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Today's Market View - Base metals bounce following short sell-off

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US equities closed higher on Thursday supported by pro-growth comments from the US Treasury with the Dow Jones Index reaching another record high and extending its run of gains to ten sessions, the longest winning streak in 30 years.
• Gold is up $5/oz trading around the strongest level since Nov/16 supported by a weaker US$ index.
• Bitcoin hit an all-time high this morning reaching $1,219 in a +7% move over two days, before profit taking saw the price of a digital currency.
• The US SEC is set to release its decision on the Winklevoss Bitcoin ETF on the 11 of Mar which would mark the launch of the first bitcoin ETF offering the digital currency to a wider pool of investors.
• Brent is off 0.5% this morning after having climbing on Thursday on reports from the API over an unexpected decline in crude stockpiles last week.
• Copper is up $45/t today following a nearly 3% drop on Thursday with wage negotiations at Escondida seeing little progress and labour action entering third week.
• Iron ore and steel futures extend declines to three days now as investors take profits following a strong run in prices YTD.

Cobalt - hedge funds stockpiling some 6,000t of cobalt worth some $280m (FT)
• A number of hedge funds are reported to be stockpiling cobalt worth some $280m equivalent to around 17% of last year’s production
• Global demand is expected by CRU to outstrip supply by 900t this year with demand to grow by 20% this year indicating to us that prices should rise dramatically
• Cobalt prices have more than doubled to $22/lb from $10/lb a year ago but are still some way off their peak of $50/lb in 2007.
• Cobalt is almost entirely produced as a by-product alongside copper and in polymetallic mines with Glencore controlling almost a third of the cobalt market.
• The Chinese recently agreed to complete the purchase of the giant Tenke-Fungurume copper-cobalt mine a move which may have been as much for cobalt as well as copper supply.
• We reckon the funds will make an absolute killing on the metal as demand and prices rise though some traders reckon the funds may struggle to sell their cobalt into what is still a relatively thin market.
• We recall some years ago traders flying cobalt and coltan out of the Congo in low-flying planes to airstrips in Uganda, Rwanda and Burundi.  The cobalt and coltan is extracted by artisanal miners in often informal high-grade deposits in the DRC. 

Lithium – Battery related material prices continue to rise on strengthening demand
• Money Week, a well-respected financial magazine advises investors not to touch lithium stocks with a 10 foot bargepole.
• They have a point, investors have rushed into lithium stocks on the premise that lithium carbonate and lithium hydroxide demand and prices will rise.
• Lithium prices have risen steadily in recent years in response to greater demand so investors are correct in their assumptions and are also correct in investing in new potential sources of supply in our view.  .
• Yes, existing lithium producers are moving to increase production and with most of the world’s lithium coming from lithium bearing brines in the Atacama in Chile there is potential from these sources to meet some or much of the new demand to come from Tesla and other new lithium battery producers.
• However, lithium production from brines in Chile was historically a side line to potash, potassium nitrate, production in the region with lithium production limited by statutes in Chile relating back to the days when lithium was seen as critical for atom bomb production. 
• We appreciate that there will be winners and losers when it comes to new lithium discoveries which is why we maintain a list of lithium resources for the comparison of grade and resource size for the hard-rock pegmatite producers.  It feels less easy to compare the lithium brine projects and we are less keen when it comes to projects where lithium is associated with micas, due to processing difficulties.
• We are conscious that there will be some of what Alan Greenspan termed ‘irrational exuberance’ as investors pile into the next promising lithium producer and not all of these companies will be successful leading to some disappointment in the market.
• Chinese companies are keen to acquire lithium production, as seen in Chile, Argentina and with Birimian in Mali.  The Chinese need to source lithium for their own battery manufacturing and will naturally want to acquire the better quality projects.
• We conclude that while there will be some disappointment if investors randomly buy into any old lithium story we feel investors should be better rewarded if they buy into companies which rank within the top tier of projects in terms of grade, scale, capital and processing cost.

