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7
Dec

November Updates

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Metal prices closed November on highs as OPEC and other producers agreed to cut crude output. The London Metal Exchange Metals Index tracking the six major metals climbed 12% over the month, the biggest increase since December 2010. Dealers were taking the view that better cash flows for oil producers and oil companies would add to factors boding well for higher capital investment and thus demand for metals.

The Trump victory in the US had already boosted prices as the new government is expected to carry out a $500 billion programme of US infrastructure building. Around the other side of the world, China announced that fixed asset investment rose by 8.3% for the first 10 months of the year slightly ahead of the 8.2% expected.

The world’s major investment houses responded to the news by turning positive on the metals and mining sector.  The headline on the latest research from US banking giant Citi read: “Behaviour Change: Double Upgrade to Bullish.” It foresaw strengthening corporate balance sheets as dollar-based revenues rose, with plenty of scope for increases in dividends.

COPPER: Copper prices gained 20% over the month, the biggest rise since April 2006. Prices had already been strengthening, with Chinese speculators seen as the principal drivers of the rally. “As the Chinese authorities try to rein in excessive speculation in areas such as property, huge amounts of cash looking for a home have been channelled into commodities, “commented brokers Sucden. However, at the close of the month Chinese markets were taking action to dampen sentiment. 

TIN:  Tin put in a strong performance, showing a rise of over 40% in the year to date, in response to improving demand and falling world inventories. The tin market is set to record a 10-15 thousand tonnes deficit this year, according to brokers SP Angel, followed by the same in 2017.

OTHER BASE METALS: Zinc went parabolic in the second half of November, rising to the highest for eight years, up over 9%. Lead ended the month up 15%.  Aluminium and nickel prices also increased.

COAL:  Prices rose, reaching new highs of over $300 a tonne for spot coking coal.  “Negotiations for 1Q17 basic prices will start shortly and, considering the spot market indications, we can expect the contract price level for the first quarter to be significantly higher quarter on quarter,” commented Russia’s Mechel Mining.

GOLD: Gold was being described by dealers as ‘down but not out’ after significant declines over recent weeks, post the US election.  The Indian government demonetisation of high denomination bank notes also had a dampening knock-on effect to precious metal prices, particularly gold – it has left the country’s financial markets in chaos, leaving buyers without funds.  At Swiss bank UBS, gold prices were seen as ‘fragile’ and likely to remain under pressure ahead of the December 14 meeting of the Federal Open Market Committee: US rate hike is widely forecast.

UBS expects gold to firm to an average of $1,350 an ounce in 2017 (and says platinum and palladium will also rise next year). Although sentiment is currently muted, gold has held on to some of this year’s gains. On January 1 it traded around $1060 per ounce, while on December 1 it was around $1173. Looking at the uncertainty about the US economy under President Trump, dealers said there was plenty of potential fodder for recession and bear market action in stocks ahead, and thus a return to gold as a “safe haven”.

SILVER: Silver followed gold, but bankers at HSBC were forecasting the price to soar next year on the back of a 132 million-ounce supply deficit. They suggest a range of $16-$18.75 as prices recover from a post US election sell-off.   “We also base our expectations on solid fundamentals, as mine supply is likely to contract while industrial and jewellery demand should increase,” said the bank’s analysts. 

CORPORATE NEWS:

Randgold Resources reported the signing of a heads of agreement to establish a joint venture for exploration, development and mining in the southeast of Cote d’Ivoire. It already operates the Tongon mine in the northern part of the country.

Anglo American reported that De Beers has realised US$470million from the latest, 9th of the year, diamond sale. The sales are slightly lower than the US$494m recorded for this year’s previous sale, but the company comments that it sees “continued good demand for De Beers rough diamonds, with sales in line with expected seasonal demand patterns”.

Some rare good news on labour: the world’s three biggest platinum producers – Anglo American Platinum, Impala Platinum and Lonmin  – all reached three-year wage agreements in South Africa with the Association of Mineworkers and Construction Union without losing one day to a strike. 

SOUTH AFRICA:  Business confidence in South Africa as an investment hub dropped in the fourth quarter, putting at risk efforts at boosting economic growth and avoiding a downgrade in rating. According to an index released by Rand Merchant Bank, the ratings fell to 38 points in the fourth quarter, from 42 in the three months to September. It was weighed down by a weaker currency and high fuel prices. Ratings agencies Fitch and Moody’s, which affirmed South Africa’s investment-grade credit rating, cited the low level of business confidence as a downside risk to growth. S&P left its assessment of the nation’s foreign-currency debt unchanged at one level above junk, while lowering its local-currency rating and warning that political interference in fiscal policy could lead to a downgrade.

Proposals to stabilise the labour market by introducing a national minimum wage and curtailing strike action received mixed reviews. The country’s biggest labour union dismissed the recommended R3 500 a month announced by Deputy President Cyril Ramaphosa as ‘an insult’. Consultants KPMG in Cape Town said many businesses would regard the pay level as too high.

Meanwhile, the South African Chamber of Mines warned of dire consequences from the government’s new mining legislation due to be introduced in December.

TANZANIA: Pressure on the miners continues here, too, with Tanzanian president John Magufuli calling for an end to “robbery” and for higher royalties and taxes from companies like Acacia Mining and AngloGold Ashanti. According to Reuters, gold exports earned Tanzania US$1.27 billion in 2015, down from 2014’s $1.32 billion. At least six companies are rethinking their business and investment plans, Reuters reported.