World Bank Quarterly Commodity Report expects commodity price weakness to persist for the rest of the year with a modest recovery in 2016
• The World Bank reported its quarterly report to July today.
• The expect commodity prices to remain under pressure for most commodities as a result of abundant supplies.
• In the case of industrial commodities, they expect demand to be weak.
• Oil prices are being revised up from US$53/bbl to US$57/bbl reflecting stronger demand from the US.
• Natural gas prices are expected to fall in all three main markets in the US, Europe and Asia.
• Risks to metal prices forecasts include slower demand in China and tightening environmental regulation to contain pollution.
• Lower production costs and currency depreciation are helping to sustain output and delay market rebalancing.
• Agricultural prices are expected to decline by almost 11% in 2015.
Beijing Municipal Environmental Protection unit announces air quality guarantee scheme through the 70th War Victory Celebration
• We suspect the pollution on a normal day in Beijing might not be good for surviving war veterans.
• The last pollution related production halt closed nearly 1,000 companies in the Hebi area alone for the APEC conference.
• Steel prices are reported to have increased by CNY200/t on the news
• It is good to see China starting to tackle pollution and recognise related health risks
Economic News
US – Housing sector recorded the strongest spring-summer season since the downturn driven by “steady job growth and an improving economy”, according to the National Association of Realtors.
• Existing home sales climbed 3.2%mom in Jun beating estimates for a 0.9% growth. Sales were up 4.5%mom in May.
• The EURUSD exchange is up this morning following Athens vote “yes” vote to new package of reforms.
• Weaker USD helped gold prices which are climbed past the US$1,100/oz level.
• Economic news due today:
o Weekly jobless claims (278k v 281k in the previous week)
Japan – Trade deficit narrowed in Jun as shipments to Europe and Asia accelerated, although, at a slightly lower pace than forecast.
• The deficit came in at ¥69bn last month, down from ¥217bn in the previous month and below ¥46bn surplus forecast.
• Exports climbed 9.5%yoy, the fastest pace since Jan, with shipments to Europe up 6.5% and Asia +3.1%yoy. Deliveries to the US and China both declined at a slower pace than in May.
• Imports were down 2.9%yoy.
UK – GBPEUR is down on weak retail sales in Jun.
• Sales dropped 0.2%mom last month compared with a 0.2%mom increase in May and a 0.4%mom growth forecast.
• Car production climbs 0.3%yoy to 794k in H1/15 which is equivalent to three cars every minute.
• Domestic market is driving growth with auto sales in the UK up 14%yoy and exports down 3%yoy.
• Coupled with stronger auto production, manufacturers’ productivity has picked up tremendously lately with the average value-added contribution per employee at £100k in 2014, up from £74k in 2010 and £50k average for the wider economy.
Greece – Athens working overtime as lawmakers vote through key reforms in early hours of Thursday.
• Parliament voted 230-63 in favour of the measures which paves the way for renewed negotiations regarding a new €86bn bailout later this week.
• The plan is to get the deal done by the mid-August ahead for the €3.2bn repayment due to the ECB on Aug 20.
• The ECB approved a €900m increase in the ELA to Greek banks taking the total outstanding exposure to €90bn.
India / coal – Modi government strategy for renewable energy to lead solar demand
• The Indian government strategy for renewable energy is likely to cause greater investment in solar than coal powered generation
• The strategy might have a significant impact on the level of coal imports into India and might also require the use of new battery storage to help balance the Indian grid
• Lithium battery storage for grid balancing is being shown to be more effective than other methods
US$1.0989/eur vs 1.0942/eur yesterday. Yen 123.79/$ vs 123.75/$. SAr 12.423/$ vs 12.358/$. $1.561/gbp vs 1.563/gbp
US$0.741/aud unch vs0.741/aud
Commodity News
Precious metals:
Gold US$1,104/oz vs US$1,095/oz yesterday –
Platinum US$994/oz vs US$969/oz –
Palladium US$636/oz vs US$620/oz – Reuters report record bets on a further slump in the metal. A rise in hybrid vehicle sales globally and a pull back in auto sales in China lessens demand forecasts.
Silver US$14.94/oz vs US$14.78/oz –
Base metals:
Copper US$ 5,375/t vs US$5,593/t –
Aluminium US$ 1,657/t vs US$1,669/t -
• Demand for aluminium products projections in Brazil have been downgraded as the country slips into recession.
• Consumption of these products will be stable in 2015, down from previously expected “return to positive figures” scenario, according to the local aluminium association.
• In 2014, demand contracted 5.5%yoy to 1.43mt driven by the steep drop in transports.
• The association forecasts for packaging sector to be the only one to record growth, compensating for weaker demand in other sectors.
• Brazil is the 7th world’s largest consumer of the metal.
• The economy is expected to contract 1.7% this year marking the worst performance in a quarter of a century.
