Mining executive Russell Hallbauer is palpably excited about the components that go inside electric cars.

The chief executive of Vancouver-based Taseko Mines Ltd. can give a detailed description of the length and thickness of the solid copper bus bar that transmits power from each Tesla car’s lithium ion battery to its wheel motors. “That piece of copper probably weighs 50 pounds,” he said.

Hallbauer’s enthusiasm for electric cars is warranted. The market for such vehicles is expected to grow to 11 million cars sold in 2025 from 330,000 in 2015 , according to Morningstar forecasts, and copper miners such as Taseko expect that will create a lot of demand for copper bus bars.

Not only that, he expects even more copper will be needed to build out the infrastructure — new power lines, electric vehicle charging stations and generating stations — to accommodate all those electric vehicles hitting the streets.

In addition to enjoying the ramp-up in electric vehicles, economists expect miners of base metals such as aluminum, copper, nickel and zinc will benefit as the world’s major economies grow in tandem for the first time since 2008, which economists expect they will do during the next two years at least.

“On the global macro backdrop, for the first time since the great financial crisis, we’ve got every major advanced and emerging market economy all either growing or seeing growth accelerate,” Scotiabank commodity economist Rory Johnston said of the outlook for metals in 2018.

Countries across North America, South America and Europe are all expected to grow next year in what a recent Scotiabank report called a synchronous global recovery.

“This is putting a lot of tailwinds behind the base metals as manufacturing activity increases, particularly in some of the advanced manufacturing centres where base metals use is more intensive like consumer electronics, etcetera,” Johnston said.

The expected global recovery is also cause for excitement at Taseko.

“We have been anticipating for a number of years that supply can’t keep up with demand. So the next 18 to 24 months are going to be pretty critical for us,” Hallbauer said.

But he is cautious to avoid describing these bullish forces as a commodity supercycle. When pressed, he offers, “The future looks very bright.”

We have been anticipating for a number of years that supply canu2019t keep up with demand

The last commodity supercycle, between the late 1990s and 2008, led to double-digit annual price increases for base metals including copper. At this point, however, most analysts forecast more modest price gains across the commodity category for the next two years and forecasters are also divided, with “cloudy” outlooks for some metals such as aluminum.

Still, there is widespread optimism among base metal miners.

After languishing for multiple years, base metal prices rebounded in the second half of 2017 and analysts now expect prices for most of them to continue rising through 2018, outperforming bulk commodities such as iron ore and precious metals like gold and silver because base metals are used in high-value manufacturing.

“This year has been a tale of two markets in commodities, with prices declining in the first half and rebounding in the second,” Francisco Blanch, Bank of America Merrill Lynch’s head of commodities, said in a note. “The second-half rebound provides momentum headed into 2018, especially given tailwinds of firmer global growth and easy financial conditions.”

Increased electric vehicle and consumer electronics manufacturing are also expected to lead to additional price increases for metals such as lithium and cobalt, both of which are used to produce the lithium ion batteries that are found in smartphones, electric cars and computers.

S&P Global Platts president Martin Fraenkel identified lithium and cobalt as commodity themes to watch in 2018 given the expected rise in electric vehicle adoption.

“The composition of lithium ion batteries can vary by manufacturer and by use — particularly on the cathode side, with different ratios of metals such as cobalt, nickel, manganese and aluminum,” he said in a recent report. “Prices for many of these associated metals and minerals have risen strongly over the past year — with the cobalt price rising nearly 2.5 times, and lithium carbonate seeing steep gains.”

But although the twin forces of electric vehicle/electronics manufacturing and global economic growth will help drive demand for base metals, Hallbauer said the supply of the commodities needed to meet that demand has not kept pace.

Prices for many of these associated metals and minerals have risen strongly over the past year

  “You’re not seeing many mines on the drawing board or ready to go,” he said, adding that years of low prices have hurt mining companies, which need to repair their balance sheets before investing in new projects.

As a result, Scotiabank’s Johnston said, inventories for base metals have begun to decline. He expects supply deficits particularly in the nickel and zinc markets to help drive price improvements for those metals.

BMO Capital Markets analyst Colin Hamilton said those supply deficits have yet to spur mining companies into increasing production.

“Most of them are being quite disciplined. You’re not seeing them pushing for growth, seeing anyone push to build new projects. Nor, quite frankly, do investors or boards want them to,” he said. “We’re still seeing a situation where the supply side is not responding to the margin prompts.”

For example, London-based mining giant Rio Tinto PLC surprised analysts during an investor day presentation in early December by announcing copper production guidance that was widely below expectations.

Hamilton said the supply of base metals is also restricted by China’s Blue Sky environmental policies, which limit producers in that country from ramping up aluminum and steel production.

“The environmental clampdown on Chinese supply across base metals is causing some issues — that’s been a theme for much of this year and I think it’s one that only accelerates into 2018,” he said.

Eventually, Hallbauer said, miners will react to rising prices, but he suggested many will be cautious before proceeding with new mines.

“You’re going to see a supply response, but it won’t be before the miners do well financially and make up for those years that they didn’t,” he said. “You’ve got to make a buck.”

Financial Post

• [Editor:Wang Linyan]