China reducing liquidity to raise rates and slow growth
• The move may be partly designed to stem the flow of funds out of China towards the US in anticipation of higher US interest rates
• China continues to restrict currency flows as part of their policy to manage the Renminbi and keep funds at home.
• Chinese nationals and companies which are not state-sponsored and which wish to move funds abroad for diversification and risk management are struggling to export even small amounts of cash from our experience. The policy is further evidence on how the Chinese government moves to favour state controlled businesses.
Chinese imports of iron ore may hit rise to >90mt in January
• 86.6mt is calculated by Reuters to have already arrived at Chinese ports in January with a further 13.2mt potentially having arrived in China by Jan 31 (Reuters)
• It is unlikely all the 13.2m will have been unloaded by 31 January but it is likely that landed imports may rise to around 90mt in the month
• The previous landed monthly record was 96.26mt in December 2015
LME warehouse stocks fall as Chinese traders return from New Year holidays
• Copper stocks fall 2,350t to 257,150t
• Aluminium stocks fall 7,025t to 2,256,000t
• Nickel stocks fall just 24t to 382,074t
• Zinc stocks fall 1,825t to 392,625t
• Lead stocks fall 150t to 189,225t
• Tin stocks fall 20t to 5,805t
Gold – 2016 demand climbed a little over 2% to 4,309t (139moz) thanks to an increase in gold ETF purchases which compensated for declines elsewhere, according to the latest WGC report.
• Jewellery: the segment dropped to the lowest level in seven years on the back climbing prices (in local currency), regulatory hurdles in India and slowing economic growth in China.
• Demonetisation in India last Nov “brought the market to a virtual standstill” following an initial rush for gold after the policy was announced.
• Central banks posted the 7th consecutive year of net purchases; although, net purchases fell 33%yoy.
• Bar and coins demand recorded a rebound in activity in the final quarter as a correction in prices attracted buyers with China posting the strongest quarter for bar and coin demand since Q2/13.
• ETFs purchases in 2016 market the strongest year since 2009, despite a drop in inflows in Q4 amid falling gold prices.
• Mine supply was flat in 2016 at 3,236t (104moz) while net hedging almost doubled in response to higher gold prices.
• “But 2016 signalled a renewed vigour for exploration” with a jump of exploration related announcements recorded last year.
• Although the WGC adds that “increased exploration is unlikely to affect mine production anytime soon”.
Gold thief caught after smuggling around 3.5kg of gold in his rectum
• An employee of the Royal Canadian Mint has been sentenced to 30 in prison for stealing 22 gold nuggets (pucks).
• When police investigated Lawrence's safety deposit box, they found four gold nuggets along with Vaseline and latex gloves
• Maybe he was preparing for his new life in prison!
Iceberg shortage follows courgette crisis due to bad weather in Southern Europe
• Shock and horror, a leading UK supermarket has limited shoppers to just three iceberg lettuces each following on from three heads of broccoli.
• We wonder what new crisis might befall us next?
Npower to raise energy prices by 9.8%
• Npower is to raise household gas prices by 4.8% and electricity prices by 15% from 16 March
• The move will add the average household energy bill by £109
• This is a big move by any standards and will feed into inflation alongside higher petrol and diesel prices
Dow Jones Industrials -0.03% at 19,885
Nikkei 225 +0.02% at 18,918
HK Hang Seng -0.24% at 23,129
Shanghai Composite -0.60% at 3,140 First day of trading post week long holidays
FTSE 350 Mining -2.94% at 16,339
AIM Basic Resources +0.98% at 2,563
Economic News
Metals are off this morning as China returns from week long holidays with local PMI coming in worse than forecast and the PBoC tightening liquidity.
• Iron ore futures on the Dalian Exchange closed more than 3% lower with Chinese rebar prices down nearly 5%.
• Gold and US$ are flat ahead of NFP numbers in the US due later today.
• Brent is also little changed holding onto gains recorded in the last few days.
US – Jobless claims remained subdued last week coming in at 246k (-14k) making it the 100th straight week of claims running below 300k, Bloomberg estimates.
• This marks the longest streak since 1970 pointing to a solid labour market.
• With good recorded employment numbers attention is on labour earnings growth.
China – Private survey manufacturing PMI disappoints with the rate of growth reported to have slowed more than forecast.
