Western Australia’s (WA) domestic economy grew by 0.9% in the March quarter. While this is great news, growth was driven by public investments and a heavy reliance on the WA mining sector – an industry which accounts for 40% of WA’s economy.

The last quarter has seen a negative impact on WA’s economy particularly in areas such as tourism, education, real estate, construction, transport, food services and retail. In these areas, some 60,000 jobs have been lost. Fortunately, our mining sector has held steady, maintaining employment levels, import and royalty income for both state and federal governments. Whilst our mining success during the COVID-19 crisis has been a source of economic pride and affluence here in WA, it is that very reliance on this mining revenue that also poses a great risk to our State.

WA’s wealth bears a strong correlation to global metals commodity prices. That is, if the market demand for base metals such as nickel, iron ore, copper, zinc, cobalt, and precious metals such as gold falls, so too does our state revenue and individual pay packets. For this reason, many Western Australian institutions and us here at Engenium keenly analyse current metal prices, looking at what they have done and importantly, what we think will happen.

A key consideration is also the current simmering geo-political tensions developing in recent times between the US and China, Australia and China, and what seems to be China against the world. China needs Australia as much as Australia needs China unless of course, China’s growing influence in Africa provides them with alternative sources of raw materials. However, China’s growing influence in world politics could impact Australia’s demand for base metals, a key import earner for Australia.

Is China’s Economy Recovering Post COVID-19?

China’s Purchasing Manager Index (PMI) quickly rebounded as purchasing managers in China saw increased activity in their businesses (PMI is used for short term economic look ahead as real GDP figures lag some 3-6 months). This means business in China is getting back to pre-COVID levels of activity, driving demand for raw materials.

Factories are experiencing surging demand for goods as supply chains have been disrupted for the last three months and backlogs are present. This demand is largely driven by China’s government stimulus spending on domestic and Chinese owned foreign Infrastructure.

Figure 1: China’s 12-month manufacturing Purchasing Manager Index (Source: usachinatrading.com)

Base Metals Pricing

Base metals pricing is strongly correlated to economic health, specifically construction and manufacturing, as base metals are a key input into these sectors. Four key factors have supported base metal pricing during COVID-19. Firstly, China quickly suppressing the virus and providing domestic stimulus by way of infrastructure investment. Secondly, the US reopening regardless of COVID-19. Thirdly, the falling US dollar. Finally, the fourth key factor is the closure of mines globally due to COVID-19, thereby restricting the supply of base metals.

Figure 2: China’s rebounding infrastructure spend (Source: S&P Global Webinar ‘Metals Commodity Prices, Impact of COVID-19’ viewed 03/07/2020)

Figure 3: Falling US dollar (Source: S&P Global Webinar ‘Metals Commodity Prices, Impact of COVID-19’ viewed 03/07/2020)

China’s stimulus spending increases demand thereby supporting prices for base metals. So, whilst some prices may not be as high as they were pre-COVID, profit remains healthy and we expect continued price recovery and stability through 2020 and onwards.

Metal Price Forecasts

Most commodities have seen a fall in demand due to COVID-19, particularly in the March quarter. However, in some cases such as nickel and iron ore, supply constraints have supported the price. As the supply returns with the progressive reopening of mines, the price point is expected to follow the normal supply/demand equilibrium, then fall back slightly for 2020 as demand recovers to pre-COVID levels, before continuing to rise post-2020.

Figure 4: Metal price forecasts by commodity (Source: First Call Email, Aspermont’s MiningNews.net11/8/20)


Demand for nickel has fallen on the back of COVID-19 dropping to US$1,1000 per tonne in early March and is not expected to fully recover until post-2020. Short-term supply issues from mine closures have supported the price above pre-COVID levels, however, surging supply from Indonesia (45% production increase) will impact the supply and demand price point with a 2020 oversupply of 100,000 tonnes expected. Therefore, the price of nickel is expected to drop for the remainder of 2020 but recover as economies quickly emerge from lockdowns post-2020.


A drop in supply has supported the cobalt price so far and an increase in demand from 2021 onwards is expected to see strong prices, inducing the opening of more cobalt mines. Lithium continues to be oversupplied due to falling sales of electric vehicles and decreased Chinese subsidies. Lithium prices are expected to continue to be low, but long-term demand should see prices increase - but not for some years.


Zinc dropped to US$1,700 in March as demand waned on the back of COVID-19 and mine closures affected the price. With a forecast oversupply for 2020, 2021 should see a price increase as demand continues to grow.


Copper demand was significantly impacted in the early stages of COVID-19, with the price dropping to US$4,700 in early March. However, China’s stimulus has seen the price recover above pre-COVID levels, and as economies return to normal an oversupply is expected, reducing the 2021 price to about the same as pre-COVID levels with a gradual increase post-2021.

