To the SmallCapInvestor Community,
We are pleased to bring you the first edition of our monthly commodities market update which will cover market moving news and updates across various sub-sectors of the natural resource industry. We have also curated a selection of links to pertinent news articles in each sector for your convenience.
Uranium
Uranium prices in the US have surpassed $82 per pound, marking the first occurrence since January 2008. This surge has exceeded pre-Fukushima disaster levels, propelled by heightened demand and escalating supply risks. The US lower house has approved a bill prohibiting the import of nuclear fuel from Russia, the primary global producer of enriched uranium and a major supplier to the US. This move amplifies supply concerns, especially in the wake of European utilities reducing reliance on Russian nuclear fuel. Additional supply risks have emerged, including uncertainty stemming from Niger's military coup and decreased output from Canada.
Simultaneously, fluctuations in fossil fuel markets and the pursuit of decarbonization goals have prompted nations to extend the operational life of existing generators and boost investments in new plants. Notably, China has committed to constructing 32 new nuclear reactors by the decade's end. This optimistic demand outlook, coupled with reduced nuclear fuel inventories for utilities, has triggered significant near-term purchasing activity.
Copper
Copper futures rose toward the $3.9 per pound level, approaching the four-month high of $3.91 touched on December 1st, tracking the rise in other base metals as dovish projections from the Federal Reserve pressured the dollar and supported the outlook for industrial activity.
In recent months, a series of concerning reports have surfaced regarding the constrained supply conditions within the copper sector and various significant development projects.
First Quantum's Cobre mine in Panama has been forced to shut down, resulting in the removal of approximately 1.5% of the world's copper supply.
Anglo American has recently scaled back its 2024 copper production plans by 200,000 tons.
Glencore anticipates a fifth consecutive year of decline in copper production for 2023, with levels nearly 30% below those seen in 2018.
Teck Resources' majority-owned QB2 copper mine is grappling once again with substantial cost overruns.
Freeport, the world's second-largest copper producer, has announced a slowdown in expansion plans due to inflation and declining prices for the crucial red metal, extensively used throughout the global economy.
Codelco, the largest state-owned copper producer globally, has revised its annual production forecast to the lowest point in 25 years while also adjusting cost estimates upward.
Zambia's copper production is expected to drop by over 10% this year, reaching the lowest level in 14 years.
The upcoming year promises to be a fascinating period for observing the market dynamics surrounding copper in 2024. Despite the challenges, there are numerous compelling reasons to be bullish on copper.
Gold
Gold rose to around $2,035 an ounce on Thursday, hitting its strongest levels in over week as the dollar and Treasury yields weakened after the US Federal Reserve held interest rates steady and signaled three rate reductions in 2024 amid faster-than-anticipated drop in inflation. Markets are now pricing in a more than 70% chance of a rate cut by the regulator in March. Meanwhile, the latest US data showed retail sales unexpectedly grew last month, suggesting a strong start of the holiday shopping season, and initial claims came below estimates. Elsewhere, the BoE and ECB pushed back against rate cuts speculations.
Lithium
Lithium carbonate prices fell below CNY 100,000 per tonne for the first time since August 2021, plunging 81% year-to-date as low demand deepened the current supply glut. Electric vehicle sales pessimism in China limited lithium demand for battery manufacturers in their typical restocking season. Instead, firms took advantage of high inventories following the supply glut caused by extensive subsidies from the Chinese government throughout 2021 and 2022. The developments drove key market players to forecast the next lithium deficit to return only in 2028, an aggressive twist from speculations of persistent shortfalls that took lithium prices to CNY 600,000 in November 2022. On the supply front, customs data showed that lithium deliveries to China from top producer Chile soared by 84.3% from the previous month in October, while production from salt lakes in the region continued to rise.