Precious Metals
Highlights China's high-profile jawboning draws attention to tightness in metals markets, and raises the odds the State Reserve Board (SRB) will release some of its massive copper and aluminum stockpiles in the near future. Over the medium- to long-term, the lack of major new greenfield capex raises red flags for the IEA's ambitious low-carbon pathway released last week, which foresees the need for a dramatic increase in renewable energy output and a halt in future oil and gas investment to achieve net-zero emissions by 2050. Copper demand is expected to exceed mined supply by 2028, according to an analysis by S&P, which, in line with our view, also sees refined-copper consumption exceeding production this year (Chart of the Week). A constitution re-write in Chile and elections in Peru threaten to usher in higher taxes and royalties on mining in these metals producers, placing future capex at risk. Chile's state-owned Codelco, the largest copper producer in the world, fears a bill to limit mining near glaciers could put as much as 40% of its copper production at risk. We remain bullish copper and look to get long on politically induced sell-offs as the USD weakens. Feature Politicians are inserting themselves in the metals markets' supply-demand evolutions to a greater degree than in the past, which is complicating the short- and medium-term analysis of prices. This adds to an already-difficult process of assessing markets, given the opacity of metals fundamentals – particularly inventories, which are notoriously difficult to assess. Chinese Communist Party (CCP) jawboning of market participants in iron ore, steel, copper and aluminum markets over the past two weeks has weakened prices, but, with the exception of steel rebar futures in Shanghai – down ~ 17% from recent highs, and now trading at ~ 4911 RMB/MT – the other markets remain close to records. Benchmark 62% Fe iron ore at the port of Tianjin was trading ~ 4% lower at $211/MT, while copper and aluminum were trading ~ 5.5% and 6.5% off their recent records at $4.535/lb and $2,350/MT, respectively. In addition to copper, aluminum markets are particularly tight (Chart 2). Jawboning aside, if fundamentals continue to keep prices elevated – or if we see a new leg up – China's high-profile jawboning could presage a release by the State Reserve Board (SRB) of some of its massive copper and aluminum stockpiles in the near term. In the case of copper, market guesses on the size of this stockpile are ~ 2mm to 2.7mm MT. On the aluminum side, Bloomberg reported CCP officials were considering the release of 500k MT to quell the market's demand for the metal. Chart of the WeekContinue Tightening In Copper Expected Chart 2Aluminum Remains Tight Brownfield Development Not Sufficient Our balances assessments continue to indicate key base metals markets are tight and will remain so over the short term (2-3 years). Economies ex-China are entering their post-COVID-19 recovery phase. This will be followed by higher demand from renewable generation and grid build-outs that will put them in direct competition with China for scarce metals supplies for decades to come. Markets will continue to tighten. In the bellwether copper market, we expect this tightness to remain a persistent feature of the market over the medium term – 3 to 5 years out – given the dearth of new supply coming to market. Copper prices are highly correlated with the other base metals (Chart 3) – the coefficient of correlation with the other base metals making up the LME's metals index is ~ 0.86 post-GFC – and provide a useful indicator of systematic trends in these markets. Chart 3Copper Correlation With LME Index Ex-Copper Copper ore quality has been falling for years, as miners focused on brownfield development to extend the life of mines (Chart 4). In Chart 5, we show the ratio of capex (in billion USD) to ore quality increases when capex growth is expanding faster than ore quality, and decreases when capex weakens and/or ore quality degradation is increasing. Chart 4Copper Capex, Ore Quality Declines Chart 5Capex-to-Ore-Quality Decline Set Market Up For Higher Prices Falling prices over the 2012-19 interval coincide with copper ore quality remaining on a downward trend, likely the result of previous higher prices that set off the capex boom pre-GFC. The lower prices favored brownfield over greenfield development. Goehring and Rozencwajg found in their analysis of 24 mines, about 80% of gross new reserves booked between 2001-2014 were due not to new mine discoveries but to companies reclassifying what was once considered to be waste-rock into minable reserves, lowering the cut-off grade for development.1 This is consistent with the most recent datapoints in Chart 5, due to falling ore grade values, as companies inject less capex into their operations and use it to expand on brownfield projects. Higher prices will be needed to incentivize more greenfield projects. A new report from S&P Global Market Intelligence shows copper reserves in the ground are falling along with new discoveries.2 According to the S&P analysts, copper demand is expected to exceed mined supply by 2028, which, in line with our view, sees refined-copper consumption exceeding production this year. Renewables Push At Risk Just last week, the IEA produced an ambitious and narrow path for governments to collectively reach a net-zero emissions (NZE) goal by 2050.3 Among its many recommendations, the IEA singled out the overhaul of the global electric grid, which will be required to accommodate the massive renewable-generation buildout the agency forecasts will be needed to achieve its NZE goals. The IEA forecasts annual investment in transmission and distribution grids will need to increase from $260 billion to $820 billion p.a. by 2030. This is easier said than done. Consider the build-out of China's grid, which is the largest grid in the world. To become carbon neutral by 2060, per its stated goals, investment in China’s grid and associated infrastructure is expected to approach ~ $900 billion, maybe more, over the next 5 years.4 The world’s largest fossil-fuel importer is looking to pivot away from coal and plans to more than double solar and wind power capacity to 1200 GW by 2030. Weening China off coal and rebuilding its grid to achieve these goals will be a herculean lift. It comes as no surprise that IEA member states have pushed back on the agency's NZE-by-2050 plan. This primarily is because of its requirement to completely halt fossil-fuel exploration and spending on new projects. Japan and Australia have pushed back against this plan, citing energy security concerns. Officials from both countries have stated that they will continue developing fossil fuel projects, as a back-up to renewables. Japan has been falling behind on renewable electricity generation (Chart 6). Expensive renewables and the unpopularity of nuclear fuel could make it harder for the world’s fifth largest fossil fuels consumer to move away from fossil fuels. Around the same time the IEA released its report, Australia committed $464 million to build a new gas-fired power station as a backup to renewables. Chart 6Japan Will Continue Building Fossil-Fuel Back-Up Generation Just days after the IEA report was published, the G7 nations agreed to stop overseas coal financing. This could have devastating effects for emerging and developing nations‘ electricity grids which are highly dependent on coal. In 2020 70% and 60% of India and China’s electricity respectively were produced by coal (Chart 7).5 Chart 7EM Economies Remain Reliant On Coal-Fired Generation Near-Term Copper Supply Risks Rise Even though inventories appear to be rebuilding, mounting political risks keep us bullish copper (Chart 8). Lawmakers in Chile and Peru are in the process of re-writing their constitutions to, among other things, raise royalties and taxes on mining activities in their respective countries. This could usher in higher taxes and royalties on mining for these metals producers, placing future capex at risk. In addition, Chile's state-owned Codelco, the largest copper producer in the world, fears a bill to limit mining near glaciers could put as much as 40% of its copper production at risk.6 None of these events is certain to occur. Peruvian elections, for one thing, are too close to call at this point, and Chile has a history of pro-business government. However, these are non-trivial odds – i.e., greater than Russian roulette odds of 1:6 – and if any or all of these outcomes are realized, higher costs in copper and lithium prices would result, and miners would have to pass those costs on to buyers. Bottom Line: We remain bullish base metals, especially copper. Another leg up in copper would pull base metals higher with it. We would look to get long on politically induced sell-offs, particularly with the USD weakening, as expected Chart 8Global Copper Inventories Rebuilding But Still Down Y/Y Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Ashwin Shyam Research Associate Commodity & Energy Strategy ashwin.shyam@bcaresearch.com Commodities Round-Up Energy: Bullish Next Tuesday's OPEC 2.0 meeting appears to be a fairly staid affair, with little of the drama attending previous gatherings. Russian minister Novak observed the coalition would be jointly "calculating the balances" when it meets, taking into account the likely official return of Iran as an exporter, according to reuters.com. We expect a mid-year deal on allowing Iran to return to resume exports under the nuclear deal abrogated by the Trump administration in 2019, and reckon Iran has ~ 1.5mm b/d of production it can bring back on line, which likely would return its crude oil production to something above 3.8mm b/d by year-end. We are maintaining our forecast for Brent to average $64.45/bbl in 2H21; $75 and $78/bbl, in 2022 and 2023, respectively. By end 2023, prices trade to $80/bbl. Our forecast is premised on a wider global recovery going into 2H21, and continued production discipline from OPEC 2.0 (Chart 9). Base Metals: Bullish Our stop-losses was elected on our long Dec21 copper position on May 21, which means we closed the position with 48.2% return. The stop loss on our long 2022 vs short 2023 COMEX copper futures backwardation recommendation also was elected on May 20, leaving us with a return of 305%. We will be looking for an opportunity to re-establish these positions. Precious Metals: Bullish We expect the collapse in bitcoin prices, the US Fed’s decision to not raise interest rates, and a weakening US dollar to keep gold prices well bid (Chart 10). China’s ban on cryptocurrency services and Musk’s acknowledgment of the energy intensity of Bitcoin mining sent Bitcoin prices crashing. The Fed’s decision to keep interest rates constant, despite rising inflation and inflation expectations will reduce the opportunity cost of holding gold. According to our colleagues at USBS, the Fed will make its first interest rate hike only after the US economy has reached "maximum employment". The Job Openings and Labor Turnover Survey reported that job openings rose nearly 8% in March to 8.1 million jobs, however, overall hiring was little changed, rising by less than 4% to 6 million. As prices in the US rise and the dollar depreciates, gold will be favored as a store of value. On the back of these factors, we expect gold to hit $2,000/oz. Ags/Softs: Neutral Corn futures were trading close to 20% below recent highs earlier in the week at ~ $6.27/bu, on the back of much faster-than-expected plantings. Chart 9 Chart 10 Footnotes 1 Please refer to Goehring & Rozencwajg’s Q1 2021 market commentary. 2 Please see Copper cupboard remains bare as discoveries dwindle — S&P study published by mining.com 20 May 2021. 3 Please see Net Zero by 2050 – A Roadmap for the Global Energy Sector, published by the IEA. 4 Please see China’s climate goal: Overhauling its electricity grid, published by Aljazeera. 5 We discuss this in detail in Surging Metals Prices And The Case For Carbon-Capture published 13 May 2021, and Renewables ESG Risks Grow With Demand, which was published 29 April 2021. Both are available at ces.bcaresearch.com. 6 Please see A game of chicken is clouding tax debate in top copper nation, Fujimori looks to speed up projects to tap copper riches in Peru and Codelco says 40% of its copper output at risk if glacier bill passes published by mining.com 24, 23 and 20 May 2021, respectively. Investment Views and Themes Strategic Recommendations Tactical Trades Commodity Prices and Plays Reference Table Trades Closed in 2021 Summary of Closed Trades
After a poor start to the year, gold is up 10% so far in Q2. Several factors explain this performance. First, inflation expectations jumped during this period. The 10-year breakeven rate was up 19 basis points between the beginning of April and its most…
Highlights Global oil markets will remain balanced this year with OPEC 2.0's production-management strategy geared toward maintaining the level of supply just below demand. This will keep inventories on a downward trajectory, despite short-term upticks due to COVID-19-induced demand hits in EM economies and marginal supply additions from Iran and Libya over the near term. Our 2021 oil demand growth is lower – ~ 5.3mm b/d y/y, down ~ 800k from last month's estimate – given persistent weakness in realized consumption. We have lifted our demand expectation for 2022 and 2023, however, expecting wider global vaccine distribution and increased travel toward year-end. The next few months are critical for OPEC 2.0: The trajectory for EM demand recovery will remain uncertain until vaccines are more widely distributed, and supply from Iran and Libya likely will increase this year. This will lead to a slight bump in inventories this year, incentivizing KSA and Russia to maintain the status quo on the supply side. We are raising our 2021 Brent forecast back to $63/bbl from $60/bbl, and lifting our 2022 and 2023 forecasts to $75 and $78/bbl, respectively, given our expectation for a wider global recovery (Chart of the Week). Feature A number of evolving fundamental factors on both sides of the oil market – i.e., lingering uncertainty over the return of Iranian and Libyan exports and the strength of the global demand recovery – will test what we believe to be OPEC 2.0's production-management strategy in the next few months. Briefly, our maintained hypothesis views OPEC 2.0 as the dominant supplier in the global oil market. This is due to the low-cost production of its core members (i.e., those states able to attract capital and grow production), and its overwhelming advantage in spare capacity, which we reckon will average in excess of 7mm b/d this year, owing to the massive production cuts undertaken to drain inventories during the COVID-19 pandemic. Formidable storage assets globally – positioned in or near refining centers – and well-developed transportation infrastructures also support this position. We estimate core OPEC 2.0 production will average 26.58mm b/d this year and 29.43mm b/d in 2022 (Chart 2). Chart of the WeekBrent Prices Likely Correct Then Move Higher in 2022-23 Chart 2OPEC 2.0 Will Maintain Status Quo The putative leaders of the OPEC 2.0 coalition – the Kingdom of Saudi Arabia (KSA) and Russia – have distinctly different goals. KSA's preference is for higher prices – ~ $70-$75/bbl (basis Brent) to the end of 2022. Higher prices are needed to fund the Kingdom's diversification away from oil. Russia's goal is to keep prices closer to the marginal cost of the US shale-oil producers, who we characterize as the exemplar of the price-taking cohort outside OPEC 2.0, which produces whatever the market allows. This range is ~ $50-$55/bbl. The sweet spot that accommodates these divergent goals is on either side of $65/bbl for this year. OPEC 2.0 June 1 Meeting Will Maintain Status Quo With Brent trading close to $70/bbl, discussions in the run-up to OPEC 2.0's June 1 meeting likely are focused on the necessity to increase the 2.1mm b/d being returned to the market over the May-July period. At present, we do not believe this will be necessary: Iran likely will be returning to the market beginning in 3Q21, and will top up its production from ~ 2.4mm b/d in April to ~ 3.85mm b/d by year-end, in our estimation. Any volumes returned to the market by core OPEC 2.0 in excess of what's already been agreed going into the June 1 meeting likely will come out of storage on an as-needed basis. Libya will likely lift its current production of ~ 1.3mm b/d close to 1.5mm b/d by year end as well. We are expecting the price-taking cohort ex-OPEC 2.0 to increase production from 53.78mm b/d in April to 53.86mm b/d in December, led by a 860k b/d increase in US output, which will take average Lower 48 output in the US (ex-GOM) to 9.15mm b/d by the end of this year (Chart 3). When we model shale output, our expectation is driven by the level of prompt WTI prices and the shape of the forward curve. The backwardation in the WTI forward curve will limit hedged revenues at the margin, which will limit the volume growth of the marginal producer. We expect global production to slowly increase next year, and the year after that, with supply averaging 101.07mm b/d in 2022 and 103mm b/d in 2023. Chart 3US Crude Output Recovers, Then Tapers in 2023 Demand Should Lift, But Uncertainties Persist We expect the slowdown in realized DM demand to reverse in 2H21, and for oil demand to continue to recover in 2H21 as the US and EU re-open and travel picks up. This can be seen in our expectation for DM demand, which we proxy with OECD oil consumption (Chart 4). EM demand – proxied by non-OECD oil consumption – is expected to revive over 2022-23 as vaccine distribution globally picks up. As a result, demand growth shifts to EM, while DM levels off. China's refinery throughput in April came within 100k b/d of the record 14.2mm b/d posted in November 2020 (Chart 5). The marginal draw in April stockpiles could also signify that as crude prices have risen higher, the world’s largest oil importer may have hit the brakes on bringing oil in. In the chart, oil stored or drawn is calculated as the difference between what is imported and produced with what is processed in refineries. With refinery maintenance in high gear until the end of this month, we expect product-stock draws to remain strong on the back of domestic and export demand. This will draw inventories while maintenance continues. Chart 4EM Demand Will Recovery Accelerates in 2022-23 Chart 8China Refinery Runs Remain Strong COVID-19-induced demand destruction remains a persistent risk, particularly