Morning View – Iron ore takes off as metal inventories fall


Iron ore futures see record monthly advance in Singapore 

Iron ore futures powered towards $100/t in Singapore on Friday, as prices are set for a record monthly advance driven by supply worries form Brazil and robust demand from China. 
 

SP Angel . Morning View . Friday 29 05 20

Iron ore takes off as metal inventories fall

Markets pull back slightly on Sino-American tensions

 

MiFID II exempt information – see disclaimer below

  

Beowulf Mining (BEM LN) – Quarterly report highlights

Botswana Diamonds (BOD LN) – Macrodiamonds recovered from Marsfontein

Tertiary Minerals* (TYM LN) –– Three new exploration properties in Nevada

 

Rio Tinto and BHP continue to gain as iron ore prices continue to climb in China and inventory levels fall

The Chinese Communist Party might not be saying so much following their conference in Beijing.

But higher iron ore prices and falling Shanghai metals inventories indicate a degree of business confidence that comes with stimulus spending.

 

Iron ore futures see record monthly advance in Singapore 

Iron ore futures powered towards $100/t in Singapore on Friday, as prices are set for a record monthly advance driven by supply worries form Brazil and robust demand from China. 

Most-active futures have jumped 22% in May as the world’s second largest producer Brazil has been hit badly by the Covid-19 pandemic which has led to Vale cutting its annual shipment guidance. 

The early resumption of industrial operations in China has resulted in strong demand for iron ore at a time when other countries are experiencing peak Covid-19 which maximises disruption along all levels of the supply chain. 

Prices rose as much as 5.7% to $98.24/t in Singapore on Friday, set for the highest close since August. Futures on the Dalian Commodity Exchange have rallied 23% this month (Bloomberg). 

 

Shanghai Futures Exchange weekly inventory changes 

Copper inventories fell 17.5% to 144,988 tonnes. 

Aluminium inventories fell 8% to 296,305 tonnes. 

Zinc inventories fell 3.5% 107,445 tonnes. 

Lead inventories rose 16.5% to 8,622 tonnes. 

Nickel inventories rose 1.2% to 27,111 tonnes. 

Tin inventories rose 3.7% to 3,491 tonnes. 

 

China – Expect more stimulus from the National People’s Congress this week

$1.55tn – China – Bloomberg estimates a ‘fiscal impulse of more than 11% of nominal GDP’ which was estimated at US$14.14tn

We have previously assumed China at $909m $344bn of China stimulus + $565bn in special bonds for infrastructure by local authorities

$1.1tr – Japan – further stimulus to combat pandemic including significant direct spending to stop the coronavirus pandemic pushing the country’s economy deeper into recession. The 117tn-yen stimulus, funded partly by a second extra budget, will be on top of another 117tn package already rolled out last month – and takes total spending in Japan at 234tn yen ($2.18tr) – 40% of Japans GDP. To fund the costs, Japan will issue an additional 31.9 tn yen in government bonds under the second supplementary budget for the current fiscal year ending in March 2021. 

$825bn (€750bn) EU – European Commission aid package yesterday aimed at supporting EU nations hit by the pandemic.

This is an expansion on the previous $543bn (€500bn ) EU Crisis Recovery fund backed France and Germany + $963bn (€750bn) ECB scraps limits on sovereign bond purchases. ECB PEPP buying running at around €250bn

US$260bn – India representing 10% of GDP.

$97bn – Indonesia 89 priority projects including extension of a high-speed rail project being build by Chinese and Japanese investors

$2tn – US fiscal package approved by Congress. US may add $0.6t state aid for mortgage markets and travel industries

The House passed a $484bn aid package to rescue small small businesses, hospitals ($75bn) and coronavirus testing ($25bn).

$2tn US – Trump looking at $2tn infrastructure fund

$700bn – US + Fed rate cut to 0-0.25% last night. The $700bn QE to buy Treasuries and mortgage-backed securities.

US Fed may soon start buying in up to $750 billion of corporate debt and ETFs

EU Finance Ministers have so far failed to agree on a strategy to mitigate the economic impact of the pandemic.