• “The rate of improvement slowed since Dec, as output and new orders increased at weaker rates amid further reduction in employment,” Markit/Caixin said.
• “Sub-indices showed that the current growth momentum may be hard to sustain.”
• On inflationary pressures, producer and final prices are said to continue to rise rapidly.
• Manufacturing PMI: 51.0 v 51.9 in Dec and 51.8 forecast.
Eurozone – Final composite PMI for Jan showed the economy maintained growth pace a Dec’s five-and-a-half year high with new orders growth htiing a 14-month high and business outlook improving.
• Employment expanded at the fastest rate since Feb/08 .
• Inflationary pressures continued to strengthen as input costs climbed “at the fastest rate in over five-and-a-half years, reflecting higher global commodity prices, increased import costs due to the weak euro and supplier price hikes”.
• Good consumer demand allowed producers to translate rising input costs into higher final goods prices as “selling prices rose at a rate matching Dec’s 65-month record”.
• On economic forecasts, Markit notes “GDP likely to rise by only 1.5% this year” as outlook is likely to be held back by “a significant risk of political events”.
• With an inflation acceleration, “ECB rhetoric may soon turn more hawkish…however, any actual change to the policy stance still looks unlikely until at least late-2017”.
UK – In line with expectations, the BoE unanimously voted to leave rates on hold at 0.25% as well keeping bond buying programme unchanged.
• The pound has fallen sharply following the release of updated economic forecasts showing a downward revision to expected employment levels suggesting a more dovish tilt of the central bank.
• Equilibrium rate of employment has been bought down to 4.5% from 5.0%.
• “We think the economy can run with a lower rate of unemployment without us having to adjust policy,” Carney said.
• Updated economic forecasts with previous estimates (Nov/16) provided below:
2016 2017 2018 2019
GDP 2.2 (2.2) 2.0 (1.4) 1.6 (1.5) 1.7 (1.6)
CPI (by Q4) 2.7 (2.7) 2.6 (2.7) 2.4 (2.5)
Source: MPC
Bank of England makes major upgrade to 2017 growth outlook
• Business leaders may feel justifiably angry with the pre-Brexit government and the BoE as the bank sharply raises its 2017 growth outlook.
• It looks like businesses were wrongly guided by ‘Project Fear’ to a more conservative approach on the Brexit vote.
Currencies
US$1.0759/eur vs 1.0803/eur yesterday. Yen 113.14/$ vs 112.67/$. SAr 13.435/$ vs 13.349/$. $1.253/gbp vs $1.269/gbp.
0.765/aud vs 0.767/aud. CNY 6.871/$ vs 6.884/$.
Commodity News
Precious metals:
Gold US$1,213/oz vs US$1,216/oz yesterday
Gold ETFs 57.2moz vs US$57.2moz yesterday
Platinum US$994/oz vs US$1,006/oz yesterday
Palladium US$750/oz vs US$768/oz yesterday
Silver US$17.34/oz vs US$17.65/oz yesterday
Base metals:
Copper US$ 5,823/t vs US$5,964/t yesterday – Potential strike at Escondida to be delayed as BHP applies for mediation with authorities over wage disputes.
• The application is approved would extend talks for five days averting the labour action that could have launched as early as Monday.
Aluminium US$ 1,823/t vs US$1,825/t yesterday
Nickel US$ 10,160/t vs US$10,445/t yesterday
Zinc US$ 2,773/t vs US$2,876/t yesterday
Lead US$ 2,291/t vs US$2,350/t yesterday
Tin US$ 19,845/t vs US$19,965/t yesterday
Energy:
Oil US$57.1/bbl vs US$56.8/bbl yesterday
Natural Gas US$3.135/mmbtu vs US$3.141/mmbtu yesterday
Uranium US$25.25/lb vs US$25.00/lb yesterday
• EDF starts closure of Fessenheim nuclear plant after pressure from berlin and need to comply with legal cap on nuclear energy generation
• The Fessenheim plant is 39 years old and was designed and built at a time when the Citroen Diane, based on the 2CV, was a new car .
• The French government has pledged to reduce its reliance on nuclear power to 50% from 78% by 2025.