in India, Brazil and Japan. This is visible in the continued shortfall in realized demand vs our expectation so far this year. We lowered our 2021 oil demand growth estimate to ~ 5.3mm b/d y/y, which is down ~ 800k from last month's estimate, given persistent weakness in realized consumption. Our demand forecast for 2022 and 2023 is higher, however, based on our expectation for stronger GDP growth in EM economies, following the DM's outperformance this year, on the back of wider global vaccine distribution year-end (Table 1). Table 1BCA Global Oil Supply - Demand Balances (MMb/d, Base Case Balances) Our supply-demand estimates continue to point to a balanced market this year and into 2022-23 (Chart 6). Given our expectation OPEC 2.0's production-management strategy will remain effective, we expect inventories to continue to draw (Chart 7). Chart 6Markets Remained Balanced Chart 7Inventories Continue To Draw CAPEX Cuts Bite In 2023 In 2023, we are expecting Brent to end the year closer to $80/bbl than not, which will put prices outside the current range we believe OPEC 2.0 is managing its production around (Chart 8). We have noted in the past continued weakness in capex over the 2015-2022 period threatens to leave the global market exposed to higher prices (Chart 9). Over time, a reluctance to invest in oil and gas exploration and production prices in 2024 and beyond could begin to take off as demand – which does not have to grow more than 1% p.a. – continues to expand and supply remains flat or declines. Chart 8By 2023 Brent Trades to /bbl Chart 9Low Capex Likely Results In Higher Prices After 2023 Bottom Line: We are raising our 2021 forecast back to an average of $63/bbl, and our forecasts for 2022 and 2023 to $75 and $78/bbl. We expect DM demand to lead the recovery this year, and for EM to take over next year, and resume its role as the growth engine for oil demand. Longer term, parsimonious capex allocations likely result in tighter supply meeting slowly growing demand. At present, markets appear to be placing a large bet on the buildout of renewable electricity generation and electric vehicles (EVs). If this does not occur along the trajectory of rapid expansion apparently being priced by markets – i.e., the demand for oil continues to expand, however slowly – oil prices likely would push through $80/bbl in 2024 and beyond. Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Ashwin Shyam Research Associate Commodity & Energy Strategy ashwin.shyam@bcaresearch.com Commodities Round-Up Energy: Bullish The Colonial Pipeline outage pushed average retail gasoline prices in the US to $3.03/gal earlier this week, according to the EIA. This was the highest level for regular-grade gasoline in the US since 27 October 2014. According to reuters.com, the cyberattack that shut down the 5,500-mile pipeline was the most disruptive on record, shutting down thousands of retail service stations in the US southeast. Millions of barrels of refined products – gasoline, diesel and jet fuel – were unable to flow between the US Gulf and the NY Harbor because of the attack, which was launched 7 May 2021 (Chart 10). While most of the system is up and running, problems with the pipeline's scheduling system earlier this week prevented a return to full operation. Base Metals: Bullish Spot copper prices remained on either side of $4.55/lb (~ $10,000/MT) by mid-week following a dip from the $4.80/lb level (Chart 11). We remain bullish copper, particularly as political risk in Chile rises going into a constitutional convention. According to press reports, the country's constitution will be re-written, a process that likely will pave the way for higher taxes and royalties on copper producers.1 In addition, unions in BHP mines rejected a proposed labor agreement, with close to 100% of members voting to strike. In Peru, a socialist presidential candidate is campaigning on a platform to raise taxes and royalties. Precious Metals: Bullish According to the World Platinum Investment Council, platinum is expected to run a deficit for the third consecutive year in 2021, which will amount to 158k oz, on the back of strong demand. Refined production is projected to increase this year, with South Africa driving this growth as mines return to full operational capacity after COVID-19 related shutdowns. Automotive demand is leading the charge in higher metal consumption, as car makers switch out more expensive palladium for platinum to make autocatalysts in internal-combustion vehicles. Ags/Softs: Neutral Corn prices continued to be better-offered following last week's WASDE report, which contained the department's first look at the 2021-22 crop year. Corn production is expected to be up close to 6% over the 2020-21 crop year, at just under 15 billion bushels. On the week, corn prices are down ~ 15.3%. Chart 10 Chart 11 Footnotes 1 Please see Copper price rises as Chile fuels long-term supply concerns published 18 May 2021 by mining.com. Investment Views and Themes Strategic Recommendations Tactical Trades Commodity Prices and Plays Reference Table Trades Closed in 2021 Summary of Closed Trades
Aspectos destacados
Durante el período 2021-22, la capacidad renovable representará el 90% de las incorporaciones a la generación eléctrica global, según la última previsión de la IEA. Esto seguirá al aumento del 45% a/a en la capacidad de generación renovable añadida el año pasado, que se produjo a pesar de la pandemia de COVID-19 (Gráfico de la semana).
Las continuas inversiones en renovables y vehículos eléctricos (VE) –junto con la recuperación económica global– están empujando las previsiones en bancos y empresas de trading hacia un rango de $13k - $20k/MT para el cobre, frente a ~ $10.6k/MT (~ $4.80/lb) en la actualidad.
Si estas previsiones más altas para los metales se confirman, las inversiones que prolonguen el uso de combustibles fósiles de bajas emisiones mediante tecnologías de captura de carbono y de uso circular se volverán más atractivas.
La inversión en estas tecnologías ha sido limitada porque no existe un precio de referencia global explícito con el que evaluar las inversiones. Un mercado o impuesto sobre el carbono proporcionaría dicha referencia y aceleraría la inversión. Podría monitorizarse vía un Club del Mercado de Carbono, que limitaría el comercio a los estados que publiquen y recauden el impuesto.1
Artículo
Con casi 280 GW, las incorporaciones de capacidad de energía renovable el año pasado aumentaron un 45% a/a, el mayor incremento desde 1999, según la actualización más reciente de la IEA sobre energía renovable.2 Para este año y el siguiente, se espera que las renovables representen el 90% de las incorporaciones de capacidad, lideradas por una inversión en energía solar fotovoltaica que aumentará aproximadamente un 50% hasta 162 GW. La capacidad eólica creció un 90% el año pasado, hasta 114 GW, y se espera que aumente alrededor de un 50% hasta finales de 2022.
A medida que la generación renovable –y la inversión en VE– continúa creciendo, la demanda de productos básicos (acero y mineral de hierro) y de metales base, liderada por el cobre, llevará los precios al alza. Esto ocurre en un contexto de crecimiento de la oferta plano y déficits físicos durante los cuatro años hasta 2020 (Gráfico 2). Según la IEA, un aumento del 40% en los precios del acero y el cobre entre septiembre de 2020 y marzo de 2021 contribuyó al alza de los precios de los módulos solares fotovoltaicos.
Gráfico de la semana
Aumento espectacular de la capacidad renovable
Precios de los metales en alza y el caso a favor de la captura de carbono
Precios de los metales en alza y el caso a favor de la captura de carbono
En nuestra evaluación, el lado de la oferta del mercado del cobre seguirá en déficit este año y el siguiente, y podría continuar en esa trayectoria si, como espera Wood Mackenzie, la demanda crece a una tasa del 2% anual durante los próximos 20 años y los mineros siguen siendo reacios a comprometer el capex necesario para mantenerse al ritmo de la demanda.3
Gráfico 2
Los déficits físicos reducirán las existencias de cobre...
Los déficits físicos reducirán las existencias de cobre...
Los déficits físicos reducirán las existencias de cobre...
El riesgo ESG para el cobre –y otros metales necesarios para construir la generación y la infraestructura requeridas en la expansión de las renovables– aumentará a medida que suban los precios, lo que también incrementará los costes.4 Los aumentos de costes junto con los crecientes riesgos ESG en esta expansión aumentarán el atractivo de la inversión en tecnologías de captura de carbono y de economía circular, en nuestra opinión. Esto extendería el uso de combustibles fósiles de bajas emisiones si la tecnología consigue acercar al mundo a un futuro de emisiones netas cero. Sin embargo, salvo que la política catalice esta inversión –por ejemplo, vía un precio global de intercambio de carbono o un impuesto– la inversión en estas tecnologías probablemente seguirá estancada.
La promesa incumplida de la tecnología de captura de carbono
La historia de la Captura, Utilización y Almacenamiento de Carbono (CCUS) ha sido una de grandes esperanzas y expectativas no cumplidas. Se reconoce generalmente como una vía para mitigar el cambio climático; sin embargo, su despliegue ha sido más lento de lo esperado.