The pandemic emergency purchase programme (PEPP) and asset purchase programme (APP) have been reiterated with a cap of €750bn and €120bn, respectively.

The bank is reported to have used €100bn of the PEPP so far.

$825bn (€756bn) Germany – Bundestag approved €156bn in extra borrowing and ~€600bn in emergency funds

$996bn (108.2tn yen) – Japan +  BoJ pledge for unlimited quantitative easing

400bn (£330bn) UK + $242bn (£200bn) UK QE from BoE & no business rates plus £25,000 cash grants for hospitality sector

$387bn (€304bn) France, $200bn (€200bn) Spain, $214bn (A$320bn) Australia Australia – RBA ready to buy bonds again.

$78bn (C$107bn) Canada, $32bn Saudi Arabia, US$43.7bn Singapore, $22.6bn India, $19.3bn HK, $13.7bn South Korea, $10bn Switzerland, $8.4bn Italy, $7bn NZ, $3.5bn Ireland, $2bn Taiwan, $0.75bn Indonesia,

Argentina to default on $10bn of dollar debt issued til the end of the year. Does not affect the $70bn that Argentina is currently in talks to restructure.

$1,000bn – IMF available + $12bn World Bank,

>14.8tn Total up from $13.2bn based on expanded EU package and massive new Japan stimulus

 

 Dow Jones Industrials

-0.58%

at

25,401

Nikkei 225

-0.18%

at

21,878

HK Hang Seng

-0.74%

at

22,961

Shanghai Composite

+0.22%

at

2,852

 

Economics

S&P cuts Rolls-Royce credit rating to sub-investment grade citing “prolonged weak profitability” and expectations of materially lower cash flow from its engine service contracts.

Fitch and Moody’s continue to rate the Company at BBB+, two notches above junk, and Baa3, one notch above non-investment grade, respectively.

 

US – Continuing jobless claims fell back by 3.9m to 21.1m for the first time during the coronavirus pandemic as of May 16.

This is a welcome news given an increase to 25.7m was expected by markets.

Weekly claims came in at 2.1m last week, slowing for two months now, but continuing to run at sustainably high rates.

Separately, durable goods orders plunged 17.2%mom in April driven by severe declines in transport orders (-47.3%mom) including auto and aviation industries.

Core capital goods orders dropped by a more modest 5.4%suggesting business investment did not contract as bad as a headline figure suggests.

Durable goods -17.2% in April vs -16.6%in March

pending home sales 21.8% (20.8%), yoy -33.8% (-16.3%),

Kansas City Fed manufacturing index -19 in May vs -30 in April

 

Japan – Declines in industrial production totalled -14.4%yoy in April, nearly three times the rate recorded in the previous month (-5.2%yoy).

Japan approved a further US$269bn supplementary budget previous budget in Apr of US$1.93tn.

 

South Korean – central bank cut official rates to 0.5% from 0.75%.

 

Eurozone inflation slowed to 0.1%yoy, the weakest rate in four years, in May.

Eurozone business sentiment indicator fell 2.43 in May vs -1.99 in April.

confidence in industry -27.5 (-32.5),

services -43.6 (-38.6) and

consumer -18.8 (-22). In the

 

Germany – Retail sales declines accelerated to -5.3%mom in April from -4.0%mom recorded the previous month.

On the positive side, the decline has significantly outperformed market estimates for a -12.0%mom drop.

The data offers a bit of optimism that personal spending did not contract as much as feared and could rebound in the coming months as economic and social life returns to normal.

 

UK – Chancellor of the Exchequer will be laying out details on how much employers will be contributing towards the government’s wage subsidy programme from August.

Rishi Sunak is expected to suggest companies pay between 20% and 30% of the costs of the programme, Reuters reports.

Around 8.4m people have been furloughed under the scheme or about one in three private sector employees.

The cost of the scheme has so far reached £15bn.

Under the scheme workers receive 80% of their wages up to £2,500 a month until the end of October.

Risks are the economy fail to rebound enough to allow employers carry those costs and potentially leading to a spike in unemployment.

UK Foreign Secretary pledged to extend visa rights for British National (Overseas) passport holders and facilitate transition to British citizenship unless China cancels plans to impose national security laws on Hong Kong, FT reports.

