Base Metals Market Review 31/08

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Top Things to know in market on Thursday

 

  • China plans safety inspections at coal mines
  • U.S. acts to finalize duties on imports of rebar from Taiwan
  • Zambia’s CEC to restore full power to Glencore’s Mopani Copper Mine
  • Brazil judge blocks decree opening Amazon area to mining
  • Vedanta Resources names ex-CEO Kaura as interim chief exec
  • South African iron ore, chrome producer Assore posts record profit due to higher prices

 

Base Metals 

This morning, Chinese PMI manufacturing data gave the results way better than expected. Those gave the support to the base metals market. It leveled at  51.7. Which is when compared with 51.4 previous and 51.3 expected, way better result.

 

Metal prices

The trade today was not so agitated, but as we observe the happenings.. The Zinc leads with 0.4% rise. Later comes copper with 0.3% rise. Pricing at $6,794 per tonne. Aluminium rose for 0.2%, while nickel was up for 0.1%.

Lead and Tin show the downwards movement, with lead lower for 0.3%, while tin is lower for 0.2%. The summary volume is average, with 6,267 lots.

Yesterday’s trade was generally weaker. It had the base metals complex close down by an average of 0.3%. It came after nickel price drop of 1%, and 0.8% fall in zinc prices.

Copper prices closed at $6,776 per tonne.

Tin had the gain of 1%, while aluminium prices changed a bit.

 

Precious metals

Generally, precious metal prices are lower, with gold, silver and platinum prices falling for 0.4% all. Gold spot price reached the price of $1,302.62. Palladium prices are 0.2% up, leveling $932.20.

Yesterday, the complex closed with 0.6% down.

SHFE

This morning in SHFE, Nickel and Zinc prices were off by 0.4% and 0.1%. Following, the tin and copper prices came at 52,800 yuan per tonne.

“Spot copper prices in Changjiang are up 0.2% at 52,250-52,700 yuan per tonne and the London/Shanghai copper arb ratio is weaker at 7.77. “

Steel rebar prices on the SHFE are up by 0.7%, gold and silver prices are off by 0.8% and 0.7%, respectively, while January 2018 iron ore prices on the Dalian Commodity Exchange have rebounded by 3.6% to 571.50 yuan per tonne.  (FastMarkets)

 

Currencies/Data/Indices

Finishing with international markets, the spot Brent crude oil prices are up 0.2%. They are now at $50.70 per barrel. And the yield on US ten-year treasuries is unchanged at 2.15%. German ten-year bund yield is firmer at 0.37%.

Observing equities this morning, gains are being seen on the Nikkei (0.72%). The ASX 200 (0.79%), while loses are being seen on the Hang Seng (-0.68%), the CSI 300 (-0.42%) and on the Kospi (-0.38%). In the USA. T

The Dow Jones closed up 0.12% at 21,892.43 on Wednesday, while in Europe, the Euro Stoxx 50 closed up 0.46% at 3,403.71. (Indexes data from Fast Markets)

 

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Grasberg Mine disputes & Valuation

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Country’s point of view

Indonesia explains who got the better outcome in deals for future of the Grasberg copper mine.

Freeport agreed to divest a 51 percent stake the world’s second-biggest copper mine.

Firstly, right after the deals were concluded, Indonesia’s Energy and Finance Ministries posted on social media #FreeportTaatIndo

nesiaBerdaulat. Meaning “Freeport is submissive, Indonesia is a sovereign state”.

This grandiloquent statement explains Indonesian view of the subject. The country claims that dispute over Freeport was all about outflowing the country’s rights about mineral resources

Secondly, Indonesia feels it has a legit victory over this dispute pointing at nationalist sentiment. But having a further look at the matter, it is highly possible that additional “fights” with Freeport will take their place.

“The Phoenix, Arizona-based company explains it will divest 51 percent of PT Freeport Indonesia (PT-FI) and build a second smelter at Grasberg, in the eastern province of Papua.  And will also commit to invest up to $20 billion in the mine. “ (Reuters)

 

Freeport’s Angle

Following, Freeport can immediately apply for a decade of further operations. Beginning in 2021, potentially lasting till 2041. Paying tax & royalty rates during that term.

