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Industrial commodities prices rise on trade deal

The commodity price deck saw positive changes in the week ended Dec. 13, with a phase one deal announced by the U.S. and China, increasing prices for industrial commodities and the gold price moving higher.

Beijing and Washington reached a trade deal that would remove existing tariffs in stages and halt the next round of tariffs on Chinese goods that is planned for Dec. 15. In exchange, China will increase agricultural purchases from the U.S. Both countries plan to work on making changes related to intellectual property, technology transfers and financial services. U.S. President Donald Trump said Dec. 13 that trade negotiations for the next phase would start "immediately."

The U.S. Federal Reserve said it will keep interest rates unchanged in the range of 1.50% to 1.75%, Reuters reported Dec. 11. Fed Chairman Jerome Powell said the shift in the stance of the country's monetary policy this year would help cushion its economy and provide some insurance, adding that the economic outlook remains favorable despite global developments and ongoing risks.

Price ring

The price of nickel on the London Metal Exchange rose 5.4% during the week ended Dec. 13 to US$14,135 per tonne from US$13,415/t, after Indonesia announced it would double royalties on nickel ore sales to 10%. Copper finished the week at US$6,153.50/t, increasing 4.9% from US$5,867/t the week before. Aluminum was almost flat week over week, ticking up 0.7% to US$1,762.50/t. Zinc was up 1.5% to US$2,278/t from US$2,245/t, and lead increased 2.8% to US$1,933/t during the same period.

Iron ore had the best performance, climbing 5.6% to US$94.45/t from US$89.40/t a week earlier. Analysts recently noted a surge in Chinese steel prices after the country committed to spending more on infrastructure in 2020. Market sources expect higher steel prices across China to drive demand for iron ore, S&P Global Platts said Dec. 13.

Analysts at BMO Capital Markets said the recent rally in industrial metals prices is a "complete contrast" to the same period of 2018, noting in a Dec. 13 report that copper prices are at the highest level since the second quarter, zinc inventories at the Shanghai Futures Exchange dropped to the lowest since January 2018, and aluminum inventories are the lowest since February 2017.

In the precious metals space, gold was supported by a depreciating U.S. dollar and edged up 1% over the week to US$1,476.40/oz, while silver gained 2.2% to US$16.95/oz from the week before. The palladium price hit an all-time high of US$1,979.95/oz on Dec. 13, Reuters said. In South Africa, mining companies are facing power supply issues and are considering options.

Talking points

A slowdown in the Asian economy in 2019 is expected to decelerate in 2020, according to a Dec. 12 report from French investment bank Natixis. The research analysts estimated China's economic growth rate at 5.7% in 2020, compared to 6.1% in 2019, with the growth rate in developed Asia anticipated to hover around 2.3%.

"Asia is expected to muddle through in 2020 with less friction to growth but saddled by demographic trends and, in some cases, by growing debt," the Natixis research team said. "Central banks will continue to be supportive although China and India will need to deal with higher short-term food inflation."

Gold futures on the COMEX could exceed the US$1,600-per-ounce range and average US$1,575/oz in 2020, with little possibility of the Federal Reserve raising interest rates in 2020, Bloomberg reported Dec. 12, citing Citigroup director Aakash Doshi.

"The policy rate is highly unlikely to move higher and the Fed is capping the rise in real medium-term yields, as well as nominal yields, at the belly of the U.S. Treasury curve, so you reduce the opportunity costs of holding gold," Doshi said.

Financings

China's Tianqi Lithium Corp. aims to raise up to 7 billion Chinese yuan through a placement to partially repay bank loans used to fund its 23.77% acquisition of Sociedad Quimica y Minera de Chile SA in 2018.

Norwegian aluminum producer Norsk Hydro ASA signed an agreement for a US$1.6 billion revolving credit facility, with the margin linked to the company's emissions reduction target.

China's Jiangxi Copper Co. Ltd. secured a loan of 1.5 billion yuan from controlling shareholder Jiangxi Copper Corp. Ltd. to repay bank loans and for working capital.

Dongying Fangyuan Nonferrous Metal Co. Ltd. and unit Dongying Lufang Metals Material Co. reportedly halted syndication of the one-year US$300 million facility it launched two weeks prior.

The Australian Takeovers Panel suspended Energy Resources of Australia Ltd.'s renounceable entitlement offer targeting A$476 million, after flagging a possible takeover by Rio Tinto at the expense of minority shareholders.

China's Hbis Co. Ltd. outlined plans to issue a bond offering of up to 1.5 billion yuan to repay loans.

As of Dec. 13, US$1 was equivalent to 6.98 Chinese yuan.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.