HardAssetsInvestor

Written by Lara Crigger  |

November 19, 2010

Nicholas Snowdon: Great Opportunities In Base Metals

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Barclays’ assistant VP of commodities shares his outlook for aluminum, zinc, tin and more.

 

Perhaps more than any other commodity these days, industrial metals are a story about emerging markets—and that, of course, is dominated by one country above all others: China. China's seemingly insatiable thirst for new cars, appliances and other goods has and will continue to drive base metal demand for the foreseeable future, says metals expert Nicholas Snowdon. Investors just have to know how to take advantage of that demand.

Snowdon is the assistant vice president of commodities research at Barclays Capital. He covers both softs and base metals markets for the firm, and is also involved in the team's regular analysis of worldwide geopolitical developments. He joined Barclays in 2007.

Recently, HAI Editor Lara Crigger spoke with Snowdon about his thoughts on the industrial metals, including what key supply constraints will tighten zinc and lead, whether an aluminum ETF makes sense and why tin's beginning to look an awful lot like copper.

 

Crigger: Copper may dominate the headlines about base metals, but when you look at the other metals in this space—nickel, aluminum, tin—what supply and demand factors do you see dominating their markets for the coming months?

Snowdon: On the demand side, the key factors for all of them is going to remain China. It's pretty clear that the industrialization and urbanization dynamics that currently drive the Chinese economy are going to remain in place for at least the next half decade.

But I also think it's important to look toward India and Brazil, and other large emerging markets. They're currently behind China in terms of the metals phase of their development, but at the same time, they are tracking a similar path to China. Ultimately, at some point in the future, they will become positive forces for the base metals markets.

On the supply side, that is where we see a key differentiation across base metals markets. As you mentioned, a large emphasis has been placed on copper and the tightness in mine supply, but we really class tin in the same category of supply-side tightness.

Crigger: Why tin? What factors are creating tightness in the tin supply?

Snowdon: The tin market is a lot smaller than the copper market, and indeed, the other base metals. Production primarily comes from two countries: China and Indonesia. And it's in Indonesia where supply constraints have been clearest. Production has declined for the past five years in year-on-year terms, as reserves become depleted and mining companies are forced to look at offshore options to mine tin ore.

We've also had some disruptions to production in the DRC [Democratic Republic of Congo], where the government shut down the tin mining industry temporarily.

So I think if you're looking at supply-side dynamics beyond copper, then tin's the other one that stands out as offering a similar current level of tightness.

Crigger: Do other metals, like zinc or aluminum, suffer from the same production troubles?

Snowdon: We do think that the zinc market, while currently well supplied, will over the next two to three years face similar constraints to copper and tin, as a number of major mines close down and reach the end of their lives. These closures have been in the cards for quite some time, irrespective of the financial crisis; their deposits have simply become depleted. That will have a significant tightening effect on the market.

There will also be a commensurate effect on lead mine supply, given that the large amount of lead mined comes as a byproduct of zinc. With these zinc mines closing down, you'll lose a portion of lead supply as well.

So while neither of those two metals, zinc or lead, face severe mine constraints, come two or three years' time, we could all be looking at a similar picture to copper for those metals.