TORONTO ? Veteran analysts at the world’s largest mining convention said Tuesday the commodity bear market may be near its end.
The comments were made throughout a panel at the 2016 PDAC conference. Several analysts noted that there are bullish signs building up on the market, together with a dearth of recent projects, signs of tighter supply and the very cheap level of capital spending in the industry.
Bullishness around mining stocks generally has certainly increased this month, as prices for metals for example copper, iron and gold have posted impressive gains.
“New capital spending has been cut, nobody is building new mines, nobody is looking for new mines,” said Greg Barnes, analyst at TD Newcrest. “We’ll have a significant rally by the end of the decade.”
Every year when miners gather for that industry’s biggest annual convention in Toronto, one of the greatest questions happens when the present cycle will come to an end.
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It’s become an existential question previously couple of years as miners happen to be faced with a prolonged bear market for metal prices. The industry has witnessed billions in dollars of assets wiped off, projects being cancelled or delayed and firms struggling to stay afloat.
Barnes noted that investors happen to be rushing to market mining stocks previously couple of years, while shorting mining stocks was a popular play for hedge funds in 2015.
The past month, however, has witnessed a good turnaround. Gold prices have risen to 13-month highs this week, while iron ore prices spiked 19 percent on Monday alone. Copper and aluminum have also registered strong gains, with copper up 15 per cent since its January lows.
Barnes asserted there are signs in various metals, including copper and gold, supplying will tighten in the coming years and costs could start moving up faster.
“Gold supply is starting to rollover,” said Barnes. “Not many new mines are now being built also it could be a supply issue in four-to-five years.”
David Davidson, senior analyst at Paradigm Capital, said that it is not easy to pin down when the current commodity cycle will end, but supply constraint is a major story within the sector within the coming years if global demand accumulates.
“I’m not sure what’s the trigger, it’s probably not likely to be China, but it’s going to be something,” he said.
Davidson pointed to the copper market as one area where an upturn appears inevitable. While the marketplace is currently oversupplied, Davidson notes that it’s only oversupplied by 200,000 ounces, something he calls a “rounding error” inside a 24 million ounce market.
While the analysts at Tuesday’s panel were bullish, not everyone shares exactly the same opinion concerning the recent price moves.
Goldman Sachs warned Tuesday that any optimism is going to be short-lived. The investment bank warned this year’s improvement in commodity prices is “not sustainable,” given that global demand remains weak. Particularly, data from China suggests that the country, the world’s largest commodity consumer, won’t begin to see the kind of economic stability required to increase commodity demand.
“We believe these rallies are also not supported by the broader financial environment in China,” Goldman analysts wrote in a note.
