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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Statoil: Technology question cuts off Arctic drilling campaign

Statoil is Norwegian state oil company. It stopped drilling in the Barents Sea in the Arctic region. Right after the court gave away the temporary warrant in a technology dispute with a small Norwegian firm.

What did exactly happen?

Norwegian company Neo Drill said the technology which Stat Oil was using is based on its patent. It is the patented Conductor Anchor Node technology which it has been developing since 2000.

Later the Stavanger court has put a ban on Statoil’s use of this Cap-X drilling technology.

Statoil started drilling in the Barents Sea this year. During the last week it had to stop the operations. Meanwhile it was trying to make sure that it can transfer the business to an alternative plan, if this work failed.

Statoil started to deeply explore Norwegian cost this year. Putting focus on the Barents Sea.

”According to the Norwegian Petroleum Directorate the area could hold two-thirds of all undiscovered resources off the Norwegian coast.” (Reuters)

“We are taking steps to comply with the decision. We are currently securing the (Blaamann) well and that will take a few days to complete.” Eskil Eriksen said.

He said it was not clear when is the possible period Statoil could restart drilling at Blaamann. But he also explained that the company was expecting to finish its work in the Barrents Sea by the end of this year.

“We will mobilize the alternative technology in time to continue the drilling, and we will complete the Barents Sea campaign as planned.”

The Technology

Speaking about its further plans, Statoil sources said it aims to use Cap-X technology for all the five wells in the Barents Sea. Observing the Korpfjell border area, in border with Russia, it also plans to use the same technology.

When in 2013 Statoil presented its technology for the first time, it said that technology development started to help develop explorations in the Barents Sea.

However, Neo Drill noted that the presented Cap-X technology has the main parts which remind of their CAN technology. And the important fact is that Statoil really had the access to CAN, as Neo Drill’s partner. It is so since 2001, and later it had the 30% stake in this business.

“Statoil has thereby had full access to sensitive technical information related to the CAN-technology in Neo Drill.”

Back in 2016, Statoil denied using Neo Drill’s technology. But, earlier during the years, it had asked Neo Drill for a CAN license. It did not succeed to take a license because the two companies were not able to agree on the terms.

When asked to comment, Statoil did not want to explain themselves. Referring to the ongoing court process. But their source said that the current court’s decision is based on the “wrong information”.

 

Statoil is going to speak on Wednesday, at the Stavanger court.

 

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Western Australia state asks Iron ore Miners to pay cash in advance

 

Important to know on May 29th:

  • Global stocks drift in thin trade; U.S., U.K., China closed
  • Dollar steady in quiet trade; British pound jumps
  • Oil dips as traders weigh U.S. drilling, OPEC cuts
  • Mario Draghi takes center stage
  • North Korea fires another ballistic missile

 

Iron Ore Market

Western Australian state officials are going to ask BHP and Rio Tinto to pay in advance multi-billion dollar fee. In order to exchange the cancelling ongoing intrude on their Iron ore outputs.

Australian state is firmly convinced it will succeed with the current intentions, but miners are not likely to agree. In fact, if they win significant benefits they can possibly consider the option. The mineral-rich state has had more than $23 billion in debt following the end of a mining boom.

Considering all the options, the BHP and Rio Tinto are ready to pay about $3 billion in exchange for cancelling a A$0.25 a tonne ongoing levy. This iron ore levy in their mines could last for further 50 years.

Ben Wyatt won a state election in March this year. The state treasurer supports left Labor party, and he said the proposal is still in very early stages.

“It’s an option that could only be close to crystallizing if you had a range of things in play, one, obviously the engagement and agreement of the miners.” (Wyatt)

 

Miner comments

Rio Tinto spokesman said that the company rejected the payout proposal, and that it does not want to reconsider it. While the BHP spokesman refused to comment on this subject.

The miners will meet with government officials this week. But there are some rumors, that the proposal could possibly inspire some unwelcome precedent.

“The last thing Rio and BHP want is to become the state’s go-to ATM every time there’s a financial crisis.”  (Reuters source)

The A$0.25 a tonne levy raised around A$150 million for Western Australia last year, based on the two company’s combined output of about 600 million tonnes of iron ore. The state earns far more from a 7.5 percent royalty based on the value of their sales, which contributes well over $2 billion a year to state coffers. (Reuters)

 

The conditions

Miners will accept the proposal only if they benefit substantially.

