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FT Opinion – Commodities Note: Iron ore comes of age
Article from the Financial Times
https://www.ft.com/content/302df889-4d6c-48cb-a385-c31961dd489c
by Julien Hall and Fiona Boal
Once in a generation a new graduate joins that elite circle of globally recognised and traded commodities. Now widely viewed as the second most important commodity behind oil, the evolution of iron ore has mirrored the transformation of China. One of the least volatile commodities in 2020, iron ore has outperformed metals and mining equities, which over the past seven years are roughly flat, while the S&P GSCI Iron Ore index has more than tripled. The emergence of iron ore has been a rapid one by commodity market standards. A decade ago the magnetic red dirt was an opaque market with contract negotiations taking place annually in smoke-filled rooms in Japan and later China. The market now has two liquid futures markets on the Singapore Exchange (SGX) and Dalian Commodity Exchange (DCE). These financial markets are trading 1.2 times and 20 times physical seaborne market volumes, respectively.
The iron ore market has several characteristics that make it distinctive as an investable asset. Supply is concentrated in a handful of geographic regions, notably Brazil and Australia and held by a small number of participants. Global demand is dictated by one big end-user, China. Both supply and demand are subject to shocks caused by geopolitical events, unforeseen natural disasters and policy decisions, as well as the actions of individual asset owners. Platts IODEX, the main prevailing industry price benchmark, which represents medium-grade ore with 62 per cent iron content, has once again spiked, breaking through $100 a tonne driven by strong demand-side fundamentals in China with rising steel prices and strong steelmaker profit margins.
The unique characteristics of iron ore present opportunities for investors, as a liquid and easily accessible proxy for Chinese economic growth or, more specifically, the performance of the Chinese manufacturing and infrastructure sectors.
Link here to the FT article
Financial Times – Iron ore outstrips gold as year’s best-performing major commodity
by Neil Hume, Natural Resources Editor
Iron ore has outpaced gold to rank as the best-performing major commodity this year, as a rebounding China sucks in vast amounts of the key steelmaking ingredient from mines in Australia and Brazil.
The price of the rust-coloured raw material has risen almost 21 per cent in 2020, just ahead of gold, which is up 19 per cent as central banks have introduced huge stimulus programmes to try to quell the coronavirus crisis. Such activities have pushed down yields on trillions of dollars of fixed-income assets, burnishing the relative appeal of gold, which yields nothing.
Meantime, signs that China, the world’s biggest producer of steel, is mounting a solid recovery have propelled iron ore prices, which rose above $112 a tonne on Wednesday, according to S&P Global Platts, up 9 per cent over the past month.
As part of plans to reinvigorate its economy, Beijing recently announced plans to boost spending on infrastructure through an increase in local government borrowing. A state-backed rally in Chinese equity markets has also played a big role, as investors looking for China-growth proxies have piled into iron ore derivatives
Tyler Broda, analyst at RBC Capital Markets, said long-term demand trends for steel remained uncertain, given China’s increasing dependence on debt to fund new investment. But the shorter-term outlook was bright, he said, because of policymakers’ clear focus on safeguarding jobs.
Data released this week showed China imported more than 100m tonnes of iron ore in June, up from 87m in May. That was the highest monthly figure since October 2017.
It also means that China’s steel production in June is likely to have surpassed May’s total of 92.3m tonnes. This would put the country on course to produce a record 1bn-plus tonnes this year, compared with just 750m tonnes for the rest of the world.
Analysts said the sustainability of Chinese demand would be the main factor determining the direction of prices in the second half of the year. But supply disruptions could also have an impact, and not just in Brazil where Covid-19 is still spreading rapidly.
In Australia, big operations that were running at full strength in June are planning maintenance work on rail and port facilities.
Shipbroker Braemar ACM noted that last month it saw record levels of shipments from Port Hedland, the world’s biggest iron ore loading facility, in the Pilbara region of Western Australia. But so far this month, it said, Australian iron ore listings had averaged slightly more than 2.2m tonnes a day, about 18 per cent lower than in June.
Brazilian exports have also stumbled, with shipments down 23 per cent week on week to 5.3m tonnes in the seven days to July 12, according to UBS.
The rally in prices comes as some of the world’s biggest iron ore producers are due to update the market on their production and shipments. UBS estimates Rio Tinto, which is due to issue a production report on Thursday, shipped 88.1m tonnes in the three months to the end of June, up more than one-fifth from the preceding quarter.
