Amid a mixed bag of economic indicators, iron ore and base metal prices largely rose as precious metals held steady in the week that ended Sept. 6.
In August, U.S. job growth continued to make gains, but fell short of expectations with nonfarm payroll employment up by 130,000 jobs, which was lower than forecast. Meanwhile, global manufacturing data contracted for the fourth consecutive month in August as new orders fell at the quickest pace in about seven years, according to a survey by JPMorgan and IHS Markit.
On the back of the ongoing U.S.-China trade war and weakening global demand, Chinese exports fell 1% in August against a forecast of 2% year-over-year growth, according to BMO Capital Markets. Still, BMO Capital Markets noted Chinese imports of industrial metals were strong with year-over-year imports of iron ore, copper concentrates and coal up 6.2%, 9.3% and 14.9%, respectively.
Weakening economic indicators have raised fears of a recession, with some analysts expecting one to hit next year and others predicting a more resilient global economy.
Price ring
Base metal prices made gains during the week that ended Sept. 6, with copper climbing 3% to US$5,809.25 per tonne, and zinc jumping 5% to US$2,333.25/t. Lead rose 4% to US$2,085.50/t and aluminum gained 2% to US$1,764.50/t.
Nickel, after a notable climb in recent weeks, generally held steady, ticking down 1% to US$17,743.00/t.
Iron ore climbed 6% to US$89.44/t, reversing some of its recent losses.
In precious metals, gold was nearly even, down 1% to US$1,520.80/oz, while silver also dropped 1%, to US$18.15/oz. Palladium was close to unchanged at US$1,541/oz, while platinum inched up 1% to US$947/oz.
Talking points
With gold's recent gains, BMO Capital Markets analysts dug deeper into gold producers and their hedges, noting that hedges are increasingly out of the money.
"We see EPS reduced, on average, in the range of 6 to 12% in USD terms," Andrew Kaip, Brian Quast, Andrew Mikitchook and Ryan Thompson said in a Sept. 5 report.
About a third of the gold producers under their coverage hold gold hedges, especially those with mines in Australia, with few found in North America. "Those expected to be most impacted by their hedges tend to be companies with operations in Australia, including Gold Fields Ltd., Evolution Mining Ltd., Northern Star Mining Corp., and Saracen Mineral Holdings Ltd.," the analysts said.
Most of the hedges are short term, with floor and ceiling prices, and cover only a portion of a producer's production. Decades ago, hedging was more widespread among major producers, but the analysts doubt it will regain popularity. As it stands, the analysts noted, most companies hedging either have a long-standing policy of doing so or have intense capital expenditure to tackle.
Financings
In larger financings, Aluminum Corp. of China Ltd., or Chalco, said it would issue up to 2 billion yuan in bonds with 3-year and 5-year maturities to repay debt.
Aluminium Bahrain B.S.C., or Alba, plans to raise US$1.5 billion in debt as it looks to refinance loans that backed infrastructure expansion at its Knuff smelter, according to a Reuters report.
In part to repay debt due later this year, Newmont Goldcorp Corp. priced a planned US$700 million offering of 2.800% senior 2029 notes.
Fortescue Metals Group Ltd. raised US$600 million in 4.5% notes due 2027 to repay some of a US$1.4 billion syndicated term loan due in 2022. Fortescue also said it was in talks to extend the remaining 2022 debt to 2025 and planned to repay US$200 million of it in cash.
GFG Alliance Ltd. is issuing US$475 million in five-year bonds after scrapping A$1 billion IPO plans for Infrabuild, its Australian steel unit, according to a Financial Times report.
Meanwhile, in larger equity financings, Panoramic Resources Ltd. said it plans to raise A$28.2 million in a pro rata renounceable entitlement issue priced at 28 Australian cents per new share. The company expects to use A$20 million of the proceeds to partially repay a Macquarie Bank Ltd. loan.