• In 2016, GDP is forecast to grow 0.33%, on central banks numbers
Nickel US$ 11,385/t unch vs US$11,595/t –
Zinc US$ 2,012/t vs US$2,012/t –
Lead US$ 1,775/t vs US$1,770/t –
Tin US$ 14,750/t vs US$14,755/t –
Energy:
Oil US$56.20/bbl vs US$56.52/bbl
Natural Gas US$2.882/mmbtu vs US$2.834/mmbtu
Uranium US$36.40/lb unch vs US$36.40/lb – India looking to build a strategic uranium reserve to counteract potential shortage of nuclear fuel
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$51.10/t unch vs US$51.30t –
Thermal Coal $57.1 vs $57.5 cif ARA Europe –
Tungsten - APT European prices price $220.0/mtu unch vs $225/mtu – price change as spreads widen
Lithium - Li-ion battery production capacity forecast to hit 87GWh by 2020 from 8.3 GWh in 2014 according to Researchandmarkets.com.
• Li-ion battery sales forecast to grow at a CAGR of 43.1% to hit US$36.5bn by 2020.
• Worldwide shipments of lithium-ion powered hybrid and electric vehicles stood at 793,000 units in 2014
• Shipments are expected to see a robust CAGR of 36.9% between 2014 and 2020 with global hybrid and electric vehicle shipments projected to hit 5.2m units by 2020.
• Consumption of Li-ion cells at 299m in 2014 expected to rise by CAGR of 33.1% over 2014-2020 to a forecast 1.7bn by 2020.
Company News
Metallon (private) – Metallon preparing to reopen its Redwing Mine in Zimbabwe in October
• Metallon, the private gold mining company run by BEE entrepreneur, Mzi Khumalo is to reopen the Redwing gold mine in Zimbabwe
• The mine is scheduled to reopen at end October with around half the work complete following its shutdown some 6 years ago
Goldplat (LON:GDP) 1.75 pence, Mkt Cap £2.9m – Director Dealing
• Brian Moritz, the Chairman bought 400,000 shares on 21 July and a further 400,000 shares today at 2 pence a share.
• This brings his holding to 3.35m shares or 2% of the company.
• The company issued a trading updated on the 20th July where they said they expect to make losses for the full year (FY 2015 June year end).
• They expect these losses to be at the same level as at the interim stage where they reported a loss of £827,000 not £929,000 as we mentioned in our morning note of July 21st.
Tri-Star Resources* (LON:TSTR) 0.12 pence, Mkt Cap £9.7m – Ready to build Antimony Roaster
• We published an update on the company following the recent fund raise of £3.5m.
• Tri-Star has partnered with the Oman Investment Fund and Dutco to form Strategic & Precious Metals Processing (SPMP) which is to build a US$70m antimony roaster in Oman.
• The roaster will be the first outside China and is to be built to EU standards.
• The funds raised from a combination of shares (£1.5m) and a convertible bond (£2m) provide the company with most of their commitment towards the build of the roaster.
• The balance of funds are to come from Tri-Star’s share of the IP (US$2.4m) for the roaster which has been sold to SPMP for a conditional US$6m.
• The roaster which will produce around 20,000 tpa of antimony metal and trioxide (10% of the world market) is being funded mainly by debt.
• A US$40m facility letter for senior debt has been signed with Bank Nizwa and US$15m will be from a mezzanine loan from OIF and Dutco.
• Antimony is a speciality metal used mainly for fire retardants in a range of products.
• China dominates the market and has been the main end processor dictating the discounts and economics for antimony concentrates.
• Tri-Star will capitalise on these discounts and through the siting of the roaster in the free port of Sohar in Oman be able to generate cash flows at the top co level.
• The roaster is expected to take 18-20months to build following financial close.
• We estimate the NPV of the roaster to be US$250m with Tri-Star share of 40% valued at US$100m.
• Tri-Star is valued on a sum of the parts basis of US$105m including US$5m for its exploration assets in antimony and gold.
• The inclusion of a convertible bond as part of the fund raise reduced the potential dilution to shareholders.
• We raise our target price from 0.38 p to 0.50 pence to reflect the improved funding structure.
Source: SP Angel Estimates
*SP Angel acts as Nomad and Broker to Tri-Star Resources
ZincOx Resources (LON:ZOX) 12.75 pence, Mkt Cap £23.3m – Open offer to raise £1.1m
• ZincOx has announced that it is raising £1.1m through an open offer to shareholders.
• The offer is based on one new share at a price of 13p/share for every 21 existing shares held and comes after the placing of 16.1m new shares at the same price announced on 16th July which raised £2.1m.
• The 8.69m new shares available under the open offer represent 4.6% of the enlarged share capital.
• ZincOx’s Korean recycling plant is improving after initial teething troubles, particularly related to the performance of heat exchangers which require plant shut downs for routine maintenance 3 or 4 times per year and limit annual throughput to around 180,000 tpa of Electric Arc Furnace Dust (EAFD).
• Removal of the heat exchangers and installation of coal injection technology to augment the furnace’s energy requirements is estimated to cost US$2.2m but will cut out annual maintenance costs of around US$2.5m.
• These changes remove the throughput constraint and the company expects to accrue a benefit “of at least US$880,000 per annum” on its energy requirements and debottlenecking of the throughput is “expected to have annual benefits of over US$5m.”
• The company’s Chief Executive, Andrew Woollett, comments that the “funds to be raised in the Open Offer will allow us to press ahead with the pre-development work for the next project and so begin to unlock the full potential of the rotary hearth furnace technology.”
Conclusion: ZincOx’s perseverance in resolving the performance of its Korean plant now seems to be paying off and the additional funds should help position the company to roll out its technology to the next project.