La tecnología de bajas emisiones requiere más metales críticos que su homóloga basada en combustibles fósiles (Gráfico 3). Aparte del problema del coste, los riesgos ESG de la minería de metales para la transición energética renovable aumentarán a medida que se demanden más metales, como discutimos en investigaciones previas.5 Según Wood Mackenzie, las compañías mineras tendrán que invertir casi $1.7 billones en los próximos 15 años para ayudar a suministrar suficientes metales que permitan la transición a un mundo de bajas emisiones de carbono.6
Gráfico 3
La tecnología baja en carbono requiere muchos metales
Precios de los metales en alza y el caso a favor de la captura de carbono
Precios de los metales en alza y el caso a favor de la captura de carbono
Dadas estas inminentes necesidades físicas de metales, lo más probable es que los combustibles fósiles deban utilizarse durante más tiempo del que los mercados anticipan actualmente, como puente hacia el futuro bajo en carbono, o como parte de ese futuro, dependiendo de qué tan eficazmente se elimine el carbono de los hidrocarburos que alimentan la sociedad moderna. Si ese fuera el caso, usar combustibles fósiles mientras se mitiga su impacto ambiental requerirá tecnologías altamente focalizadas para reducir las emisiones de CO2 y otros gases de efecto invernadero (GEI) durante la transición hacia un futuro bajo en carbono.
Aquí entra la tecnología CCUS: esta tecnología captura el CO2 de fuentes que usan combustibles fósiles o biomasa para generar la energía necesaria para el funcionamiento de la sociedad moderna. En las iteraciones actuales de esta tecnología, el CO2 puede comprimirse y transportarse, o almacenarse en reservorios geológicos u oceánicos. Esto luego puede utilizarse para Recuperación Mejorada de Petróleo (EOR) para extraer petróleo más difícil de alcanzar inyectando CO2 en los reservorios que contienen los hidrocarburos.7
El alcance de la inversión en CCUS
El gasto en inversión en CCUS está aumentando, al igual que el número de instalaciones planificadas que usan o demuestran esta tecnología. En la edición 2020 de su Energy Technology Perspectives, la IEA señaló que se han anunciado 30 nuevas instalaciones integradas de CCUS desde 2017, principalmente en economías avanzadas como EE. UU. y Europa, pero también en algunas naciones de mercados emergentes. A fecha de 2020, los proyectos en etapas avanzadas de planificación representaban un total de $27 mil millones, más del doble de la inversión prevista en 2017 (Gráfico 4).
Entre sus muchos objetivos, el Acuerdo de París busca un equilibrio entre las emisiones de origen humano y la eliminación por sumideros de gases de efecto invernadero (absorción de los gases) en la segunda mitad del siglo XXI. En la práctica, muchos países –especialmente las economías de mercados emergentes– todavía necesitarán usar combustibles fósiles para desarrollarse durante este periodo (Gráfico 5).8
Gráfico 4
Proyectos de captura de carbono hasta la fecha
Precios de los metales en alza y el caso a favor de la captura de carbono
Precios de los metales en alza y el caso a favor de la captura de carbono
Gráfico 5
El desarrollo de mercados emergentes requerirá energía de combustibles fósiles
Los precios de los metales en alza y el caso a favor de la captura de carbono
Los precios de los metales en alza y el caso a favor de la captura de carbono
CCUS en el sector energético
Como combustible que emite menos GEI que el carbón –es decir, la mitad del CO2 del carbón– el gas natural puede usarse eficazmente como puente hacia la generación eléctrica verde (Gráfico 6).
Gráfico 6
El gas natural seguirá siendo atractivo como combustible puente
Precios de los metales en fuerte ascenso y el caso a favor de la captura de carbono
Precios de los metales en fuerte ascenso y el caso a favor de la captura de carbono
El CO2 del gas natural debe eliminarse antes de que el gas seco se venda como gas de calidad para redes de gasoducto o GNL. Normalmente este CO2 se libera a la atmósfera; sin embargo, empleando la tecnología CCUS, puede reinyectarse en formaciones geológicas y utilizarse para EOR. Por esta razón, las compañías de GNL en EE. UU., el mayor exportador mundial de GNL, han estado estudiando invertir en tecnología CCUS en un intento por volverse más ecológicas.9
El CCUS también puede usarse para producir hidrógeno de bajo coste –el llamado hidrógeno azul– usando gas natural y carbón, en lugar del proceso de electrólisis más caro, que utiliza electricidad de origen renovable para producir hidrógeno "verde". Los menores costes del hidrógeno azul harán que el hidrógeno limpio sea más accesible para las naciones emergentes, abriendo nuevas vías para que el mundo utilice este vector energético en sus esfuerzos de descarbonización.
El valor del CCUS en otras industrias
La tecnología CCUS puede instalarse en centrales eléctricas e industrias existentes, que, según la IEA, de otro modo podrían seguir emitiendo 8.000 millones de toneladas de CO2 en 2050, alrededor de una cuarta parte de las emisiones anuales del sector energético en 2020.
De los generadores basados en combustibles fósiles, la generación eléctrica a carbón presenta el mayor reto de CO2, con la mayor parte de las emisiones procedentes de China y otras naciones del Asia de mercados emergentes, donde la edad media de las plantas es inferior a 20 años. Dado que la edad media de una central térmica a carbón es de 40 años, según la Asociación Nacional de Comisionados Reguladores de EE. UU., esto implica que estas plantas tienen una larga vida útil restante y podrían seguir operando hasta 2050. El CCUS es la única alternativa a retirar o reconvertir las centrales eléctricas e instalaciones industriales existentes.
La IEA considera que el CCUS es imprescindible para alcanzar emisiones netas cero. En su Escenario de Desarrollo Sostenible - en el que las emisiones globales de CO2 del sector energético disminuyen hasta alcanzar emisiones netas cero en 2070 - el CCUS representa el 15% de la reducción acumulada de emisiones. Si el mundo necesita alcanzar emisiones netas cero para 2050 en su lugar, se requeriría casi un 50% más de despliegue de CCUS.10
Implementado y escalado adecuadamente, el CCUS puede permitir que las industrias sigan usando petróleo, gas y carbón y alcanzar objetivos de emisiones netas cero, impulsando la demanda de combustibles fósiles en el medio plazo. Esto es especialmente importante para el desarrollo de los mercados emergentes.
¿Por qué no hemos avanzado más en CCUS? ¿Qué se puede hacer?
La razón principal por la que el CCUS no se utiliza más ampliamente es su coste.
Actualmente, el coste de capturar carbono varía en función de la concentración de CO2, siendo la Captura Directa de Aire la más cara (Gráfico 7). Dado lo prohibitivos de los costes, el CCUS no ha sido viable comercialmente.
Sin embargo, el mismo argumento podría haberse usado contra la implementación de fuentes de energía renovable. Si bien en un momento el coste nivelado de la energía (LCOE) de las renovables era alto, a medida que estas fuentes se han escalado –ayudadas en buena parte por subsidios gubernamentales– los costes han caído, siguiendo algo similar a una curva de decrecimiento de costes tipo Ley de Moore. Un LCOE para la generación solar informado por Lazard Ltd., que permite comparaciones entre tecnologías (por ejemplo, combustibles fósiles vs renovables), muestra que los costes de generación cayeron un 89% hasta $40/MWh desde $359/MWh entre 2009 y 2019 (Gráfico 8). Esta curva de aprendizaje pudo producirse gracias a los subsidios gubernamentales, que promovieron el despliegue de la tecnología solar.
