Weekly Mining Commentary

Author: Sid Rajeev, Head Of Research

Global equity markets retreated last week primarily due to rising yields from a major sell-off in the bond market, amid expectations of an economic rebound and rising inflation expectations. As shown below, all the seven indices we track reported losses (orange bars). Rising yields typically result in lower equity valuations (from higher discount rates), and higher borrowing costs. The P/E ratio of the S&P 500 is currently 22.2x vs the long-term average of 15.3x (Source: Refinitiv). As we do not expect an economic recovery until H2-2021, we expect a market correction, and the P/E ratio to revert to its historic average.

Current Vs Pre COVID-19 ( as of Feb 22, 2021 )

Source: FRC / Various

For the second consecutive week, almost all of the hardest hit nations experienced a decline in daily new cases of COVID-19. However, an increase in cases of new variants is causing concerns.

Daily New Cases in the U.S., Spain, Colombia, India, Germany, Canada

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

13.1% of the U.S. population has received vaccinations vs 11.5% at the same time last week. This compares to 25.9% in the U.K. (up from 22.5%). Israel is at 50.5%, up from 46.5%. We are maintaining our estimate that 50% of the U.S. population will be vaccinated by August 2021.

share of people who received at least one dose of COVID-19 vaccine, Feb 21, 2021

Source: Official data collated by Our World in Data – Last updated February 21, 2021

Despite the weakness in equity markets, base metals continued to gain strength due to rising inflation expectations.

Week-over-Week (Feb 21, 2021) and Year-over-Year (Feb 21, 2021)

Source: FRC / Various

However, copper inventory levels increased on both the LME, and the SHFE (Shanghai), indicating that prices might face downward pressure.

LME Inventory ( feb 1, 2021)

Source: FRC/Various

SHFE Inventory ( Jan 22 , 2021)

Source: FRC/SHFE

Valuations of gold and base metals producers were down 14% and 6% WoW, respectively.

Gold Producers - Feb 21, 2021

Source: S&P Capital IQ & FRC

Base Metal Producers Feb 21, 2021

Source: S&P Capital IQ & FRC

Gold Producers and Base metal producers in Feburary

Source: S&P Capital IQ & FRC

Although we expect base metal prices to exit 2021 lower, we are raising our 2021 average price forecasts due to their near-term strength. We are maintaining our forecasts for gold and silver.


FRC: Forecast

Weekly Mining Commentary

Author: Sid Rajeev, Head Of Research