The news came after China formally approved a plan to impose such regulation on Hong Kong.

Around 315k people hold BNO passports that were issued to local residents born before the handover of the territory from UK to Chinese sovereignty in 1997.

UK slowly easing Lockdown restrictions so two families can meet outside while Social Distancing

The easing is a very minor concession as there is little difference between one person from a family meeting and the whole family.

People from different households are still not allowed to meet indoors, thankfully the weather is good enough for outdoor gathering

Outdoor weddings with 10 people present may be allowed from 8 June. Would be nice if they could reopen pub beer gardens

 

News seems unusually quiet following the Chinese Communist Party meeting in Beijing

 

France – Private consumption contracted 20.2%mom in April after falling 17%mom in the previous month.

That is unprecedented and expected to translate into a record drops in GDP in Q2.

The economy fell 5.3%qoq in the largest drop since records began in 1950 and compared to -2.2%qoq in Germany, -2%qoq in the UK and -3.8%qoq in the Eurozone.

 

Italy – The economy contracted more than initially estimated in Q1 marking the fastest pace on record since records began in 1996.

GDP dropped 5.3%qoq, revised from a -4.7%qoq reading before.

Q2 drop is expected to come in at more than 2x times that (-12.3%qoq) as the nation remained in quarantine through April and May.

 

Currencies

US$1.1101/eur vs 1.1008/eur yesterday.  Yen 107.19/$ vs 107.84/$.  SAr 17.578/$ vs 17.392/$.  $1.234/gbp vs $1.227/gbp.  0.666/aud vs 0.661/aud.  CNY 7.149/$ vs 7.154/$.

 

Commodity News

Precious metals:         

Gold US$1,720/oz vs US$1,720/oz yesterday – Gold trading banks preparing to reduce positions on Comex exchange 

Gold trading banks are preparing to significantly reduce their positions on ‘s exchange in New York, shifting more trading to London and raising costs for thousands of investors. 

Some banks are no longer willing to hold large positions on Comex after the coronavirus prevented the supply of gold bars, sending Comex prices above London rates in March. 

The divergence wiped millions of dollars off the value of trading books with reportedly losing $200m in a single day. 

Large banks use Comex futures to hedge their exposure to the gold market in London, as the London-Comex trade gives banks a cheap and low-risk way to expand their trading books. 

Some banks will close contracts by buying them back, if prices on Comex fall below London rates, whilst some others plan to close positions in June when they can use gold they have shipped to New York to deliver against contracts. 

Rival exchanges such as the LME could pick up customers as a result of this, with the LME’s CEO saying that there was increased interest from banks in its precious metals contracts. 

Daily trading on Comex fell to around 25Moz last week from an average of 47Moz, whist in London daily trading was roughly 35Moz, below the average of 40Moz (Reuters). 

   Gold ETFs 99.9moz vs US$99.9moz yesterday

US$840/oz vs US$840/oz yesterday

Palladium US$1,943/oz vs US$1,975/oz yesterday

Silver US$17.42/oz vs US$17.35/oz yesterday

           

Base metals:  

Copper US$ 5,341/t vs US$5,318/t yesterday

Aluminium US$ 1,536/t vs US$1,530/t yesterday – LME aluminium set for strongest monthly gain in 16 months

London aluminium prices are set for their strongest monthly gain since January 2019- underpinned by the recovery in demand from top consumer China. 

Three-month aluminium on the LME was largely unchanged this morning at $1,537/t, but rose 2.7% on a monthly basis and was hovering around a two-month high. 

Aluminium prices in Shanghai rose to a near three-month high this morning, up 0.7% to 13,190 yuan/t (Reuters). 

Nickel US$ 12,180/t vs US$12,180/t yesterday –

ICSG ‘International Wrought Copper Council’ expect demand to fall 5.4% in ’20 to 22.62mt recovering by 4.4% in ’21.

China refined cu demand this year expected to fall 2.8% to 11.87mt

Europe down 6.4% and North America down 6.9%

ICSG forecast a global refined surplus standing at 131,000t in Feb vs 2,000t in January.

