BHP – BHP’s president of marketing reckons that shutting-in production does not do anything for prices according to a Bloomberg report. Opec might beg to differ.
• We beg to differ, if you close production, this speeds up the return to a more balanced market enabling prices to recover when demand rises and when the market starts to run short of material.
• China has yet to re-stimulate a large number of infrastructure and other construction projects with reports suggesting that the Chinese government has clawed back >Rmb1tr this year from unspent budgets on incomplete projects. The stalling of projects has led to a significant decrease in consumption of steel and other metals causing inventory levels to rise.
• BHP appear to have a produce at any cost mentality which, in our view, is more about growing the scale of its business than looking after shareholder interests
• We agree that that higher cost producers should cut back first and most but we also believe larger companies should preserve the value of their higher-cost in-ground resources in anticipation of a rise in prices and future margins. We accept that BHP spun out its non-core and sometimes higher-cost operations into South 32.
• Glencore are the only major company brave enough to show leadership in cutting production to rescue the market from a longer term period of oversupply and surplus inventory.
FAA – lithium battery warning – do not pack spare lithium batteries into your checked luggage
• The Federal Aviation Authority has issued a safety warning recommending airlines not to put rechargeable or non-rechargeable lithium batteries in their bags.
• Sounds like it is still ok to carry spare lithium batteries in your pockets though.
• The FAA warning follows a fire in Boston on board a Boeing 787 which ignited in January 2013.
Economic News
US – Retail sales climbed slightly through Sep driven by stronger results from auto and food services industries.
• Excluding auto sales, retail sales underperformed expectations falling 0.3%mom while Aug numbers have also been revised downwards (-0.1%mom v 0.1%mom reported previously).
• Weak economic data add to the case the Fed is likely to delay rate hike until early next year.
• Futures markets place a 27% the Fed will announce a rate increase in the Dec meeting, down from 62% registered a month ago.
• Apr hike is estimated to happen with a 53% probability.
• Strong USD is blamed for weakening manufacturing activity and tourism spending from lat Aug to early Oct according to the latest release of the Fe dBeige Book.
• However, overall “business contacts across the nation were generally optimistic about the near-term outlook”.
• On inflation pressures, the Fed said wage was mostly subdued with prices remaiing “fairly stable”.
Japan – Economic indicators indicate further deterioration in the business activity.
• Final reading of the national industrial production showed output contracted for a second consecutive month through Aug (-1.2%mom/-0.4%yoy v -0.5%mom/+0.2%yoy in Jul).
Eurozone – Industrial production posted a mom decline in Aug led by contraction in output in Germany, Italy and Spain.
• Industrial production: -0.5%mom/+0.9%yoy v 0.8%mom/1.7%yoy in Jul and -0.5%mom/1.8%yoy forecast.
Australia – A decline in full time jobs in Sep outpaced growth in Aug with Total payroll numbers down for a third time since the start of the year.
• The economy lost 5,100 jobs last month compared with a 9,600 gain forecast.
• Full time jobs contracted by 13,900.
• The unemployment rate held steady at 6.2%, in line with expectations.
South Korea – The Bank of Korea warned disinflationary pressures are likely to stick around on the back of soft oil prices cutting its inflation forecasts to 0.7%/1.7% in 2015/16, down from 0.9%/1.8% forecast previously.
Currencies
US$1.1456/eur vs 1.1405/eur yesterday. Yen 118.31/$ vs 119.45/$. SAr 13.147/$ vs 13.463/$. Sterling $1.549/gbp vs 1.536/gbp
0.736/aud vs 0.726/aud – Weaker US dollar due to poor US retail sales and expected further delays in Fed rate increases
Commodity News
Precious metals:
Gold US$1,186/oz vs US$1,175/oz yesterday –
Platinum US$1,005/oz vs US$994/oz yesterday
Palladium US$702/oz vs US$687/oz yesterday
Silver US$16.16/oz vs US$16.04/oz yesterday
Base metals:
Copper US$ 5,330/t vs US$5,254/t yesterday – Freeport-McMoRan expects TC/RCs to come down to “two-digit” settlement next year, the Company said.
• The latest round of talks fixed charges at US$107dmt/10.7clb for 2015, the result the Company was “unhappy” about.
• Codelco will not be cutting production at its core projects but we expect Codelco to trip other production
Aluminium US$ 1,597/t vs US$1,585/t yesterday -
Nickel US$ 10,610/t vs US$10,440/t yesterday
Zinc US$ 1,833/t vs US$1,816/t yesterday
Lead US$ 1,813/t vs US$1,783/t yesterday
Tin US$ 16,095/t vs US$15,750/t yesterday
Energy:
Oil US$49.10/bbl vs US$49.10/bbl yesterday
Natural Gas US$2.533/mmbtu vs US$2.482/mmbtu yesterday
Uranium US$37.90/lb unch vs US$37.90/lb yesterday –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$53.5/t vs US$54.0/t –
Steel – Global steel demand is forecast to record a c.2%yoy decline this year on the back of a slowdown in China, according to the WorldSteel estimates.