“While there are a lot of issues still to be worked on, politically this is a win for the government.” (Analyst at Jakarta-based Concord Consultin)

“It has taken on a big U.S. firm and appears to have won.” (Reuters)

Going through the Last year, Freeport offered a 10.64 percent stake in PT-FI. These values the mine at $16.2 billion while the government counter-offered at $630 million.

Freeport assumes that any Grasberg valuation should include the mineral resource. On the other hand Indonesia stays clear about the attitude that resource is essentially held by the country. Certainly not by the mine operator.

“There’s more reserves there than up to 2041 – these aren’t theirs.” (Indonesia’s Energy Minister.)

Freeport has to sell 41.64 percent of PT-FI to reach the divestment target. Adding to a 9.36 percent share the government already holds.

 

Future

Indonesia hopes that the divestment would be made in one block rather than spread out and would be completed by the end of 2018.

While the company will be appointed to calculate the divestment valuation.

As Fajar Hari Sampurno said, the government is forming a consortium involving the central government and regional administrations to purchase the stake.

“The consortium will look for funding sources – it could be from equity, loans, obligations (or) pension funds.” (Reuters)

Under the law of Indonesia, the central government would have the first claim to the PT-FI stake. Followed by the country’s regional governments. State-owned enterprise or regional government enterprises would be next in line followed by private companies or a public offering for the stake.

Richard Adkerson (FP CEO)  said on Tuesday that “PT-FI shares are what we’re talking about with divestment.” And that after 2022 “PT-FI will retain its 60 percent interest in the joint venture.”

Shares of Freeport, the world’s biggest publicly listed copper miner, have dropped 6.3 percent in the two days since the announcement, closing at $14.56 on Wednesday. 

Further agitation will show the real outcomes. It is up to the Country’s decisions and aims to keep the mineral resources. It certainly is better if energy stays controlled by official organs.

 

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LME Futures Report on Wednesday, August the 30th

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Intro

LME base metal prices are staying strong, at their current levels. Nickel and copper consolidated their recent gains. It was surely expected after few days of constant growth. 

Three month copper price went loosely up, but has again fallen to the level below $6,800 per tonne.

“Copper prices have had a strong run to the upside and although we remain bullish, the current upleg is looking quite stretched now, so some consolidation seems likely, especially if the dollar rebounds.” (Metal Bulletin analyst)

“The rest of the metals have been consolidating in high ground for some time, so they may be ready to push higher and catch up with copper’s lead.”  (Fast Markets)

 

Observing lead volatility, it yesterday closed up for 2.6%. This morning it is trading higher, due to cancelled 5,000 tonnes in Rotterdam. Leaving on-warrant stocks at 4month low worth.  

Aluminium, nickel and zinc are all trading remotely higher and consolidating at new levels.

 

Copper targets higher

The three-month copper price was up $5 to $6,796.50 per tonne.

Following, the Stocks declined a further net 9,975 tonnes to 223,050 tonnes with 15,000 tonnes re-warranted in various locations. 

China’s boosting macroeconomy will continue giving support to copper prices. Especially as the forecasts are expecting a new strong demand for copper during the upcoming season.

Following, the LME stocks declined sharply,

 and that indicated a positive fundamentals for copper. It peaked the level of $6,843.50 per tonne on Tuesday.

This volatility entered the market from the Asian part, where the most-traded January copper contract on SHFE also traded higher at 52,750 yuan ($7,989) per tonne.

 

Metal Prices

 

  1. ALUMINIUM

 

* The three-month aluminium price was up $3.50 to $2,098.50 per tonne.

*Stocks declined 225 tonnes to 1,324,325 tonnes.

 

     2. NICKEL

 

*Nickel’s three-month price was up $10 to $11,720 per tonne. Inventories fell 1,890 tonnes to 386,550 tonnes.  “Nickel prices are under consolidation; however, there is a large chance that we will see nickel price supported in September.” (MB analyst said)

 

    3. ZINC  & TIN

 

* The three-month zinc price was up $26.50 to $3,136.50 per tonne. Stocks declined 775 tonnes to 245,375 tonnes, cancelled metal now accounts for 54% of total stock. * Lead’s three-month price edged $6 higher to $2,384 per tonne.