At current prices, analysts say the company could generate more than $10bn in free cash flow this year — potentially paving the way for a bumper dividend alongside half-year results in August.
Full FT story can be found here.
https://www.ft.com/content/5a51652f-7ce1-4537-b015-8c4c73a3fdde?sharetype=blocked
FT Article – China turns to steel to galvanise post-Covid economy
Thomas Hale in Hong Kong and Neil Hume in London
The coronavirus pandemic is putting China on course to dominate global steel production to an even greater extent than before, accelerating a trend that has gathered pace for more than half a century.
In April, a locked-down UK produced less than half of 1 per cent of the world’s steel, according to estimates from the World Steel Association. China, on the other hand, produced 62 per cent — dwarfing every other country combined, and significantly above its 54 per cent share a year earlier.
The country has long coveted the status of top producer. In the late 1950s, at the launch of China’s Great Leap Forward, Chairman Mao pledged to overtake Britain in steel and other industrial production within 15 years, and by 1996 it had pulled clear of the rest of the pack. But this recent surge is a sign of Beijing’s determination to fend off the impact of global economic weakness.
“The key point is again the desynchronisation between China and the rest of the world,” said Erik Sardain, a consultant at Roskill, a research firm. “This is what happened in 2009, and [it] is again going to happen this time.”
While steel mills fell quieter in Europe, the US and India, Chinese producers kept running through its Covid crisis and are producing at an even faster rate than they did last year, according to the WSA’s preliminary data. Goldman Sachs reckons China’s crude steel production in May hit its highest level since September 2019.
Production of the metal is an important indicator for an otherwise opaque set of government policies, which draw on an array of state-controlled or state-influenced sectors to lift output. During the global financial crisis China’s share of global steel production also rose sharply — to 47 per cent in 2009, from 38 per cent a year earlier, according to Capital Economics.
China’s economy shrank almost 7 per cent in the first quarter, its first year-on-year decline since 1976, prompting Beijing last month to confirm plans to boost spending on infrastructure through an increase in local government borrowing…
Link here to view full FT article
Financial Times – Europe eclipses China in electric vehicle investment
by Joe Miller
EU carmakers help close the gap as they race to comply with strict CO2 emissions targets
Europe has outpaced China in attracting investment for electric vehicles and battery development, securing a record €60bn last year largely as a result of Volkswagen’s push into emissions-free cars.
The figure, compiled by Brussels-based non-profit Transport and Environment, is almost 20 times higher than the last calculation, made two years ago.
In the 12 months to mid-2018, Europe had received just €3.2bn in private and public funds for electric transport, while China attracted almost €22bn. For 2019 the respective figures were €60bn and €17.1bn.
“A few years ago Europe was nowhere in the race for electric vehicle supremacy,” said Saul Lopez, who researches electric mobility at T&E. “But EU CO2 targets concentrated carmakers and governments’ minds.”
While the report did not provide specific figures for the US, it lags behind Europe and China in electric vehicle investment.
Carmakers operating in Europe have been forced to invest in zero-emission technologies to comply with rules phased in at the start of this year.
The EU directive mandates that manufacturers reduce their fleet-wide carbon footprint to an average of 95g per kilometre by 2021, or risk fines amounting to billions of euros.
Link here to read the full article
China demand pushes iron ore back above $90 a tonne – Financial Times
Iron ore, the steelmaking commodity that is the main source of income for global miners BHP, Rio Tinto and Vale, broke above $90 a tonne this week for the first time since mid-March, supported by strong demand from China.
The country is the world’s biggest producer of steel and demand for the metal, widely used in construction, has been steadily increasing since Beijing began in late March to ease nationwide lockdowns put in place to contain the spread of coronavirus.
Government data released on Friday showed industrial output in China recovering in April after collapsing during the most intense phase of the outbreak.
Daily crude steel production at big plants in China increased 13 per cent to 2.1m tonnes in the first 10 days of May — the highest level of activity this year, according to brokerage Argonaut Securities.
“The rising steel production didn’t result in an oversupply and price depression as signalled by markets. Rather, steel inventory has quickly declined and steel prices gradually increased,” said Helen Lau, an analyst at Argonaut.
For the week to May 15, total steel inventory in China dropped 34 per cent to 17m tonnes, led by a 37 per cent decline in stocks of steel reinforcement bars, a product widely used in the construction industry.
