Concerns over an escalating trade war shook up global markets last week as U.S. tariffs on steel and aluminum imports came into force June 1, prompting criticism and warnings of retaliation from close U.S. allies and trade partners.
The EU and Canada both filed challenges with the World Trade Organization, calling the move illegal, while China warned that all trade talks with the U.S. might become void.
Sentiment at a G7 meeting of finance ministers in Canada was described as heated as economic leaders expressed their "unanimous concern and disappointment" over the tariffs to U.S. Treasury Secretary Steven Mnuchin.
In a statement, the group said, "Ministers and Governors agreed that this discussion should continue at the Leaders' Summit in Charlevoix [Quebec], where decisive action is needed. The aim of this should be to restore collaborative partnerships to promote free, fair, predictable and mutually beneficial trade."
Despite the tensions, the U.S. dollar held up, helped by better-than-expected employment data for May, which saw job growth accelerating and unemployment dropping to its lowest in nearly two decades.
Price ring
The events made for a mixed metals performance last week.
On weekly basis, aluminum increased a marginal 0.2% to US$2,286/tonne, while nickel and zinc climbed 2.9% and 2.6%, respectively, to close at US$15,158/t and US$3,098/t on June 1.
Copper and lead retracted 0.3% and 0.8%, respectively, finishing the week at US$6,845/t and US$2,446/t, and iron ore dropped 1.0% over the week to US$61.30/t.
Gold and silver saw a marginal decline, closing at US$1,296/oz and US$16.50/oz, respectively.
Talking points
Even though gold saw a price decline last week, its annual average is expected to stay above US$1,300/oz.
In a May 30 note, RBC Capital Markets took a "cautiously constructive" stance on gold prices, forecasting the precious metal to average US$1,307/oz this year and US$1,351/oz in 2019.
While gold continues to see healthy investor and consumer interest, driven by policy-related, geopolitical and trade war risks, the analysts said macro trends such as buoyant equity levels, a strengthening dollar and rising rates posed enough headwinds to "blunt gold's more bullish of prospects."
"In our view, while 2018 will remain capped by headwinds, those headwinds should soften going into next year at the same time that upside pressure firms. In 2019, while rate increases will remain a likely headwind, such increases present just that, headwinds, rather than un-clearable hurdles," the analysts said. "We cite U.S. politics, trade worries, and other geopolitical tensions as possible upside drivers for prices in 2018 and over the course of the following year, with a particular view on these upside risks."
For gold to surpass US$1,360/oz, the analysts said there had to be a significant breakdown of macro headwinds, for example in the form of a materially weaker dollar, a significantly less aggressive path to rate hikes, a sustained debasement of buoyant equity levels, or a wide deterioration in general macroeconomic trends. However, the team said none of those scenarios were included in their 2018 base case view.
Another catalyst to climb past US$1,360/oz could be a material risk-off event such as a political conflict, according to the analysts.
"It would take a material event in our view to really disrupt the trends we have seen so far in 2018 and incite sustainable risk-off flows into gold," they added.
Financings
Sizable deals last week included a refinancing by Nyrstar NV, which agreed a US$125 million zinc prepayment to replace a three-year zinc prepay facility with a remaining balance of US$61.7 million. The net cash benefit resulting from the deal totals about US$63 million.
Minsur SA was said to be negotiating a financing package of between US$800 million and US$900 million to begin the US$1.6 billion construction of its Mina Justa copper project in Peru by year-end. The potential financing could come from a consortium of banks in Germany, Canada, Australia and South Korea and will be repaid in eight to nine years.
Nemaska Lithium Inc. completed a C$1.1 billion financing package for the construction and commissioning of its Whabouchi lithium mine in Quebec. The company closed a C$280 million public offering of its shares on a bought-deal basis and an C$80 million concurrent private placement of shares with Ressources Québec Inc. It previously raised additional funds through a bonds offering, a private placement and an advance payment of US$150 million. Construction of Whabouchi is expected to be complete within 15 months.
Russia's largest gold miner, PJSC Polyus, secured a bilateral credit facility of US$70 million with ING bank that is due for repayment in 2023. The nonrevolving facility has a fixed interest rate, and the gold miner plans to use the funds to finance ongoing operations.
Debtholders snubbed Lundin Mining Corp.'s US$450 million note buyback. Only US$10.8 million of its 7.875% senior secured notes due 2022 were accepted for purchase.
