andrew@matauadvisory.com.au
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Commodity Review 20191011 by Andrew Pedler – Now Available

Lithium

Comments of particular interest are noted with ‘*’. 

Matau’s Comments:  

  • Lithium:  South American miners are struggling to put downstream added value projects into place. 
  • The USA – China tariff talks & trade wars The recent “phase 1” agreement details have yet to see the light of day.   
  • Base metal inventories continue to remain tight.  Low base metal inventories are beginning to get more attention in the media than previously. 

SUMMARY  

*Copper  Strikes in Peru to affect output.  RIO exploring (JV) in China.

Cobalt  GEM Co agreement with Glencore for provision of cobalt hydroxide.  Supply is ‘precarious’.

*Nickel  Ni market is concerned about potential future supply shortfalls.

Zinc & Lead  ZMI hits high grade Zn.  NCZ achieves stable Zn operation.  EPA lead pipe rules changed.

*Tin  Chinese refined Sn output down on reduced feedstock supply.  Conflict minerals’ compliance.

Aluminium  A gap between alumina prices in China and in rest-of-world. Alunorte returns to production.

Gold  High gold price dampens Indian buying ahead of Diwali festival.  The world is nervous.

Platinum & Palladium  Merger agreed for Implats to acquire North American Platinum.

Oil  Attacks on Iranian tanker escalates issues.  USA to send troops to Saudi Arabia.

Coal  Aust coking coal exports increased.  Chinese buyers acting ahead of expected port restrictions.

Iron Ore  China’s Tangshan city extended steel production restrictions, that may favour lump iron ore.

Shipping  New fuel regulations making freight rates more volatile.

General 

*Lithium:  supply chain issues for South American countries.

Port Hedland Iron Ore:  China extended restrictions on steel mills that may favour lump ore..

*PinchPoint Graphs:  tightening further and beginning to get price responses.

*Japan – LNG prices:  Higher oil prices and ship-fuel costs could boost LNG prices further.

Commodity Review 20191004 by Andrew Pedler – Now Available

Comments of particular interest are noted with ‘*’. 

Matau’s Comments:  

  • OPEC+ participants are girding their loins for potentially more production cut commitments.
  • The USA – China tariff talks & trade wars continue to stunt trade oriented decisions.  Some unexpected consequences (see tin).
  • Base metal inventories continue to remain tight.  In a broad sense not much has changed.  Base metal prices are struggling to cope with the negative fears driven largely by the USA-China trade tensions.  Low base metal inventories are getting more attention in the media than previously. 

 SUMMARY  

*Copper  Trade wars continue to deter activity.  Outlook for future supply remains tight.

Cobalt  Co inventory from the previously failed Fanya Metal Exchange to be auctioned on Oct 5th.

*Nickel  Ni prices responding to low refined Ni stocks and looming ban on ore exports.

*Zinc & Lead  Northern Canadian infrastructure proposed to deliver remote new mine production.   IBG Citronen.

*Tin  A bad vegetable harvest stings tariff affected USA steel makers.

Aluminium  Vietnam imposes anti-dumping tariffs on Chinee products.

*Gold  “Global policy uncertainty is at an all-time high”.

Platinum & Palladium  Pd prices have run to record highs, on demand growth and supply deficit.

*Oil  Nigeria prepared to make cuts to meet its OPEC+ commitments.

Coal  Chinese buying of low price met coal imports continues.

*Iron Ore  India to auction mining leases.  May disrupt local supply and require imports to balance demand.

Shipping  Cape & Panamax rates reduced this week, on easier grain & iron ore demand.

General 

*Port of Singapore Shipping Traffic:  Bulk Carriers & Tankers +ve growth.

*USA – Construction Spending:  public non-residential spending +ve, but private residential is -ve.

*USA – PMI:  Still indicating a contracting manufacturing economy.

*Japan – Industrial Production:  Overall modest contraction in IP.

Commodity Review 20190927 by Andrew Pedler – Now Available

Steel & China

Comments of particular interest are noted with ‘*’. 