Zinc US$ 1,951/t vs US$1,916/t yesterday

Lead US$ 1,633/t vs US$1,636/t yesterday

Tin US$ 15,555/t vs US$15,400/t yesterday

           

Energy:           

Oil US$35.0/bbl vs US$33.8/bbl yesterday

Oil prices are back at levels last seen in mid-March given a significant improvement in fundamentals following easing of lockdown restrictions across Europe and the US

Rystad Energy estimates that the oil market was oversupplied by around 16MMbopd in April, a massive overhang that forced prices into negative territory

The rapid shut in of around 12MMbopd (largely shouldered by OPEC+) has erased a huge portion of the surplus.

The widely-publicised rebound in demand – of around 4MMbopd, according to Rystad – puts the market close to “balanced” in June

So far, total oil production has decreased by 14-15MMbopd, and non-OPEC countries, such as Norway, Canada, Mexico, and the US have contributed cuts equalling approximately 3.5-4Mbopd

Natural Gas US$1.808/mmbtu vs US$1.857/mmbtu yesterday

Natural gas prices dropped nearly 3% yesterday as inventories built more than expected

Natural gas in storage was 2,612Bcf as of last Friday according to the EIA. This represents a net increase of 109Bcf from the previous week

Expectations were for a 107Bcf build according to survey provider Estimize

Stocks were 778Bcf higher than last year at this time and 423Bcf above the five-year average of 2,189Bcf.

At 2,612 Bcf, total working gas is within the five-year historical range.

Strong production despite continued declines in rig count has also held back gas prices

The weather is expected to remain warmer than normal for most of the US which should increase cooling demand

Uranium US$34.10/lb vs US$33.95/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$95.3/t vs US$93.9/t

Chinese steel rebar 25mm US$540.8/t vs US$540.3/t

Thermal coal (1st year forward cif ARA) US$52.3/t vs US$52.2/t

Coking coal swap Australia FOB US$114.0/t vs US$114.0/t

           

Other: 

Cobalt LME 3m US$30,000/t vs US$30,000/t

NdPr Rare Earth Oxide (China) US$37,907/t vs US$37,672/t – Rio Tinto producing high purity scandium oxide from waste titanium dioxide at RTIT in Quebec.

The metal is used improve performance in aluminium alloys for golf clubs, bicycles, fishing rods and solid oxide fuel cells.

Lithium carbonate 99% (China) US$4,966/t vs US$4,962/t

Ferro Vanadium 80% FOB (China) US$27.0/kg vs US$27.0/kg – China’s largest vanadium producer halts blast furnace to conduct maintenance

Pangang Group has halted one of the three blast furnaces as its facility in Xichang to conduct maintenance for a period of 25 days which is expected to result in the loss of 500 tonnes of V2O5. 

Since the company does not sell to the Chinese spot market, the impact will be reflected in reduced supply of vanadium alloys. 

The Chinese spot V2O5 price has already seen a significant rise recently due to tightening supply and growing interest from both traders and alloy producers (Fastmarkets MB). 

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/kg

Tungsten APT European US$215-225/mtu vs US$215-225/mtu

Graphite flake 94% C, -100 mesh, fob China US$485/t vs US$485/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,350/t vs US$2,350/t

 

Battery News

Volkswagen invests €2bn into Chinese EV

Volkswagen has agreed to invest €2.1bn in two Chinese EV firms. (Reuters)

The German automaker will take a 50% stake worth €1bn in state owned parent of JAC Motors, Anhui Jianghuai Automobile Group.

Anhui Jianghuai has a 25% stake in JAC which has a market value of $1.84bn.

The investment ups VW’s stake in an existing EV JV with JAC to 75%. VW hopes the fresh capital will enable to build capacity to manufacture the MEB platform. (Zero Hedge)

The JV is scheduled to release a further 5 EV models by 2025 and will establish a manufacturing base in Germany.

Separately VW will invest €1.1bn to acquire a 26.5% stake in Guoxuan High-tech Co Ltd. Guoxuan will supply batteries for VW’s EV models in China.

VW is targeting 1.5m NEV sales per year in China by 2025. The Company has already poured vast sums of cash into becoming a leading light in the EV space.

