Proactive Investors - Run By Investors For Investors

Morning View . Copper topples on surging inventories

Morning View . Copper topples on surging inventories

Cape Town’s mining conferences, seminars and lunches are drawing to a close

  • The 10,000 miners, geologists, financiers, drillers and other services are packing up to return back to base.
  • Cape Town’s water shortage highlights the need to preserve scarce resources.
  • With the taps due to be turned off in April everyone is focussed on how to preserve supply.
  • Politics, as always, play the largest part with central government seemingly happy to do nothing despite warnings over many years, preferring to wait for the inevitable catastrophe which many will blame on local government which is no the ANC.
  • The water shortage is exacerbated by the influx of some 3,000 new families into the municipality each month and the refusal of some communities to cut back on usage
  • Similarities exist in the world of mining where financial liquidity is seemingly insufficient to fund many new mines and where the world risks shortages of most if not all metals even without rapid growth in Electric Vehicles
  • Politicians through regulators are restricting  reservoirs of liquidity managed by banks. Fortunately traders and other capital sources are funding the better projects while more forward looking juniors and miners are working on the next generation of new mines with the collaboration between Newcrest and SolGold showing the way ahead

SP Angel rank No 1 in Copper price forecasting in the Q4 2017 MB APEX report

SP Angel analysts ranked:  See MB APEX report link for further details

  • 1st for copper, 1st = for gold, 2nd for Palladium, 3rd for Coking Coal, 5th for Zinc, 3rd in Q4 Precious Metals forecasts in Q4, 4th in Base Metals forecasting in Q4

SP Angel ranked No 1 for research by ‘Research Tree’ according to investor demand

 

Dow Jones Industrials

 

-4.15%

at

23,860

Nikkei 225

 

-2.32%

at

21,383

HK Hang Seng

 

-3.10%

at

29,508

Shanghai Composite

 

-4.05%

at

3,130

FTSE 350 Mining

 

-0.29%

at

17,650

AIM Basic Resources

 

-0.41%

at

2,528

 

Economics

 

US – Equities reported heavy losses on Thursday taking the market into a correction territory, defined as a 10% drop from recent highs.

  • Three major indices reported losses with S&P500 down 3.75%, Dow down 4.15% and Nasdaq off 3.90% erasing all gains from the beginning of the year.
  • Asian markets followed Wall Street lower with Hang Seng off 3.10%, SCI 300 -4.27% and Nikkei off 2.32%.
  • European equities are faring relatively better with UK FTSE100 down 0.35% and German DAX off 0.19%.
  • Among reasons behind a strong correction were expectations for increasing interest rates as well as algorithmic trading strategies triggered by a hike in volatility measures.
  • Yields returned on an increasing trend climbing as high as 2.88% for 10y Treasuries yesterday following a weak auction of government debt.
  • The CBOE volatility index hovered around 31.62 in European trading, higher than the long-term average of 20, but below the 50.3 reading hit on Tuesday; the index ended at 33.46 on Thursday.
  • The US government has been shut down for the second time in three week son Friday morning; although, the bill covering increased spending and debt levels have been passed in the Senate and following a vote in the House should give the bill green light shortly.
  • A Republican senator Rand Paul held up the two-year spending bill to protest his party’s spending plans but was later overcome just before 2am when the Senate passed the legislation 71-28.

 

China – Inflation slowed in January form a higher base last year which included seasonal increase in food prices ahead of the Lunar New Year holiday.

  • PPI has been coming off lately following a strong recovery recorded through H2/16 and H1/17 which in turn may see reduced pressure on final goods prices.
  • The data is consistent with the latest PMI numbers also showing softening inflation pressures.
  • CPI (%yoy): 1.5 v 1.8 in December and 1.5 forecast.
  • PPI (%yoy): 4.3 v 4.9 in December and 4.3 forecast.

 

UK – The pound is trading higher this morning as the BoE guided for a potential acceleration in tightening the monetary policy on the back of rising inflation expectations.