Dow Jones Industrials  +0.17% at 20,810 
Nikkei 225   -0.45% at 19,284 
HK Hang Seng   -0.62% at 23,966 
Shanghai Composite    +0.06% at 3,253 
FTSE 350 Mining   +0.06% at 16,573
AIM Basic Resources   +0.45% at 2,711 

Economic News
US – US Treasury said the administration is targeting to pass “very significant” tax reform within the next six months.
• Tax cuts combined with a reduction in regulations are likely to accelerate GDP growth to at least 3% as early as next year, up from 1.6% recorded in 2016, US Treasury Secretary Steve Mnuchin said.
• Borrowing costs are expected to stay low for a long period of time, Mnuchin said during his interview with CNBC.
• Markets are forecasting economic growth to climb to 2.3% in 2017-18.
Date Index Period   Actual Est Previous
Tuesday Markit Manufacturing PMI Feb (Prelim)   54.3 55.4 55
  Markit Services PMI Feb (Prelim)   53.9 55.8 55.6
  Markit Composite PMI Feb (Prelim)   54.3   55.8
Wednesday Existing Home Sales Jan %mom 3.3 1.1 -1.6
  Feb FOMC Meeting Minutes         
Thursday Weekly Jobless Claims   '000 244 240 238
Friday UoM Consumer Sentiment Feb (Final)   96 95.7
  New Home Sales Jan %mom   6.4 -10.4
Source: Bloomberg     

France – Consumer sentiment held at a decade high in Feb despite political uncertainty building up ahead of Apr presidential elections.
• The report follows a positive a private business sentiment gauge released yesterday showing the index hovering around the highest level in five years.
• The Insee research showed households’ confidence in their finance and employment prospects remained stable with more consumers suggesting it is a better time to make a major purchase.

Currencies
US$1.0597/eur vs 1.0559/eur yesterday.   Yen 112.72/$ vs 113.25/$.   SAr 12.924/$ vs 12.975/$.   $1.255/gbp vs $1.246/gbp.
0.772/aud vs 0.769/aud.   CNY 6.872/$ vs 6.877/$.

Commodity News
Precious metals:         
Gold US$1,254/oz vs US$1,237/oz yesterday
   Gold ETFs 58.8moz vs US$58.7moz yesterday
Platinum US$1,015/oz vs US$995/oz yesterday
Palladium US$777/oz vs US$767/oz yesterday
Silver US$18.28/oz vs US$17.97/oz yesterday
           
Base metals:   
Copper US$ 5,898/t vs US$5,979/t yesterday
Aluminium US$ 1,878/t vs US$1,875/t yesterday
Nickel US$ 10,725/t vs US$10,690/t yesterday – Chinese ramp up ferronickel imports as growth in nickel ores shipments slows down.
• Ferronickel shipments from Indonesia surge while Philippines ores exports fall amid a mining crackdown.
• Ferronickel imports climbed 92%yoy to 121.6kt in Jan beating the Nov/16 record of 120.2kt.
• Indonesia accounted for 73% of that.
• Ore imports totalled 1.09mt, up 3.9%yoy and marking the lowest level since Feb/16, with shipments from the Philippines accounting for 779kt, down 20%yoy.
Zinc US$ 2,815/t vs US$2,832/t yesterday
Lead US$ 2,243/t vs US$2,266/t yesterday
Tin US$ 19,200/t vs US$19,150/t yesterday
           
Energy:           
Oil US$56.3/bbl vs US$56.5/bbl yesterday
Natural Gas US$2.615/mmbtu vs US$2.628/mmbtu yesterday
Uranium US$24.00/lb vs US$24.15/lb yesterday
           
Bulk:   
Iron ore 62% Fe spot (cfr Tianjin) US$86.7/t vs US$89.2/t
Chinese steel rebar 25mm US$558.6/t vs US$562.4/t
Thermal coal (1st year forward cif ARA) US$68.8/t vs US$67.8/t yesterday
Premium hard coking coal Aus fob US$157.7/t vs US$157.4/t

Tungsten – APT European prices $195-205/mtu

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