 

Skoltech researchers provide glimpse into the formation of SEI

Researchers from the Skoltech Centre (CEST) have visualized SEI formation on battery grade materials. (Phys.org)

The work could enable researchers to design and build higher performance and more durable batteries.

Solid electrolyte interphase (SEI) is a thin layer of electrolyte reduction products formed on the surface of lithium ion battery anodes following several cycles. Its formation remains poorly understood. (Eureka Alert)

In situ atomic force microscopy allows direct observation of the process but the majority of measurements have been carried out on highly oriented pyrolytic graphite (HOPG) which is a poor replacement for battery grade electrode materials.

To visualize the process the team had to develop an electrochemical cell that would enable measurements for the direct observation of SEI formation.

The team found that SEI on battery grade materials nucleated at different potential than in HOPG.

They also found the SEI to be 2x thicker, mechanically stronger, and better able to bind on the rough surface of battery grade graphite.    

 

Karma Auto starts prototype testing of high-performance E-Flex platform  

Karma automotive has begun prototype testing AWD performance EV platform. (Inside EVs)

The protype vehicle has a 120KWh battery pack expected to be capable of a range of 400 miles.

The motors were used in the 2020 Revero GT and have registered over 1 million miles of testing.

Karma intends to sell the platform to other OEMs, start-ups and automaker as well as using it in its own products.

The battery is a nickel, manganese, cobalt type with AC charging up to11kw and DC fast charging up to 150kw.

 

Company News

Beowulf Mining (BEM LN) 5.9p, Mkt cap £36m – Quarterly report highlights

(Beowulf holds 42.2% of Vadar. Beowulf also holds 100% Kallak iron ore in Sweden, 100% of Aitolampi graphite in Finland and 40% of the Mitrovica and Viti projects in Kosovo)

Beowulf Mining report quarterly results for the three months to end March 2020.

The report shows a slight increase in expenses to £217,651 for the quarter vs £183,650

The total net loss was £217,342 highlighting the relatively low cost nature of the company as it currently stands

The company is now active on a number of fronts:

Kallak (Sweden): a new drill program planned to extend the iron ore resource with a 1,650m contract awarded to Kati Oy.

Aitolampi (Finland): Fennoscandian, Beowulf’s subsidiary will shortly report on graphite spheroidization testwork and battery tests.

Vadar (Kosovo): ongoing co-investment into this exciting gold and other exploration in the North of Kosovo.

Kallak: The recent earthquake which has suspended operations at Kiruna, Sweden’s largest iron ore mine may cause LKAB to look to diversify its iron ore production within Sweden, particularly for good quality magnetite ore which is sold as a ‘green’ alternative to its customers.

The company continues to lobby the Swedish government over its lack of action in awarding a mining license for the Kallak project.

“contrary to media reports, no legal action had been taken against the Government, but that all options with regard to taking legal action remain under active consideration.”

Vadar (Kosovo): Rock chip samples of up to 7.2g/t are exciting news from old pits at Madjan Peak making this look particularly interesting and showing good potential for a potentially economic discovery.

Aitolampi (Finland): Fennoscandian is testing the Aitolampi graphite to see how well it might sell in to Europe’s developing battery manufacturing industry.

Fennoscandian also joined, as a consortium member, the Business Finland funded BATTrace project, which aims to improve traceability along the battery raw materials value chain using mineralogical/geochemical fingerprinting, to validate responsible and sustainable sourcing of cobalt, nickel, lithium and graphite.

*SP Angel acts as Nomad and Broker to Beowulf

 

Botswana Diamonds (BOD LN) 0.97p, Mkt Cap £6.0m – Macrodiamonds recovered from Marsfontein

Botswana Diamonds has announced that bulk samples of both fresh kimberlite and of residual stockpiled kimberlite from the previous mining of Marsfontein have both contained macrodiamonds.

A 58t sample of fresh kimberlite yielded a total of 87 diamonds averaging 0.19 carats and with an overall weight of 16.53 carats. The company reports that the largest individual diamond recovered was 2.28 carats in size and that the modelled grade of the diamonds in exceess of 1.5mm amounts to 50 carats per hundred tonnes (cpht).

