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Nickel, zinc dip in week of US withdrawal from climate deal

President Donald Trump's announcement to pull out of the Paris Agreement on climate change last week dominated the political stage around the world, prompting a huge backlash from political leaders around the world and resulting in the resignation of Tesla Inc.'s Elon Musk and Walt Disney CEO Bob Iger from Trump's advisory council.

President Trump argued that the agreement favored other nations, namely India and China, at the expense of the American nation, and that a U.S. exit from the deal will save jobs. It is expected that it will take until 2020 for the withdrawal to come into effect.

Meanwhile, beige book commentary ahead of the June 13 meeting of the Federal Open Market Committee indicated that the U.S. economy continues to grow modestly or moderately in nearly all regions.

However, the statement flagged that "optimism waned somewhat in a few districts" even though firms in most districts expressed positive near-term outlooks.

Markets are widely pricing in that the Federal Reserve will hike interest rates by another 25 basis points in the upcoming June meeting.

Price Ring

Nickel and zinc were the biggest losers last week, falling 2.7% and 2.8%, respectively, to close the week at US$8,793 per tonne and US$2,557 per tonne. LME Nickel had temporarily touched its lowest level in nearly a year when it dropped to a value of around US$8,700 per tonne last week.

Zinc is used to galvanize steel and, hence, is very sensitive to weakness in iron ore and steel markets.

Iron ore last week shifted marginally lower by 0.2%, closing the week at US$57.8 per tonne. The ore has tumbled 26.7% in the year to date amid ongoing concerns over China's slowing economy and stockpiles of ore at the country's ports.

Copper was the only gainer among the base metals last week, strengthening by 0.7% to close at US$5,675 per tonne on June 2.

Most precious metals also booked marginal increases last week, with gold up 0.9% to US$1,278/oz and silver up 1.0% to US$17.5/oz.

Talking Points

J.P. Morgan Cazenove on June 4 cut its 2017 iron ore forecast to US$67 per tonne from US$73 per tonne previously amid ongoing fears of credit tightening in China, negative seasonality and a looser second-half outlook.

The bank's European Metals & Mining team also factored in seasonal improvement in nontraditional supply, referencing exports from India to China annualizing at a rate of 50 million tonnes in April, as well as higher China domestic supply, which now stands at over 200 million tonnes per annum to 250 mtpa, driven by strengthening iron ore prices over the past year and favorable seasonality.

Despite "generally solid" global macro data and demand by China's property, infrastructure and machinery sectors, it said concerns about tightening credit and dampened consumption continued to weigh on iron ore sentiment.

"[A]lthough panic over Chinese liquidity tightening has dissipated to some extent following strong April Total Social Financing (1.4 trillion Chinese yuan vs 1.2 trillion yuan consensus), [the second half] is set to be looser as 1) supply increases, 2) demand moderates, and 3) inventories remain high," the analyst team around Fraser Jamieson elaborated.

"We do expect a modest seasonal recovery in [the fourth quarter], with prices now sitting into the cost curve and some nontraditional supply already under pressure."

J.P. Morgan Cazenove cut its iron ore price forecast to US$58 per tonne in the third quarter, down from US$70 per tonne, and to US$62 per tonne in the fourth quarter, down from US$66 per tonne, leading to a new 2017 estimate of US$67 per tonne.

It still expects iron ore prices in 2018 and 2019 to average US$65 per tonne before dropping to US$63 per tonne in both 2020 and 2021.

Financings

Major financing deals last week included a 15 billion Russian ruble exchange bond issue by PJSC Uralkali. The bond is set to mature in three years at a rate of 8.80% per year and attracted "significant interest" from a diversified investor pool of banks, asset managers, insurance and investment companies as well as retail investors.

Taseko Mines Ltd. launched an offering of US$250 million aggregate principal amount of senior secured notes due 2022. The proceeds, with cash on hand, will be used to redeem the company's outstanding 7.75% senior notes due 2019 and to prepay a secured loan facility.

The board of Vedanta Ltd. gave approval for the issuance of nonconvertible debentures with a face value of 1 million Indian rupees each in a bid to raise up to 3.5 billion rupees. The notes will be redeemable after two years following allotment.

Torex Gold Resources Inc. secured a US$400 million debt facility to refinance an existing project finance facility. The company signed a binding commitment letter with joint book runners BNP Paribas Securities Corp., Commonwealth Bank of Australia, ING Capital LLC and Societe Generale for a US$300 million term loan maturing June 30, 2022, and a US$100 million revolving loan facility maturing June 30, 2020.

Shandong Gold Mining Co. Ltd. seeks to apply for up to US$1.26 billion in loans from offshore units of two Chinese state-owned banks. Proceeds will be used to finance its US$960 million acquisition of a 50% stake in the Veladero gold mine in Argentina, and for working capital.