SP Angel . Morning View . Tuesday 09 02 21
Stimulus driven risk sentiment lifts commodity prices further
MiFID II exempt information – see disclaimer below
NextSource Materials () – NextSource binding agreement with Vision Blue Resources
Panthera Resources () – Soil assays and artisanal ‘gold rush’ say little for prospect in Burkina Faso
Versarien* (AIM:VRS) – Versarien graphene enhanced face masks certified as FFP3, the highest European EN149 standard for filtering half face masks
Tim market – may be subject to short squeeze (Reuters)
The tin market has seen three years of global supply deficit according to the International Tin Association.
Physical stock levels at the LME (775t) and SHFE (7,450t) stock levels are very low
Production was 305,800t in 2019
Demand is expected to rise by 6% pa by the ITA this year to 361,500t locking in a further deficit year
Smelters which have suffered from COVID-19 disruption may struggle to recover on further disruptions to mine supply particularly if new sanctions are applied to Myanmar following the Military government’s recent refusal to hand over power to elected officials. Unofficial trade routes out of Myanmar into China are also said to be closed due to strict COVID-19 restrictions.
China January passenger vehicle sales rise 26.8% YoY in January
Passenger car sales rose to 2.05m units, according to CAAM ‘China Association of Automobile Manufacturers’.
Electric vehicle sales rose 239% to 179,000 units.
Passenger EV sales in China rose 259%yoy (172k) in January
While the increase partially reflects low January 2020 base as first signs of pandemic emerged in China, the ~170k monthly rate is less than >220k recorded in December and if annualised would imply >2m sales over 2021 Or +50% growth rate.
Inflation looks increasingly likely in the West as the yuan appreciates and companies look to restock supply chains as logistics and shortages present greater risk
Rising raw materials costs will be increasingly passed onto consumers
The Chinese yuan has strengthened to Rmb 6.44 / US dollar from 7.15 in May 2020 causing the cost of Chinese goods to the West to rise
Raw materials prices are rising, transport costs are higher, stimulus cheques raising demand and labour rates are likely to gain.
Disruption is an increasing cost as containers are blocked or simply not readily available
Western manufacturers which have enjoyed the benefit of low Asian component costs and fast, reliable and low-cost logistics. All this is changing.
Unit costs will rise as manufacturers struggle to raise utilisation rates as logistics become less reliable
Semiconductor chips which should have been ordered well in advance are now in short supply as the market picks up
Covid-19 restrictions are slowing freight across boarders compounded by other freight disruption issues.
Increasingly unpredictable customs and port logistics are slowing up deliveries
We do not see the $1.9tn US stimulus package as inflationary in itself but the stimulus combined with other local factors such as import tariffs, higher food prices and supply chain issues looks likely to serve to raise inflation in the US.
UK – High Street Retailers: property rents and council rates are the demise of the high-street
Covid-19 lockdowns have largely accelerated the decline of companies being sold or going out of business on the high street
Retailers had benefitted for many years through the sale of exceptionally cheap goods enjoying high margins as Asia manufactured more goods more cheaply.
Prices for many non-Asian products were also pressured by increasing competition from the East.
Landlords racked up their rents where possible to share the gains while local authorities also imposed substantial rate rises alongside higher VAT and other costs.
Online marketplaces were able to sell imported goods direct to consumers without the rising overheads of shops, rates etc… making great profits at much-lower supermarket-style margins.
Many Asian manufacturers also had no intention of ever paying due VAT through the use of intermediate companies enhancing both price and cost of sales differentials.
Metals price forecasting through 2020 – 2020 was probably the most difficult year for forecasting anything
No.1 in Copper: “The winner of the 2020 Fastmarkets Apex contest for copper was the team at SP Angel comprising John Meyer, Sergey Raevskiy and Simon Beardsmore, with an accuracy score of 93.8%”
No1. In Gold: “SP Angel’s trio took the top spot for the gold price prediction throughout the year, with an accuracy score of 97.59%”
The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020
China – Available credit picked up January more than forecast ahead of Chinese New Year celebrations.
New loans climbed to a record CNY 3.58bn, the highest in data going back to 1992.
Aggregate Financing (CNY bn): 5,170 v 1,720 in December and 4,600 est.
Foreign reserves remain stable at US$3.211tn in January vs $ 3.217tn in December
Chinese officials are meeting with Tesla to discuss safety issues following a number of reports over consumers citing battery fires, unexpected accelerations and over-the-air software update failures.
China accounted for about 20% of Tesla’s sales overall last year as the Company is ramping up production at its factory in Shanghai.
