In an exclusive preview of the 2019 edition, Mexico Mining Review, José Antonio Berlanga, General Manager Mexico of base metals trader Mercuria discusses the ups and downs of base metal prices and how China and the US factor into demand for Mexican products.
Q: How is Chinese consumption influencing the metals trading market?
A: China continues to grow technologically and its internal demand is likely to keep rising and surpass global supply of these metals. We believe that the exportation business in China will continue to be favorable. Demand for vehicles, both traditional and electric, will continue to require lead and other battery metals such as zinc and nickel. Construction in China paused for a while but it is starting to pick up pace again, which will impact the mining industry as well.
When it comes to precious metals, China’s stock exchange in Shanghai calculates its own prices for precious metals. This used to create a considerable discrepancy between the prices in China and the rest of the world. But the variation has lowered a great deal, and now it has somewhat leveled out. There will always be a difference but it is much more minimal. China is an important region for traders and represents more than 80 percent of exportation destinations for metals. Overall, Asia represents a significant amount of the trade in the world, followed by Europe.
Q: How does the development of infrastructure in Mexico and the US impact an energy and commodity trading company like Mercuria?
A: We are not greatly impacted or worried about whether the US or Mexican administrations will be able to meet their infrastructure promises. These two markets are quite minimal for us and as mentioned, our main priority is China. Even if these countries were able to fulfill all their infrastructure commitments, the rise in demand for us would not be significant. The development of these projects will mostly benefit transportation and logistics companies.
Q: How do you expect copper prices to perform in the medium term?
A: Copper will continue to rise but to no more than US$7,500/t. Eventually supply and demand will make prices fall back to a more stable position of US$6,500/t taking into consideration the history of the metal. The prices will motivate many companies to start evaluating more projects in copper. The amount of non-ferrous concentrates Mexico exports is around 1.6 million tons from ports such as Manzanillo in the Pacific Ocean for products moving toward the Asian market. There is some movement of copper toward the US but it does not compare to the level of concentrates that are exported to China.
Q: What factors are behind the rise and fall of zinc prices?
A: Supply was greatly affected by the closure of zinc mines globally. Demand rose after stocks dropped, bringing zinc to US$3,800/t as there was a great deal of speculation regarding EVs and batteries. Some analysts have even predicted a price of US$4000/t but this is too optimistic.
Prices will probably be further impacted as new mines come online in the next couple of years. We believe prices could drop to around US$2,500/t. It may seem like a steep drop but considering that this metal is normally around US$2,300/t, it should level out at an optimal price.
This is an exclusive preview of the 2019 edition of Mexico Mining Review. If you want to get all the information, plus other relevant insights regarding this industry, pre-order your copy Mexico Mining Review or access our digital copy of the 2018 edition.