Most noteworthy,  stocks declined 25 tonnes to 148,675. With 5,125 tonnes freshly cancelled in Rotterdam. The three-month tin price was up $60 to $20,410 per tonne. Inventories dipped 85 tonnes to 1,890 tonnes.

 

Currencies & Data

Observing the value of indexes, the dollar index was up 0.24% to 92.51.

Brent crude oil spot price was down 0.91% to $51.46 per barrel. * In data on Tuesday, the August German GfK consumer climate index was a slightly better 10.9. French July consumer spending rose the anticipated 0.7% on the month, while the country’s second-quarter GDP was up 0.5% as forecast. * In US data on Tuesday, consumer confidence for August rose to 122.9, from 120.0. * The economic agenda is busy today with UK net lending to individuals, M4 money supply and mortgage approvals and US data that includes ADP non-farm employment change, preliminary second-quarter GDP and crude oil inventories of note. * In addition, US president Donald Trump is expected to lay out his plans for tax reform later today, while US Federal Open Market Committee member Jerome Powell is also speaking.

 

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Commodities – Daily News

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Top 5 things to know in markets Today:

 

  1. North Korea fires missile over Japan
  2. Global stocks sinking as a result of North Korea actions
  3. Investors pile into safe-heavens
  4. Euro rises above 1,20$ for the first time since 2015 !
  5. Energy markets continuing to process Harvey hurricane consequences

Zawiya oil refinery in Libya: Not operating in full capacity

Zawiya Oil refinery is the biggest plant operating in Libya. It usually gives the outputs of 120,000 barrels per day. Starting with this week, the trend changed. It was working half capacity. At only 60,000 bpd. Influenced by the Sharara oilfield shutdown.

Sharara Oilfield had a period of its equipment close down. Due to pipeline blockade, it was not able to transfer crude to Zawiya.

This shutdown in Shahara came as a result of August 10-25th period. It is when crude distillation towers were closed .Sharara has been shut down for around a week due to military block of a pipeline linking it to the Zawiya oil terminal.

Sharara’s half capacity outputs, and its shut down led to NOC subsidiary Agoco to also shut down the 10,000 barrels per day in Hamada oil plant.

Hamada shares export infrastructure with Sharara.

 

Glencore Rolleston mine blocked amid corporate deals

Yesterday, Glencore announced it was looking to sell a second Australian coal mine.

“Part of the Swiss-based resource giant’s rethink on how it deploys capital as its reins in debt and commodities prices rise.”

Stakes

Glencore, with its Japanese joint venture partners, Itochu Corp and Sumitomo Corp would start a “sales process” for its Rolleston mine. The mine produces thermal coal used in electricity market. 

Interesting thing is that Rolleston is geographically removed from Glencore’s main collieries. Which makes it less economic from a shipping standpoint.

Glencore corp. owns 75 percent of the Rolleston mine. Its Japanese partners each, are holding 12.5 percent. Both minority partners said they also intend to sell their interest.

 

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Hurricane in Gulf Coast damaging Gasoline & Oil Markets

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Hurricane Harvey

During the weekend a huge hurricane hit U.S. Gulf coast!

It crippled Houston and flooded the Texas area. The port in Houston is damaged really serious and it knocked down the crude production in numerous refineries along the shore.

Gasoline prices hit two-year highs, influenced by massive floods caused by the storm. It forced U.S. Gulf Coast to ship orders from across the sea.

 

Oil market

Observing crude markets, U.S. futures fell. Later, U.S. refinery shutdowns could cause the reduced demand for American crude.

Brent futures also eased.

The Harvey hurricane killed at least 2 people, and it is the strongest hurricane in last half a century. It caused a Houston port closure, while it shut down numeros refineries.

“The U.S. National Hurricane Center (NHC) said on Monday that Harvey was moving away from the coast but was expected to linger close to the shore through Tuesday.”

“The floods would spread from Texas eastward to Louisiana.”

 

Oil refining in Texas 

Oil refining in Texas composes of 5.6 million barrels of refining capacity daily. Louisiana has 3.3 million barrels. The storm shut down over 2 million bpd.

