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Intensifying trade tensions keep metals in the red

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

State of the Market: Mining Q2-2020


Intensifying trade tensions keep metals in the red

Trade tensions kept global stock markets on edge last week as the ongoing dispute between the U.S. and China intensified.

U.S. President Donald Trump ramped up his trade threats against China, warning that he might target an additional US$267 billion worth of imports from China in another round of tariffs.

The announcement came while markets were still awaiting confirmation on whether Washington will push through with previously proposed levies targeting US$200 billion in Chinese goods.

Stock markets as well as metals prices took a hit as a result of nervous investor sentiment, and most major mined commodities finished the week in the red.

Price ring

Aluminum and nickel in particular took a steep dive, plummeting 3.9% and 2.8%, respectively, compared to closing prices a week earlier. Aluminum finished the week at US$2,031/t, while nickel closed at US$12,356/t.

Copper, zinc and lead were also down by 1.1%, 0.6% and 0.9%, respectively, to US$5,904/t, US$2,448/t and US$2,044/t.

Losses among precious metals included gold and silver, which saw their values drop by 0.2% and 2.3%, respectively, to a level of US$1,197/oz and US$14.2/oz by Sept. 7 close.

Last week's only gainer among the major mined commodities was iron ore, which booked a 2.2% increase to US$63.4/t.

Talking points

J.P. Morgan Cazenove continues to see iron ore prices below the US$70/t mark in the coming years despite "significant noise on the economic data front" and anticipations of a deficit in 2018.

In a Sept. 7 note, the bank reiterated its view that iron ore 62% Fe fines will average US$60/t in the long term. In the short and medium term, the team expects iron ore to average US$68/t this year, before decreasing to US$65/t in 2019 and to US$63/t in both 2020 and 2021, before rebounding to US$67/t in 2022.

The outlook contrasts Bernstein's stance on the market, which last week predicted a widening gap of growing demand and declining supply, based on which their analysts expect iron ore to reach a level of US$75/t in the long term and periodically to exceed the US$100/t mark.

J.P. Morgan Cazenove based its view on a supply/demand analysis that foresees that growing domestic output in China will offset an emerging deficit in the market.

"Our [supply/demand] model continues to project a ~50 [million tonne] deficit this year, which will be satisfied through a rise in Chinese output from ~190 Mt in 2017 to ~240 Mt in 2018," the analysts noted.

Iron ore prices will also be supported by ongoing strong Chinese demand for steel production, according to the bank. Chinese steel output ran at around 957 million tonnes per year in July and averaged 960 Mt/y over the past three months.

"Despite significant noise on the economic data front, steel production has been strong, and iron ore prices have remained stable. China steel production continues to run at an almost 1bnpa tonnes run rate, property data is encouraging (prices, land sales, starts, low inventory), and machinery data is still up materially [year over year]," the team elaborated. "Looking into [the second half of 2018], China sentiment should improve. Our China economists expect the impact of stimulus to show up in data over the next 1-2 months."

Financings

Shaanxi Coal Industry Co. Ltd. plans to buy back up to 5 billion Chinese yuan of its shares within six months to boost investor confidence. Shaanxi Coal will conduct the share repurchase program through an auction process, with an offer price of no more than 10 yuan apiece.

Stelco Holdings Inc. priced a secondary offering of 8 million common shares for aggregate gross proceeds of C$181.2 million at C$22.65 per share. The shares are being offered by a consortium comprised of LG Bedrock Holdings and Foundation Industries Group.

Nevada Copper Corp. completed a US$70 million drawdown to fund development of the Pumpkin Hollow underground copper project in Nevada.

Steel Dynamics Inc. received board approval for an additional share buyback program of up to US$750 million, in addition to a US$450 million share repurchase program in August.

Syrah Resources Ltd. seeks to raise A$94 million from a fully underwritten institutional placement to complete the ramp-up of its Balama graphite project in Mozambique. Under the offering, investors can subscribe for 42.2 million new shares at A$2.23 apiece, and the shares issued will represent about 12.4% of Syrah's undiluted share capital.

Northern Star Resources Ltd. raised A$175 million from a fully underwritten placement to help fund its US$260 million acquisition of the Pogo gold mine in Alaska. The placement to institutional investors comprised 26.1 million new shares at A$6.70 apiece and was heavily oversubscribed.