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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


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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.



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



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



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



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


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