  • “It will be likely to be necessary to raise interest rates to a limited degree in a gradual process but somewhat earlier and to a somewhat greater extent than what we had thought in November,” Mark Carney said.
  • “Demand growth is expected to exceed the diminished supply growth.”
  • Rates have been left unchanged at 0.5% yesterday in a unanimous decision.
  • Market expectations of a rate hike in May have gone up on the back of the announcement with markets assigning a 75% chance of 0.25bp increase, up from 55% seen before the MPC statement.
  • GDP, CPI and bank rate estimates have all been revised upwards from previous forecasts in November.
  • GDP: 1.7 (+0.2) for Q1/18, 1.8 (+0.1) for Q1/19, 1.7 (-) for Q1/20;
  • CPI: 2.9 (+0.3), 2.3 (-), 2.2 (-);
  • Bank Rate: 0.5 (-), 0.8 (-), 1.0 (+0.1).

 

France – New industrial production numbers came ahead of expectations continuing to demonstrate strengthening growth momentum in the economy.

  • Manufacturing production reported a whopping 4.7%yoy increase in December.
  • Industrial Production (%yoy): 4.5 v 2.5 in November and 3.5 forecast.

 

Currencies

US$1.2271/eur vs 1.2235/eur yesterday  Yen 109.17/$ vs 109.63/$  SAr 12.100/$ vs 12.102/$  $1.396/gbp vs $1.385/gbp  0.778/aud vs 0.781/aud  CNY 6.300/$ vs 6.321/$

 

Commodity News

 

Precious metals:         

Gold US$1,315/oz vs US$1,310/oz yesterday

  • Gold remains on track for its second weekly decline on speculations on a firming dollar and concerns over the pace of global interest rate increases, despite late week rebound amid tumbling equity markets. Spot gold remains down 1% for the week as the dollar index rises more than 1% to record its best week since Oct. 27 2017.
  • Asian stock followed suit of Wall Street shares to tumble amid worries over rising bond yields. The benchmark 10-year Treasury note yield rose as high as 2.884% on Thursday as the Bank of England signaled more aggressive rate hikes, to fall just below the four-year high mark set on Monday this week. “The surge in US Treasury yield looks set to continue and this will keep a lid on gold prices due to the likelihood that real rates will be dragged up”, noted BMI Research. “However, we expect a continued rise in inflation expectations to cap real yields, which will limit the downside pressure on gold”.
  • The Bank of England announced it was likely to raise interest rates sooner and by more than it thought only three months ago, as Britain’s slow moving economy receives a boost from the global recovery.
  • ETF’s decrease their gold holdings for the fifth trading day, favouring silver amid market turmoil. Exchange-traded funds cut 69,511 troy ounces, drawing the net purchases for the year to 492,249 ounces. Meanwhile, 103,237 troy ounces of silver was accumulated during the last trading session, bringing net sales to 12.3 million ounces, recording the third day of growth.

   Gold ETFs 72.0moz vs US$72.1moz yesterday

Platinum US$971/oz vs US$974/oz yesterday

Palladium US$965/oz vs US$986/oz yesterday

  •  

Silver US$16.34/oz vs US$16.27/oz yesterday

           

Base metals:   

