SP Angel Morning View – Chinese stocks plummet as traders return from extended lunar new year


SP Angel . Morning View . Friday 03 02 20

Chinese stocks plummet as traders return from extended lunar new year

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 Company news will resume next week, as our team of analysts are in Cape Town attending the Indaba Mining Conference

 

Miners face funding squeeze as green investment surges (Reuters)

  • Mining companies are losing billions in financing as global investors shift away from heavy industry in favour of ‘cleaner sectors’.
  • ESG concerns have driven money into specialised ESG funds which often exclude mining stocks.
  • Making the mining industry more sustainable in order to attract investment is likely to be a key focus of the Mining Indaba conference this week.
  • Coal miners are bearing the brunt of this trend, as Norway’s sovereign wealth fund divested from all fossil fuel last year, and Blackrock announcing last month it would sell active holdings in companies generating more than 25% of revenues from thermal coal.
  • There is still a huge market for coal, however projects aren’t getting financed from the West and instead, local lenders are stepping in.
  • Thermal coal accounts for nearly 40% of the world’s electricity generation and more than 40% of energy-related carbon dioxide emissions, according to the International Energy Agency.
  • On-site renewable energy sources at mines may see projects attract more investment, however installing these forms of power generation could increase the costs of a project.
  • Aside from attracting environmentally conscious investment, on-site renewable energy sources can also improve the energy security of a mine, which may be operating in an area which has unreliable grid energy.

 

Base metals down by an average 4.8% in Shanghai after Chinese holiday (Fastmarkets MB)

  • The most traded metals contracts on the SHFE were all down as they caught up with the price performance on the LME last week.
  • Copper was down the most, falling 6.5% to US$6,489/t.
  • The rest of base metals were down between 3.4% for March aluminium and 5.4% for the June tin contract.
  • Prices in London rebounded on Monday morning, as China’s sell-off has not been as severe as feared.
  • The following metals were down this morning in Shanghai:
  • Copper (March) – down 6.5%.
  • Aluminium (March) – down 3.4%
  • Nickel (March) – down 4.3%.
  • Zinc (March) – down 4.6%.
  • Lead (March) – down 4.9%.
  • Tin (June) – down 5.3%.
  • Iron ore (May) – down 8.0%.

 

Dow Jones Industrials

 

-2.09%

at

28,256

Nikkei 225

 

-1.01%

at

22,972

HK Hang Seng

 

+0.17%

at

26,357

Shanghai Composite

 

-7.72%

at

2,747

FTSE 350 Mining

 

-0.37%

at

17,598

AIM Basic Resources

 

-0.07%

at

2,150

 

Economics

China – Stocks have worst opening since 2007 on coronavirus fears

  • Chinese stocks fell as business resumed after an extended lunar new year.
  • The CSI 300 index of Shanghai and Shenzhen listed equities fell as much as 9.1% on Monday, to mark the worst opening in nearly 13 years.
  • The drop came despite the Chinese central bank pumping $171bn into the financial system.
  • China reported 17,205 confirmed cases of coronavirus and 361 deaths as of the end of Sunday.
  • The onshore renminbi weakened 1.2% to Rmb7.021/USD, on track for its worst day since US-China trade tensions escalated sharply in May 2019.
  • Shanghai brokers told the FT that a national team of Chinese state-run institutional investors were buying stocks to help underpin the market.

 

UK – Boris Johnson to set out vision for European trade deal later today

  • The prime minister is expected to use a speech in London later today to call for a ‘Canada-style’ free trade agreement.
  • This would see no import tariffs on most goods between the UK and the EU, though there would still be customs and VAT checks.
  • If the two sides are unable to strike such an agreement, Johnson is expected to pursue a deal similar to Australia’s relationship with Europe, which would see Britain trading on WTO terms.
  • EU Chief negotiator Michel Barnier will also set out his approach to the talks later today.

UK Final Manufacturing PMI rises to 50.0 in January 

  • The UK manufacturing sector has its best performance in nine months in January, rising well above December’s reading of 47.5.
  • New orders, employment and business confidence were reasons for the higher reading according to Rob Dodson, Director at IHS Markit.
  • The improvement of the UK manufacturing sector will be seen by many as justification for the Bank of England leaving interest rate unchanged at 0.75% last week.

