Kieron Hodgson - Mining Analyst at Panmure Gordon.
Today's interview with Kieron can be view here
Commodities
Diamonds and precious stones
All eyes this week have been trained on the upcoming De Beers sight and ears on the market update from Alrosa.
Again it seems sightholders will be permitted to defer goods, with total amounts subject to editorial influence as I have seen a range of 50% to 75% being quoted. I for one will be interested to hear what the Russians say as I foresee a production cut coming. Any moves to further increase output will be met with wails of dismay from Antwerp to Tel Aviv not to mention from the boardrooms of Johannesburg etc...
I have been asked a few times on my view for the industry right now and I will be quick. I believe the efforts being taken by the major producers to reduce the amount of goods obliged/voluntarily sold coupled with the improvements in overall liquidity (for the better quality companies) are a step in the right direction. Downstream, manufacturers have cut back on rough diamond purchases, as evinced by all the producers, reduced operating costs and benefitted from working capital improvements from an inventory release.
Now this does not mean that buyers will flood back into the market immediately, but rather the likely outcome will be pockets of demand, especially in goods closely related to the traditional demand trends seen during Diwali, Golden Week, thanksgiving and you know when (still too early).
Precious metals
After the initial shock and awe of going positive on the yellow metal a couple of weeks ago and again reiterating it last week, events this week have been a very supportive of our view.
I won't go back over all the macro stuff: Rates moving out to the right, Asian equity market weakness, more currency devaluations and a touch of the Greeks again for good measure as this will have already been covered by most this morning.
Maybe worth considering that Gold is currently in backwardation, implying intense physical demand. This view is backed up by a comment from bullion dealer Degussa, noting that purchases in Germany and Switzerland are up around 50% in the first half of the year. So what? I hear you say. Well the German market is the third largest in the world and almost twice that of the US...
Oh, and it probably worth checking out the volume spike in the $1,200 calls, just before the run-up...
Technical data also looking interesting.
This week's performances: Gold: +3.5%, Silver: +1.1%, Platinum: +3.8%, Palladium: +0.3%, Rhodium: (3%).
Base metals:
Another week, further volatility, more underperformance. Any impairments yet? So many macro themes impacting the base metal space right now, that the news of a major buyer in the tin market may have been missed.
After falling by around 25% in 2015, breaking down from the $20K-$25 range in place since the second half of 2012, someone has obviously taken it personally as the LME confirmed one company held more than 90% of warehouse stockpiles and short-dated positions in the market, before unwinding their positions. The result? Short sellers had to pay the highest fees in at least 16 years in order to borrow the metal for one day to roll forward positions. Maybe Ivan took matters into his own hands after the tirade against short sellers this week?
Copper still looks awful. LME Inventory data continues to show a steady upward trend as levels are now twice what they were this time last year. Global stocks are 65% higher and with fears over great swathes of concentrate coming into the market over the next 6-18 months the industry has pretty much resigned itself to a new big number... (I did warn you).
I remain of the view that Chinese inventory data remains unclear due to the unwind of various financing deals, uncertain inventories and huge stocks of fabricated/finished/recycled products that are still being worked through the cycle, basically making the industrial metal space very commodity specific right now. However, once exhausted and the short term traders have capitulated...
SHUT THE FRONT DOOR... some good news!
Refined-nickel imports by China increased for a fourth month in July to a record 46,362t, more than three times the level a year ago.
Will this provide a shot in the arm for the worst performer in 2015?
Down 2.5%.
Oh blast!
This week's performances: Aluminium: (1.1%), Copper: (2.3%), Lead: (3.5%), Nickel: (2.9%), Tin: (3.2%), Zinc: (2.0%)
Company announcements/news/meetings:
Gem Diamonds, LON:GEMD Buy PT: 198p
Flash note out this week.
"Gem Diamonds interim results were firmly in line with our forecasts. We believe that following the processing capacity and recovery upgrades at Letšeng, in addition to those implemented by their partners, Alluvial Ventures, the company will meet full year guidance of 102-107kcts. Consistent recovery of large high value goods, stable pricing in higher quality categories, coupled with ongoing operational improvements underlines our positive thesis on Gem. Whilst Ghaghoo continues to addresses the now well understood operational issues, we believe that in the long term, the operation will become a valued contributor to a more balanced production profile. We reiterate our Buy recommendation and 198p price target".
Overall, I remain optimistic about the outlook for Gem and believe the value gap will close in due course.
Kieron Hodgson is a Commodities and Mining Analyst at Panmure Gordon. https://twitter.com/kieronjhodgson