Matau’s Comments:  

  • China’s industrial and energy output recorded largely positive growth in key areas.
  • USA’s durable goods data were pretty ordinary numbers, but the gold sector considered them “better than expected” …?  
    • Vehicles and Electronic goods data were positive.
  • World Steel  output remains positive with notably strong growth from China & India. 
  • Yes the USA – China tariff talks are to resume, … though with no great expectations of meaningful outcomes.
  • Base metal inventories continue to remain tight.   In a broad sense not much has changed.  Base metal prices are struggling to cope with the negative fears driven largely by the USA-China trade tensions.

SUMMARY  

*Copper  SVY – stunning drill intercepts.

*Cobalt  Transition to 811 Li-ion batteries … to encourage adoption of EVs.  Expected to increase demand for Co.

*Nickel  China’s Ni-ore imports from Indonesia increased (ahead of Indonesian export bans).

Zinc & Lead  Base metals have struggled with the escalation of (USA-China) trade tensions.  Zn still in deficit.

Tin  MLX reports new strong tin intercept at Renison, in the Bell 50 area.

Aluminium  Japanese Al premiums reduced on ample supply.

*Gold  Gold market flipped from ‘risk-on’ to ‘risk-off’.  Durable goods orders better than expected.  Exactly what were they afraid of?

Platinum & Palladium  Sibanye Gold plans significant job cuts at Marikana Pt mines.

*Oil  Saudi agreed to partial cease-fire in Yemen.  Prices reduced.  Notes on USA Strategic Reserve.

*Coal  Nippon settled Dec19Qtr LVPCI & SSCC contracts.  … a change from lagged settlements.

Iron Ore  Vale to begin supply of a new iron ore product, for the pellet markets.

Shipping  Freight rates reduced this week.

General 

*World Steel production:  The world reported good growth, with China and India notably strong.

*China – Industrial and Energy output:  Generally positive growth, in key products.

*USA – Durables, Vehicles & Electronic products:  Vehicles & Electronics up but Durables down.  … note comments in gold section

Commodity Review 20190920 by Andrew Pedler – Now Available

USA

Comments of particular interest are noted with ‘*’. 

Matau’s Comments:  

  • USA’s economy still continues toward slower growth (IP), though house starts are now positive.  Will these resume a former role as a leading indicator for the USA economy? … with timing for growth into 2020?
  • Drone strikes on Saudi oil infrastructure have strongly escalated geopolitical tensions.
  • The USA – China tariff talks are to resume, though with no great expectations of meaningful outcomes.
  • Base metal inventories continue to remain tight.   In a broad sense not much has changed.  Most prices are in the ‘nose of pinch-point graphs.   Pinchpoint positions are mostly less than 1 week’s consumption.  However sentiment (geopolitical) continues to drive prices over fundamentals.   Nickel price continues to react strongly to threats of supply restrictions.  Cobalt price is reacting to supply restrictions brought about by the high political risk of doing business in DRC.  Other base metal prices are currently wilting under fears of a slowing global economy.  

SUMMARY  

*Copper  Analysts sceptical about ability of Chilean & Peruvian Cu output growth targets.

*Cobalt  Prices up as DRC issues threaten key supply.

*Nickel  Strong backwardation.  Chinese stainless producers restock for Golden Week.

Zinc & Lead  China: Zn output strong.  India: per capita Zn consumption is low on a world scale.  Nyrstar restart (again).

Tin  Indonesia launches JFX Sn contract, attempting to establish an Indonesian “global” reference price.

Aluminium  Australian Al producers ‘warned off’ taking advantage of USA’s tariff-free status for Australian Al.

Gold  Gold does indeed to have a ‘safe-haven’ status under volatile conditions.

Platinum & Palladium  Palladium (Pd) futures prices hit all-time highs on supply concerns.

Oil  Attacks on Saudi refinery capacity escalated tensions.  Production to recover by end-Sept.

Coal  Nippon sets SSCC contract Sep19Qtr.  China’s Golden Week, port restrictions.  Indian monsoon.

Iron Ore  Concerns about efficacy of Chinese stimulus.  China’s iron ore imports still strong.

Shipping  Voyage chartering rates affected by drone strike in Saudi.

General 

*USA Treasury – Yields & Margins: inverted, depending on the measure (3mo or 2 yr) vs 10yr.

