The prospects for the prices of metals Papua New Guinea exports are mostly positive, reports David James from the recent International Mining and Resources Conference. Gold is receiving strong support from investors, while the emergence of the low-carbon economy will increase demand for other metals.

Credit: Pixabay

Papua New Guinea’s largest mineral export is gold. In the first half of this year, according to data from the Bank of Papua New Guinea, the precious metal accounted for K5.08 billion in revenues, 31.4 per cent of total exports. John Reade, Chief Market Strategist for the World Gold Council, said that the prospects for the gold price are mostly positive.

‘Gold was at an all-time high of about US$2070 (K7265) an ounce in August,’ he said. ‘Since then, it has consolidated at about US$1900 (K6668). Demand this year has pushed gold higher, especially ETFs (exchange traded funds) and coin demand in the North American markets. The stronger developed-market demand was offset by weak demand from emerging markets.’

Reade said, however, that there was ‘a collapse in consumer demand for gold that has escaped most people’s attention.’ Consumer demand for gold makes up about 40 per cent of total demand, making it roughly equivalent in importance to the investment market.

‘The main factor was the lockdown that affected economies. In the first half of the year, jewellery demand fell in every country that we monitor. There are signs of sequential recovery in most markets, but 2020 will be a weak year for jewellery demand.

‘A change in the market share of global electric vehicles by just one per cent is the equivalent to around 20,000 tonnes of nickel demand by 2025.’

‘Central banks also turned net sellers in the third quarter for the first time since 2010. We were already expecting a slower rate of central bank buying in 2020.’

Reade said the global supply of gold has fallen by about five per cent this year. He noted that news on vaccines for the coronavirus has been affecting the price. ‘A BioNTech-Pfizer announcement saw gold fall by $100 in a day.’

The low carbon economy

Bank of America’s Sophie Spartalis.

Sophie Spartalis, Senior Research Equities Analyst – Mining for Bank of America, said the nickel price has rallied nearly 45 per cent since March. According to the Bank of PNG nickel export sales were K528 million in the first half of 2020, 3.3 per cent of total exports. She said it is a market that gets heavily influenced by geo-political factors and the development of future technologies.

‘The nickel market is over supplied because we have seen an increase in nickel pig iron production out of Indonesia,’ she said. ‘But it could tighten rapidly in coming years, depending on how we go with demand for electric vehicles.

‘A change in the market share of global electric vehicles by just one per cent is the equivalent to around 20,000 tonnes of nickel demand by 2025. An average global nickel mine produces around 27,000 tonnes of nickel. Each one per cent change is equivalent to a new nickel mine coming on.’

Acorn Capital’s Karina Bader.

Another metal that PNG exports, which is used in batteries, is cobalt (K105 million in the first half fo 2020). Karina Bader, Research Analyst for Acorn Capital, said the Western world is pivoting strongly towards electric vehicles that use battery technology.

‘There are mandated emissions standards in Europe and London will outright ban internal combustion engines by 2035. There is definitely a supply shortage coming and the OEM customers (original equipment manufacturers) are starting to recognise this and are now taking steps to mitigate that.’

Deborah Caudle, Managing Director, Regional Co-Head Metals and Mining Asia-Pacific for Société Générale, said the low-carbon economy is going to be mineral intensive.

‘It cannot happen without metals: aluminium, lithium, nickel, copper in electric vehicles and renewable power. That has been quite clear.’