China – power consumption falls from January to August by -0.3%
• We are looking at indicators for signs of a recovery in Chinese industrial / economic activity.
• Latest figures suggest that power consumption fell in China for the period of January to August vs 4.3% for last year.
• China is in the process of building 6-8 new reactors per annum within the current five-year government plan vs the 3-5 reactors per annum being developed under the previous state plan.
• There 27 reactors in operation in China with a further 24 under construction, according to The World Nuclear Association.
• Total capacity was estimated at around 20GW of nuclear power supply in 2014 with nuclear power supply expected to triple to 58GW by 2020 and then to 150GW by 2030.
• The International Atomic Energy Agency puts the number of available reactors at 28 with Total generation capacity at 24GW with another 24 (24GW) under construction as of 2015. This accounts for just c.2% of Total domestic generation capacity.
• In 2012, China produced 5mGWh (ex Hong Kong) with coal accounting for 76% of the Total, gas – 2%, nuclear -2%, hydro – 17%, other (incl non-hydro renewables) – balance.
• For comparison:
• US power generation in 2014: 4.1mGWh with nuclear accounting for 19% (IEA).
• In France, nuclear reactors generated a massive 77% of the nation’s annual power production in 2014 (IEA).
• Japan’s nuclear reactors remain closed with no power generated through Jan/Jul months of 2015. This compares to 25-30% of production generated before the Fukushima accident in 2011 (IEA).
• Russia operates 34 reactors with Total capacity of 25GW accounting for c.19% of domestic generation (IAEA).
Conclusion: The fall in thermal coal imports is more to do with a pullback in energy demand, import tariffs and quality controls to protect domestic coal production.
Regulatory changes in China such as introduction of import tariffs on inbound coal shipments (3-6%) and applying coal-quality restrictions.
Quality tests include banning burning coal with ash content of more than >16% or sulphur content of more than 1%. Additionally, border agencies launched checks of imports on fluorine and phosphorus. The General Administration for Quality, Supervision, Inspection and Quarantine (AQSIQ) is reported to have turned away 37 out of 240 coal cargoes in the Guangxi region based on quality reasons in H1/15 alone.
LSE tightening up on AIM market cash shells
• The LSE is proposing to raise the amount of cash needed to create a cash shell to £6m from £3m.
• The move is to create companies which can attract institutional investment rather than to serve a small groups of private investors.
• Resources companies looking to list with mineral assets and well-crafted business plans are not subject to these rules.
Economic News
US – Inflation report showed prices ex volatile food and energy components increased faster than forecast in Sep.
• Jobs market showed more signs of continuing positive momentum with unemployment claims coming in less than forecast last week.
• The budget deficit narrowed to the smallest reading since 2007 in the 12 months to the end of Sep.
• Revenues climbed 8%yoy on the back of “a stronger economy”.
• Outlays increased 5%oy primarily driven US entitlement programmes including Social Security, Medicare and Medicaid.
• Despite lower deficit the nation continues to accumulate debt and will need to revised its borrowing ceiling as soon as Nov 3, two days earlier than previously forecast.
• Goldman Sachs estimates cash balances to hit US$30bn on Nov 3 and be gone in a week time should the debt capacity remain unchanged.
• Economic news this week:
Date Announcement Period Actual Expected (Bloomberg) Prev month
Wednesday Core Retail Sales (ex Auto) Sep -0.3%mom -0.1%mom 0.1%mom
Core PPI Sep -0.3%mom/0.8%yoy 0.1%mom/1.2%yoy 0.3%mom/0.9%yoy
Fed Beige Book
Thursday Weekly Jobless Claims weekly 255k 270k 262k
New York Manufacturing Index Oct -11.4 -8.0 -14.7
Philly Business Outlook Oct -4.5 -2.0 -6.00
CPI Sep -0.2%mo/0.0%yoy -0.2%mom/-0.1%yoy -0.1%mom/0.2%yoy
Core CPI Sep 0.2%mom/1.9%yoy 0.1%mom/1.8%yoy 0.1%mom/1.8%yoy
Friday Industrial Production Sep -0.2%mom -0.4%mom
Capacity utilization Sep 77.3% 77.6%
UoM Consumer Sentiment Oct (prelim) 89.0 87.2
China – China will be releasing Q3 GDP data on Monday with estimates expecting to see a slowdown in the growth rate to 6.7%, down from 7% recorded through H1/15.