The Company is producing Model 3 and Model Y at its local operating facilities with deliveries of the former reported to have been the best-selling EV in the country in 2020.
Tesla sold 137k Model 3 sedans in 2020 vs nearly 500k in total Tesla vehicle deliveries.
Japan – Eco Watchers outlook index rose to 39.9 in January vs 36.1 in December
Germany – Trade data came in better than forecast this morning helped by trade with China and the US as the economy struggles under lockdown restrictions.
The government revised its 2021 growth forecasts down to 3% last month compared to 4.4% estimated in autumn suggesting the economy is not expected to reach its pre-pandemic levels before mid-22.
Exports (%mom): 0.1 v 2.3 in November and -0.6 est.
Imports (%mom): -0.1 v 5.4 in November and -2.0 est.
December industrial production remained flat
Germany expelled and classified a Russian diplomat as “persona non grata” on Monday in response to Moscow’s expulsion of EU diplomats on Friday, which the German foreign office said was “in no way justified”.
Poland, and Sweden also expelled Russian diplomats the same day, which Tagesschau reports was a closely coordinated move between the three governments and the European External Action Service, citing sources in the German foreign ministry.
France – the Bank of France reiterated its 5% growth target for 2021 (-9.0% in 2020 est.) with the government not planning to tighten lockdown measures for now.
Latest measures include a national curfew running from 6pm to 6am with additional restrictions at the border starting this month in an effort to limit new variants entering the country.
Italy – Industrial production recorded another monthly drop in December reflecting poor GDP numbers for the final quarter.
The economy recorded a 2.0%qoq contraction in the final quarter of last year amid new pandemic related restrictions.
Authorities are estimating the economy to bounce back from a 8.8% drop in 2020 and post a 6% growth this year.
Meanwhile, lawmakers are moving closer to forming the government with two largest parties in the current parliament, the League and Five Star Movement, softened their stance on backing Mario Draghi following meetings with former president of ECB, FT reports.
New government announcement may come as early as by the end of this week with markets seen in support of Draghi as next PMI as evidenced by falling 10y bond yields that at their lowest of 0.5%.
Industrial Production (%mom): -0.2 v -1.4 in November and 0.3 est.
Myanmar – Police fires gunshots into the air and uses water cannons in the capital as protestors refuse to disperse on the fourth consecutive day of protests.
Pro-democracy demonstrations follow the February 1 military coup that ousted the government as it was preparing to start its second term in office, according to Reuters.
WHO officials secretly criticised China for not providing information about coronavirus in the early days of the pandemic’
Three WHO officials reportedly complained about the lack of data from China
The internal conversation allegedly occurred at the beginning of the pandemic
One official urged his colleagues to put pressure on Beijing to be forthcoming
Another confessed ‘we could get nothing’ after asking China about the virus
The WHO has come under heavy criticism over its handling of the pandemic
Currencies US$1.2070/eur vs 1.2030eur yesterday. Yen 104.88/$ vs 105.58/$. SAr 14.850/$ vs 14.906/$. $1.377/gbp vs $1.370/gbp. 0.771/aud vs 0.767/aud. CNY 6.450/$ vs 6.458/$.
Gold US$1,840/oz vs US$1,812/oz yesterday – Gold prices climb for third day on impending US stimulus
Gold prices continued to climb on Tuesday, after US Democrats released the first draft of key legislation required to pass President Biden’s Covid-19 relief bill.
Biden’s huge $1.9tn relief package is helping underpin inflation expectations which supports bullion prices.
Tesla’s bullish bet on bitcoin reported yesterday was also positive for gold, as Tesla said it would provide “more flexibility to further diversify and maximize returns on our cash”, with the automaker’s investment policy allowing gold bullion and gold ETFs.
Spot gold rose 0.6% this morning to $1,841/oz, while US gold futures rose 0.5% to $1,843/oz (Reuters).
Gold ETFs 106.7moz vs US$106.9moz yesterday
US$1,181/oz vs US$1,149/oz yesterday
Palladium US$2,353/oz vs US$2,337/oz yesterday
Silver US$27.45/oz vs US$27.04/oz yesterday
Copper US$ 8,085/t vs US$7,988/t yesterday – LME stocks (76,050t) at lowest since 2011
Shipments from Chile and Peru delayed due to weather conditions
Peru copper output fell 12.5% in 2020 due to pandemic
Peru’s copper output fell to 2.15mt in 2020 from 2.46mt in 2019, according to the country’s Energy and Mines Ministry.
Most Peruvian mines had to halt operation in mid-March after the government declared a state of emergency in response to the Covid-19 pandemic, with most only reopening in May 2020.