At the same time as demand in China has been rising, exports from Brazil, a key producer, have stalled because of lower shipments from Vale’s operations in the Amazon rainforest. The cause of the decline is unclear, but analysts said it could be linked to a rising number of Covid-19 cases in the state of Para.
“With China’s crude steel output now at a higher level than a year ago, demand for iron ore is outpacing shipment arrivals. As a result, China’s iron ore port inventories are gradually eroding,” analysts at Morgan Stanley said in a report.
Mike Henry, the chief executive of BHP, told investors this week that if China were to avoid a second wave of Covid-19 infections he expected raw steel production in the country to rise this year, offsetting double-digit declines in the rest of the world. The country accounts for more than 50 per cent of global steel production.
Benchmark ore with an iron ore content of 62 per cent was priced at $93.25 a tonne on Friday, according to an assessment by S&P Global Platts, up 5.4 per cent on the week.
At that price, BHP, Rio and Vale are generating billions of dollars of cash from their iron ore mines.
Analysts said reports China might impose import restrictions on Australian iron ore in retaliation for Canberra’s call for an inquiry into the origins of Covid-19, were probably off the mark.
Beijing has suspended imports of red meat from four Australian abattoirs and is planning to impose punitive tariffs on barley shipments.
“China relies on Australia for over 60 per cent of iron ore imports,” said Glyn Lawcock, analyst at UBS. “With the market tight, Chinese port stocks declining, and Brazilian exports down 12 per cent year to date, options today appear limited.”
FT – Iron ore outlook rests on Vale’s tricky rebound
Iron ore outlook rests on Vale’s tricky rebound
Shareholders are revelling in bumper payouts, but prices could fade down the track.
Shareholders in Rio Tinto are likely to be celebrating another bumper payout when the miner reports annual results next month. The Anglo-Australian group — along with rivals BHP and Brazil’s Vale — is generating bucket loads of cash from the continued strength of iron ore.
Boosted by strong demand from China and a string of supply disruptions the key steelmaking ingredient rose 30 per cent last year and averaged $90 a tonne.
For big producers such as Rio that can mine the material for as little as $15 a tonne, that means windfall profits — and sturdy dividends for investors. Deutsche Bank reckons Rio generated close to $10bn of free cash flow last year.
Whether it can match that performance in 2020 will depend on the direction of iron ore prices.
The good news for its shareholders is that prices have remained elevated over the past month, trading at more than $90 a tonne as Chinese steelmakers have restocked ahead of the Lunar New Year holiday that starts on January 25, and the start of the spring construction season.
The risk of weather disruptions in the Pilbara — Australia’s main iron ore-producing region — has also kept prices firm, according to traders. A sharp fall in exports from Brazil because of lower shipments from Vale, the world’s biggest iron ore company, has helped too.
One final boost: the decision of the US Treasury to drop the designation of China as a currency manipulator. This has lifted the renminbi, making cargoes of iron ore cheaper for Chinese mills to buy in the seaborne market.
Still, most analysts expect prices to drift lower over the course of the year, as supply picks up and production in China remains broadly flat at close to 1bn tonnes.
Demand is likely to fade after China’s new year holiday, according to BMO Capital Markets. It reckons restocking has finished, pointing to a slowdown in activity at the main iron ore port in Hebei, China’s leading steelmaking province.
Ultimately, the direction of prices will hinge on Vale and whether it can hit targets for production.
The company was forced to cut more than 70m tonnes of capacity last year after a dam disaster at one of its mines in the state of Minas Gerais in which more than 250 people died.
Some of the supply has come back online and this year Vale expects to produce between 340m and 355m tonnes of iron ore, up about 40m from last year. However, no one is sure if the Brazilian miner can actually do that. Some of the shuttered output uses dams that have to be decommissioned before production can resume, for example.
If Vale hits guidance JPMorgan estimates the iron ore market could be in surplus, with supply outstripping demand by 28m tonnes. If it does not, then Rio, its shareholders and other big producers could be celebrating another year of elevated prices.
The squeeze is also seeing some recommissioning activities among previously mothballed iron ore mines.
In NE Brazil, a jv between AIM listed Cadence Minerals #KDNC and Singapore based commodities group IndoSino Pte Ltd will see the former Anglo American (AAL) and Cliffs Natural Resources owned Amapá iron ore project recommissioned.
With key rail concessions granted to Cadence for shipping in December, this large-scale iron open pit ore mine with associated rail, port and beneficiation facilities is expected to produce 5.3 million tonnes of iron ore by 2024.
