Markets were boosted by strong global economic momentum last week, with the U.S. economy looking good heading into the holiday season and the ECB stating in its latest meeting minutes that the EU economy is accelerating expansion.
It was a light week for the U.S. economic agenda and existing home sales came in above expectations. The German economy is booming, backed by exports and investment. German GDP growth rate for the third quarter reached to a six-year high and unemployment rate was at record lows.
The euro was under pressure at the beginning of last week as party coalition talks to form a new government in Germany collapsed. But the currency was supported by the upbeat German data and closed the week higher despite political uncertainties.
With strength in the euro, the U.S. dollar weakened. The Federal Reserve policymakers stressed their confidence in U.S. economic growth prospects in minutes of last week's policy meeting, and many said interest rates will be raised soon. Investors are expecting an interest rate hike at the December meeting.
Price ring
Most metals had a strong run in the week to Nov. 24, with iron ore staging a big reversal from declines in past weeks and copper touching a one-month high above US$7,000/t. Investors remained cautious ahead of the Fed's December meeting, though many believe that a December rate increase has already been priced into the market.
Iron ore gained 8.5% to US$67.9/t as stronger steel prices in China have been encouraging domestic mills to increase output, while metallurgical coal was up 6.7% to US$198.7/t.
With the recent weakening of the U.S. dollar, base metals also made solid gains. The copper price broke through the US$7,000/t mark before closing the week at US$6,937/t, up 2.9% week over week. Concerns over China's copper demand capped gains as the country's industrial output and fixed-asset investment data released last week missed expectations.
Nickel, zinc and lead rose 3.1%, 1.6% and 1.2%, respectively, to US$11,873/t, US$3,269/t and US$2,437/t, while aluminum edged 0.6% higher to US$2,090/t.
Most of the precious metals finished the week in the red, as gold and silver slipped 0.3% and 1.6%, respectively, to US$1,289/oz and US$17/oz. Platinum decreased 1.1% to US$941/oz and rhodium declined 1.0% to US$1,500/oz, while palladium increased slightly, by 0.5%, to close the week at US$1,001/oz.
Talking points
After a survey on the impacts of China's winter production cuts on domestic steel and aluminum producers, China International Capital Corp., or CICC, analysts believed that domestic production capacities will further decrease and the industries will benefit from higher concentration and stronger profitability.
Iron ore demand has been under pressure due to China's production restriction policy as well as increased use of steel scrap, according to the CICC research team, who estimated that suspended steel production capacity in Tangshan, China's largest steel-making city, could exceed 20 million tonnes to 30 million tonnes, which is equivalent to around four months of output in the city.
The analysts expect the iron ore price to fall in the near term before it rebounds in the first quarter of 2018 "due to a possible restocking and the resumption of steel production facilities."
On aluminum, many Chinese companies believe that the winter production suspension in northern China will result in aluminum and alumina output decreasing by between 1.2 million tonnes and 2.5 million tonnes in Beijing, Tianjin and Hebei, while about 4.2 million tonnes of illegal production capacity is also expected to be eliminated.
"The gross profit of aluminum at the companies we visited has exceeded 2,000 Chinese yuan per tonne," the CICC team wrote. "We believe that supply-side reforms have boosted the earnings of aluminum makers."
The analysts also forecast a near-term supply gap, as the pollution control policy is expected to reduce annual aluminum production capacity by around 10%. The team was bullish on the earnings outlook of Chinese mining leaders who will be least affected by the winter production shutdown.
Financings
Sasol Ltd. increased its existing US$1.5 billion revolving credit facility to US$3.9 billion and extended the maturity to five years, with options for further extensions.
Chongqing Iron & Steel Co. Ltd. secured deals with creditors for a debt-for-equity swap plan that will restructure almost 40 billion yuan of its liabilities.
Endomines AB outlined plans to raise 189 million Swedish kronor via a rights issue to partially fund the acquisition of five gold projects in Idaho via the acquisition of TVL Gold for US$34 million, or 288 million kronor.
Hesteel Co. Ltd. will launch bonds totaling up to 700 million yuan to improve pollution controls at five of its plants, with the issuance expected to be completed within 12 months.
Blackham Resources Ltd. will raise up to A$60 million from a new shareholder to refinance debt and to fund operations and expansion studies at the Matilda-Wiluna gold mine in Western Australia, with additional plans for a rights issue targeting A$12.3 million.
Phosphate fertilizers producer Itafos is looking to raise about C$96 million via the issue of 45,714,285 shares at C$2.10 apiece. The company will use the proceeds for acquisitions as well as for working capital and general corporate purposes.
As of Nov. 24, US$1 was equivalent to 6.60 Chinese yuan.