 

Australia – Hundreds evacuated to Christmas Island amid Coronavirus fears

  • Australia has begun evacuating its citizens trapped by the coronavirus outbreak in China to an immigration detention centre on Christmas Island.
  • 243 citizens and permanent residents were on their way to the quarantine, where they will be held for at least two weeks.

 

Middle East – Palestine cuts relations with Israel and the US

  • The Palestinian president Mahmoud Abbas has severed ties with Israel and the US, in response to proposals by Donald Trump that pave the way for Israel to annex more occupied Palestinian land.
  • The US-Israeli plan recognises Jerusalem as Israel’s undivided capital and allows the Jewish state to annex settlement in built on occupied Palestinian land.
  • Palestine’s president Mahmoud Abbas has informed both countries that there will be no relations at all with the two countries, including security ties and agreements with US intelligence agencies to combat extremism.

 

Currencies

US$1.1065/eur vs 1.1028/eur yesterday.  Yen 108.54/$ vs 109.00/$.  SAr 14.958/$ vs 14.834/$.  $1.311/gbp vs $1.314/gbp.  0.669/aud vs 0.670/aud.  CNY 7.023/$ vs  6.911/$.

 

Commodity News

Gold US$1,578/oz vs US$1,578/oz yesterday

   Gold ETFs 82.7moz vs US$82.6moz yesterday

Platinum US$952/oz vs US$978/oz yesterday

Palladium US$2,282/oz vs US$2,306/oz yesterday

Silver US$17.78/oz vs US$17.88/oz yesterday

            

Base metals:    

Copper US$ 5,590/t vs US$5,591/t yesterday

Aluminium US$ 1,718/t vs US$1,728/t yesterday

Nickel US$ 12,835/t vs US$12,695/t yesterday

Zinc US$ 2,200/t vs US$2,193/t yesterday

Lead US$ 1,861/t vs US$1,851/t yesterday

Tin US$ 16,150/t vs US$16,105/t yesterday

            

Energy:            

Oil US$56.3/bbl vs US$58.8/bbl yesterday

Natural Gas US$1.877/mmbtu vs US$1.837/mmbtu yesterday

Uranium US$24.70/lb vs US$24.55/lb yesterday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$80.6/t vs US$81.8/t – Fortescue plans 150-mw solar park for WA iron ore mines (Renewables Now)

  • Fortescue Metals Group has announced it plans to install 150MW of PV capacity to its Pilbara operations in Western Australia.
  • The company announced last week that the project is part of a US$700m transmission and power generation programme aimed at powering its iron ore operations with renewable energy.
  • The miner also plans to add 150MW of gas-fired generation capacity together with energy storage to help mitigate up to 285,000t of CO2 annually.
  • All of the new facilities will be owned and operated by the mining group.

 

Chinese steel rebar 25mm US$558.6/t vs US$570.4/t

Thermal coal (1st year forward cif ARA) US$59.6/t vs US$59.0/t

Coking coal swap Australia FOB US$149.0/t vs US$149.7/t

            

Other:   

Cobalt LME 3m US$35,000/t vs US$33,000/t – DRC to support cobalt prices by buying ‘artisanal’ supply (FT)

  • The DRC will create a state-owned company to buy all the cobalt mined by hand in the country, in an effort to support the price of the metal.
  • A decree signed by the prime minister on Thursday described how the government wish to ‘control the entire value chain’.
  • The government of the country which producer over 60% of the world’s cobalt is attempting to clean up the supply chain that is dominated by Chinese traders who buy from thousands of individual miners, including children.
  • Analysts at Benchmark Mineral Intelligence believe that this is likely to lead to higher cobalt prices, as the state owned mining company Gecamines could hold material and not let out as much as in the past.

NdPr Rare Earth Oxide (China) US$39,724/t vs US$40,371/t – Kalgoorlie rare earth plant given special status (Reuters)

  • Rare earth producer Lynas Corp announced on Monday that the Australian government has awarded its Kalgoorlie processing plant special status.
  • This shows the government recognising that the processing plant is a key project for the country, and will help coordinate and support regulatory approvals.
  • The plant will create 500 jobs during the peak construction period according to Lynas.

