Record high prices could lead to increased exploration budgets
S&P Global predicts that that the record high metal prices will lead to higher exploration budgets in the coming year.
The prices of gold, copper, iron ore and nickel, as well the critical minerals have hit all-time highs since the start of the COVID-19 pandemic that drove many prices down. Supply cuts and rebounding demand have largely driven the metals price recovery, which is pushing profits for the mining sector higher. Most recently, S&P Global Market Intelligence data showed that the global economic recovery has boosted investor optimism and supported the recovery in base metals prices in July. Likewise, decarbonization efforts around the globe are likely to bolster prices of metals used in electric vehicle batteries.
The analysis found that exploration budgets tend to align with metal prices within a one-year lag. With that as a guide, S&P Global Market Intelligence’s forecast and increase in exploration of budgets by 25 to 35 percent.
“In the immediate term, strong gold prices have fostered a boom in smaller discoveries. Additional 5-15 percent increases are expected next year as metal prices are expected remain at relative historical highs albeit below 2021 average prices, but budgets may recede slightly following this boost between 2023 and 2025 as global growth is expected to stabilize at moderate levels,” S&P Global wrote.
“In 2020, with the economic lockdown, the recession, and the pandemic, you saw investors buying more than twice as much physical gold and probably twice as much silver too. So you had investors coming in. In 2020, and continuing into earlier this year, you saw a lot of investors who were new to gold and silver flocking to the market,” Jeffrey Christian, managing partner at the commodities research firm CPM Group and a gold market expert, told S&P Global Market Intelligence. “There were a lot of economic fears that caused investors to come into the gold market and the silver market. That drove gold prices to a record high last year.”
“We've also seen disenchanted investors,” Christian added. “They haven't seen hyperinflation. The global financial structure hasn't crumbled.The dollar hasn't collapsed. The stock market hasn't collapsed. Gold didn't go to $10,000 per ounce. Silver didn't go to $100 per ounce. And so you've got a lot of disenchanted investors who bought gold as the price rose.”
The race to net-zero has pumped up the pressure on the battery minerals and metals sector to meet demand for electric-vehicle production and entice new investors. The prices of lithium and cobalt, both used in electric vehicle batteries, have held firm and rallied this quarter. Market sources told S&P Global Platts that lithium prices are expected to remain elevated during the second half of this year as new electric vehicle sales in China continue to rally.