year, from $US8,560 currently. They fell $US8,000 last year, but prices have started to rebound.
Mr Cleary is equally positive. “We think copper will remain in deficit for most of the decade as major miners are having problems containing costs.”
The Tribeca fund manager cited “massive” cost blowouts at BHP, Rio Tinto, and South32 on base metal projects and expects spot prices to bounce.
“You can buy copper producers in Australia and globally that are factoring in long-term prices below where we are. So the value, from a corporate equity perspective, is attractive to us,” he said.
Mr Berridge also said prices were more likely to go higher than lower over the next six months.
“The one thing you need to set the copper price alight is a sprinkling of demand surprises – a stronger US economy or China ramping up demand or higher global demand from the decarbonisation,” he said.
Mr Dhar added that prices needed to be higher “to bring on enough copper”. But in the near term, it would be driven by demand from China. Copper is widely used in power, construction and transportation sectors.