*Baker Hughes – Rig Counts:   Global rig count down, largely as USA & Canadian rigs.  *Permian Basin oil may have future supply issues related to hole spacing.

*USA – New House Starts:  Strong growth in starts.

*USA – Industrial Production & Capacity Utilisation:  IP only weakly positive.

 

Commodity Review 20190913 by Andrew Pedler – Now Available

Comments of particular interest are noted with ‘*’. 

Matau’s Comments:  

  • General    USA’s economy still continues toward slower growth, particularly by private and residential construction spending compared with public and non-residential spending, and by expectations of a USA rate cut by FOMC this next week.  Hope has again risen for a positive (actual) outcome from renewed USA-China tariff talks, which has blunted gold prices
  • Base metal inventories continue to remain tight.   In a broad sense not much has changed.  Most prices are in the ‘nose of pinch-point graphs.   Pinchpoint positions are mostly less than 1 week’s consumption.  However sentiment (geopolitical) continues to drive prices over fundamentals.   Nickel price is reacting strongly to threats of supply restrictions.  

SUMMARY  

Copper  Price jumped on news of a new USA-China tariff discussion

Cobalt  A forecast slowdown of EV adoption (sales) … is likely still too high for mine-supply growth ability.

Nickel  China exploring Ni-free Li-ion battery technology.  EV segment is a small part of Ni demand.  POS.

Zinc & Lead  Output of Pb & Zn from Mexican miners slumped in JunHY … may improve in Dec HY.

Tin  Two major Sn producers cutting output but a third is planning to keep output steady.

Aluminium  Henan province’s Al product output is cut for the duration of the Chinese Ethnic Games.

Gold  Au prices weaker on expectations of tariff talk progress, and USA FOMC rate cuts.

Platinum & Palladium  Pd price up to record levels on tight supply.  NHC

Oil  OPEC is not comfortable.  No control / influence over a significant supply segment (USA).

Coal  USA coal exports to continue to suffer on poor Atlantic region demand.

Iron Ore  Outlook for a slow slide in Fe ore prices as Chinese growth eases … assumes no supply response.

Shipping  Cape & Panamax rates reduced this week.

General 

Japan – LNG prices:  a recovery from last month’s 3 yr lows.

Port Hedland – Iron ore exports:  Big monthly yoy jump but flat 12mo period yoy.

USA – Construction Spending:  Continuing -ve residential & private growth.

Commodity Review 20190906 by Andrew Pedler – Now Available

Exploration Spend

Comments of particular interest are noted with ‘*’. 

Matau’s Comments:  

  • Australia – Exploration Expenditure   Spending is recovering in both minerals and petroleum sectors. 
  • Base metal inventories continue to remain tight.  In a broad sense not much has changed.  Most prices are in the ‘nose of pinch-point graphs.   Pinchpoint positions are mostly less than 1 week’s consumption.  However sentiment (geopolitical) continues to drive prices over fundamentals.   Nickel price is reacting strongly to threats of supply restrictions.  
  • Pinchpoint graphs  have selective stories by (base metal) commodity, though most are fundamentally tight.  Pb, Ni, Zn & Sn are in backwardation and Cu & Al are in contango.   
  • Outlook for base metals and battery minerals remains at ‘not enough’ new mine supply in coming years (the next decade), for several key commodities, particularly for EV sales growth.  

 

SUMMARY  

Copper  China eased bank lending, but Cu price focussed more on USA-China trade talks.

Cobalt  Co prices lifted on expected reduction to global supply.

Nickel  Indonesia confirms it will ban Ni (laterite) ore exports.     POS

Zinc & Lead  The forecast Zn surplus appears elusive … with little sign to date.  Supply disruptions.    VXR

Tin  Prices up on major producers’ announcements of cuts.

Aluminium  Japanese Al premiums are down in recent negotiations.

Gold  USA & China stated will work on fresh trade negotiations.  Market does need meaningful outcomes.

Platinum & Palladium  Investor demand for Pt has been ‘unprecedented’ in the June HY.

Oil  Three factors that will determine the direction of oil prices in 2020.