Financial Times – UK Small-Cap Miners Hold Promise for Investors
Article by the Financial Times
ECR Minerals Craig Brown, chief executive of ECR Minerals, insists he is “not a goldbug, not fixated on gold”.
Nonetheless, ECR’s main business is exploring for gold deposits and it is planning mines in the Australian states of Victoria and Western Australia.
Mr Brown said gold mining is commercially appealing because the purification process is simple and the metal is a durable store of value.
ECR’s sites are still in the early stages of proving viability and are years away from commercial operation. In Victoria, the company is testing mineral samples for gold content to determine the extent and purity of deposits.
Mr Brown described the Western Australia project as “relatively greenfield, we’re not even talking about resources yet, we’ve got to drill some holes first”.
He maintains that ECR’s above-ground surveys give the company good reason to think that gold may be below.
Gold prices have risen by about 15 per cent over the year to $48 a gramme as investors have sought refuge from market turbulence.
ECR is listed on Aim and its shares currently trade at 0.7p. The price rose sharply in March and April after a series of positive findings from drilling in Victoria, but it has dropped back again and is currently down 7 per cent since January. Its market capitalisation is £3.2m.
Livent CEO says looking to acquire lithium projects in Argentina and Australia
Article by Financial Times
Lithium producer Livent is looking to acquire resources in Argentina and Australia to expand its access to raw materials to meet rising demand from electric cars, chief executive Paul Graves said.
The company, which was spun out of its parent FMC and listed on the New York Stock Exchange last year, said it was looking at low cost high quality assets in Argentina and Australia.
“We’re looking now. We’re talking to people now,” Mr Graves, a former M&A banker at Goldman Sachs, said. “A good resource is all we care about.”
Livent is one of the key suppliers of lithium to the electric car industry, and produces lithium hydroxide, a type of lithium used by Tesla.
The company currently only owns one lithium resource, the Salar del Hombre Muerto in Argentina, where it extracts lithium from brine 4,000 meters above sea level in the Andes.
Mr Graves said it was looking to acquire another brine resource in Argentina and also wanted to buy a lithium mine in Australia, where the chemical is extracted from hard-rock.
“We will acquire a hard rock resource if we can. It’s got to be a high quality resource, a long-life resource,” he told the Financial Times.
Livent is also looking at investing in new extraction technology that would enable extraction of lithium from brine deposits that have not been successful due to unwanted byproducts.
One area for focus was how to extract the lithium contained in brine that comes out of the ground during the extraction of shale oil in the US, he said.
Mr Graves said despite price weakness in the broader lithium market, prices for its lithium hydroxide remained “relatively stable.”
Around 80 per cent of its customers were paying the same price or higher than they did in 2018, he said. Prices for lithium carbonate, a product that is more widely used by battery makers, have fallen by 50 per cent from last year in China, according to Fastmarkets.
While a number of new lithium hydroxide projects are being developed, Mr Graves said there won’t be a “wave of oversupply.” “I think there will be a wave of supply but it won’t be oversupply. What people miss is there’s just as big a wave of demand coming,” he said.
In February Livent said that Chinese customers have been unwilling to sign new contracts due to uncertainty about market conditions.
But Mr Graves said while Chinese customers remained cautious, the market outside China was unaffected. The company was seeing rising demand from battery customers in Japan and Korea, he said.
“China is an unusual beast in this market,” Mr Graves said. “But by 2025, China won’t be the largest market for lithium. It will be Japan. While China is going to be important, it’s not going to be the be all and end all in our industry.”
Mr Graves said a cut in China’s EV subsidy this week won’t damp demand for electric cars in the country, the world’s largest electric car market, since it will benefit the roll-out of charging infrastructure.
Beijing said on Tuesday that the subsidy for electric vehicles with a range greater than 400 kilometres would be cut by half to a maximum of RMB 25,000 per vehicle.
“We are seeing a shift in the incentive policy towards charging infrastructure, so while we won’t get this direct near-term boost in demand in EVs from the change in policy, I think we will get a very favourable long-term benefit from investment in infrastructure,” Mr Graves said.
Financial Times – Wary investors drawn to gold’s allure
Central-bank buying pushes prices higher after two tough years for gold bugs
Henry Sanderson and Neil Hume JANUARY 16, 2019
If gold is anything to go by, investors are increasingly anxious about the state of the world.
