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Iron ore, nickel, copper are weekly winners amid Feijao disaster, trade talks

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Iron ore, nickel, copper are weekly winners amid Feijao disaster, trade talks

Analysts said rallying iron ore prices are in for a hard fall as commodities generally rose for most of the week ending Feb. 1 with renewed hope of U.S. President Donald Trump and his Chinese counterpart, Xi Jinping, meeting to help resolve trade tensions, which have dogged resource stocks for the past several months.

Chinese Vice Premier Liu He was in White House meetings in Washington during the week trying to reach a deal.

"The two sides showed a helpful willingness to engage on all major issues, and the negotiating sessions featured productive and technical discussions on how to resolve our differences," a Jan. 31 White House statement said.

Trump said Xi had told him in a letter that he hoped both sides would be able to meet each other halfway and that the Chinese leader wanted to reach a trade agreement before a March 1 deadline.

Meanwhile, the U.S. Federal Reserve said in a Jan. 30 statement after a two-day meeting in Washington that the Federal Open Market Committee "will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support" a strong labor market and inflation near 2%.

Price ring

Copper and nickel prices grew 1.9% and 4.2% on a weekly basis to close Feb. 1 at US$6,151/t and US$12,407/t, respectively. Zinc rose 1.8% to close the week at US$2,730/t.

Aluminum prices were pressured by concerns about excess supply after China Hongqiao Group Ltd., the world's top aluminum smelter, said it would gradually restart production after some government-mandated output curbs expired.

"We haven't seen significant production cuts this year and we've been expecting to see additional supply after the expiration of the limited cutbacks," Reuters reported Capital Economics' senior commodities economist as saying. Prices still ended the week 0.8% higher at US$1,881/t.

Gold and silver rose 1% and 0.9%, respectively, to close the week at US$1,318/oz and US$15.9/oz.

Zinc dipped early before recovering 1.8% over the previous week to close Feb. 1 at US$2,730/t.

Following the recent iron ore tailings dam break in Brazil, which killed 115 with another 248 missing as of Feb. 1, iron ore spot import prices for China surged 11.5% over the week to close Friday at US$81.1/t.

Talking points

Vale SA's planned cuts to iron ore production led Goldman Sachs analysts to adjust their iron ore forecasts. They are now saying iron ore prices will average $US80/t in the first quarter, from their previous prediction of $US70/t, will average $US70/t by the end of the first half, compared to $US60/t, and will average $US65/t for 2019 overall versus $US60/t.

While prices could reach $US95/t if Vale loses all 40 million tonnes of output under the bank's calculations, Goldman Sachs noted that the miner still has 50 million tonnes of spare capacity based on its existing 2019 target of 400 million tonnes.

The tragedy at Vale's Corrego do Feijao operation, along with revised forecasts for Chinese and Indian demand, led Australia & New Zealand Banking Group Ltd. to predict that the iron ore market could move to a 10 million-tonne deficit in 2019, having previously forecast a 15 Mt surplus.

For Vale, Australia & New Zealand Banking expects a total net loss of about 13 Mt in 2019 iron ore output. Goldman Sachs expects that the mining giant will lose between 10 Mt and 15 Mt.

Financings

OAO Metalloinvest spinoff Baikal Mining Co. LLC reportedly secured a loan of between US$1.4 billion and US$1.45 billion from a consortium of Russian banks to build a mining and metallurgical plant at its Udokan copper project in Russia.

Lenders are expected to hold off on discussions with Vale over a potential US$3 billion revolving credit facility in the wake of the Feijao iron ore mine disaster in Brazil's Minas Gerais state, sources told Reuters.

China Molybdenum Co. Ltd. said it launched a bond issuance of US$300 million to repay loans and for general working capital.

China Nonferrous Gold Ltd. secured a loan of up to US$20 million from China Construction Bank Corp. unit China Construction Bank Corp. Macau Branch.