Coal  Settlements for Jun19Qtr – HCC & LVPCI.

Iron Ore  Seaborne Fe ore price down as ore lump premiums drop.

Shipping  Freight rates rise over major Asian routes.

General 

Australia – Mineral & Petroleum Exploration Expenditure:  The recovery continues.

USA – Purchasing Managers’ Index:  almost all categories less than 50!

 

Commodity Review 20190830 by Andrew Pedler – Now Available

World Steel

Comments of particular interest are noted with ‘*’. 

Matau’s Comments:  

  • World Steel production   Yr-on-yr growth was positive on a month and 12 month basis, though the avg daily rate from June to July fell markedly driven by slowdown across the Asian producers, representing 72% of global steel.   Matau considers that national steel production is a measure of the industrial ‘condition’ or ‘maturity’ of a country.   Many of the developed economies had stagnant or declining steel output, while emerging nations are exhibiting growth in output. 
    • It is actually surprising how few steel producing nations have actually contributed (positively) to the global steel markets since June 2008, the increase since then being +27.2%.  Those nations are:  China, South Korea, India, Turkey and Iran (that we have 2008 production data for) plus other emerging nations like Thailand, Vietnam and I expect Indonesia.  The rest (~ of the 69 producers) have -ve growth.
  • ChinaFreight traffic continues to report strong positive growth, as did Electricity production (reported last week).  These are two of the three key economic data that one of Xi’s predecessors used to assess the health of the economy.  Be somewhat wary of underestimating China’s growth.  Power generation is increasing and more goods / materials are being freighted around the country (and imported).  I have not seen end-use data … It has been said more than once that China is further down the path toward a consumer driven economy than many suspect.  As has been pointed out by Petit (earlier report) China’s GDP is arrived at by different methods than most, and unless methodology has changed is not all that useful.  Industrial output data suggests overall growth though data is a bit volatile.  
  • It is the industrial output Matau is interested in, i.e. that consumes commodities.  Part of China’s move to a consumer economy includes exporting some of its manufacturing capacity to lower cost [the Asia-five] nations (Philippines, Vietnam, Thailand, Malaysia, Indonesia) which changes perceived political risks in addition to improving economics).  USA has lost a lot of industrial capacity to offshore jurisdictions, and the current Administration is attempting to reverse that … not sure that is a good idea. 
  • Base metal inventories continue to remain tight.  In a broad sense not much has changed.  Most prices are in the ‘nose of pinch-point graphs.   Pinchpoint positions are mostly less than 1 week’s consumption.  However sentiment (geopolitical) continues to drive prices over fundamentals.  
      • However Nickel price has now responded strongly to fears of supply disruption.  This is an instance where fundamentals are surfacing through the wider geopolitical rhetoric.  (… albeit still ‘fears’ of the fundamentals, but at least there is a real basis underlying the price movements).  …
  • Pinchpoint graphs are currently telling selective stories by (base metal) commodity, though most are fundamentally tight.  Ni, Zn & Sn are in backwardation and the contangos for Cu and Pb are ‘small’.  Nickel has shown how the market is likely to react to ‘fear’ of disruption in a market where supply is tight.  Matau had a view that the Ni market (stock levels at about 4.5 weeks) may have had further to fall before exhibiting ‘tight’ reactions. 
  • Outlook remains for ‘not enough’ new mine supply in coming years (the next decade), for several key commodities, particularly for EV sales growth.  
  • Work on resources supply growth, which means achieving suitable commodity prices to incentivise new production, is required to meet the ambitious production and sales growth targets for EVs.  (Matau reported on this in an earlier Commodity Review).  Matau believes that without evidence of increased prices and increased development commitments, the EV sales growth targets (greater than ~20% p.a. for a decade … or so) will have to be tempered. 
  • The theme of the June Resources Rising Stars conference earlier this year was I think very appropriate for the current investment and geopolitical market … “Pick the stock, not the market” … which lends to careful assessment of projects, stocks and management, to choose where to invest.  The nature of very tight metals markets has been seen before, and can turn markedly, very fast.  However at this stage time frames are being clouded, and often delayed, which makes stock selection challenging. 

