May Updates

Fed focuses all eyes on prices

In May prices were the main focus with the dollar centre-stage. Yes, the greenback drove commodity markets, and more traders now believe that the Fed is approaching another rate hike. Fed chair Janet Yellen suggested that a rise could be expected in the coming months if the economy picks up as expected. The dollar index rallied about 4% after hitting a 15-month low in early May, putting pressure on non-yielding assets like gold and silver, a trend that is expected to continue for months. Copper showed some resilience, diamonds saw a recovery, if fragile, and leading investors saw hope for an uptick in Chinese metals demand.

Ahead of the summer trading doldrums, traders found May a good month to sell gold. The price was volatile, starting at $1,300 then it was in danger of closing below the psychologically important $1,200 level before bargain hunters pushed it back up to $1,209.

The latest World Gold Council report underlined the problem facing gold as the driving force for its 21% Q1 gain – the ‘best ever’ start to a year – was shown to be investment not fundamentals. Indian jewellers were striking against a proposed excise duty. The rally was stymied by the increasing chances of higher dollar yields, which also threatened the rally in mining stocks.

However, international investment bank UBS suggested that SmallCap miners survivors after the savage downturn in metal prices could be the ‘next hot sector’. The SPDR S&P Metals and Mining Index is up around 44% so far this year, having fallen around 78% in the five years ending 2015. Yet, the background was the view that the Fed would bide its time before raising rates.

As ever, the confused picture on China’s economy caused volatility in metals prices. Copper has returned to the doldrums after a burst of activity, based on low stocks and US short covering, took prices up over 18%. Leading investors Mark Mobius and Jim Lennons voiced the view that prices of copper, iron ore and other metals would rise on the back of a massive Chinese investment in infrastructure, such as suburban rail. But Chinese problems securing credit as the government clipped speculators’ wings soon culled market enthusiasm.

Zinc prices rose on the prospects of tightening supply. But thermal coal prices have been hit by the Norway Sovereign Wealth fund’s announcement that it could be forced to step up sales of investment in fossil fuels.

Death knell for West African coal?

WEST AFRICA: Iron ore producers’ fear their death knell is being sounded as the price falls further. The Chinese are squeezing local speculators and smokestack production, G7 has hardened its stance on the flood of cheap Chinese steel and the US imposed a whopping 500% duty. The International Steel Statistics Bureau announced that Sierra Leone’s Q1 exports plummeted from to 1.8 million tonnes against 4.1 million for the same time in 2014. “I think iron ore is dead until the next decade or even longer,” brokers Investec commented to Reuters, saying projects in the Congo Republic, Cameroon and Gabon were likely to remain frozen.

SA diamond optimism, acid water, easier platinum talks and miners can sue on lung disease

SOUTH AFRICA: Anglo American has retained De Beers after a radical overhaul and says that surging Chinese and Indian diamond demand will outstrip supply. Currently it is also encouraged by rough diamond sales.

Sibanye Gold CEO Neal Froneman told Reuters that dozens of workers who took part in a weekend illegal wildcat strike at the company’s Kroondal platinum mine could be fired. In the past, the Association of Mineworkers and Construction Union (AMCU) have reacted to firings with stoppages and violence. Sibanye has said it is on the look-out for assets elsewhere in Africa.

Anglo American Platinum (Amplats) reduced the number of job cuts tied to restructuring at two South African operations by 85%, to 300 from 2,000, as the world’s biggest producer of the metal moves workers to other projects. Almost 30 000 mining jobs at more than 36 companies in South Africa are at risk, the Solidarity Union has said, reflecting the slump in metal prices.

However, earlier in the month Amplats and the AMCU both indicated agreement that disruption in the coming two-year platinum mining wage round would be less painful than last time. Heavy lay-offs on lower prices had increased ‘the sense of reality’. The last accord was signed following a crippling five-month mine strike, the longest in South African’s history.

The government wants operating mines to pay two-thirds of the cost of cleaning up toxic water pollution caused by more than 100 years of mining in Gauteng. A long-term plan to treat so-called acid mine drainage will cost as much as R12bn and be implemented by February 2020.

South Gauteng’s High Court has ruled that miners can take on mining houses in a class action lawsuit. Thousands of gold miners who contracted silicosis and tuberculosis and the families of others who have died of lung disease claim this was the result of company negligence and are suing 32 mining companies. Anglo American and AngloGold Ashanti have agreed to compensation.

Better news for miners in Zambia, Kenya and Ghana

ZAMBIA: Africa’s second-largest copper producer has approved a new royalty regime for copper, which will see royalties levied at 4% for prices below $4 500 per tonne and at 6% for prices above $6 000/t. This is a bid to cushion miners against softer metal prices. Most mines have started to close some operations.

KENYA: President Uhuru Kenyatta signed a new mining act into law that could see Kenya’s nascent mining industry finally come into its own. His ambitions are for at least 20 new operators and a goal for mining of 10% of GDP by 2030 — a figure likely to be well over $7bn. He also wants to make Kenya a regional mining hub.

GHANA: New gold production from Asanko Gold and Golden Star Resources is expected to offset the decline in the country’s production due to its ageing mines. Last year production was down 10%.


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