“There would have to be a motivation from the miners’ point of view unless they were feeling philanthropic.” Said Pietro Guj, the university professor.

The current plan follows a proprosal by a rival party in the lead up to the March election.  It said  the levy should be raised to as much $5 a tonne, but this proposal was condemned by the miners.

Only Rio Tinto and BHP pay the rental fee which applies to mature projects. The other projects, including those owned by Fortescue Metals Group and Gina Rinehart’s Hancock Prospecting would be liable to pay it from 2023.

 

 

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Gazprom’s concessions – possibly improved after today’s meeting

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Asian markets trade today

Major markets are closed today, due to holiday. Asian markets were moving flat, after the North Korea’s latest ballistic missile.

North Korea tested the ninth missile this year. It has fired the missile near the country’s cost. It landed in the Sea of Japan. Before landing, the missile was in the air for 6 minutes. The North Korea is constantly facing pressure from U.S. and its historical ally China.

Japan’s benchmark Nikkei 225 index edged higher by 0.13 percent. Observing the South Korea’s Kospi, it added 0.33 percent. This is the seventh straight session of gains for the Kospi.

Later, the S&P/ASX 200 declined after trading flat during early trade. It was edging lower by 0.44 percent. The financials sub-index inspired this fall. It has tumbled 1.16 percent.

Hong Kong’s Hang Seng Index added 0.19 percent. Markets in mainland China are closed for a public holiday today.

Stateside, Wall Street will be closed for Memorial Day. After closing mixed last Friday following the release of the second reading of Q1 GDP numbers. Markets in the U.K. will also be closed for the spring bank holiday.

 

Gazprom

EU antitrust chief Margrethe Vestager will today meet Gazprom’s deputy chief executive. They might possibly discuss the Russian giant Gazprom to improve its concessions. Those contracts aim to end a six year investigation.

Gazprom supplies one third of the Europe’s gas. The state-controled company offered in March to scrap business practices as well as the pricing policy. Because the European Commission sees it as anti-competitive.

These ideas also include exporting its gas to other countries. Investing money in new pipelines, reconsidering monopoly pricing in the Baltic states, Bulgaria and Poland.

Current Gazprom’s concessions are letting clients to renegotiate their decades-long contracts. With prices in it, which are linked to benchmarks. For example, to the European gas market hubs and border prices. Including in Germany as well.

The competition companies seek feedback from Gazprom’s clients and rivals.They are many among those who do not agree that Gazprom should reconsider its policies and invest in new capacities. Also it shouldn’t be refreshing the concessions. Most noteworthy, the Polish state-run company said Gazprom should be punished with a tough finish.

 

The meeting

 

Vestager could possibly demand the slight changes to Gazprom’s concessions at the meeting with Alexander Medvedev.

The Commission confirmed the meeting, but they did not give the specific details. The EU executive is not likely to bow to pressure from Gazprom’s foes and scrap the deal, underlying the thaw in business ties between the bloc and Russia despite tensions over Ukraine and Syria.

For now, Vestager’s line with Gazprom is pretty flexible. Which questions her tough approach towards other giants. For example Alphabet Google, and many others… It puts her attitude in a sharp contrast.

The results of this meeting will be familiar soon. Gazprom may change its concessions, and the new ‘pipeline canals’ may soon be on the way.

 

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The Week Ahead: Crude Oil futures

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Short recollection:

This Friday, oil futures leveled higher. Recovering from the previous 5% drop which was the consequence of higher market expectations related to OPEC. Currently, traders are trying to refresh their attitude about Oil market and OPEC’s further steps.

The U.S. West Texas Intermediate crude July contract came on 90 cents. In percentage, that would be around 1.9%. Later it ended at $49.80 a barrel by close of trade Friday. It touched a two-week low of $48.18 earlier in the session.

U.S. benchmark cut the losses to fewer than 2%. Observing the first 4 days of the week it was slightly oscillating, then it plummeted for 4.8% on Thursday.

Following, on the ICE Futures Exchange in London, Brent oil for July delivery added 69 cents to settle at $52.15 a barrel by close of trade. Before that it was hitting a daily trough of $50.71. This level was not seen since May 12.

OPEC and non-OPEC countries decided on Thursday, in Vienna, to prolong the output cuts. Numbers are the same, million barrels per day until the end of the first quarter of 2018.

The agreement was globally accepted. But some of the market participants were still expecting the deeper cuts. In order for global market re-balance to be achieved sooner.

