Material Matters: Silver, Aluminium & Potash

This story features SALT LAKE POTASH LIMITED. For more info SHARE ANALYSIS: SO4

A glance through the latest expert views and predictions about commodities. Silver; aluminium; manganese/cobalt; and potash.

-While disappointed so far, Macquarie remains a silver bull for 2018
-US anti-dumping duties on aluminium unlikely to impact on Chinese exports
-Manganese likely to replace cobalt in electric vehicles
-Catalysts lining up for Salt Lake Potash
 

By Eva Brocklehurst

Silver

Macquarie acknowledges that its favoured precious metal for 2018, silver, has disappointed so far. The price of silver fell sharply towards the end of January and into February and is now -3% below its the level it started 2018, while gold is 2.3% higher.

The broker blames a cooling of the global industrial boom this year as one of the reasons why silver has lost ground relative to gold. Base metals have also lost ground. However, Macquarie acknowledges the global industrial backdrop is nowhere near poor and Chinese silver powder imports and Indian silver bullion imports have remained firm.

The broker suspects that the main reason silver did not benefit from the global reflation in 2017 was that stronger industrial demand was offset by a slump in investor demand. Investor demand appears not to have stabilised, as expected. Nevertheless, Macquarie remains a bull on silver, expecting the US dollar will fall and support the metal's price and global industry will have a strong year.

While less confident about investor attitudes, the broker does not expect the volumes of silver coin sales will fall much further and futures positioning is signalling its lowest level since July 2015, which suggests a rebound is due.

Aluminium

Credit Suisse observes the aluminium price gap between the London and Shanghai exchanges has widened. A surge in stocks in China ruined any hopes of near-term tightness in aluminium, while LME prices maintained a positive stance. The differential between the LME and SHF E prices stimulated semi-fabricated exports from China.

US anti-dumping duties against Chinese aluminium imports are expected to be imposed in 2018, which could cut some imports to the US. Yet these are considered unlikely to make much of a dent in Chinese exports, as only 16% flow to the US.

Moreover, the tariff of 10% on imports to the US is intended to restart 670,000 tpa of smelter output which, if successful, will more than offset the semi imports. Meanwhile, the aluminium deficit in the rest of the world will shrink. Credit Suisse continues to expect the LME price will fall from current levels, based on the continuation of a weak Chinese price, ongoing Chinese semi exports and the re-start of smelters.

Nevertheless, the broker believes the longer-term story is more positive for aluminium, as supply-side reforms in China have stemmed aluminium output and surpluses are expected to slow from 2021.

Manganese/Cobalt

Hallgarten & Co suggests manganese will be the choice of metal as electric vehicle popularity rises, as cobalt will not be able to deliver on expectations. The analysts suggest a crunch on cobalt is nigh and various industry operators are hoping that no one notices they have a shortage, and even less chance of securing the product in the future.

There are a few solutions to the cobalt crisis, Hallgarten finds, but it can be replaced by other metals, and the combination of lithium and manganese seems the most likely winner going forward.

The analysts observe there are revenue and infrastructure implications, as governments are not geared up for the boom in electric vehicles. The implications for rare earth suppliers are also being ignored in the rush towards battery metals.

In contrast, lithium is not about to endure a supply crisis and abundant supply is expected to be forthcoming.

Potash

Canaccord Genuity observes Salt Lake Potash ((SO4)) is the most advanced of the Australian operators in sulphate of potash. The company will make a decision on construction of a 40,000tpa demonstration plant in coming months and this is expected to have enduring benefits at both the project and company level.

The development potential of one lake has been outlined in studies to date and there are nine in its portfolio and the area is well served by existing infrastructure. The forecast capital intensity for the initial development at Lake Wells makes the broker comfortable that margins can be sustained in any price environment. Canaccord Genuity initiates coverage with a Speculative Buy rating and $1 target.

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