“Spot prices for U.S. gasoline futures surged 7 percent to a peak of $1.7799 per gallon, the highest level since late July 2015, before easing to $1.7281 by 0703 GMT.” (Reuters)

To replace the lost outputs, and in order to avoid fuel shortage, U.S. traders were shipping cargoes from North Asia.

 

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Electric Cars market boosting the demand for base metals

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Intro

Logical level up, but also very important fact to be aware of: Electric vehicles market is boosting growth, the new technologies are entering the big door everywhere.

Firstly, the use of batteries is pushing base metals demand from across the sea. South32, australian-based miner buoyed by an 8-fold leap in annual profit. 

Secondly, mining and metal producing companies are very inspired with current situation. Their profits are doubtlessly rising.

 

South 32’s position

Following, South 32 is a base metal and coal mining company. It has wide exposure to aluminium and nickel. Now, their Cannington mine in Australia enters the list of world’s largest sources of nickel, silver and lead.

“If you look at the metals we produce, they are either used in renewables or battery technology.” (South32 CEO)

“We are looking to add more base metals exposure to the group… We do see battery technology having an impact over time.”

Company’s profit

“South32 posted fiscal 2017 underlying profit of $1.15 billion, up from $138 million the previous year.” (Source – Reuters)

 

Glencore’s position 

Thirdly, Glencore CEO Ivan Glasenberg also frequently said that the coming large-scale usage of electric vehicles and energy storage systems will definitely unlock consequential new sources of demand for copper, cobalt, zinc and nickel.

This electric vehicles phenomena is influencing the world’s largest miner BHP to invest heavily in its nickel business.

“While South32 was prepared to supply a host of metals used in making batteries for electric vehicles and other systems, it sees overcapacity in lithium, the driving component of the burgeoning lithium-ion battery technology.” (Reuters)

By Morgan Stanley’s forecast the use of electric cars is going to rise to the immense number of 99 million new vehicles in 2020! 

 

Consequences and market Influence

Having in mind that the electric vehicles are our close future.. and that the environmental development depends on this… We should be aware that the consequences of these changes will push the demand for the base metals up, and in case nothing serious changes in world’s macroeconomic movements in recent months/years; the nickel, zinc and lead traders will witness very bright outcomes.

In conclusion, as South32’s promise explains:

“Our purpose is to make a difference by developing natural resources. Improving people’s lives now and for generations to come. Owners trust us and partners realise the potential of their resources.”

For further info on this subject visit: https://www.south32.net

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Base Metal Markets – August the 23rd

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Wednesday, the 23rd of august – Top 5 things to be aware of:

  1. Trump’s policy focusing on different fronts
  2. Worldwide manufacturing data shows resilience; U.S. in focus
  3. Mario Draghi avoids policy indication ahead of Jackson Hole
  4. Risk interested wavers standing in front of Central Bankers
  5. Oil prices trading lower

 

Volatility of Metals

Metal prices are following some very inspiring movement these days. The early morning trade on LME today went this way:  

We are speaking about morning trade:

This comes after yesterday’s split performance.

When lead led the gains with a 3.2% rally, nickel prices closed up 1% and copper closed up 0.2%. The rest were led lower by a 0.8% decline in tin prices. (Fast Markets data in numbers)

Speaking about precious metals, the prices are up across the board this morning by an average of 0.3%. Inspired by a 0.4% rise in silver prices, spot gold prices are up 0.2% at $1,285.86 per oz. This follows a down day on Tuesday when the complex closed off 0.6% on average, led by a 1% fall in palladium prices. (FM)

 

SHFE today 

Observing the morning trade on the SHFE, the base metals complex is for the most part weaker with prices off an average of 0.4%. Led by a 1.7% drop in tin prices, aluminium and zinc prices are off 1.1% and copper prices are off by 0.1%. 

 

Pointing at 51,570 yuan ($7,739) per tonne. 

Bucking the trend are lead and nickel prices, up by 1.5% and 0.1%, respectively.

Other metals in China are showing some down movement. SHFE rebar prices are down 4.9% and iron ore prices on the Dalian Commodity exchange are down 3.7% at 580 yuan per tonne on the January 2018 contract. The gold and silver prices on SHFE are both down 0.4%.

