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Major jump in iron ore prices leads strong week for bulk, base metals

Industry Top Trends 2021: Metals and Mining

Greenhouse gas and gold mines Nearly 1 ton of CO2 emitted per ounce of gold produced in 2019

Essential Metals & Mining Insights - September 2020

Essential Metals & Mining Insights - August 2020


Major jump in iron ore prices leads strong week for bulk, base metals

Stronger-than-expected U.S. jobs data and wage growth lifted the U.S. dollar and bond yields late last week as nonfarm payrolls rose by 209,000 in July, and June's employment increase was revised up to 231,000 from previously 222,000.

The Aug. 4 data helped the greenback bounce back from previous lows caused by a number of factors, including doubts that the U.S. Federal Reserve will hike interest rates again this year as well political uncertainty amid news that a grand jury issued subpoenas to investigate alleged Russian meddling in the 2016 U.S. presidential elections.

Gold, in particular, came under pressure against the strengthening dollar and prospects of another rate hike.

Markets were still digesting bearish economic data from China published earlier that week. According to a Purchasing Managers' Index, or PMI, survey published earlier that week, manufacturing activity in commodities top consumer China was sluggish in July as demand for Chinese goods fell. However, the Caixin/Markit Manufacturing PMI grew to 51.1 in July from 50.4 in June.

A reading above the 50-point mark indicates growth.

Price ring

Most base and bulk metals had a rather good run last week.

Iron ore, in particular, booked a strong performance, jumping 7.8% over the week to close at US$74.1 per tonne Aug. 4. The ore is trading nearly 25% higher than 12 months ago, but lagging by a marginal 6% year-to-date.

Nickel and lead also recorded decent gains of 1.8% and 2.7%, respectively, to US$10,335/tonne and US$2,342/tonne, while copper and zinc moved marginally higher by less than 1%.

It was a different picture for precious metals. Gold and silver both finished the week in the red, down by 1.0% and 2.7%, respectively. Gold closed at a level of US$1,258 per ounce Aug. 4. Platinum rose 3.4% to US$967/oz.

Talking points

According to J.P. Morgan Cazenove, iron ore prices are poised to continue surprising on the upside in the coming months, after unexpectedly recovering from a US$53/tonne low in May and breaking through the US$70/tonne mark in recent trading.

The ore has seen a solid performance recently, driven by demand strength as well as lackluster supply from the majors and falling production in China. Additionally, Chinese steel production surprised on the upside as it hit an all-time high of 891 million tonnes per annum in June.

"[I]ron ore demand could continue to surprise on the upside near term, suggesting an upside bias to our 2H17 price estimate of US$60/t," the bank wrote in an Aug. 6 note.

The bank retained its second-half 2017 price forecast of US$60/tonne but highlighted that there are upside risks should demand strength continue to surprise.

Financings

U.S. Steel Corp. priced an offer of US$750 million aggregate principal amount of 6.875% senior notes due 2025 as the company seeks to fund the redemption of all of its 7.00% senior notes due 2018, 6.875% senior notes due 2021 and 7.50% senior notes due 2022.

Cliffs Natural Resources Inc. launched the sell US$575 million of its 5.75% senior guaranteed notes due March 2025, to be guaranteed on a senior unsecured basis by the company's domestic subsidiaries. Proceeds from the offering will be used to repurchase and redeem US$504.4 million of its outstanding 8.250% senior secured notes due 2020.

Victoria Gold Corp. executed a commitment letter with BNP Paribas for a US$220 million project finance facility at a tenor of 6.5 years for the construction of the Eagle gold mine in Canada's Yukon Territory.

AK Steel Holding Corp. priced its offering of US$280.0 million aggregate principal amount of 6.375% senior notes due 2025, carrying semiannual interest on April 15 and Oct. 15 each year. Proceeds of US$280 million are earmarked to buy back any and all of its outstanding 8.375% senior secured notes due in 2022, of which US$279.8 million are outstanding.

Zhaojin Mining Industry Co. Ltd. seeks to issue short-term bonds in China of up to 8.0 billion Chinese yuan as the company looks to replenish liquidity and repay borrowings.

Yancoal Australia Ltd. plans to launch a 23.6-for-1 pro rata renounceable entitlement offer in a bid to raise US$2.5 billion for the acquisition of Rio Tinto's Coal & Allied Industries Ltd. unit. However, major shareholders such as Noble Group Ltd. are opposing the move, which could drastically dilute their stakes in the company.