• China’s statistics bureau said last month that growth as low as 6.5% would still be in line with state official target of “around 7%”.
Brazil – The sovereign credit rating has been cut down a notch to BBB- from BBB by Fitch yesterday.
• With a negative outlook in place the agency noted a potential additional cut may follow.
• “The difficult environment is hampering progress on the government’s legislative agenda and creating a negative feedback loop for the broader economy,” Fitch said.
• Both Fitch and Moody’s continue to rate government bonds as investment grade securities, while S&P cut the rating to junk (BB+) in early Sep.
Russia – S&P cut its GDP growth forecasts for Russia expecting a weaker recovery in 2016 than official estimates suggest.
• The economy is expected to contract 3.6% in 2015 and grow 0.3% in 2016 versus -2.6%yoy and +1.9%yoy forecast previously.
• The latest Economy Ministry forecasts suggested a 3.9% decline and a 0.7% growth in 2015/16, respectively. The Ministry has been consistently revising its estimates downwards as economic conditions deteriorated with previous forecasts suggesting a no more than 3% decline this year and a c.2% growth in 2016.
Currencies
US$1.1360/eur vs 1.1456/eur yesterday. Yen 119.17/$ vs 118.31/$. SAr 13.139/$ vs 13.147/$. Sterling $1.546/gbp vs 1.549/gbp
0.728/aud vs 0.736/aud –
Commodity News
Precious metals:
Gold US$1,177/oz vs US$1,186/oz yesterday –
Platinum US$1,003/oz vs US$1,005/oz yesterday
Palladium US$700/oz vs US$702/oz yesterday
Silver US$16.00/oz vs US$16.16/oz yesterday
Base metals:
Copper US$ 5,285/t vs US$5,330/t yesterday –
• Las Bambas remains on track for commissioning in Q1/16 despite a number of protests recorded in the region last month, Peru’s environment minister said.
• The mine costs MMG US$7.4bn to develop and is expected to supply >400kt Cu in the first FY of production (2017) and over 2mt copper in its first five years.
• The project is 90% complete as of H1/1 with pre-operational testing 15% complete, according to MMG.
• Freeport-McMoRan reckons high Tc/Rcs at US$107dmt/10.7clb for 2015 should fall next year.
Aluminium US$ 1,570/t vs US$1,597/t yesterday -
Nickel US$ 10,595/t vs US$10,610/t yesterday
Zinc US$ 1,815/t vs US$1,833/t yesterday
Lead US$ 1,811/t vs US$1,813/t yesterday
Tin US$ 16,075/t vs US$16,095/t yesterday
Energy:
Oil US$50.30/bbl vs US$49.10/bbl yesterday
Natural Gas US$2.438/mmbtu vs US$2.533/mmbtu yesterday
Uranium US$37.80/lb unch vs US$37.90/lb yesterday –
Bulk commodities:
Iron ore 62% Fe spot (cfr Tianjin) US$53.0/t vs US$53.5/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$48.20/t vs US$48.30/t
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 New
Anglo Pacific (LON:APF) 74.5 pence, Mkt Cap £126.6m – Kestrel Royalty Update
• Anglo Pacific reports that although Q3 coal production at the Rio Tinto operated Kestrel mine declined to 0.54mt of hard coking coal (Q2 2015 0.94mt) and 0.11mt of thermal coal (Q2 2015 – 0.18mt) due to a planned longwall changeout, the reduction was within “Anglo Pacific’s H2 2015 guidance range of 70% to 75%, or slightly above, of production within Anglo Pacific’s royalty area.”
• The company points out that as well as keeping production losses within the planned levels, the changeover was completed successfully within the expected timetable and that it expects production to rebound in the next quarter.
Connemara Mining (LON:CON) 1.4p mkt cap £0.8m – Teck Ireland to drill two deep holes looking for lead, zinc orebodies in Oldcastle
• Connemara are waiting on Teck Ireland to drill two deep-ish drillholes into the Oldcastle license in Ireland.
