RIU Explorers Conference: What does China’s reopening mean for commodities?

Speaking to analysts, investors, miners, and journalists at the RIU Explorers Conference in Fremantle yesterday, ANZ senior commodity strategist Daniel Haynes said 2023 could finally kick off a new metals super-cycle lasting through this decade.

On the back of strong demand from China, low inventories and relatively low growth in supply, Haynes said the commodity rally is setting the scene for further gains in the near term.

For the re-opening itself, Haynes explained the energy sector is set to gain the biggest boost, which is being played out in several ways but particularly in the relationship between traffic or road transportation against oil demand.

“There really has been a sudden explosion in transport and mobility across the country but more interestingly is the increase in auto vehicle sales – registrations for new vehicles in the week prior to this was up 200pc year on year,” he says.

“Through 2022 we saw oil demand fall below 14 million barrels a day whereas in January alone we saw that jump to one million barrels a day.”

This is the type of growth Haynes expects to continue over the course of 2023.

“And it is essentially, all driven by China,” he remarks.

“Well over a third of global growth is set to flow from China with other less developed economies providing about 40%.”

Not all commodities are winners…but copper is

But while it’s often said “a rising tide lifts all boats”, in this case some boats will have more buoyancy than others.

LNG, for example, is one area Haynes expects to see limited pick-up in inventories following China’s reopening.

“They have remained at a relatively healthy level and imports will suffer as a consequence in the shorter term, but it is still a really important sector for China over the longer term.

“This is made more evident by the amount of regasification capacity the country is building over the next few years and will only get greater as it tries to transition to lower carbon fuel and renewable energies.”

When it comes to metals and mining, however, the signs are positive… according to ANZ’s China-Copper indicator anyway.

Haynes says ANZ has already seen a lift in inventories, and this will only get greater as the real drivers of copper – investment in the power grid and renewable energy – begin to kick in.

Millions of metres of copper wiring are needed to build power grids, solar and wind farms require a lot more copper per unit of power produced than centralised coal and gas-fired power stations, and electric vehicles use more than twice as much copper as gasoline-powered cars, according to the Copper Alliance.

Bullish on copper

ASX copper play New World Resources (ASX:NWC) is working to bring its Antler Copper Project in Arizona, USA into production by ~2030 and managing director Mike Haynes sees copper prices hitting far above current levels by the end of the decade as major shortages emerge.

“We are seeing the beginning of a sustained run in the copper price,” he says.

“The price now is good but when we started looking around for a project around three years ago, before we acquired this asset, we thought the price was going to be much better in the second half of this decade,” he said in an interview with Stockhead.

“Our project stands to deliver exceptional returns if high copper prices prevail – by which time Antler is expected to be in full operation.”

But from a macro perspective, copper demand is expected to outpace supply as frontier copper discoveries continue to decline.

According to S&P, although copper volumes increased by 50 million tonnes in 2022 compared to 2021 estimates, most of the increase came from assets discovered in the 1990s.

This means elevated copper exploration budgets over the past several years has not led to a meaningful increase in the number of recent major discoveries – a bit worrying considering the world needs 10 Escondidas (the world’s largest copper mine) or 100 Costa Fuegos to meet demand shift estimates, as Hot Chili’s (ASX:HCH) managing director Christian Easterday told investors on Wednesday.

“The structural deficit that is coming in copper is something that I would draw analogies to the iron ore price in 2022 and the lithium price in 2017/2018,” Easterday said in an interview with Stockhead.

“It is the next commodity investors will see a structural shift in demand that will produce a major re-rate in the price of copper.

“The supply chain of these future facing metals is becoming a geopolitical focus and when the world orchestrates itself towards electrification and decarbonisation, copper is going to be the biggest benefactor.”

At Stockhead we tell it like it is. While New World Resources and Hot Chili are Stockhead advertisers, they did not sponsor this article.