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Commodities Week in a Minute: A welcome return to the desk, concerns over diamond demand plus DCP.

Published: 11:01 29 Jul 2016 BST

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Commodities

Diamonds and precious stones

For investors in the sector this week’s Anglo American results, or more precisely De Beers’ provided a note of caution for the rest of the year, certainly a view that is a little more conservative than many are hoping for, with good reason I must admit.

Proportionately H2 tends to generate lower returns than H1, but provides far more insight into the trends of the following six months or so. DB (and others) cautioning about social unrest and economic uncertainty is something to watch, especially as this is partly removed from the annual cycle of increasing inventories of polished goods following the splurge in rough purchases in H1. We should also consider the impact of Standard Chartered (plus others) continuing to withdraw their lending facilities to the industry probably driven by the notable bankruptcies of certain sightholders.

My view is that this is certainly going to impact demand for lower priced, commercial-type goods – already under the perceived pressure from synthetic goods.


Elsewhere, Snap Lake is apparently up for sale… I await that pitch document.


Finally, according to 77 Diamonds, Asscher-cut diamonds have “soared in popularity” since Pippa Middleton (You know, the one that helped drive a surge in tabloid pictures of Royal Posteriors) received an engagement ring with the fancy shape. Although the numerical increase in orders, I doubt is that great…


Precious metals

Coming back, from my travels I am slightly surprised to see bullion hovering around the $1,330 levels. Whilst a claim could easily be made for a consolidation in the trend, the commentary during the week regarding the lower than expected impact to the US economy from recent events has me a little concerned that we may be underestimating the risks to a rise before the end of the year. When I left it was practically zero chance, not so it seems now.

Admittedly, Acacia is off 7% today, but as I posted before, taking some profits from the space may not be the worst idea, certainly if bullion drifts below $1,300…

Portfolio insurance it seems, remains expensive.

(8% discount rate for CEY/ACA, 7% for RRS, sorry but I refuse to accept the countries of operation are “risk-free”)


Seems ETF’s buyers have stagnated…

And with it the momentum behind the futures market. (not to say it won’t pick up again)

Slightly out of date, but Chinese gold imports from Hong Kong fell almost 40% month on month to 70.9t in June.

Bulk commodities:

Iron ore prices continue to defy logic with prices roughly 10% higher in July with prices back around the levels seen in April, when we experienced how much the Chinese speculator can influence global pricing.
One of the main reasons behind the rise is the recovery in steel prices. Chinese steel mills have continually hit record rates of production following multiple credit expansion measures all at the same time as concerns over iron ore supplies permeate following the extensive flooding seen throughout Northern China. 
One concern will be the continued growth in port inventories…

Company announcements/news/meetings:

Many more company updates coming next week with model updates underway at this time…

DiamondCorp, Buy (PT: 11.5p)
Following the company's announcement on 27 July confirming that the South African Department of Mineral Resources has given permission for an immediate resumption of underground mining operations at the Lace diamond mine, we reinstate our formal coverage on DiamondCorp with a Buy recommendation and an unchanged 11.5p target price.
Importantly, we have retained our production forecasts in line with management guidance as we believe the impact of the suspension can be recovered through multiple work streams planned by the company before the end of the year. Our discount rate (12.6%) acknowledges the risks that lay before the team prior to full and profitable production is reached. Our NPV12.6 for the Lace operation remains $124.5m, equal to 19p/share.

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