U.S. economic data released in the week ended Feb. 2 marked a strong start to the year.
Nonfarm payrolls increased by 200,000 in January, well ahead of expectations. Growth in average hourly earnings also came in above expectations at 2.9%, while the unemployment rate remained flat at 4.1%.
Consumer confidence rose 2.3 points in January amid a strong stock market and growing optimism about tax reform in the U.S.
The U.S. dollar rose against the euro after strong jobs data Feb. 2 but weakened later in the day. Recent euro strength versus the greenback was again supported by strong economic data from the eurozone.
The eurozone economy expanded 0.6% in the fourth quarter of 2017 and 2.5% for the full year, which is faster than the 2.3% preliminary reading for the U.S.
U.S. Federal Reserve's new chairman, Jerome Powell, will be sworn in Feb. 5. Janet Yellen presided over her final rate-setting meeting last week and signaled that the Fed will maintain its pace of rate hikes. With unemployment and inflation rates near historically low levels, Powell is expected to follow Yellen in raising interest rates and unwinding the Fed's US$4.5 trillion balance sheets.
Price ring
Gold prices declined after the Feb. 2 release of U.S. jobs data, closing the week 1.2% lower at US$1,333/oz. It was a soft week for precious metals as silver and platinum fell 4.7% and 2.0%, respectively, to US$16.6/oz and US$991/oz.
Base metals also took a hit. Copper was down 0.6% to US$7,004/tonne, aluminum ticked 0.4% lower to close at US$2,228/t, and nickel dropped 1.6% to US$13,400/t. Zinc and lead, however, advanced 0.9% and 3.0%, respectively, to US$3,550/t and US$2,683/t.
Iron ore performed better than other commodities and rose 1.0% to US$73.5/t. Metallurgical coal increased 1.7% to US$218.7/t, while thermal coal dropped 4.5% to US$94.1/t.
Talking points
While sentiment for iron ore pricing remains positive, J.P. Morgan's metals and mining research team warned in a Feb. 2 note that weaker-than-expected demand from China and additional supply expected from majors pose risks for iron ore prices in 2018.
The analysts believe that strong macro indicators have been supporting positive sentiment for iron ore prices but said China, the world's largest iron ore market, is the exception. The country's grid spend and fixed-asset investment growth are in multiyear lows, which signals a slowdown in China's infrastructure sector, according to the report.
"Following a review of channel checks from our China steel team, we adjust our China demand assumption to minus 0.7% (from flat)," the J.P. Morgan team wrote, adding that its export forecast for China was cut to 50 million tonnes from 80 million tonnes. The total production forecast remains at 830 million tonnes.
The team estimated that China port stocks of iron ore are at record levels of about 150 million tonnes. "Lower China steel margins could see demand for low-grade ore improve," the analysts said. "However, this may not result in a material change in the spread near term, as it could just see inventory destocking."
"In our view, a destocking event represents a risk to prices as the market already appears well supplied," the team added while maintaining a price estimate of US$65/t for 2018.
On supply, the analysts believe that current prices are encouraging miners to increase production or to bring on idle capacity. Additional supply from majors was estimated at nearly 80 million tonnes this year, with the team's supply/demand model indicating a global surplus of 2.8% or 60 million tonnes.
Financings
AMG Advanced Metallurgical Group NV signed new credit facilities totaling US$650 million to replace existing facilities of US$400 million and fund expansion projects.
Centerra Gold Inc. secured a US$500 million credit facility to replace previous credit lines of US$315 million and a US$125 million nonrevolving credit facility. The new four-year facility will carry an interest rate of the London Interbank Offered Rate plus 2.25% to 3.75%.
Endeavour Mining Corp. priced a US$300 million private placement of convertible senior notes due 2023. The notes carry a 3.0% annual coupon, and proceeds will be used to refinance debt and for other general corporate purposes.
Altech Chemicals Ltd. finalized a US$190 million debt package from German state-owned KfW IPEX-Bank for the company's proposed Johor Bahru alumina plant in Malaysia.
Paladin Energy Ltd. closed an offering of senior toggle notes for US$115 million, with proceeds to be used to purchase a US$60 million revolving credit facility, to cash back a performance bond and to fund company operations. Completion of the offering followed the company's move to transfer 98% of its shares to creditors and other investors.
