Demand Downturn Can Unexpectedly Favor Miners
By Alejandro Ehrenberg | Journalist and Industry Analyst -
Thu, 05/07/2020 - 14:50
The Week in Mining underscores events in Mexico’s mining industry, where CAMIMEX flexed its argumentative muscle in a continuous effort to convince the Mexican government that the sector is essential to the economy. As for metals’ prices, gold slipped but remained near all-time highs, silver is ready to follow suit and copper rallied in response to demand recovery in China.
Mining in the Time of Covid-19
The present COVID-19-induced industry downturn is different. “Demand for mined products is falling as economic activity slows down, but for the first time falling demand is accompanied by significant supply-side upheaval.”
Mexico’s Mining Chamber (CAMIMEX) has taken the task to persuade the Mexican government that mining is an essential activity to the economy that must be supported during the sanitary emergency. Fernando Alanís, CAMIMEX’s president, said: "Mining is essential and it can operate safely following sanitary protocols. Our challenge is to convince the authorities."
Alanís also reported that the industry was set to invest close to US$4 billion in 2020 in Mexico. However, this figure will be seriously reduced by the pandemic. If the shutdown extends over the next two months, the sector will reduce its contribution to the Mexican economy by roughly US$608.3 million.
Consolidated Zinc has requested to be excluded from the Mexican government’s decision to suspend all non-essential services until the end of May in areas where cases of COVID-19 have been identified. The company’s arguments focused on the remote location of its Plomosas mine and Aldama plant.
Metals
“Gold slipped further on Wednesday as economies across the world try to return to normalcy after a long period of lockdown, drawing investors towards riskier assets — even as the number of COVID-19 cases continues to spike.”
“Copper prices climbed for a fourth straight session on Thursday as top consumer China reported a rise in imports for the metal and unexpected jump in overall exports, signaling a rebound in the health of the world’s second-largest economy.”
It is reasonable to expect a steep reduction in silver supply that will offset the contraction in industrial demand, allowing silver’s safe-haven appeal to push its price up. Bank of America envisages a gold price of US$3,000/oz over the next 18 months. At the current gold-to-silver ratio, that would entail a silver price of US$26.30/oz.
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