 SUMMARY  

*Copper  BHP expects a structural Cu deficit to emerge in the early to mid- 2020s.   SFR & MOD.

*Cobalt  DRC economy to be hit with stoppage of Co output in the south.  Supply growth issues remain.

*Nickel  Nickel supply fears:  fears of Indonesian export ban;  Ramu threatened with shutdown.

*Zinc & Lead  Teck’s Trail plant repairs reduces output by ~25%.  ORN progressing Prieska.

*Tin  Trade tensions between Japan & South Korea over WWII reparations agreement.

Aluminium  Outlook for Japanese premia over LME to increase.

*Gold  Speculative funds moving into gold-backed ETFs.

Platinum & Palladium  China may ease restrictions on auto sales.

*Oil  Russian oil production cuts smaller than expected in August, but had over-complied in July.

Coal  Indian mills agreed to price-index-linked contacts for met coal.  Demand for thermal soft at present.

*Iron Ore  FMG confident in ongoing Fe-ore demand.  Focus is on factors FMG can control.

Shipping  Rates up on Asian routes.  .

General 

*World Steel production:  A production rate drop from June to July, though +ve yr-on-yr growth.

*USA – Orders to Durable goods, Vehicles, Computers & Electronic goods:  broadly +ve

*Japan – Industrial Production:   -ve total, but +ve in key segments.

 

Commodity Review 20190823 by Andrew Pedler – Now Available

China, UK, Germany

Comments of particular interest are noted with ‘*’. 

Matau’s Comments:  

  • China   reports for Industry & Energy output for July are substantially positive.  
  • Base metal inventories continue to remain tight.  Not much has changed.  Most prices are in the ‘nose of pinch-point graphs.   Pinchpoint positions are mostly less than 1 week’s consumption.  However sentiment (geopolitical) continues to drive prices over fundamentals.  

The theme of the June Resources Rising Stars conference earlier this year was I think very appropriate for the current investment and geopolitical market … “Pick the stock, not the market” … which lends to careful assessment of projects, stocks and management, to choose where to invest.  The nature of very tight metals markets has been seen before, and can turn markedly, very fast.  However at this stage time frames are being clouded, and often delayed, which makes stock selection challenging.  

  • Outlook is for ‘not enough’ new mine supply in coming years (the next decade), for several key commodities.  

 SUMMARY  

Copper  Southern Peru Corps’ large Tia Maria project working through environmental permitting.

Cobalt  Glencore’s DRC operations face several challenges: markets and political risks.

*Nickel  IGO warns of further looming Ni supply deficits.

Zinc & Lead  Sumitomo’s Zn-Pb in Bolivia facing strikes.  Other Bolivian mines near to exhausting Reserves.

Tin  U.S. Steel to idle its tin mill.  It is cheaper to import tin to USA.

Aluminium  Victoria’s Portland Al smelter struggles to remain viable despite government subsidies. *Gold  Still focussed on trade wars, yield curves.  If anything rhetoric is escalating,

Platinum & Palladium  Amplats targeting a Li-ion battery that uses Pt group elements instead of Co & Ni.

Oil  Oil prices dipped upon resurgence of tariff wars.

Coal  Indian met-coal demand slowing, partly due to Indian activity and partly global conditions.

Iron Ore  Prices down upon curbed Hebei production & BHP outlook.  Reduced optimism in USA.

Shipping  among all the above, demand for shipping is up markedly.

General  

*Singapore Shipping:  the main segments:  Bulk, Tankers & Containers all recorded +ve growth.

Yield Curves – USA & Australia:  USA’s short end is inverted, Australia’s is not at present.

*China – Industry & Energy output:  widely positive growth rates for July

United Kingdom – Industrial Production:  -ve growth, except electricity & mining.

Germany – Industrial Production:  -ve growth, except construction.

Commodity Review 20190816 by Andrew Pedler – Now available

USA – Housing Starts, Industrial Production, Electricity End-Use, Bond Yields

Matau’s Comments:  

  • USA   is slowing!  Data this week reinforces last week’s OECD CLI implications.
  • Base metal inventories continue to remain tight.   Most prices are in the ‘nose of pinch-point graphs.  Pinchpoint positions are mostly less than 1 week’s consumption.   However sentiment (geopolitical) continues to drive prices over fundamentals.  
  • Several metals (Ni & Co this week)  are showing signs that reduced supply is likely to lead to higher prices.
  • Outlook is for ‘not enough’ new mine supply in coming years (the next decade), for several key commodities. 