 

International Markets

In international markets, spot Brent crude oil prices are up by 0.2% at $51.71 per barrel. The income on US ten-year treasuries is firmer at 2.21%, and the German ten-year bund yield is at 0.40%

 

Indexes 

In the end, observing the Indexes and their market movement:

Firstly, the Hang Seng Index is up (+0.9%), the Nikkei (+0.2%), the CSI 300 (0.1%). All of these are higher, while the ASX 200 is off 0.3% and the Kospi is off 0.1%. In the USA, the Dow Jones closed up 0.9% at 21,799.89 and in Europe, the Euro Stoxx 50 closed up 0.94% at 3,455.59.

(Exact Numbers in the Article coming from the Fast Markets.)

 

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New Mining deals: Indonesian government & PT Freeport Indonesia

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Intro

Indonesian Energy Minister announced on Tuesday that Indonesia highly expects to conclude the deals with Freeport McMoRan Inc. About operating in one of their biggest copper mines in Papua. The cooperation should take place in the upcoming decades.

The country’s mining and energy minister announced these ideas.

Speaking about the U.S. deals with Indonesia, the country’s mining giant was in a slight quarrel with Indonesia over the rights at Grasberg mine. This dispute is making huge costs for both sides, and these are estimated at hundreds of millions of dollars.

When reporters asked Minister Ignasius Jonan about the status of current deals & negotiations, he said:

“I expect to have a conclusion this month!” (Jonan says for Reuters) 

 

Mining Permits 

In July this year, Richard Adkerson (FPT CEO) said he for sure expects to conclude this special mining permit before October this year.

“Jonan said, when they finalize the agreement,  and allow Freeport all the needed permits.. They could apply for two 10-year permit extensions to mine at Grasberg beyond 2021.” (Reuters)

Regarding the new rules in Indonesia: Miners have to divest 51% stake, pay taxes and royalties. And in the end they have to relinquish arbitration rights. Freeport insists on all participants to follow these rules.

Reporters asked Mr Jonan did Freeport accepted these 51% divestment, and he said:

“Well if they don’t, they can go. We don’t negotiate that.” (Jonan for Reuters)

 

Real Inside Relations

With the beginning of current year Freeport said talks are in blind alley, and reminded they could do lots of damage for both sides. Then The government explained that they could solve this subject even in court if necessary.

“We will listen. We will accommodate as much as we can, but we cannot accommodate something that is clearly written in the law.” (Jonan for Reuters)

Clearly he wanted to emphasize their willingness to cooperate, but only in the possibilities of legal deals.

Riza Pratama (FT spokesman) said the negotiations with the government are ongoing. And they will soon be concluded clearly if both sides respect the main point.

“(The) four issues in the negotiations are one package deal. Divestment is one of the four issues.”

Real effects

Is he concerned that these happenings could result with some agitated movement inside Papua mine… Pratama says: “I don’t think so … it’s an internal labor issue inside Freeport’s operations.”

 

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Elliott’s BHP acquisition: Dividends Yes; Total Victory – Not yet;

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Who lightened the area?

Firstly, if we observe the subject closely, it is inviting to consider BHP Billiton as the one who gouged into demands by Elliott Advisors. As well they seem to have together agreed about selling BHP’s U.S. onshore oil & gas business.

The main thing to mention is that in an official letter from April, Elliott had 3 major points. Two of which were depriving the U.S. shale assets and pushing up the shareholder returns.

But the thing we ask ourselves is, whether the BHP’s decision was firmly inspired by Elliott.. Or it would have happened either way.

Observing the dividends, it is clear that BHP would follow it’s bigger fellow Rio Tinto moves. Trying to return as much cash as possible to their investors. In particular the huge boost of free cash flow coming from higher prices of their base: Iron ore and Coal.

 

Overview

Last Tuesday BHP said that it would triple its final dividend to $0.43 a share. Which is slightly below the expectations of analysts.

”The world’s largest mining company also posted a five-fold rise in annual underlying profit to $6.7 billion for the year to June 30, which was below the market consensus for earnings of around $7.4 billion. (Reuters)”

It could be argued the increase in the dividend was generous.