• The nuclear industry are currently lobbying to relax safety rules to allow a doubling of cracks in reactor cores from 10-20%. The cracks in graphite bricks are due to long-term exposure to radiation. Relaxing the rules should allow two Scottish nuclear power stations to continue till they are 47 and 42 years old.
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$77.5/t vs US$82.1/t
Chinese steel rebar 25mm US$499.7/t vs US$498.8/t
Thermal coal (1st year forward cif ARA) US$68.2/t vs US$66.9/t yesterday – Coal news
Deutsche Bank – announces it will not grant new financing for greenfield thermal coal mining and new coal-fired power plant construction
• Dong Energy, the Danish Energy company, is to phase out the use of thermal coal completely by 2023.
• Dong has already cut its coal consumption to 1.7mtpa from 6.2mt 10 years ago. The remaining power plants will be converted to run on sustainable biomass or wood pellets sources from the Baltic states.
• Coal fired power generation is estimated to have fallen in Europe by 10% over the past three years according to a report by the Economist Intelligence Unit. Thermal coal now makes up less than a quarter of Europe’s total electrical power generation.
• Thermal coal is still a major pillar in European power generation and with
Premium hard coking coal Aus fob US$167.7/t vs US$169.7/t
Other:
Tungsten - APT European prices $194-200/mtu vs $$191-200/mtu
Company News
European Metals Holdings (LON:EMH) 40.5 pence, Mkt Cap £52.4m - Further drilling results from Cinovec
• European Metals has reported results from two further drillhole at its Cinovec project in the Czech Republic.
• Hole CIW-22, located in the central part of the Cinovec Main deposit area, intersected "the best lithium intercept to-date from the Company's drill programme of 264.5 m averaging 0.54% Li2O" from a depth of 123m.
• Hole CIW-26, located "at the western edge of the deposit near the contact of the mineralisation ...returned an interval of 236.25m averaging 0.49%Li2O (including high-grade intervals 16m@0.99%Li2O, 3m@1.15% Li2O, 2m@1.34% Li2O, 2m@0.99% Li2O, 1.3m@1.72% Li2O, 2m@0.93% Li2O, 5m@0.84% Li2O."
• Further assay results are expected to be released next week and will be incorporated in the updated block model and resource estimate which will be a part of the pre-feasibility study currently in preparation.
• The company also reports that it is progressing the permitting process and that "the Cinovec South resource estimate was approved by a Committee of Experts and placed on the State Register of mineral deposits. This is a pre-requisite for receiving a mining permit. We already applied for the 'preliminary mining space' for Cinovec South, immediately after the resource calculation for Cinovec South was accepted to the State Register."
Conclusion: European Metals continues to advance its pre-feasibility work at Cinovec in parallel with the permitting process. We look forward to further results and to the outcome of the pre-feasibility work.
Goldstone Resources (LON:GRL) 4.2 pence, Mkt Cap £2.6m - Update on drilling at Akrokerri – Homase
Stratex International plc* (STI LN) 2.8p, Mkt cap £13m
(Stratex holds a 33.4% stake in Goldstone Resources)
• Goldstone Resources reports on the results of a programme of shallow manual auger drilling at its Akrokerri-Homase project in Ghana.
• The programme tested 3 targets of a total of 9 identified from a review of a 2012 geophysical survey and other historic exploration results generated over at least 20 years.
• Drilling, which was typically to depths less than 2.5m, was carried out on 100 metre space lines at 20m intervals at the Akrokerri prospect where 36 holes (86m) were drilled on the Eureka SW area and at Homase where 104 holes (218m) were drilled on the Eureka and Eureka NE zones.
• The company reports that it identified two zones of significance; at Eureka where an anomalous zone extended over a strike length of at least 200m; and at Homase where the Eureka SW zone showed an anomalous zone of greater than 15ppb gold over a distance of 300m.
• The company expects to continue exploration of other targets and to integrate these results into its "2017 drilling programme which will focus on resource conversion drilling, expanding the existing Homase resource and will also target other areas of interest within the licences"
Conclusion: The shallow manual auger results, which are essentially a geochemical exploration technique to retrieve samples from around 2m below surface, have defined two areas of geochemically anomalous gold and other areas may be added as the programme proceeds. These areas will eventually need to be incorporated into the company's resource drilling programme and we look forward to further news as the programme proceeds