Gráfico 7
El CCUS puede ser caro
Precios de los Metales en Alza y el Argumento a Favor de la Captura de Carbono
Precios de los Metales en Alza y el Argumento a Favor de la Captura de Carbono
Gráfico 8
Los subsidios podrían apoyar al CCUS, tal como se hizo con la solar
Los subsidios podrían respaldar el CCUS, tal como se hizo con la energía solar
Los subsidios podrían respaldar el CCUS, tal como se hizo con la energía solar
El coste de la tecnología CCUS está disminuyendo. Por ejemplo, en 2019 el Global CCS Institute informó que costó $100/tonelada capturar carbono en la planta canadiense Boundary Dam usando una unidad de CCS construida en 2014. El coste del carbono capturado en la planta estadounidense Petra Nova –construida tres años después– usando tecnología mejorada fue de $65/tonelada. Ambas son plantas eléctricas alimentadas por carbón. El informe también señaló que las plantas térmicas a carbón que planean comenzar operaciones en 2024-28 usando la misma tecnología CCS que las de Boundary Dam y Petra Nova esperan costes de carbono de aproximadamente $43/tonelada, debido a curvas de aprendizaje más pronunciadas, investigación, menores costes de capital por economías de escala y digitalización. Una característica común entre estas fuentes de reducción de costes es que las empresas necesitan invertir más en CCUS y familiarizarse con esta tecnología.
Como ocurrió con las renovables, los subsidios gubernamentales reducirían los costes prohibitivos de operar la tecnología CCUS y atraerían más participación para perfeccionar esta tecnología. Los primeros CCUS pioneros serán caros; sin embargo, los subsidios en forma de apoyo de capital o créditos fiscales aumentarán la implementación y la investigación en CCUS. Boundary Dam y Petra Nova son ejemplos de instalaciones que se beneficiaron de subsidios gubernamentales. Las instalaciones recibieron $170 millones y $200 millones respectivamente de agencias gubernamentales de Canadá y EE. UU. en el momento de la construcción de las unidades de CCS.
EE. UU. también ha implementado un sistema de crédito fiscal 45Q que paga a las instalaciones $50/tonelada de CO2 almacenada y $35/tonelada de CO2 si se utiliza en aplicaciones como la Recuperación Mejorada de Petróleo. Según el Global CCS Institute, a finales de 2019, de los ocho nuevos proyectos CCUS que se añadieron en EE. UU., cuatro citaron la presencia del 45Q como el factor clave.
Poner en marcha mercados e impuestos al carbono
El mercado del Sistema de Comercio de Emisiones (ETS) de la UE, implementado en 2005, es un ejemplo de política innovadora que incentiva a las empresas a reducir emisiones mediante fuerzas de mercado. El precio del carbono medido en estos mercados otorga un valor tangible a una externalidad negativa que antes no se registraba. La desventaja de este ETS es su dependencia de la implementación de la política ambiental de la UE, que está sujeta a cambios de política que complican el análisis de oferta y demanda para la planificación a más largo plazo –por ejemplo, el reciente aumento de su objetivo de emisiones a una reducción neta mínima del 55% de las emisiones de GEI para 2030.
Una alternativa al comercio impulsado por la política de derechos de emisiones es un impuesto por tonelada sobre las emisiones, que los gobiernos imponerían y recaudarían. Esto aumentaría los costes de las tecnologías que usan combustibles fósiles –incluidas las utilizadas en la industria minera para aumentar la oferta de productos básicos y metales base críticos necesarios para la transición a las renovables. Al mismo tiempo, dicho impuesto daría a las empresas que suministran y usan tecnologías que aumentan los niveles de CO2 un incentivo para reducir las emisiones de CO2 mediante tecnologías CCUS.
Los mercados ETS y los gobiernos que impongan impuestos al CO2 podrían formar Clubes del Mercado de Carbono –una tecnología desarrollada por William Nordhaus, el laureado con el Nobel de Economía en 2018– que restrinjan el comercio a los estados que puedan demostrar su participación y apoyo a la reducción real de carbono detallada en el Acuerdo de París mediante esquemas de comercio o impuestos.11
A medida que la transición energética verde gane tracción y los gobiernos implementen políticas más orientadas a emisiones netas cero, el precio del carbono aumentará. Al subir el precio del carbono, el coste asociado a las emisiones de carbono de las empresas también aumentará. Con los participantes del mercado esperando que el precio del carbono continúe subiendo tras alcanzar valores récord, el incentivo para que las empresas que operan en la UE utilicen la tecnología CCUS aumentará, al igual que el incentivo para las empresas sujetas a un impuesto al carbono.12
Conclusión: Dado el meteórico aumento de precio de los metales verdes, el capex infrafinanciado y los riesgos ESG asociados a la minería de metales para el futuro bajo en carbono, esperamos que los combustibles fósiles desempeñen un papel mayor en la transición hacia una sociedad baja en carbono del que los mercados anticipan actualmente. Para que los países puedan usar combustibles fósiles garantizando el cumplimiento de sus objetivos climáticos, el uso de la tecnología CCUS es importante. Para aumentar la adopción del CCUS, los gobiernos deberán subvencionar esta tecnología hasta que la demanda gane tracción, tal como ocurrió en el caso de las renovables. También será necesario fomentar los esquemas de ETS y de impuestos al carbono para catalizar la acción.
Robert P. Ryan Jefe de Estrategia de Materias Primas y Energía rryan@bcaresearch.com
Ashwin Shyam Asociado de Investigación Estrategia de Materias Primas y Energía ashwin.shyam@bcaresearch.com
Resumen de materias primas
Energía: Alcista
Los precios del Brent estaban rozando la puerta de $70/bbl al cierre de esta edición, tras la evaluación de la IEA sobre una robusta recuperación de la demanda en la segunda mitad de 2021 (Gráfico 9). La IEA redujo su crecimiento de la demanda para la primera mitad de 2021 en 270k b/d, debido a la destrucción de demanda inducida por el COVID-19 en India, las Américas de la OCDE y Europa, pero mantuvo intacta su estimación para la segunda mitad de 2021, dejando el crecimiento total de la demanda para este año en 5.4 mm b/d. La EIA también espera un crecimiento de la demanda de 5.4 mm b/d para este año y un crecimiento de 3.7 mm b/d el próximo año. La OPEP dejó su estimación de crecimiento de la demanda para todo 2021 en 6 mm b/d. OPEP 2.0 se reúne de nuevo el 1 de junio y, en nuestra opinión, buscará devolver más de su producción apartada al mercado. Actualizaremos nuestros balances de oferta y demanda y nuestras previsiones de precios en el informe de la próxima semana.
Metales base: Alcista
Los precios spot del cobre se negociaron en uno y otro lado de $4.80/lb en el mercado CME/COMEX esta semana al cierre de esta edición. Las amenazas de un aumento de impuestos en Chile, donde un proyecto de ley que propone tal medida avanza en el Congreso; una posible huelga de trabajadores mineros; y una escasez de ácido sulfúrico usado en la extracción del mineral provocada, según Bloomberg, por la reducción de suministros globales de azufre debido a menores refinerías en funcionamiento durante la pandemia, mantienen al cobre con buena demanda. Nuestro objetivo para el cobre COMEX de dic-21 sigue siendo $5/lb (~ $11k/ton en la LME). Mantenemos una posición larga en cobre COMEX calendario 2022 frente a corta en cobre COMEX calendario 2023 esperando que los déficits de suministro físico sigan forzando descargas de almacenamiento, lo que backwardizará la curva a plazo del metal.
Metales preciosos: Alcista
Los datos del IPC de EE. UU. del miércoles mostraron que la inflación general aumentó un 4.2% en el mes de abril en comparación con el año anterior. Aunque este aumento es el más alto desde 2008, este salto también podría estar alimentado por un efecto de base baja –los niveles de inflación estaban cayendo en esta fecha del año pasado cuando la pandemia se intensificó. Si bien la subida de precios incrementa la demanda de oro como cobertura contra la inflación, si la Reserva Federal aumenta las tasas de interés a raíz de estos datos, el dólar estadounidense se apreciará, afectando negativamente a los precios del oro (Gráfico 10). No obstante, no esperamos que la Fed cambie bruscamente su orientación por este informe, y por tanto esperamos que el banco central trate este repunte como transitorio. Al cierre de ayer, el oro COMEX cotizaba a $1,835.9/oz.
