Copper and gold are set for more price weakness as bear markets across the commodities sector are likely to last three more years, metals and mining fund Orion Resources said on Tuesday. "We are going to see a pretty broad cross-commodity leg down, where $900 an ounce gold is more than just a possibility," Orion's CIO Oskar Lewnowski told the Mines and Money conference in London.
"$1.80 a pound ($3,968 a tonne) for copper is likely ... I don't think we are going to see much relief until 2018," said the mining financier, who co-founded metals merchant and hedge fund Red Kite more than a decade ago before starting Orion. A damaging combination of a strong dollar, slowing economic growth in major consumer China and a glut of production have pushed commodity prices to their lowest in more than a decade.
The Thomson Reuters/Core Commodity CRB Index is down by about one fifth this year after sinking to its lowest level in 13 years last month. Benchmark copper on the London Metal Exchange, often seen as a bellwether of global economic health due to its extensive industrial use, touched its lowest since May 2009 last month at $4,443.50 a tonne. Gold is currently trading at near six-year lows just above $1,000 an ounce.
Lewnowski also expects more downward pressure on oil prices. Brent crude is currently at around $44 a barrel. "I've been encouraged on the downside on oil by the ability of the US producers to continue to produce at ever lower break-evens," Lewnowski said. Orion Resources manages around $2 billion in assets. Other investors and mining executives at the conference were also were gloomy about the short-term prognosis for the sector, saying further mine cutbacks and closures were needed.
"We have quite a bit of pain to go through," said Mark Bristow, chief executive of Randgold Resources. "We're still in the denial phase ... the longer we live in denial the longer the workout is going to be." Part of the problem were investors who were not ruthless enough in cutting off funding to struggling gold firms, he said. "How long will reckless capital keep the industry alive? We still find investors hoping to double up on the bet, but I don't believe that's possible."
Another factor that has kept miners from cutting production or going bust were weak local currencies which have slashed costs, said Joe Wickwire, a portfolio manager with Fidelity Investment Management. "The strong dollar and weak local currencies around the world has kept the dead alive. It has given companies who should not be producing additional time to produce."
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