Copper US$ 6,791/t vs US$6,832/t yesterday

  • Copper price continues to unwind, touching its lowest in nearly eight weeks, following another significant rise in inventories. The red metal futures in China head for the worst week since November 2016 as rout in domestic stocks fuels negative mood amid global volatility. Copper on SHFE traded at 51,480 yuan/ton, down 3.8% for the week, and registered a 7.2% fall since the beginning of the year to the worst-performing metal in Shanghai.
  • Metals have been hit by panic sentiment this week as short position bets swell to the most since 2016 in domestic stock market. A combination of rising copper open interest and falling prices suggest further declines to come, especially as physical markets are also weakening.
  • On-warrant copper inventories in warehouses certified by the London Metal Exchange, not earmarked for delivery, rose 25,700 tonnes yesterday to support the surge by 75% over the past three weeks. Rising warehouse levels are signaling healthy and abundant market supply. “This correction has been needed to put metals prices in line with the fundamentals, which are not bearish but also not that bullish. T-Commodity analysis also see “copper has broken its $6,860 support level, so there’s still space for more of a correction lower. I don’t think we’ll go much lower than $6,500, which would be a good buying area”.
  • However, copper weakness is expected to be short-lived as risks of further supply disruptions remain high and China’s curbs on scrap purchases are set to boost imports of refined metal. Australia & New Zealand Banking Group maintain target price for $7,200/t as broad global recovery is also expected to support copper. The bank also raised its disruption allowance to 6% in 2018 (from normal 5%) to suggest the market will slip into 250,000 tonne deficit this year. Over the next three months, labour negotiations at Los Pelambres and Chuquicamata present this greatest supply risk.
  • China’s ban on imports of some copper scrap products could cut purchases by as much as 200,000 tonnes, presenting further opportunity for refined cargo to increase.

Aluminium US$ 2,144/t vs US$2,153/t yesterday

Nickel US$ 12,910/t vs US$12,905/t yesterday

Zinc US$ 3,372/t vs US$3,380/t yesterday

Lead US$ 2,494/t vs US$2,497/t yesterday

Tin US$ 21,265/t vs US$21,365/t yesterday

           

Energy:           

Oil US$64.3/bbl vs US$65.3/bbl yesterday

Natural Gas US$2.630/mmbtu vs US$2.720/mmbtu yesterday

Uranium US$21.50/lb vs US$22.15/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$75.3/t vs US$74.5/t

Chinese steel rebar 25mm US$642.6/t vs US$640.5/t

Thermal coal (1st year forward cif ARA) US$78.0/t vs US$78.7/t

  • In an effort to boost the environmental drive, coal companies will be encouraged to close inefficient and polluting mines and replace them with larger ones if they meet specific standards. The National Development and Reform Commission plans to increase high-quality coal supply by allowing companies to boost capacity if they agree to shut outdated production processes. The latest effort by authorities hopes to further streamline the industry and stabilize coal prices.

Premium hard coking coal Aus fob US$228.6/t vs US$224.5/t

 

Other:  

Tungsten APT European US$317-325/mtu vs US$315-320/mtu last week

 

Cobalt LME 3m US$81,250.0/t vs US$80,750.0/t

DISCLAIMER

This note has been issued by SP Angel Corporate Finance LLP (“SP Angel”) in order to promote its investment services.

This information is a marketing communication for the purpose of the European Markets in Financial Instruments Directive (MiFID) and FCA’s Rules. It has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.

This document is not based upon detailed analysis by SP Angel of any market; issuer or security named herein and does not constitute a formal research recommendation, either expressly or otherwise.

The value of investments contained herein may go up or down. Where investment is made in currencies other than the base currency of the investment, movements in exchange rates will have an effect on the value, either favourable or unfavourable. Securities issued in emerging markets are typically subject to greater volatility and risk of loss.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. This information is for the sole use of Eligible Counterparties and Professional Customers only and is not intended for Retail Clients, as defined by the rules of the Financial Conduct Authority (“FCA”) and  subject to SP Angel’s Terms of Business as published or communicated to clients from time to time.

It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. This document should not to be relied upon as authoritative or taken in substitution for the exercise of you own commercial judgment. SP Angel is not responsible for any errors, omissions or for the results obtained from the use of the information in this document.

This document has been prepared on the basis of economic data, trading patterns, actual market news and events, and is only valid on the date of publication. SP Angel does not make any guarantee, representation or warranty, (either expressly or implied), as to the factual accuracy, completeness, or sufficiency of information contained herein. This document has been prepared by the author based upon information sources believed to be reliable and prepared in good faith.

SP Angel, its partners, officers and or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SP Angel Corporate Finance LLP is a company registered in England and Wales with company number OC317049 and whose registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SP Angel Corporate Finance LLP  is authorised and regulated by the Financial Conduct Authority whose address is 25, The North Colonnade, Canary Wharf, London E14 5HS and is a Member of the London Stock Exchange plc.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use