Agrícolas/Softs: Neutral
Al cierre de esta edición, el mercado de soja de Chicago estaba acelerando antes del informe programado de World Agriculture Supply and Demand Estimates (WASDE) que se publicará el miércoles. Los contratos de primera posición de soja cotizaban alrededor de $16.70/bu, subiendo un 2% en el día. El WASDE de este mes contendrá la primera estimación del USDA para la demanda en los mercados agrícolas para la campaña 2021/22. Los mercados esperan que las existencias se ajusten a medida que se fortalezca la demanda.
Gráfico 9
Precios del Brent en alza
Precios del Brent en alza
Gráfico 10
La incertidumbre por el Covid podría impulsar la demanda de oro
La incertidumbre por el Covid podría impulsar la demanda de oro
Notas al pie
1 Consulte Carbon Market Clubs and the New Paris Regime publicado por el Banco Mundial en julio de 2016. El marco intelectual y computacional para dicha tecnología fue desarrollado por William Nordhaus, el laureado con el Nobel de Economía en 2018.
2 Consulte Actualización del mercado de energía renovable, Perspectivas para 2021 y 2022.pdf, publicado por la IEA esta semana.
3 WoodMac señala: "sin inversión adicional sustancial, la producción disminuirá a partir de 2024. Unido al crecimiento de la demanda, esta disminución de la producción conducirá a un déficit teórico de alrededor de 16 Mt para 2040." La consultora estima que se necesitarán entre $325 y más de $500 mil millones adicionales para satisfacer la demanda de cobre durante este periodo. Consulte ¿Volverá a pasar factura a la industria del cobre la falta de crecimiento de la oferta? Publicado el 23 de marzo de 2021 por woodmac.com.
4 Consulte Los riesgos ESG de las renovables crecen con la demanda, que publicamos el 29 de abril de 2021. Está disponible en ces.bcaresearch.com.
5 Remítase a la nota a pie 4.
6 Consulte Un mundo bajo en carbono necesita $1.7 billones en inversión minera, publicado por Reuters.
7 Este método se usa para aumentar la producción de petróleo. Cambia las propiedades de los hidrocarburos, restaura la presión de la formación y mejora el desplazamiento del petróleo en el yacimiento. Usando EOR, las compañías petroleras pueden recuperar del 30% al 60% del petróleo original en el yacimiento. Consulte Recuperación mejorada de petróleo publicado por el Departamento de Energía de EE. UU.
8 Consulte la columna de Reuters Límites de emisiones de CO2 y desarrollo económico.
9 Consulte en World Oil el artículo de Financial Times Los actores del GNL de EE. UU. promocionan la captura de carbono para mejorar su imagen verde.
10 Consulte el Informe especial sobre Captura, Utilización y Almacenamiento de Carbono, publicado como parte de Energy Technology Perspectives 2020.
11 Véase la nota a pie 1 arriba.
12 Consulte El coste de contaminar en la UE se dispara mientras el precio del carbono alcanza un récord de €50 del Financial Times.
Perspectivas y temas de inversión
Recomendaciones estratégicas
Operaciones tácticas
Tabla de referencia de precios y estrategias de materias primas
Operaciones cerradas en 2021
Resumen de operaciones cerradas
Se avecina mayor inflación
Se avecina mayor inflación
Highlights US natural gas prices will remain well supported over the April-October injection season, as the global economic expansion gains traction, particularly in Europe, which also is refilling depleted storage levels. China's natgas demand is expected to rise more than 8% yoy, and EM Asia consumption also will be robust, which will revive US liquified natural gas (LNG) exports. Exports of US light-sweet crude into the North Sea Brent pricing pool – currently accounting for close to half the physical supply underpinning the global oil-price benchmark – also will increase over the course of the year, particularly in the summer, when maintenance will markedly reduce the physical supply of crudes making up the Brent index. At the margin, coal demand will increase in the US, as industrial natgas demand and LNG exports incentivize electric generators to favor coal. Higher-than-expected summer temperatures in the US also would boost coal demand. This will be tempered somewhat in Europe, where carbon-emissions rights traded through €50/MT for the first time this week on the EU's Emission Trading System (ETA). We expect US LNG and oil exports to revive this year (Chart of the Week) and remain long natgas in 1Q22. Feature The importance of US LNG and crude oil exports out of the US Gulf to the global economy is only now becoming apparent. As demand for these fossil fuels grows and the supply side continues to confront a highly uncertain risk-reward tradeoff, their importance will only grow. In natgas markets, US LNG cargoes out of the US Gulf balanced demand coming from Asia and Europe this past winter, which was sharply colder than expected and stretched supply chains globally. As a widening economic recovery from the COVID-19 pandemic spurs industrial, residential and commercial demand, and inventories in Europe and Asia are re-built in preparation for next winter, US LNG exports will be called upon to meet increasing demand, particularly since they are priced attractively vs regional importing benchmarks, with differentials vs the US presently $4+/MMBtu vs Europe and $5+/MMBtu vs Asia (Chart 2).1 Chart of the WeekUS LNG, Oil Export Growth Will Rebound Chart 2Lower US Natgas Prices Encourage LNG Exports In oil markets, an ongoing kerfuffle in the pricing of Brent Blend brought about by falling North Sea crude oil production makes American light-sweet crude oil exports from the Gulf (i.e., WTI produced mostly in the Permian Basin) account for almost half of the physical supplies in this critical benchmark-pricing market.2 US LNG Exports Will Increase US natural gas prices will remain well supported as the global economic expansion gains traction, and the US and Europe open the April-October injection season well bid (Chart 3). US inventories are expected to end the Apr-Oct injection season at just over 3.7 TCF according to the EIA, very close to where they ended the 2020 injection season. Chart 3US, Europe Rebuild Storage Higher US LNG exports, industrial, commercial and residential demand will be offset by lower consumption from electric generators this year, netting to a slight decline in overall demand. The EIA expects generators to take advantage of lower generating costs to be had burning coal to produce electricity, a view we share given the current differentials in the forward curves for each fuel (Chart 4).3 On the supply side, the EIA's expecting output to remain unchanged from last year at just under 91.5 BCF/d in 2021. Higher LNG exports, even as generator demand is falling, pushes prices higher this year – averaging $3.04/MMBtu this year – which leads to a slight increase in output in 2022. For our part, we continue to expect higher prices during the November-March heating season than currently are clearing the market and remain long 1Q22 $3.50/MMBtu calls vs. short $3.75/MMbtu calls. As of Tuesday night, when we mark to market, this position was up 20.8% since inception on 8 April 2021. Chart 4Lower Prices Will Favour Increased Coal Demand Natgas demand could surprise on the upside during the injection season if air-conditioning demand comes in stronger than expected and production remains essentially unchanged this year. This could reduce LNG exports and slow the rate of inventory refill in the US, which could further advantage coal as a burner fuel for generators in the US. The US National Weather Service's Climate Prediction Center expects above-average temperatures for most of the US population centers this summer (Chart 5). This could become a semi-permanent feature of the market if current temperature trends persist (Chart 6). Based on analyses’ run by the NOAA's National Centers for Environmental Information, 2021 "is very likely to rank among the ten warmest years on record," with lower (6%) odds of ranking in the top five hottest years on record.4 Chart 5Odds Of Hotter Summer Rising Chart 6Higher Global Temperatures Could Become A Recurring Phenomenon The Crude Kerfuffle As the Chart of the Week shows, US exports of light-sweet crude oil peaked at ~ 3.7mm b/d in February 2020, just before the COVID-19 pandemic hit the world full force. Exports out of the US Gulf – i.e., WTI priced against the Midland, TX, gathering hub – accounted for ~ 95% of these volumes. With exports currently running ~ 2.5mm b/d, more than 1mm b/d of readily available export capacity remains in place. Additional volumes will be developed as dredging of the Corpus Christi, TX, progresses. While the surge in US crude oil production has subsided in the wake of the pandemic, it most likely will revive as the markets return to normal operating procedure, additional dredging operations are completed, and storage facilities are built out.5 Existing and additional export capacity of the US's light-sweet crude could not arrive at a more opportune time for the Brent market, which remains in a state of uncertainty as to whether markets will have to adjust to CIF contracts or a work-around to the existing FOB pricing regime, which can be augmented to accommodate increasing WTI volumes.6 This will have to be sorted, as this is the future of the market's most important pricing index (Chart 7). The buildout in crude-oil exporting capacity – and natgas LNG exporting capacity, for that matter – ideally accommodates shale-oil- and -gas assets, which can be