Commodities
Diamonds and precious stones
Some interesting dynamics in the diamond market right now, as polished prices continue to improve as shortages for certain goods rise. Don’t take my word for it, the harbinger of doom confirmed a 1.5% rise in the key Rapi 1-ct index in December with a 0.9% improvement in Q4. Down a mere 5.8% in 2015. Not bad when considering the predictions of apocalypse being bandied about by many commentators.
More positively, the final quarter of 2015 saw smaller categories improve by up to 8.1%. albeit with c14% declines for the year as a whole. Prices, in general, have been gently rising since October…
Rough prices however remain a risk right now with the first sight of the year starting on the 18th Jan likely to see another step down in prices (5-8%) but as supply continues to tighten through the efforts of the major producers, profits are starting to reappear… Positive, I mean how many major commodities have taken out over 25% of global supply in 3 months?
Precious metals
Inevitably, the yellow metal has seen a return to favour considering the malaise in the equity markets since we all returned from our festive frolics. So many things to concern us this week with circuit breakers, Yuan devaluation, pants PMI’s, Kim Jong’s H-Bomb and Liverpool losing to the Happy Hammers, it was always going to be a tough week.
But aside from that, we am seeing some interesting mutterings this week, firstly as the Japanese Yen continues to power up, further stimulus calls are being made, especially as the currency approaches the levels that saw the last uplift in efforts. Secondly, and probably more pertinent, after picking up around 21t of bullion in November, the PBoC has been at it again, announcing on Thursday that it had acquired another 19t in December. Official holdings are now around 1,767t after adding around 100t in H2… Coincidental that Yuan devaluation? Maybe not?
Shhh, sneaky buyers are out there…
China still only sits in 5th place, just above Russia, another active buyer of gold, after the US, Germany, the International Monetary Fund, Italy and France but as a percentage of total forex reserves, gold constitutes only around 2% reserves, compared to c70% in the US and Germany…
And I refuse to talk about “Golden Doughnuts” end of…
This week: Gold: +3.5%,Silver: +1.3%, Platinum: (1.9%), Palladium: (11.2%) – For those with a penchant for the BBC; Eleven, Rhodium: (3%)
Base metals:
Not a great week for base metals again, after being kneecapped by Chinese economic data and stock market volatility, there was only one direction the complex could head.
At the start of the week there was a fascinating piece in the WSJ that reported on the impact of “super mines”. A former Rio board member was quoted to say “Gigantic mines seemed like a good idea a few years ago, when miners had cheap money and saw a world that was going to demand an ever-increasing supply of iron ore, zinc, and other minerals”, "The miners were like kids in a candy store”.
But as we all know now, these operations represent huge expenses that can't be easily turned off, and their size means that they disproportionately contribute to the oversupply of many of the weakest performing minerals.
Will be interesting to see the impact of the Malaysian three-month ban on bauxite mining in Pahang, the largest producing state. The country, the biggest shipper of bauxite to China (40% of supply) will stop mining the ore from 15 January to cut river and sea pollution.
Not sure when we will see the turn here, but aside from an oversold bounce, fundamentally there remains little to get excited about. Sorry.
This week: Aluminium: (1.4%), Copper: (3.5%), Lead: (7.5%), Nickel: (4.5%), Tin: (4.5%), Zinc: (6.4%).
Bulk commodities:
Up until Thursday this week Iron ore prices have been on somewhat of a resurgence with the benchmark 62% rising from around $37.5/t to almost $45/t, albeit now at $43/t.
But that’s pretty much where the good news ends as concerns over the Chinese rate of growth, the removal of higher cost steel producers and burgeoning inventory levels remain a major headache. Iron ore stockpiles at Chinese ports are picking up again after the price declines encouraged buyers out of their stupor but with inventory levels back at their highest levels since May 2015, holdings rose 0.8% to 93.1 million tonnes last week in the final reading of 2015, according to Shanghai Steelhome Information Technology. Catchy…
Company announcements/news/meetings:
DiamondCorp (LON:DCP), Under Review (PT: Under Review)
General meeting yesterday passed all resolutions. New shares to be traded as of today on AIM and by 12th January in SA.
Centamin (LON:CEY), Hold – Q4 production and ’16 guidance
Brief commentary out yesterday, but not too much to get excited about. Will obviously benefit from the uptick in bullion, but seems fairly valued at this time. Always apprehensive in reading into full year production and cost guidance in these markets, but certainly the co is looking to do the right things.
“Centamin today announced preliminary production results both for Q4 and 2015 that were in line with expectations. Preliminary total gold production for the quarter was 117,644oz. (+12% qoq but -8% yoy). Full year production of 439,072oz. (+16% vs. 2014), was within the guided range of 430koz. and 440koz. Open pit total material movement decreased 4% on the previous quarter to 13,754kt with open pit ore production increasing by 1% to 2,229kt. More importantly, Centamin has guided to 2016 production of 470koz. at cash operating cost of $680/oz. and an all-in-sustaining cost (AISC) of $900/oz. a 7% uplift on 2015 production”
Caledonia Mining (LON:CMCL), Buy (PT: 53p) – Q4 production and ’16 guidance
Provided a brief update this week, flash note available upon request.
“Caledonia Mining provided a Q4 FY2015 and FY2015 production update today that serves to reinforce our positive stance on the company as management targets a near 20% uplift in output to 50koz in FY2016. The positive quarterly production update comes the day after the company announced its ninth quarterly dividend payment. Caledonia provided a rare positive total return for shareholders in 2015 (+5%) and we believe that the Blanket operation will continue to produce relatively low cost ounces within a clearly defined production growth profile whilst Caledonia itself offers shareholders the protection of a significant cash position and a dividend yield in excess of 7%. We reiterate our Buy recommendation and 53p price target.”
Anglo American – Big Mick to the rescue? Discuss…