Gold production fell 32% to 87.3m fine grams.
Chilean copper production only fell 1% in 2020 to 5.73mt.
Aluminium US$ 2,038/t vs US$2,030/t yesterday
Nickel US$ 18,365/t vs US$18,065/t yesterday – Indonesian government to suspend permits for deep-sea tailings
The Indonesian government is reportedly not willing to issue permits for deep-sea tailings placement (DSTP) for new nickel projects, Bloomberg reports.
Indonesian laterites require high-pressure acid leaching that produces high volumes of waste tailings, and developers wanted to use DSTP due to high seismic activity and precipitation levels in the region.
At least two nickel projects planned to use DSTP, with a total capacity of 87,000t and representing 47% of planned Class 1 nickel production in the country.
Zinc US$ 2,675/t vs US$2,672/t yesterday
Lead US$ 2,073/t vs US$2,050/t yesterday
Tin US$ 23,085/t vs US$23,200/t yesterday
Oil US$61.0/bbl vs US$60.0/bbl yesterday
Brent crude prices remain above US$60/bbl as stockpiles tighten and the demand outlook improves amid the global rollout of Covid-19 vaccines.
The revival is a significant boost for global energy companies and petro-states whose budgets were severely impacted last year.
Global stockpiles in onshore tanks and floating storage are estimated by the International Energy Agency to have shrunk by about 300MMbbls since OPEC and its allies made deep production cuts in May
Reduced supply and the vaccine-driven demand boost have entrenched Brent’s futures price curve in a bullish backwardation structure, which encourages the draining of more oil from tanks
China has clearly been a key driver of the market rebound
The number of tankers sailing toward the nation jumped to a six-month high last Friday
Shell’s CEO Ben van Beurden said last week that fuel sales in the nation are back into “significant growth mode.” Meanwhile, Indian demand is almost back to year-ago levels as consumption of cooking fuels and gasoline surged on the back of forced lifestyle changes due to the virus
The rally has been widespread across commodities and equity markets
However, risks remain as a new virus variant spreads in the US, while other European countries are still enforcing lockdowns
Traders Vitol and Gunvor have cautioned about the recent surge in prices and one technical indicator is showing that oil is overbought and due for a decline
Natural Gas US$2.817/mmbtu vs US$2.926/mmbtu yesterday
Natural gas attempted to move higher during the trading session yesterday but was met with selling pressure and settled the session only slightly in the black
The weather is expected to be much colder than normal through all of the US for the next two weeks
The ridge/ trough pattern could mean that the cold weather could remain in place for a considerable period
LNG exports continue to surge rising in November
The front-month Henry Hub contract for natural gas topped US$3 last week on very cold weather in the US
Indeed, most parts of the UK awoke to a blanket of snow this morning
According to the EIA, natural gas in storage was 2,689Bcf as of 29 January 2021
This represents a net decrease of 192Bcf from the previous week
Expectations were for a 172 Bcf draw in stockpiles according to survey provider Estimize Stocks were 41Bcf higher than last year at this time and 198Bcf above the five-year average of 2,491Bcf
At 2,689Bcf, total working gas is within the five-year historical range
Iron ore 62% Fe spot (cfr Tianjin) US$151.0/t vs US$150.9/t – Port Hedland sees record iron ore outflows in January
Exports from Australia’s iron ore hub totaled 42.2mt in January, a record for that particular month and up from 40.5mt in January 2020, although down from the 46.5mt in December 2020.
The record total for the month was achieved even after the port faced disruption during the period for bad weather towards the end of the month.
Chinese steel rebar 25mm US$668.9/t vs US$668.2/t
Thermal coal (1st year forward cif ARA) US$67.3/t vs US$66.3/t
Coking coal swap Australia FOB US$157.0/t vs US$157.0/t
Cobalt LME 3m US$45,700/t vs US$45,700/t
NdPr Rare Earth Oxide (China) US$72,638/t vs US$71,477/t
Lithium carbonate 99% (China) US$10,620/t vs US$10,609/t
Spodumene 6% Li2O min, cif (China) US$455/t vs US$395/t
Ferro Vanadium 80% FOB (China) US$30.5/kg vs US$30.5/kg
Ferro-Manganese high carbon 78% Mn US$1,575/t vs US$1,560/t
Tungsten APT European US$250-255/mtu vs US$244-250/mtu
Graphite flake 94% C, -100 mesh, fob China US$560/t vs US$560/t
Graphite spherical 99.95% C, 15 microns, fob China US$2,625/t vs US$2,625/t
Denmark to build world’s first energy hub in the North Sea
The Danish government are planning to build an artificial island dedicated to wind energy in the North Sea. It will serve as an offshore power plant gathering and distributing green electricity from hundreds of surrounding wind turbines.