Iron Ore

Iron ore has continued to defy analysts’ predictions of falling prices for three years now. Chinese demand surged post-June 2020 as Chinese ore stockpiles were at 2016 low levels. Demand failed to drop during the worst part of the virus crisis as steel mills used that period to increase steel stocks on the back of an almost certain Chinese government stimulus. Adding to the iron ore price joy is the 10% supply reduction from Vale’s Brazil iron ore mine closure. Increased demand and reduced supply have seen a price surge in recent months. India increased its iron ore exports to capitalise on these high prices during its economic lockdown. Brazil is slowly coming back online so the demand curve should shift again, lowering prices. What is uncertain is how much these prices will fall, JP Morgan forecasts an ongoing price over the next 4-5 years at US$100 per tonne other analysts forecast prices hovering at US$80 per tonne. In any event, Australian iron ore producers look set for a long period of high profits. In the long-term, supply risk will come from China’s movement into Africa with its development of Guinea’s Simandou Iron Ore Mine.


Gold has increased during 2020 due to its ‘safe investment during periods of turmoil’ status. Gold passed US$2,000 per ounce recently due to geopolitical turmoil between the US, China, Australia, and the rest of the world. The past two weeks have seen gold fall US$100 per ounce due to positive US economic news and Russia’s alleged COVID-19 vaccine. Investors will continue to see gold as a safe, easily relocatable investment during periods of high political and possibly military tension. Therefore, we see the price remaining at a profitable US$2000 per ounce with potential peaks at US$2,400 per ounce. Whilst we hope to avoid warfare between these countries, Chinese forays into India and possibly Taiwan make for nervous times.


While we are not flying anywhere near where we were pre-COVID, oil will remain at roughly US$40 per barrel. OPEC’s (Organisation of the Petroleum Exporting Countries) attempts to manipulate the price of oil early this year failed spectacularly with Russia calling their bluff and then COVID-19 turning demand on its head. Minor price recoveries have been seen in recent months as economies reopen. Prices in March this year dipped below $0 per barrel as maturing futures impacted short-term demand.

Exploration Review & Predictions

Exploration is forecast to drop in 2020 due to investors seeking less risk in investments at this time of global uncertainty, and exploration drilling is halted due to COVID-19. Exploration budgets have been increasing since 2016. However, 2020 exploration budgets are forecast to be below 2016 figures.

Gold and copper are the commodities most likely to see reduced exploration. However, gold is still the primary commodity, with reduced exploration mainly impacting Australia and Canada.

Figure 5:Reduced exploration expenditure for 2020 (Source: S&P Global Webinar ‘Metals Commodity Prices, Impact of COVID-19’ viewed 03/07/2020)


The world is experiencing a very unusual recession. Demand appears to have increased quickly with supply now a significant contributor to reduced GDP outputs. Unemployment within the lower-paid tourism, retail and foodservice jobs is not impacting GDP as much as unemployment across the board during the GFC.

The strength of the rebound of economies has surprised us all. The risk currently being the second wave phenomenon, although the world’s two biggest economies are managing this in different ways. The US is simply ignoring it, taking COVID-19 fatalities as collateral losses, whilst China still seems intent on population control to flatten COVID-19 levels until a vaccine is found.

Generally, healthy commodity prices are expected for the remainder of 2020 and onwards and whilst Iron ore is expected to fall in the second half of 2020, it is still a very profitable business for all producers, particularly the hematite miners.

In the short term, a focus on ‘sweating the assets’ by debottlenecking would appear to be a sound strategy for most operating mines, getting more throughput and output from mine process plants to take advantage of strong commodity prices.

Planning for new mines is an opportunity that currently makes sense too, with construction and fabrication supply chains currently under stress making new developments somewhat difficult for 2020. Therefore, an opportunity exists to further progress project detailed design and planning phases before supply chains are fully re-established.

Engenium is well placed to provide debottlenecking services with our experienced brownfields engineering and project teams in place. Our teams identify areas within your plant where throughput and product output can be increased, allowing you to take advantage of strong commodity prices.

In addition, our Studies team can provide the detailed planning and definition required for you to be ready to execute your projects when the worst of the COVID-19 supply chains impacts are over, and economies roar back into full swing.

Further Reading:

Eliminating Bottlenecks in Plant Processing

How to Make Your Process Plant More Efficient



Paul Young

Project and Business Development Manager, Perth WA

Engenium Pty Ltd


Disclaimer: Engenium is not responsible for any misinformation that may have been supplied in this article. These are the views and opinions of Paul Young, based on research carried out using publicly available sources, and should not be used as professional investment advice.