The theme of the Resources Rising Stars conference at the Gold Coast earlier this year is appropriate:  “Pick the stock, not the market”.

 

SUMMARY  

*Copper  Codelco optimistic about long term price for Cu.  Short term prices pressured by growth concerns.

*Cobalt  Co price is up on news that Glencore is shutting its large DRC mine.

*Nickel  Philippines’ largest exporter of ‘high’ grade Ni laterite ore is to shut upon depletion of its Reserves.

*Zinc & Lead  ORN calling for ongoing need for more Zn & Cu production.  Nyrstar Pb smelter stopped again.

*Tin  Trump acknowledges that tariffs increase domestic prices.  Delays new tariffs till after Christmas.

Aluminium  Beijing announced additional import scrap quotas.

*Gold  Gold price gains as faith in Central Banks is about to be tested again.

Platinum & Palladium  Progress … of sorts … being made in wage negotiations with AMCU..

*Oil  .Russia & China have stuck by Venezuela, though that may change.

Coal  A weaker CNY, a safety campaign, shipment restrictions, though premium HCC is preferred.

Iron Ore  Beijing’s stimulus restraint driven by low infrastructure spend, impacting prices.

Shipping  Baltic indices, Cape, Panamax & Handymax up this week.

*General 

Port Hedland – Iron Ore shipments:  Shipments down in July after a bumper June effort.

USA – Electricity End-Use:  Total demand slowing, mostly in residential demand.

USA – Bond Yields:  A historical review + Current 10yr-2yr curves ‘almost’ inverted.  10yr-3mo is!

USA – Industrial Production – Capacity Utilisation: Really slow IP growth.  Cap Util is sub optimal.

USA – Housing Starts:  House starts almost stalled.

Commodity Review 20190809 by Andrew Pedler – Now Available

OECD CLI’s

Comments of particular interest are noted with ‘*’. 

Matau’s Comments:  

  • OECD CLIs  suggest that growth outlook for much of the world (except Europe) looks like picking up in late 2019 with much of Asian emerging countries currently in decent growth mode. 
  • Chinese Freight traffic  for June reports good growth.  
  • Base metal inventories continue to remain tight.  Most prices are in the ‘nose of pinch-point graphs.  Pinchpoint positions are mostly less than 1 week’s consumption.   However sentiment (geopolitical) continues to drive prices over fundamentals.  
  • Japanese LNG pricing is reacting to changes (liberalisation) of its energy markets.

 SUMMARY  

*Copper  Recent slide in Cu prices to limit investment in new mines, creating a tighter future market.

*Cobalt  Glencore to reduce Co output from DRC at current ‘low’ prices.

*Nickel  Fears Indonesia will bring forward bans on Ni ore exports.  Confirmed being considered.

Zinc & Lead  NCZ progressing Century expansion.  Woodmac summary of Zn mkt.  Pb mkt OK near term.

Tin  Indonesia’s refined Sn exports shrank.

Aluminium  Rusal is restoring operations post USA sanctions.  Concerned about USA-China trade tensions.

Gold  Make reasonable estimates of future gold price.  Most forecasts are ‘wishful thinking’.

Platinum & Palladium  Pt-Pd price spreads.

*Oil  USA EPA proposed new rule to limit states from stalling pipeline construction.

*Coal  Tata Steel has large future HCC demand.  China’s import controls settling into place.

Iron Ore  Prices stabilising after large drop last week.  Market to remain undersupplied to 2020.

Shipping  Cape and panama rates softened.

General 

*OECD Composite Leading Indicators:  Most, except Europe, with good growth outlooks.

China – Freight:  strong positive growth.

*USA – Baker Hughes Rig Counts:  USA counts are down while rest of world counts are up.

*Japan – LNG prices:  Prices fell heavily, on liberalised markets and with oil price falls.