The island will span 120,000 m2 and its first phase will provide 3 million European households with clean energy.
The hub has a potential capacity of 10GW which will significantly contribute to the EU’s target of 200GW offshore wind energy to help achieve carbon neutrality by 2050.
Amazon’s largest single renewable energy project
Amazon is investing in a European offshore wind farm located just under 20 kilometres off the coast of the Netherlands.
It is co-investing in the project alongside a consortium made up of energy giants Shell and Eneco and will be purchasing over half of the farm’s total capacity.
Scheduled for operation by 2023, the plant is expected to generate 3.3 TWh per year, enough renewable energy to supple more than 1 million Dutch households with green electricity.
Amazon increasing investment in renewable power is in line with their commitment to achieving 100% renewable energy by 2030, which was announced when they launched a “Climate Pledge” in 2019.
NextSource Materials () – C$0.28, Mkt cap C$167m – NextSource binding agreement with Vision Blue Resources
NextSource Materials Inc. has entered into a binding agreement with Vision Blue Resources Ltd., a private investment company created and led by Sir Mick Davis
NextSource has committed to the financing of US$29.5m to bring the Molo graphite mine in Madagascar into full production.
Production is due H1 2022.
Sir Mick is probably the sharpest and best respected mine builder in the London market.
His acquisition and further development of assets within Xstrata, now Glencore, saw significant uplift in Xstrata’s value for many years.
Davis’ new attention on graphite is likely to see further substantial value generation for shareholders.
Panthera Resources () – 24.02, Mkt cap £21.83m – Soil assays and artisanal ‘gold rush’ say little for prospect in Burkina Faso
Panthera Resources report assay data from a number of high-grade gold in soil assays from their Bido project in Burkina Faso.
The soil grades reported vary from 2.1-26.5g/t and indicate a northwest-trend of around 2.5km length.
The company describe a “New gold rush by artisanal miners” to the north of the sampling area at Beredo prospect
Conclusion: We are wary of the use of the ‘gold rush’ term as it is relatively common for artisanal miners to move to new sites.
We are caution investors on the metallurgical difficulties experienced by some miners in the region. The 3.3moz Konkera discovery made by Ampella Mining remains undeveloped a decade after its definition due to the refractory, fine-grained, nature of its gold resources.
We also caution there is an ongoing conflict to the north of Ouagadougou by anti-Western Jihadis in Burkina Faso which has uprooted over a million people. The situation is not helped by Covid-19 and flooding last year which the Council of Foreign Relations describe as a ‘perfect storm of human misery’. It is little wonder that hoards of Burkinabés flock into any new area for artisanal mining.
Versarien* (AIM:VRS) 49.15p, Mkt cap £93m – Versarien graphene enhanced face masks certified as FFP3, the highest European EN149 standard for filtering half face masks
Versarien graphene enhanced face masks have been certified at the FFP3 standard, the highest European EN149 standard for filtering half face masks.
The Company’s wholly owned Chinese subsidiary, Beijing Versarien Technology Company Limited show a 99.92% anti-viral activity rate against the SARS-CoV-2 virus.
The FFP3 certification process also tests the robustness of the material, its practical performance, total inward leakage, breathing resistance, clogging, compatibility with skin and the carbon dioxide content of the inhalation air.
The FFP3 mask standard also required <2% inward leakage and the filtering of at least 99% of particulate matter.
The European EN149 standard tests were done by SGS-CSTC Standards Technical Services Co. Ltd in China
Conclusion: The news demonstrates a further practical application where graphene is being used to enhance the performance of conventional materials for mass production and immediate commercial application.
*SP Angel acts as nomad and Broker for Versarien. An SP Angel analyst has visited Versarien graphene manufacturing facilities.
John Meyer – John.Meyer@spangel.co.uk – 0203 470 0490
Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484
Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk – 0203 470 0474
Joe Rowbottom – Joe.Rowbottom@spangel.co.uk – 0203 470 0486
Richard Parlons –Richard.Parlons@spangel.co.uk – 0203 470 0472
Abigail Wayne – Abigail.Wayne@spangel.co.uk – 0203 470 0534
Rob Rees – Rob.Rees@spangel.co.uk – 0203 470 0535
Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
Prince Frederick House
35-39 Maddox Street London
*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
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
Natural Gas, Uranium, Iron Ore
– Bloomberg OTC Composite
Lithium Carbonate, Ferro Vanadium, Antimony
– Asian Metal
– Metal Bulletin
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