• Teck is operator and has spent some €550,000 to earn into 51% and can move to 75% on spending another €800,000.
• It is a very positive sign to see Teck committing to some deeper drill holes in this environment of austerity in exploration suggesting that Teck are keen to find another significant lead / zinc orebody in the area.
• These must be really special holes because the statement states that each deep hole with take 5 to 6 weeks to drill.
• Maybe the drillers are working to some form of European working-hours directive limiting their activity to the same as your average French employee.
• One former driller at SP Angel commented that he’d fire any drillers that were that slow.
• Connemara describe drilling to targets below 500m is expensive and challenging
• We refer the company’s executives to SolGold who took 83 days to drill hole 12 at Cascabel to 1,683m depth with around 1km of copper/gold mineralisation in the wilds of Ecuador, though it will take longer for the assay results to return. Previous holes at SolGold average around 25m per day even at 1,400m depth.
Conclusion: Connemara has previously drilled 11 shallow drill holes on the Oldcastle block with five showing zinc mineralisation. As John Teeling, Connemara’s chairman states, “the real targets are deep at below 500m”, though this is not particularly deep in mining terms. The Tara lead, zinc mine is just 20 km away and Teck is drilling to find something similar at Oldcastle.
Norilsk Nickel US$16.015, Mkt Cap US$25,343m – Additional US$1.2bn unsecured credit facility
• Norilsk Nickel has announced that it has agreed a 10 year US$1.2bn unsecured credit facility with Sberbank
• The company reports that as a result of this latest transaction it now has a Total of US$1.9bn of unused, committed credit facilities.
• The deal with Sberbank is part of the company’s moves to optimise “its debt portfolio by extension of the maturity profile and increase the available committed credit facilities which can be used as an alternative stable financing within medium term perspective.”
Rio Tinto (LON:RIO) 2534, Mkt Cap £45.4bn –Third Quarter Production shows more pumping of iron ore,cut back on diamonds and slower copper
• Global iron ore production was up 12% for the quarter at 86.1 Mt with year to date production up 11% to 240.4 Mt.
• The Pilbara accounted for most of the production with key elements of Pilbara infrastructure expansion in place.
• Around 40 mtpa of low cost brownfield expansions were completed in the first half of 2015 at West Angelas, Nammuldi and Brockman mines.
• Guidance for iron ore remains unchanged at 340 Mt on a 100% basis.
• Mined copper was -24% for the quarter at 115 kt with year to date production down 17% at 383 kt.
• Lower copper production was impacted by de-weighting and de-watering of the wall at Bingham Canyon with KUC down 58% over the quarter.
• At Escondida production was down 12% for the quarter at 73.8 kt and up 10% year to date at 278.5 kt.
• Escondida was down 25% on a quarter on quarter basis due to lower grades and water constraints.
• Oyu Tolgoi performed well with higher grades and improved throughput.
• Guidance for copper is to be around 510 kt for the full year at the bottom end of the range of 500 to 535 kt.
• Hard coking coal was up 5% for the quarter at 1.856 Mt and up 10% year to date at 5.959 Mt.
• Semi-soft and thermal coal was down 8% at 5.546 Mt for the quarter and down 3% year to date at 16.3 Mt.
• Bauxite was up 4% for the quarter at 11.287 Mt and aluminium up 1% at 830 kt.
• Diamond production from Argyle was up strongly at 43% to 3.514 m carats for the quarter and 10.1m carats year to date.
• At Diavik third quarter carats recovered were 24% lower at 761,000 carats and down 14% year to date at 2.9 m carats.
• For the full year the company expects its share of diamond production to be 18m carats against 20m carats previously as it pauses final product processing at Argyle due to current market conditions.
Conclusion: Rio continues to pump out iron ore in line with their stated strategy of gaining market share at the expense of other high cost producers. With Pilbara infrastructure now complete, the company is likely to stick to this strategy to optimise the large fixed cost investment. Copper guidance is now at the bottom end with remedial work at Bingham Canyon and lower grades and water constraints holding back production at Escondida.
Interestingly they are cutting back production on diamonds at Argyle reflecting the poorer market conditions – Argyle with its smaller stones is more likely to be impacted by lower pricing of rough diamonds.