If you have ever wondered what the early stages of a commodities boom looks like, consider three comments made this week:

  • “We’re out of everything.” – Jeff Currie, head of commodities research at Goldman Sachs.
  • “No stopping the commodities freight train.” – U.S. investment bank, Jefferies.
  • “Supply chains strung like piano wire.” – Paul House, chief executive of mining technology provider, Imdex.

Those observations capped a remarkable week in the mining and oil industries with prices for almost everything rising as the post-Covid recovery gathered pace while supply struggled to keep up.

The flipside of the higher prices for basic raw materials such as oil, iron ore and copper, is that they are playing into the inflation fears of the world’s central banks, which are already poised to ratchet up official interest rates.

Oil at $US90 a barrel is a major cost factor in most sectors of the broader economy while copper, which has moved back above $US10,000 a tonne to be close to an all-time high, is piling pressure on the electronics, construction, and transport industries.

Iron ore has moved back to be within sight of $US150/t, sparking a Chinese Government warning of market intervention, and lithium has exploded to reach a truly spectacular $US60,000/t in its carbonate form in China where some battery makers, having failed to secure long-term supplies, have been forced into the spot market.

To put that Chinese spot-market lithium price into perspective, carbonate was selling for $US5000/t two years ago, $US10,000/t last year and $US25,000/t three months ago.

Morgan Stanley, an investment bank, said the Chinese lithium carbonate price was unrelated to the contract price “reflecting very limited volumes in the spot market” and while the bank’s comment is undoubtedly correct, it is also the nature of markets that short-term trades tend to eventually effect contract pricing.

Citi, another investment bank, boosted its long-term lithium price this week, adding that “extreme pricing is likely to be required to defer or destroy demand”, a trend which might be developing in markets other than electric vehicles (EVs), as well as for lower-range EVs.

On the Australian stock market, lithium stocks moved up, but not nearly as rapidly as the underlying spot-market price of the metal. Pilbara Minerals added 9c to $3.39 and Allkem rose by 42c to $9.74.

Mineral Resources, which is working on a plan to grow its lithium business, fell by $4.30 to $54.41 but that was largely related to a poor half-year profit caused by a drop in iron ore prices early in the reporting period and heavy discounting of the low-grade ore that the company produces.

Chris Ellison, the managing director of Mineral Resources, said he was confident that there would not be a lithium “crash landing” of the sort seen in previous booms because demand was too strong for that to happen.

But it’s also likely that battery and EV makers will be forced to reconsider their lithium strategies if prices stay as high as they are today.

The Wall Street Journal newspaper reported mid-week that “surging prices for the metals that make up EV batteries (lithium, copper and nickel) have ended a decade-long decline that brought the cost of an EV to within spitting distance of gasoline powered vehicles”.

Incentives for consumers to make the switch to an EV remain strong but price is a major factor in all big-ticket purchases and if metal prices keep rising, there is a risk of some EVs being priced out of the market.

Lithium producers are slowly reacting to the market with the owners of the big Greenbushes mine in WA announcing a firm commitment to a previously announced $1.4 billion expansion of the project.

Copper, as mentioned, added $US500/t to trade just above $US10,000/t, though that near-record price could be just a milestone on the road to something much higher because copper is a case study of Currie’s “out of everything” comment with the global stockpile of the metal dropping alarmingly.

Andy Home, a seasoned Reuters commodities writer, said during the week that copper stocks held on the London Metal Exchange were “falling again in a slow-motion re-run of events leading up to last year’s super squeeze”.

Jefferies, in its commodities comment, said that while higher interest rates might cause some short-term volatility “the bigger picture is that supply growth for some major commodities will lag demand, inventories will fall further, and prices will go much higher”.

“Even a sharp slowdown in global growth would only have a transitory impact on the resources sector,” the bank said. “This is what happened in 2008-09 as the China cycle began years before and didn’t peak until 2011.”

Sandfire, which is expanding its copper footprint in Europe and Africa, was the best of the local copper stocks this week was a rise of 63c (9.3%) to $7.40. OZ Minerals added $1.34 (5.4%) to $26.15 while Develop rose by 23c (8.4%) to $3.34 after reporting new high-grade copper intersections from the latest round of drilling at its Sulphur Springs project in WA.

Other copper news included:

  • Solis Minerals, a Canadian-based copper explorer with a listing on the ASX, rocketed up by 12.5 (64%) to 31c after reporting widespread copper mineralisation in the first two holes at its Mostazal project in Chile.
  • AIC Mines, a well-connected explorer with its foot on a promising target in WA’s Paterson Province, added 13.5c (25%) to 64c after reporting encouraging copper assays of up to 2.26% over one metre from a depth of 90m at the Lamil project.
  • Antipa Minerals, another Paterson Province explorer, rose by 0.4c (8.5%) to 5.1c over the week but also scored a buy tip from Shaw and Partners which reckons the stock is heading to 8c, and
  • Revolver Resources continued its upward move as interest grows in its Dianne project in Queensland, adding another 4.5c to 49c, after reporting that the latest assays had confirmed a new mineralised zone with copper grades up to 5% and gold up to 12.2g/t.

Gold, which would normally be expected to fade as industrial metals (and interest rates) rise continues to surprise on the upside adding $US30 an ounce over the week to trade around $US1833/oz, with the increase almost certainly attributable to investors seeking a safe haven in uncertain times.

The higher gold price was barely reflected in a largely flat gold equities market with investors keeping a close eye on the profit-eating increase in costs, especially in WA.

Northern Star, which released a solid first half profit result, managed a rise of 30c (3.5%) to $8.71 for the week but did rate a buy tip and price target of $12.50 from RBC Capital Markets.

Other gold moves included De Grey, down 1.5c to $1.17. Gascoyne, down 0.5c to 26c. Red 5, up 2.5c to 30c after reporting commissioning of the crusher circuit at its King of the Hills project, and Lefroy Exploration, up 2.5c to 33c after signing a farm-in deal with SensOre over the Marloo Dam tenements in WA.

Caspin Resources was the nickel star of the week with a rise of 40c (52%) to $1.18 after reporting encouraging drill results from its XC-22 prospect in the same region as the Julimar project of Chalice Mining near Perth.

The significance of Caspin’s discovery can be seen in a 68m zone of mineralisation with assays up to 1.42% nickel over 2m, including 0.47% copper and 0.33g/t of platinum group metals from a depth of 46m.

Mincor was another nickel stocks to move higher with a gain of 9c to $1,76. Panoramic rose by 1c at 26c and Nickel Mines added 2.5c at $1.45.

Other market moves and news events this week included:

  • Fortescue Metals rising by $1.01 to $22.18 as the iron ore price rose to $US145/t. Fenex Resources gained 2c to 27c after announcing a deal to acquire the Pharos project close to its Iron Ridge mine.
  • Alumina adding 11c to $2.07 thanks to the price of aluminium hitting an all-time high of $US3300/t.
  • Boss Energy led the uranium sector with a rise of 21c to $2.21 after striking a deal with Canadian-based First Quantum which wants to explore for other metals on Boss’ South Australian uranium tenements.
  • Ecograf rose by 0.5c to 65c after announcing encouraging results for enhanced high purity alumina anode coatings.
  • Heavy Minerals added 1c to 23c after reporting excellent assays results from drilling at its Port Gregory garnet project north of Geraldton on the WA coast, and
  • Black Canyon rose by 4.5c to 26c after reporting thick manganese intersections from drilling at its Flanagan Bore project in WA with a best hit of 40m grading 13.4% manganese from surface.