 

Next OPEC meeting

The next OPEC meeting is scheduled for November this year.

By now, the further production cuts did not have important impact on global inventory levels. Because the countries who are not participating in these output cuts are drilling bigger amounts of their oil. Such as Nigeria, Libya. And of course, the huge U.S. shale outputs.

Baker Hughes on Friday came out with data about U.S. shale drillers. They added rigs for 19th week in a row.

The U.S. rig count rose to the highest levels since April 2015. Declaring that further production gains in their production are ahead.

In order to bring financial markets closer to stability, the deal between OPEC countries and U.S. would be necessary. The constant amounts of Crude oil which are coming from the U.S. shale can only disturb every OPEC’s idea connected with market re-balance.

That definitely won’t be achieved easily, but if achieved would be of a huge value for the global markets.

In the following week, oil traders are going to face weekly information on U.S. stockpiles of crude and refined products on Wednesday and Thursday. In order  to track the real strength of demand in the United States.

Having in mind that Monday is a Memorial Day, the reports on these data will come out one day later than the usual.

Important Events to take place in the upcoming week:

Monday, May 29

Markets in the U.S. are closed for Memorial Day.

Wednesday, May 31

The American Petroleum Institute will publish the weekly report on U.S. oil supplies.

Thursday, June 1

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

The U.S. government is also set to produce a weekly report on natural gas supplies in storage.

Friday, June 2

Baker Hughes will release weekly data on the U.S. oil rig count.

 

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Will OPEC make it to co-exist with U.S. shale oil ?

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At the beginning , they ignored each other. After a while, they went into a bruising fight. Now, finally, they are talking, although with opposing agendas.

The evolution of the relationship between OPEC and the United States oil industry now lasts for about 5 years. 5 years ago, OPEC discovered it has a rival emerging in a core Oil market.

Officials of the U.S. shale bankers were present this week in Vienna, when OPEC held a meeting. After what happened, OPEC is preparing a trip for its officials. Aiming to visit Texas in order to check if it is possible for two industries to co-exist. Because if some new co-existing spirit is suffocated, the major future fights are near.

“We have to coexist,” said Khalid al-Falih,

 

Output Cuts

OPEC now realizes that agreed supply cuts and higher prices only make it easier for the U.S. shale industry to deliver higher profit. While it is aware that shale industry has  found ways of slashing costs. It happened three years ago, when Saudi Arabia ”turned up the taps”.

Permian Basin – the largest U.S. oilfield. Parsley Energy Inc, Diamondback Energy Inc, and others are pumping at the highest rate in years. Now taking advantage of new technology, low costs and steady oil prices to harvest profits at OPEC’s cost.

OPEC’s latest idea is to make certain co-agreements, and hold the prices below $60 per barrel. Meanwhile it is aware of the U.S. shale power, but aims to hinder its growth.

“All shale companies in the U.S. are small companies.” (Noureddine Boutarfa)

“The reality is that at $50 to $60 a barrel, (the U.S. oil industry) can’t break beyond 10 million barrels per day.”

“For all OPEC members, $55 (per barrel) and a maximum of $60 is the goal at this stage.” said Iran’s oil minister.

“So is that price level not high enough to encourage too much shale? It seems it is good for both.”

“We had a discussion on (shale) and how much that has an impact,” said Ecuador Oil Minister Carlos Pérez.

“But we have no control over what the U.S. does and it’s up to them to decide to continue or not.”

OPEC delegates asked Mark Papa, chief executive of Permian oil, to say more about the shale’s potential. He diplomatically did not open the cards.

“In terms of the threat, we still don’t know how much (U.S. shale) will be producing in the near future.” Nelson Martinez, Venezuela’s oil minister said after the talk. (Reuters)

 

Opinions On Shale

UAE Energy Minister Suhail bin Mohammed al-Mazroui, admittedhe didn’t believe U.S. oil production would rise by 1 million bpd next year.

Some of OPEC’s customers are indeed content to see an alternative for their Oil sources. For example India, the world’s third-largest oil consumer, currently said it is looking to the United States for greater supply.

“The new normal has to be accepted.” Dharmendra Pradhan, India’s energy minister said this week at the OPEC meeting.

OPEC will meet again in November. Aiming to reconsider output policy and check if everything was going as planned. While most in the group now seem to believe that shale has to be accommodated, there are still those in OPEC who think another fight is close.

 

 

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