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Iron ore outperforms base metals amid tumultuous week of geopolitical tensions

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Iron ore outperforms base metals amid tumultuous week of geopolitical tensions

Iron ore had the better of base metals in a tumultuous week ending Dec. 21 that included a partial U.S. government shutdown, its central bank lifting its benchmark interest rate for a fourth time for 2018 and Chinese president Xi Jinping delivering a"hard-line" speech that could destabilize markets.

U.S. President Donald Trump's acting chief of staff, Mick Mulvaney, told the country's ABC network that the shutdown could still be underway when the new Congress starts Jan. 3, 2019, as the Democrats resisted Trump's demand for US$5 billion for his proposed Mexico border wall.

Trump adviser Peter Navarro fueled doubts of a U.S.-China trade agreement occurring in the next three months, telling Japanese newspaper Nikkei that it would be "difficult" for the two countries to arrive at a long-term agreement unless "Beijing was prepared for a full overhaul of its trade and industrial practices."

Meanwhile, at a meeting in Beijing marking 40 years of market reforms, China's leader gave a speech which SP Angel said was "short on detail and long on political self-congratulation," but "has the potential to further destabilize markets." SP Angel said Xi indicated China would continue to pursue growth plans but "is not going to be pushed around."

Price ring

EverBlu Research noted copper prices fell to a three-month low on Dec. 18 amid fears that weak global growth would cut demand, combined with news that a large smelter in India could restart, thus boosting supply. LME copper finished the week on US$5,985/tonne.

Having fallen dramatically overnight from US$2,684/t on Dec. 13 to US$2,555/t the following day, the last day of the week ending Dec. 14, LME zinc recovered somewhat to finish the week at US$2,583/t.

LME nickel fell to US$10,775/t, lead gained considerable ground to close at US$1,957.50/t and aluminum also edged up to US$1,924/t, while tin fell slightly to finish at US$19,375/t.

The uncertainty in the U.S. and persisting trade war tensions sent gold up 1.5% to US$1,258, while the China spot iron ore import price also ended the week 1% higher at US$69.60/t.

Talking points

BMO's "5 Defiant Forecasts for 2019" forecast that the U.S. economic expansion would become the longest on record and lead the G7 growth ranks again even with GDP dipping below 2% in the second half of 2019.

It also forecast that the U.S. dollar will weaken, which BMO also discussed as a potential catalyst for commodities in its industrial and precious metals 2019 outlooks published earlier in the week.

Its precious metals outlook believes those metals emerged from 2018 "scarred but well positioned for early 2019 out-performance," while BMO also forecasts a "soft start" for industrial metals and bulks, but "with the potential for a strong finish."

Financings

ArcelorMittal said Dec. 20 that it signed a new US$5.5 billion revolving credit facility that will mature in five years, subject to two one-year extensions, saying the new deal has better terms compared to a US$5.5 billion facility signed in 2015, with the average maturity date extended by about three years.

Pretium Resources Inc. fully repurchased the callable 8% gold and silver stream for US$237 million that was sold as part of the construction financing package for developing the Brucejack gold mine in British Columbia, and also closed its previously announced US$480 million debt facility with The Bank of Nova Scotia, Societe Generale and ING Capital LLC to refinance its existing construction credit facility for Brucejack of about US$423 million due Dec. 31.

IRC Ltd. said it secured a US$240 million facility from Gazprombank JSC to refinance an outstanding finance facility with Industrial and Commercial Bank of China and to repay Petropavlovsk PLC loans.

Ero Copper Corp. secured US$130 million in credit facilities from the Bank of Nova Scotia and Bank of Montreal to refinance about US$119 million of its existing U.S. dollar-denominated debt, including a US$50 million credit facility previously entered into with Scotiabank.

Falco Resources Ltd. secured extensions on two C$10 million loans with Osisko Gold Royalties Ltd. until Feb. 28, 2019, as Falco seeks to clinch a C$180 million silver stream transaction with Osisko that is subject to a third-party right of first refusal.