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No respite for metals amid trade war volatility

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No respite for metals amid trade war volatility

The commodity deck experienced a bumpy ride during the week ended May 24 amid continued market volatility due to the trade dispute between the world's two biggest economies. Copper was among the hardest-hit metals, which dropped for six weeks in a row and dipped to a four-month low.

Signs that the two nations may remain at an impasse over trade issues emerged during the week. Chinese President Xi Jinping on May 20 called for the country to embark on a "new Long March," which refers to China's civil war in the 1930s, at a rally during his tour to the southeastern province of Jiangxi. "We are now embarking on a new Long March, and we must start all over again!" the South China Morning Post quoted Xi as saying. Although Xi did not directly mention the ongoing trade war, market watchers believe the comments show China is preparing for a protracted trade war.

During a trip to Ganzhou, Xi visited a major rare-earth mining and processing facility JL Mag Rare-Earth Co. Ltd. Market observers saw it as a move aimed at highlighting China's dominance in supplying the strategic minerals. JL Mag's share price subsequently touched the trading ceiling after a surge and a gauge of 38 rare-earth related companies rose by 6.7%.

Meanwhile, the U.K. Prime Minister Theresa May on May 24 said she would step down as leader of the Conservative Party on June 7 after failing to get her Brexit deal passed through Parliament three times. "It is now clear to me that it is in the interests of the country for a new prime minister to lead that effort [to deliver Brexit]," May said, with the process for electing a new leader to kick off in the week starting June 10.

Price ring

Base metals were mixed. Copper prices hit a four-month low of US$5,859 per tonne on May 23, eventually ending the week at U$5,918.5/t, compared to the previous week's close of US$6,020/t. Zinc prices dropped to US$2,703/t from US$2,750/t a week ago. Lead retreated after dropping for four days in a row, ending the week at US$1,816/t, compared with the closing price of US$1,808/t of the previous five-day session. Nickel prices rose to US$12,150/t from US$12,020/t.

Gold closed the week higher at US$1,284 per ounce from the previous week's close at US$1,276/oz. Silver followed gold and edged higher during the week. It closed the week at US$14.6 per ounce on May 24, compared with US$14.4/oz on May 17.

Iron ore prices extended their rally during the week as Chinese steel prices remained firm and iron ore stockpiles fell. Metal Bulletin's 62% Fe index jumped by 3% to US$105.32/t, up from US$101.7/t a week earlier.

Aluminum hit its lowest since January 2017 on May 23 to US$1,739/t. It ended the week at US$1,761/t, compared to US$1,805/t a week earlier.

Talking points

BMO Capital Markets analysts in a May 23 note said they see consensus expectations for a nickel price recovery are "overly optimistic" as Indonesian nickel supply continues to ramp up.

The Canada-based investment firm said nickel and stainless steel supply will still be dominated by the China-Indonesia power axis even though the demand side for nickel looks robust. It added that nickel pig iron integration into stainless steel production is well established and growing fast, while the push for refined nickel supply for Chinese battery makers is getting momentum. "We view this as deflationary for the market in the short term, and having potential to lower long-term price expectations," the analysts wrote.

BMO estimated that over the next five years, more than 800,000 tonnes of nickel contained will be coming from Indonesia, which it sees as a further deflationary influence on the nickel supply chain.

Financings

China's Zhongjin Gold Corp. Ltd. said it intends to raise up to 2 billion yuan from up to 10 investors through a nonpublic issuance of its shares to fund the 8.5 billion yuan acquisition of a nonferrous metals miner and a smelter.

Eldorado Gold Corp. has priced an offering of US$300 million worth of 9.5% senior secured second-lien notes due in 2024.

Sirius Minerals PLC said its open offer, which is part of a capital raising of US$425 million, was oversubscribed.

Eastern Goldfields Ltd. has received binding commitments for A$30 million for its offer of convertible notes of A$22.4 million and 1-for-1 nonrenounceable entitlement offer of A$7.6 million.