Weekly Mining Commentary

Author: Sid Rajeev, Head Of Research

Despite the continued surge in COVID-19 cases, four of the seven global equity indices we track were up WoW.  

Current Vs Pre COVID-19 (as of Jan 4, 2021)

Source: FRC / Various

Except India and Russia, most of the hardest hit nations reported a surge in cases in the past week.  

Daily New cases in the US, India, UK,Russia, Mexico, Spain

Source: https://www.worldometers.info/coronavirus/

The rollout of vaccines has been much slower than expected. Only 1.38% of the U.S. population has received vaccinations. This compares to 0.3% for Canada, and 1.39% for the U.K. Israel leads the pack at 14%. Although Israel is a significantly smaller country with a population of under nine million, sources indicate that the country’s centralized government, and early negotiations with drug makers are driving this successful rollout.

COVID-19 Vaccination doses administrated per 100 people. Jan 4.

Source: https://ourworldindata.org/

The World Health Organization’s Chief Scientist recently stated that although the approved vaccines have been tested to prevent recipients from becoming seriously sick, there is no evidence that they can prevent transmission. We believe this factor, and the slow rollout of vaccines amid rising cases, imply that restrictions are unlikely to be relaxed until there is a significant decline in new cases.

Globally, 13M vaccines were administered yesterday (Source: Ourworldindata.org). At this rate (assuming two doses per individual), we estimate it will take approximately 10 months to vaccinate 25% of the global population. We will be closely monitoring the above shown vaccine rollout data, as it will help us predict the timing of an economic recovery.

Except zinc, all the mainstream metals reported gains in the past week due to a weaker US$ amid rising inflationary expectations. In the charts below, note the increase in inflationary expectations, and a corresponding decline in the US$ since March 2020.

Week-over-Week (Jan 4, 2021) and Year-over-Year (Jan 4,2021)

Source: FRC/Various

5 Year forward inflation expectation rate

Source: https://www.marketwatch.com/

Valuations of gold and base metals producers also increased slightly.   

Base Metal Producers and Gold Producers

Source: S&P Capital IQ & FRC

Gold Producers and Base Metal Producers 2021

Source: S&P Capital IQ & FRC

Inventory levels of copper declined on the LME, but increased on the SHFE (Shanghai), and do not provide any specific insights.

LME Inventory (Jan 4, 2021)

Source: FRC/Various

SHFE Inventory (Dec 31, 2020)

Source: FRC/SHFE

As restrictions are unlikely to be relaxed until there is a decline in new cases, we expect base metal prices to be under pressure. We expect the US$ to stabilize at current levels as we believe the chance of another stimulus package in Q1 is low. That said, the Biden government is likely to push for one once they take office later this month. We expect gold prices to remain volatile in Q1. The consensus forecast for gold in 2021 is US$1,800 to US$1,900/oz. Our commodity price forecasts (unchanged) are shown below:

FRC Forecast Mining

Source: FRC

Weekly Mining Commentary

Author: Sid Rajeev, Head Of Research