Lithium carbonate 99% (China) US$5,482/t vs US$5,571/t

Ferro Vanadium 80% FOB (China) US$28.5/kg vs US$28.5/kg

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

Tungsten APT European US$235-245/mtu vs US$235-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,550/t vs US$2,550/t

 

Battery News

Toyota and Panasonic in JV to produce prismatic electric vehicle batteries. (Reuters)

  • The new company will begin operations on April 1, Toyota owning a 51% share. They will develop batteries to be made available to all automakers not just Toyota vehicles.
  • The JV extends the partnership between the two companies that began in late 2017. Existing battery related equipment and engineers will be pooled in the JV, while Panasonic will move it manufacturing capabilities in Japan and China which produce the thin rectangular shaped prismatic batteries.
  • Panasonic already makes prismatic batteries for Toyota whilst producing cylindrical batteries, similar to those used in laptops to Tesla.

 

Chinese Lithium giant Tianqi Lithium being crushed under the weight of a debt burden. (Yahoo Finance)

  • Episode an example of mistimed ventures or overextension at the top of the cycle.  
  • The Company owes $6b of which $3.5b is owed to China CITIC Bank, money it used to buy a 24% stake in Chilean miner SQM. $2.3b is due for repayment in November, but there in uncertainty as to whether Tianqi can repay even a $43m chunk of the debt. The Company transferred funds to cover a payment on a $43m onshore bond, puttable on Feb 1st.
  • Moody’s downgraded Tianqi’s corporate family rating and senior unsecured rating from B1 to Ba3 and maintained a negative ratings outlook in December 2019. (Moody’s)
  • Last month Tianqi cancelled its bond holder meeting and subsequently saw its bonds fall to 64 cents on the dollar down from 75 cents. (Mining.com)
  • A glut in supply over the last 24 months has halved lithium prices since their peak in May 2018. This has resulted in a number of names slashing production and shelving expansion plans including those of Albemarle Corp., Galaxy Resources and Pilbara Minerals.
  • Longer term prospects for lithium are more positive, many believe prices are close to a bottom and should be positively impacted by increasing demand for EV. Benchmark Mineral Intelligence Head of Price Assessment Andrew Miller suggests stabilization followed by gradual growth in 2020, followed by a significant upward trajectory in 2021 and 2022. (Lithium Investing New)

 

Tesla short sellers out of pocket (Financial Times)

  • Those who went short on Tesla in January lose $5.8b after the stock reaches new highs.
  • Tesla’s share price shot up on positive Q4 earnings, the Company posting a $105m profit. The California based EV juggernaut also improved it cash position by $930m to $6.3b in Q4 and pointed to positive FCF moving forward.
  • The monthly losses for the short sellers were the worst on record and the largest across short positions in S&P 500 companies in January.
  • Despite the positives in recent results Tesla is still yet to be profitable across a 12 month period. Loses in 2019 were $862m, an improvement on $976m of losses in 2018.
  • Many remain sceptical with some analysts pointing to profitless unit deliveries, greater competition in the EV segment from established automakers and cars made in the previous quarter skewing results as reasons to maintain their short positions.
  • Tesla announced a week of delays in production at its Shanghai factory as a result of the coronavirus outbreak.

 

Company News

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474 

 

Sales

Richard Parlons – 0203 470 0472 

Abigail Wayne – 0203 470 0534 

Rob Rees – 0203 470 0535 

 

SP Angel                                                             

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

Sources of commodity prices

 

Gold, Platinum, Palladium, Silver

BGNL (Bloomberg Generic Composite rate, London)

Gold ETFs, Steel

Bloomberg

Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt

LME

Oil Brent

ICE

Natural Gas, Uranium, Iron Ore

NYMEX

Thermal Coal

Bloomberg OTC Composite

Coking Coal

SSY

RRE

Steelhome

Lithium Carbonate, Ferro Vanadium, Antimony

Asian Metal

Tungsten

Metal Bulletin

 

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