ramped up quickly to meet demand, and ramped down quickly as demand falters. The quick payback – 2 to 3 years – on these investments allow the producers to expand and contract output without the massive risks longer-lived conventional assets impose. As OPEC 2.0's spare capacity is returned to the market, this will be a welcome feature of a market that most likely will require oil and gas supplies for decades, despite the uncertainty attending oil-and-gas capex during the transition to a low-carbon energy future. Chart 7Permian Replaces North Sea Losses Bottom Line: As the future of hydrocarbons evolves, the LNG and crude oil exported from the US Gulf will occupy an increasingly important role in these markets. Oil and gas producers are making capex decisions under increasingly uncertain conditions, which favor exactly the type of resources that have propelled the US to the position of the world's largest producer of these fuels – i.e., shale-oil and -gas. Production from these resources can be ramped up and down quickly as prices dictate, and have quick paybacks (2-3 years), which means capital is not tied up for decades as a return is earned.7 Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Ashwin Shyam Research Associate Commodity & Energy Strategy ashwin.shyam@bcaresearch.com Commodities Round-Up Energy: Bullish OPEC 2.0 begins returning 2mm b/d to the market this month, expecting to be done by July. Half of these volumes are accounted for by Saudi Arabia, which voluntarily cut output by 1mm b/d earlier in the year to help balance the market. In line with our maintained hypothesis that OPEC 2.0 prefers prices inside the $60-$70/bbl price band, we expect the return of curtailed production to be front-loaded so as to bring prices down from current levels approaching $70/bbl for Brent (Chart 8). If, as we expect, demand recovers sooner than expected as Europe leans into its vaccination program, additional barrels will be returned to the market to get prices closer to a $60-$65/bbl range. Base Metals: Bullish The International Copper Study Group (ICSG) forecast copper mine production will increase by ~ 3.5% in 2021 and 3.7% in 2022, after adjusting for historical disruption factors. This forecasted increase – after three years of flat mined production growth – is due to a ramp-up of recently commissioned and new copper mines becoming operational in 2021. An improvement in the pandemic situation by 2022 will also boost mined copper production, according to the ICSG. 2020 production remained flat as recoveries in production in some countries due to constrained output in 2019 balanced the negative impacts of the pandemic in others. In Chile, the largest copper producer, state-owned Codelco and Collahuasi reported strong results in March. However, this was countered by a continued downturn at BHP’s Escondida. The world’s largest copper mine saw a drop in production for the eighth consecutive month. This mixed output resulted in a decline in total production of 1.2% year-on-year in March. Precious Metals: Bullish COMEX palladium touched a record high during intraday trading on Tuesday, reaching $3,019/oz due to continued tight market conditions (Chart 9). On the supply side, Nornickel is recovering from flooded mines, which occurred in February. By mid-April, one of the two affected mines was operating at 60% capacity; however, the company's other mine is only expected to come back online by early June. On the demand side, strength in US vehicle sales and a global economic recovery from the pandemic buoyed the metal used in catalytic converters. Palladium prices closed at $2,981.60/oz on Tuesday. Ags/Softs: Neutral Corn again traded above $7/bu earlier in the week on the back of drought-like dry weather conditions in Brazil's principal growing regions and surging US exports, according to Farm Futures. Chart 8 Chart 9 Footnotes 1 Stronger demand from China – where consumption is expected to rise more than 8% yoy – and EM Asia will continue to support LNG demand through the year. S&P Global Platts Analytics expects Chinese natural gas demand to reach 12,713 Bcf in 2021, up 8.4% from the previous year. Chinese national oil company Sinopec is slightly more conservative in its outlook, expecting gas demand of ~ 12,006-12,184 Bcf in 2021, up 6-8% from 2020. China’s average annual increase in natural gas demand is expected to exceed 716 Bcf in the 14th FYP and reach 15,185 Bcf in 2025. 2 Please see CIF Brent Benchmark? published 3 March 2021 by the Oxford Institute for Energy Studies for a discussion. 3 In Chart 3, we plot a rough measure of coal- vs natgas-fired generation economics for these fuels based on their average operating heat rates published by the EIA. We would note that a carbon tax would erase much of the benefit accruing to coal at this point in time. 4 Please see NOAA's Global Climate Report - March 2021. 5 Please see Low Rider - Corpus Christi's Ship Channel Dredging Will Streamline Crude Oil Exports published by RBN Energy 3 May 2021. 6 The OIES analysis cited above concludes, "… the volumes of the FOB deliverable crudes are diminishing and some change, bolstering the contract is certainly needed. The most likely compromise is to retain the existing FOB Brent with an inclusion of CIF WTI Midland assessment, netted back to an FOB equivalent North Sea value." We agree with this assessment. Please see CIF Brent Benchmark? published 3 March 2021 by the Oxford Institute for Energy Studies, p. 8. 7 Please see Is shale activity actually profitable? Size matters, says Rystad published 7 February 2019. Investment Views and Themes Strategic Recommendations Tactical Trades Commodity Prices and Plays Reference Table Trades Closed in 2021 Summary of Closed Trades
Commodity prices have been on a tear recently and evidence of rising inflation continues to pop up. On the surface, rising commodity prices and mounting inflationary pressures are a recipe for higher bond yields. But puzzlingly, this is not what’s occurred.…
Highlights Rising CO2 emissions on the back of stronger global energy growth this year will keep energy markets focused on expanding ESG risks in the buildout of renewable generation via metals mining (Chart of the Week). EM energy demand is expected to grow 3.4% this year vs. 2019 levels and will account for ~ 70% of global energy demand growth. Demand in DM economies will fall 3% this year vs 2019 levels. Overall, global demand is expected to recover all the ground lost to the COVID-19 pandemic, according to the IEA. Rising energy demand will be met by higher fossil-fuel use, with coal demand increasing by more than total renewables generation this year and accounting for more than half of global energy demand growth. Demand for renewable power will increase by 8,300 TWh (8%) this year, the largest y/y increase recorded by the IEA. As renewables generation is built out, demand for bulks (iron ore and steel) and base metals will increase.1 Building that new energy supply will contribute to rising CO2, particularly in the renewables' supply chains. Feature Energy demand will recover much of the ground lost to the COVID-19 pandemic last year, according to the IEA.2 Most of this is down to successful rollouts of vaccination programs in systemically important economies – e.g., China, the US and the UK – and the massive fiscal and monetary stimulus deployed to carry the global economy through the pandemic. The risk of further lockdowns and uncontrolled spread of variants of the virus remains high, but, at present, progress continues to be made and wider vaccine distribution can be expected. The IEA expects a global recovery in energy demand of 4.6% this year, which will put total demand at ~ 0.5% above 2019 levels. The global rebound will be led by EM economies, where demand is expected to grow 3.4% this year vs. 2019 levels and will account for ~ 70% of global energy demand growth. Energy demand in DM economies will fall 3% this year vs 2019 levels. Overall, global demand is expected to recover all the ground lost to the COVID-19 pandemic, according to the IEA. Chart of the WeekGlobal CO2 Emissions Will Rebound Post-COVID-19 Coal demand will lead the rebound in fossil-fuel use, which is expected to account for more than total renewables demand globally this year, covering more than half of global energy demand growth. This will push CO2 emissions up by 5% this year. Asia coal demand – led by China's and India's world-leading coal-plant buildout over the past 20 years – will account for 80% of world demand (Chart 2). Chart 2China, India Lead Coal-Fired Generation Buildout Demand for renewable power will post its biggest year-on-year gain on record, increasing by 8,300 TWh (8%) this year. This increase comes at the back of roughly a decade of an increasing share of electricity from renewables globally (Chart 3). As renewables generation is built out, demand for bulks (iron ore and steel) and base metals will increase.3 Building that new energy supply will contribute to rising CO2, particularly in the renewables' supply chains. Chart 3Share of Electricity From Renewables Has Been Increasing ESG Risks Increase With Renewables Buildout Governments have pledged to invest vast sums of money into the green energy transition, to reduce fossil fuels consumption and deforestation, thus curbing temperature increases. In addition, banks have pledged trillions will be made available to support the buildout of renewable technologies