Thermal coal (1st year forward cif ARA) US$48.30/t vs US$48.25/t
• Thermal Coal imports into China has fallen 30% in the first 9-months of this year.
• The move suggests a significant reduction in industrial activity and local power consumption
• China is also building a number of new nuclear power stations which are expected, over time to replace some thermal coal production
• Coal imports into China fell 16% in September to 18mt yoy
Other:
Tungsten - APT European prices $175/195 per mtu versus $180/200 per mtu –
• A third of Chinese production is thought to have been shut down in the last year with remaining production though to be at a cost of around $170/mtu
• The market is still working through tungsten and other minor metal stocks held on the Fanya Exchange and used for financing purposes
Ferrochrome – Benchmark charge chrome price for delivery in Europe fell 4c to US$1.04/lb last week marking the lowest reading since Q1/10.
Company News
Anglo Pacific (LON:APF) 71.5 pence, Mkt Cap £121.5m – Royalty Update at Narrabri
• A scheduled longwall changeout at Narrabri during the quarter ended Sept 2014 will impact production.
• Production over the quarter was 1 mt down 52% compared to the same time last year.
• Saleable coal production which exceeded coal production for the quarter was 1.6 Mt with coal sales of 1.6 Mt.
• Guidance for ROM coal production from Narrabri is 6.6 – 6.8 Mt.
Bellzone Mining (LON:BZM) 0.375pence, Mkt Cap £4.2m – Tycoon connected to China Sonangol arrested
• The FT carries the story about the arrest of Sam Pa who is connected with Chinese groups involved with projects in Africa.
• China Sonangol’s Singapore office say that this does not impact any contractual obligations they have and Mr Pa acted merely as an adviser.
• China Sonagol has been the main funder for Bellzone.
• Sam Pa is reported to have eight different names and ties to the intelligence services. He is connected with Mugabe, Chavez, Jean-Marie Dore (Guinea), dos Santos (Angolan president).
BHP Billiton (LON:BLT) 1170 pence, Mkt Cap £62.9bn – Pricing of US$3.25bn of hybrid notes
• The company has priced US$1bn 60 year non-call 5 year at a coupon of 6.25% paid semi-annually.
• US$2.25 bn of 60 year NC 10 is being priced at 6.75%.
• The coupon for each tranche will reset in accordance with their respective non call period and every 5 years thereafter prior to matrutiy.
• Proceeds are to be used for general working capital purposes.
• Moodys has rated these new hybrid subordinated notes at A3 which is two notches below the BHP Billiton long term rating.
• This reflects the deeply subordinated nature of these securities and the 50% equity treatment of these notes.
Conclusion: The higher coupon reflects the subordinated nature of these notes. Moodys still has a stable outlook for BHP although they expect the next two or three years to be challenging. BHP’s liquidity position is said to be robust by Moodys with cash on the balance sheet and an undrawn US$6bn revolving credit facility.
Hochschild Mining (LON:HOC) 84.75 pence, Mkt Cap £311.6m – Q3 2015 Production
• Q3 2015 production of 7.6m attributable silver equivalent oz with 4.1m oz of silver and 57k oz of gold.
• The company is on track for 24m of silver equivalent oz.
• All in sustaining costs stand between US$13 to US$14/oz with all in sustaining costs in September at Inmaculada are expected to be below US$10/silver equivalent oz.
• This was the first full quarter of production with 0.9m oz of silver and 36.1 k oz of gold.
• Total cash was around US$75m at the end of the quarter.
• The company has new hedges in place for 38,000 pz of gold at a price of US$1,158/oz for 2015 and 71,000 oz at US$1,154/oz for 2016.
• This is in addition to previous hedges of 38,000 oz of gold for 2015 at US$1,300/oz and 6,000,000 oz of silver at US$17.75/oz.
Orosur Mining (LON:OMI) 6 pence, Mkt Cap £5.8m – Q1 FY 2016 Results
• Gold produced for the quarter was 12,471 oz against 13,684 oz the same time last year.
• All in sustaining costs for the period was US$1,166/oz against an average realised price of US$1,147/oz.
• Cash balances at the end of the period stood at US$4.62m with net cash of US$3.5m.
• The company continue to rationalise costs with a 40% reduction in staff since the beginning of the fiscal year.
• The key objective of the company is to reduce its AISC to US$1,000/oz.
Conclusion: Getting costs down is the only option to keep operations going while gold prices remain at current levels.