ʺThe fresh kimberlite was identified as originating from the M8 dyke system, which extends to the Klipspringer diamond mine c.11 km to the west and the company’s Thorny River project to c.5 km the eastʺ.

The sample from the residual kimberlite stockpile totalled 62t and contained 24 macrodiamonds (6.77 carats). The largest stone recovered was 1.38 carats in size and the modelled grade was 16cpht.

Managing Director, James Campbell, explained that both the company’s objectives of establishing the grades in the fresh kimberlite rock and the historic dumps had been achieved by the sampling programme and that it had paved ʺthe way for further exploration work on Marsfontein to target potential blows.  The kimberlite grade is aligned with those achieved at Klipspringer mine and Thorny River, which are both nearby, indicating the considerable extent of the kimberlite dyke system.  Options will be investigated on exploitation of the dumps once the nationwide lock down in South Africa is lifted and a sense of normality returns to diamond markets, post the global Covid-19 pandemic crisisʺ.

Marsfontein was initially discovered in 1993 and started production under the management of SouthernEra Resources in mid-1998. Production was relatively short lived with closure in the early 2000s however it was considered to be one of the highest grade diamond deposits. A technical paper presented to the South African Institution of Mining and Metallurgy in 2003 (http://www.saimm.co.za/Conferences/DiamondsSourceToUse2003/008-Scott.pdf ) and co-authored by Chris Jennings of SouthernEra explained that “Mining commenced in August 1998 with values of 1 433 cpht [carats per hundred tonnes] being found in the overlying eluvial gravels. The grade of the unweathered kimberlite ranged from 355 cpht near surface to 81 cpht at the bottom of the pit at 150m.”

Conclusion: Prior to closure in the early 2000s, the historic Marsfontein diamond mine was well known as a high grade diamond producer; although further investigation will have to await the easing of pandemic controls in South Africa, the recent work by Botswana Diamonds may ultimately give it a new lease of life.

 

Tertiary Minerals* TYM – 0.23p, Mkt cap £1.8m – Three new exploration properties in Nevada

Tertiary Minerals reports that it has staked three new exploration properties as part of its strategy to develop its portfolio of precious and base metals projects in Nevada.

The new properties include:

The Peg Leg copper/silver/lead/zinc project located 11km north of Tonopah in south-central Nevada where samples of outcropping skarn mineralisation has assayed at 59g/t silver, 1.4% copper, 2.4% lead and 1.8% zinc and where ʺWaste samples from old workings assay up to 181 g/t silver, 3.9% copper, 10.1% lead and 1.2% zinc.ʺ; and

The Mt Tobin silver prospect located 73km south of Winnemucca in north central Nevada and where work by a previous explorer identified a large scale silver geochemical anomaly and an extensive area of hydrothermal alteration around 60m wide and extending for 1200m; and

The Lucky Copper prospect ʺ96 km northeast of the major porphyry copper mining town of Ely, north-east Nevadaʺ where extensive copper gossan material is exposed in old workings and where drilling undertaken in 1951 is reported to have ʺended in mineralisation, [and] intersected 20.4m at 0.65% copper to bottom of the hole at 77.7m depth.ʺ Tertiary Minerals is planning mapping, geophysical work and a programme of soil sampling to help define drill targets with a focus on ʺdisseminated replacement/porphyry copper mineralisationʺ.

Executive Chairman, Patrick Cheetham, explained that ʺWe have generated these projects at a very low cost to the Company in line with our strategy to expand our portfolio of gold, silver and base metal projects in Nevada. We believe they can be advanced quickly to the drill stage and we look forward to reporting further news on our evaluation of these projects in due courseʺ.

Conclusion: The expansion of its precious and base metals exploration projects in Nevada follows news earlier this month that the first drill-hole at the Pyramid gold project, also in Nevada, had confirmed the system to be mineralised but had not fully replicated  historic results and consequently required additional geochemical sampling to guide future target definition for follow-up drilling. The additional projects announced today underline that despite extensive current mining activity Nevada still offers opportunities to follow-up historic mining with modern exploration.

*SP Angel act as Nomad and Broker to Tertiary Minerals

 



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