Second thing worth mentioning, is that BHP decided to pay down net debt. The debt was at the beggining reduced at $10 billion, and this move is definitely to strengthen the company’s balance sheet.

Furthermore, it is possible that Elliott would have preferred the FCF being generated by BHP & used for a share buyback. Makes it much more effective than being used in cutting debt.

“We have determined that our onshore U.S. assets are non-core.”

“We are actively pursuing options to exit these assets for value.” BHP said in its results presentation (Reuters)

Elliott definitely deserves credits for finding a way to enter BHP’s underperforming assets. It is also clear that at some point they saw that $20 investment in shale, made 6 years ago, was not the greatest move they made.

 

Investors Aims

What is likely to be of more relevance to Elliott, and other investors, is how sustainable are BHP’s increased dividends.

When making a commentary, the company was very cautious. Stating that Crude Oil prices will trend higher. Steel demand will slightly grow. While the cost curve for the iron ore is going to continue flattening.

BHP is seeing a slight uncertainty in China’s metallurgical coal; but the outlook for overseas market is in all positive.

In tanto, it seems that BHP isn’t expecting the prices of its major commodities to rally strong. But, it equally it is not forecasting any important declines.

In conclusion, the company should remain a strong generator of cash.  Adding & assuming it remains committed to capital discipline. Returns to main shareholders can increase. But, it’s highly unlikely that the massive jump in dividends, as the one from June 30th will repeat soon…

 

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Base Metal Market News, August the 21st

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Top 5 things to know today – global markets:

  1. War games start on Korean peninsula
  2. Renewed U.S.-North Korea tensions causing global stocks slide
  3. Dollar still remains defensive on U.S. political tensions
  4. Oil started the week a few percents lower
  5. Maersk sells oil unit to Total for $7.5B as M&A heats up

For detailed info on these subjects visit: http://www.investing.com

Some useful analysis: https://www.reuters.com/article/global-metals-idUSL8N1L22ES

 

Last Three months – overview:

Lately, there has been some really crazy movement happening in the base metal markets. Observing the All-along summer period, we see few metals hitting their highest level in a decade.

Firstly we must pay our attention to the period of may/juni/july/august 2017. During the whole  summer period, base metal markets trade showed some astonishing positive trends.

Secondly, along with the huge volatility which took place in july, the base metal prices now are hitting the great record levels.

Current prices :

Today, the Zinc price is peaking to the level of 3180.50 ! These levels were not seen since the far 2007.

Furthermore, observing the copper and aluminium prices.. Due to cutted supply in energy markets, their prices are hitting the highest prices since 2014 and 2015. This is definitely a very positive incline in all the base metal prices. Which also makes investors confident about further buying\selling steps.

All of this rallies are happening due to tightened supply. And certainly growing demand in the markets. Global demand is supporting the price rallies and this is spreading fast.

 

China’s demand:

Despite China’s industry showing a slight fade in the metal demand in July, the IMF made average growth forecast for period regarding 2018-2020. As China’s zinc production fell in July, lead output rose by couple percent in this period. Currently Chinese infrastructure now is developing and is kept at solid activity showing strength. 

Aluminium output in China fell 8.2 percent in July as capacity cuts started to take their actions. China makes more than half the world’s aluminium, and it is obviously putting China in the most important world’s suppliers.

 

Copper price movements:

Observing the copper prices and their movement, we also notice the important inclines. From may’s high of about 5786, to august’s high of 6596. Freeport power plant in Indonesia was currently hardly affected by floods taking place there. Due to these floods, one of the workers is missing.

Benchmark copper finished 2.4 percent higher in Friday the 18th of august, at $6,532 having touched $6,576.50, the highest since November 2014.

 

Nickel & lead:

Nickel is currently trading at $11,305,  which is the record level regarding the whole summer period, which is then the highest ever since 2014!

Observing the current lead prices, it is trading at $2376.

In all, having observed the summer 2017 period, we can bring the fine conclusion that base metal markets are quiet recovering.

“Momentum funds are buying the strength, piling in as the price rises.” (Reuters)

“The rallies had been supported by expectations of strong global demand and tight supplies.” (Reuters)

 

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