over the coming years. The World Bank, under the most ambitious scenarios considered (IEA ETP B2DS and IRENA REmap), projects that renewables, will make up approximately 90% of the installed electricity generation capacity up to 2050. This analysis excludes oil, biomass and tidal energy. (Chart 4). Building these renewable energy sources will be extremely mineral intensive (Chart 5). Chart 4Renewables Potential Is Huge … While we have highlighted issues such as a lack of mining capex and decreasing ore grades in past research – both of which can be addressed by higher metals and minerals prices – the environmental, social and governance (ESG) risks posed by mining are equally important factors for investors, policymakers and mining companies to consider.4 The mining industry generally uses three principal sources of energy for its operations – diesel fuel (mostly in moving mined ore down the supply chain for processing), grid electricity and explosives. Of these three, diesel and electricity consumption contributes substantially to mining’s GHG emissions. In the mining stage, land clearing, drilling, blasting, crushing and hauling require a considerable amount of energy, and hence emit the highest amounts of greenhouse gases (GHGs). Chart 5… As Are Its Mineral Requirements The Environmental Impact Of Mining Under the scenarios depicted in Chart 5, copper suppliers could be called on to produce approximately 21mm MT of the red metal annually between now and 2050, which is equivalent to a 7% annual increase of supplies vs. the 2017 reference year shown in the chart. Mining sufficient amounts of copper, a metal which is critical to the renewable energy buildout, both in terms of quantity and versatility, will test miners' and governments' ability to extract sufficient amounts of ore for further processing without massively damaging the environment or indigenous populations' habitats (Chart 6). Chart 6Copper Spans All Renewables Technologies A recent risk analysis of 308 undeveloped copper orebodies found that for 180 of the orebodies – roughly equivalent to 570mm MT of copper – ore-grade risk was characterized as moderate-to-high risk.5 High risk implies a lower concentration of metal in the ore deposits. Mining in ore bodies with lower copper grades will be more energy intensive, and thus will emit more greenhouse gases. Table 1 is a risk matrix of the 40 mines that have the most amount of copper tonnage in this analysis: 27 of these mines displayed in the matrix have a medium-to-high grade risk. Table 1Mining Risk Matrix Another analysis established a negative relationship between the ore-grade quality and energy consumption across mines for different metals and minerals.6 This paper found that, as ore grade depletes, the energy needed to extract it and send it along the supply chain for further processing is exponentially higher (Chart 7). Lastly, a recent examination found that in 2018, primary metals and mining accounted for approximately 10% of the total greenhouse gases. Using a case study of Chile, the world’s largest producer of the red metal, the researchers found that fuel consumption increased by 130% and electricity consumption per unit of mined copper increased by 32% from 2001 to 2017. This increase was primarily due to decreasing ore grades.7 As ore grades continue to fall, these exponential relationships likely will persist or become more significant. Chart 7Energy Use Rises As Ore Quality Falls Bottom Line: While technology can improve extraction, it cannot reduce the minimum energy required for the mining process. This increased energy use will contribute to the total amount of CO2 and other GHGs emitted in the process of extracting the ores required to realize a low-carbon future. Trade-Off Between CO2 Emissions And Economic Development A recent Reuters analysis highlights the gap between EM and DM from the perspective of their renewable energy transition priorities.8 Of the 17 UN Sustainable Development Goals (SDGs), “Taking action to combat climate change” takes precedence over the rest for DM economies. This is largely because they have already dealt with other energy and income intensive SDGs such as improvements in healthcare and poverty reduction. The large scale of unmet energy demand in developing countries poses a huge challenge to controlling CO2 emissions. The populations of these countries are growing fast and are projected to continue increasing over the next three decades. Rising populations, make the issue of a "green-energy transition" extremely dynamic – i.e., not only do EM economies need to replace existing fossil fuels, but they also need to add enough extra zero-emission fuel sources to meet the growth in energy demand. Bottom Line: Coupled with the increased amount of energy required to mine the same amount of metal (due to lower ore grades), rising energy demand resulting from a burgeoning population in EM economies - which use fossil fuels to meet their primary needs - will require more metals to be mined for the renewable energy transition. This will further increase the amount of carbon dioxide and other greenhouse gas emissions from mine activity, and increase the risk to indigenous populations living close-by to the sources of this new metals supply. ESG risks will increase as a result, presenting greater challenges to attracting funding to these efforts. Ashwin Shyam Research Associate Commodity & Energy Strategy ashwin.shyam@bcaresearch.com Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Commodities Round-Up Energy: Bullish OPEC 2.0 was expected to stick with its decision to return ~ 2mm b/d of supply to the market at its ministerial meeting Wednesday. Markets remain wary of demand slowing as COVID-19-induced lockdowns persist and case counts increase globally. The production being returned to market includes 1mm b/d of voluntary cuts by Saudi Arabia, which could, if needs be, keep barrels off the market if demand weakens. Base Metals: Bullish Front-month COMEX copper is holding above $4.50/lb, after breaching its 11-year high earlier this week. The proximate cause of the initial lift above that level was news of a strike by Chilean port workers on Monday protesting restrictions on early pension-fund drawdowns, according to mining.com. After a slight breather, prices returned to trading north of $4.50/lb by mid-week. Last week, we raised our Dec21 COMEX copper price forecast to $5.00/lb from $4.50/lb. Separately, high-grade iron ore (65% Fe) hit record highs, while the benchmark grade (62% Fe) traded above $190/MT earlier in the week on the back of lower-than-expected production by major suppliers and USD weakness. Steel futures on the Shanghai Futures Exchange hit another record as well, as strong demand and threats of mandated reductions in Chinese steel output to reduce pollution loom (Chart 8). Precious Metals: Bullish Rising COVID cases, especially in India, Brazil and Japan are increasing gold’s safe-haven appeal (Chart 9). The US CFTC, in its Commitment of Traders (COT) report for the week ending April 20, stated that speculators raised their COMEX gold bullish positions. At the end of the two-day FOMC meeting, the Fed decided against lifting interest rates and withdrawing support for the US economy. However, officials sounded more optimistic about the economy than they did in March. The decision did not give any sign interest rates would be lifted, or asset purchases would be tapered against the backdrop of a steadily improving economy. Net, this could increase demand for gold, as inflationary pressures rise. As of Tuesday’s close, COMEX gold was trading at $1778/oz. Ags/Softs: Neutral Corn and bean futures settled down by mid-week after a sharp rally earlier. After rising to a new eight-year high just below $7/bushel due to cold weather in the US, and fears a lower harvest in Brazil will reduce global grain supplies, corn settled down to ~ $6.85/bu at mid-week trading. Beans traded above $15.50/bu earlier in the week, their highest since June 2014, and settled down to ~ $15.36/bu by mid-week. Attention remains focused on global supplies. The uptrend in grains and beans remains intact. Chart 8 Chart 9 Footnotes 1 Please see Renewables, China's FYP Underpin Metals Demand, published 26 November 2020, for further discussion. It is available at ces.bcaresearch.com. 2 Please see Global Energy Review 2021, the IEA's Flagship report for April 2021. 3 Please see Renewables, China's FYP Underpin Metals Demand, published 26 November 2020, for further discussion. It is available at ces.bcaresearch.com. 4 We discussed these capex issues in last week's research, Copper Headed Higher On Surge In Steel Prices, which is available at ces.bcaresearch.com. 5 Please see Valenta et al.’s ‘Re-thinking complex orebodies: Consequences for the future world supply of copper’ published in 2019 for this analysis. 6 Please see Calvo et. al.’s ‘Decreasing Ore Grades in Global Metallic Mining: A Theoretical Issue or a Global Reality?’ published in 2016 for this analysis. 7 Please see Azadi et. al.’s ‘Transparency on greenhouse gas emissions from mining to enable climate change mitigation’ published in 2020 for this analysis. 8 Please see John Kemp's Column: CO2 emission limits and economic development published 19 April 2021 by reuters.com. Investment Views and Themes Strategic Recommendations Tactical Trades Commodity Prices and Plays Reference Table Trades Closed in 2021 Summary of Closed Trades