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Oct

August Updates

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BULL & BEARS

A generally bullish view on metal prices is taken by influential international rating agency Fitch in its latest report. It has reduced long-term assumptions for prices of copper and iron ore, but raised those for thermal coal and hard coking coal and zinc. The assumptions for aluminium, nickel and gold are unchanged. 

Fitch believes that the cycle probably hit its low point early this year. Support is now coming from “the impact of Chinese infrastructure stimulus measures on the real economy and business sentiment, a recovery in Chinese residential property sales and credit availability, and a restocking by Chinese steel mills following an aggressive destocking in 4Q16,” it says.

Billionaire financier George Soros, too, is bearish on gold. Regulatory filings with the US Security and Exchange Commission show that Soros Fund Management sharply cut its stake in SPDR Gold Trust in Q2 and sold shares in Barrick Gold.

Canada’s multinational Scotiabank is forecasting that gold buying by India and China, which account for half the global market, could drop by 15-20% this year. “Higher prices and weak investment demand” are blamed by the bank’s analysts. They point out that firmer gold prices locally are increasing scrap supply, reducing imports.

Gold prices in August continued to be undermined by fluctuating views on the timing of the next US Fed interest rate rise, closing at two-month lows. Fed chairman Janet Yellen restricted her comments to saying that the case for higher rates was strengthening. 

In a move to increase trade and transparency, the World Gold Council has backed a London Metal Exchange venture, with leading gold miners such as Barrick Gold and Goldcorp, to launch spot and futures for gold and silver next year. The bullion trade expects that, ultimately, it must also set up central clearing.

METALS

Platinum and palladium prices reached 14-month highs following short-covering and dollar weakness. Another factor, according to Reuters, was higher vehicle sales in China, which caused speculation that demand for catalysts could rise.

Copper: August ended with a 6% monthly price loss, but improving sentiment. Speculators had increased net short positions in the month, reducing the price to a two-month low, as inventories weighed on long-term sentiment. Markets read inventory numbers as the result of continued low demand in China. At French bank Societe General analysts commented that “…the fundamentals of copper are the weakest among all the metals because there is too much supply.” This would, the broker added, “continue for some time.” However, copper “bulls”, including Germany’s international Commerzbank analysts, see better prices emerging at the end of the Chinese holiday season.

Tin: the top performing metal in the month, tin rose 5% in price, up 29% so far this year. This is due to concern about supplies, low London Metal Exchange stocks and a curb on polluting Chinese smelters. 

Zinc: Asian demand for zinc futures’ contracts seems to be rising, according to brokers Jefferies, the price rising to a 15-month high. However, Societe Generale advocated caution as “we are not seeing the confirmation coming from physical demand.” Prices are up 60% from January lows due to market forecasts of shortages this year and next. China’s huge zinc smelting industry has slashed fees for turning ore concentrates into refined metal by 20%, reflecting dwindling mine output.

Nickel: prices have risen by over 20% in the past few months as the Philippines cracked down on mines.

Steel: Steel production in China is facing two more years of declines after having recorded a 1.8% contraction in 2015, according to Li Xinchuang, a vice chairman at the China Iron & Steel Association.

Aluminium: prices rose to levels not seen since July last year after the World Bureau of Metal Statistics said the primary aluminium market in the first half saw a deficit of 479,000 tonnes.

GOVERNMENT MATTERS:

SOUTH AFRICA: South Africa’s government defended its policy of enforced safety stops, saying, according to Reuters, that health and safety issues were ‘non-negotiable’. Mining executives have recently expressed concern about these safety stops – dubbed “Section 54s” – saying production and profits were being hurt as too many were being imposed. Sibanye Gold’s Chief Executive Neal Froneman said in July that government was “destroying hundreds of millions, if not billions of rand in value”, because of unnecessary safety stops.

MALI: state revenues from mining companies fell 11% last year, due to stagnant production and lower gold prices.  Mali has upgraded its below-ground gold reserves by a third to 800 tonnes and is seeking more mining.

ZIMBABWE: A draft mining bill has been published, according to Reuters, which includes compulsory local stock exchange listings for mining firms and government approvals for mineral exports. The Zimbabwe Stock Exchange website says there are almost 70 companies listed already. The proposed law may also require companies to use local banks, giving greater government oversight over revenues and finances.

CORPORATE BUSINESS

Anglo-Gold Ashanti’s moth-balled mine in Obuasi, central Ghana, illustrates the problems for mining companies in areas of low employment and poverty. Fatalities from illegal mining there are rising, it complains. While the company has maintained its social commitments, this cannot sustain the local economy.

Gold Fields announced that attributable gold production has risen by one per cent in H1 to 1.04 billion ounces. Cashflow improved from $1 million in H1 2015 to $60 million and earnings were up from $0.01 a share to $0.16.

Harmony Gold could assess Barrick Gold’s assets in Acacia Mining as part of its plans to expand in Africa, says Reuters. Barrick Gold is weighing a sale of its majority stake in Acacia and is thought to have approached several South African miners.

Randgold Resources said its second-quarter mining profits were flat, as higher gold prices offset lower production and rising costs.

Gem Diamonds’ H1 results underlined uncertainty in the diamond market as it reported an attributable loss of $26.6million, 7.5 per cent worse than this time last year. It commented that: “Liquidity constraints, high polished inventory levels and the uncertain macro-economic outlook continue to create challenges….”