Volatile equity markets and fears of a global economic slowdown have helped gold rally 10 per cent from its August lows, putting it among the best performing metals over that period.
It is a sharp contrast to much of the past two years, when rising US interest rates, a strong dollar and buoyant equity markets hurt gold bugs and the shares of miners such as Barrick Gold, Newmont Mining and Goldcorp. And when there was a correction in US stocks in early 2018, the gold price failed to benefit.
Almost a year on, the big question is whether 2019 could prove a profitable year to own gold, which is typically bought as hedge or haven by investors. The amount of physical gold in exchange traded funds has risen to 71.9m ounces, close to the record high of 72m touched in May 2018.
“We haven’t seen flows like this since the first half of 2016 — when the gold market really took off,” says Joe Foster, a portfolio manager at VanEck in New York.
“There seems to be a change in sentiment and investor psychology. People are waking up to the fact that we are late in the economic cycle and we could be ending [it] in the next year or two. That brings more risk into the system; that’s why gold is moving up.”
Those flows, along with investors covering their bets against gold, have helped the yellow metal’s price recover from the 18-month low of below $1,200 a troy ounce touched last August.
Analysts say there are a number of reasons to think the gold price can break through the $1,300 mark and push higher.
These include still-fragile stock markets, the expectation that the Federal Reserve will hold off from interest-rate increases this year, and a weaker dollar, which makes the metal more appealing. Rising US rates have been a drag on gold since the metal provides no yield.
Goldman Sachs, one of the most influential banks in commodity markets, raised its gold forecast last week and now expects a gold price of $1,425 over the next year.
“To take a view on gold, you have to first take a view on broader markets,” said Tom Holl, BlackRock portfolio manager, natural resources. “If we continue to see elevated levels of macroeconomic uncertainty and risk adversity, then gold will probably continue its positive momentum.”
Some investors believe rising concerns over US debt levels could sharpen gold’s allure, according to John Hathaway, a senior portfolio manager at Tocqueville Asset Management in New York.
Last week, Fitch Ratings warned that a continued government shutdown in the US could lead to a credit downgrade on the country’s debt, which is rated AAA by the agency.
“The US is beginning to sport a debt-to-GDP ratio worthy of any banana republic,” says Mr Hathaway. “We believe that exposure to gold is both timely and potentially rewarding.”
Higher levels of debt will also make it hard for the Fed to raise rates and tighten monetary policy, adds Trey Reik, a senior portfolio manager at Sprott Asset Management in Connecticut.
“I do think the dollar is in the midst of a long-term weakening,” he says. “You cannot raise rates with that much debt in the system without causing economic collapse.”
The buying of gold by central banks is also at its highest level since 2015, as many authorities remain keen to diversify away from the dollar. Standard Chartered estimates that central banks bought 500 tonnes of gold last year. China was among the buyers, adding almost 10 tonnes, following more than two years of unchanged holdings.
“While Russia, Kazakhstan and Turkey dominate central bank purchases, a host of other central banks entered the official sector gold market last year,” says James Steel, chief precious metals analyst at HSBC.
Mr Steel notes that the list includes Hungary, which had been out of the gold market for decades, with the exception of modest purchases in 2017. The central bank of Poland also purchased gold for the first time in many years, he adds.
However, the multiple disappointments for gold bulls over the past year leave some wary. Gold has not breached the $1,300 level since June.
While ETF holdings have risen to their highest level in five years, traders in the futures markets have not yet placed significant bets on higher prices, according to ICBC Standard Bank, a unit of China’s largest lender.
“On the one hand this does present an opportunity for gold prices to move higher still, if investor length now comes into the market,” says ICBC analyst Marcus Garvey.
“However, on the other, it begs the question as to why this has not yet happened, given the number of catalysts already present. If any of the recent tailwinds for gold were to abate, it increases the likelihood for a period of price consolidation.”
Cadence Minerals (KDNC): Macarthur Minerals (TSX-V: MMS) Lists on OTCQB and Comments on Iron Ore Price Surge.
21st February 2019 / Leave a comment
Cadence Minerals (AIM/NEX: KDNC; OTC: KDNCY) is pleased to note that Macarthur Minerals (TSX-V: MMS) (“Macarthur”) today announced that it has joined the OTC marketplace, OTCQB. The OTCQB Venture Market offers the benefits of being publicly traded in the United States to expand Macarthur’s access to investors, engage them with quality disclosure of financials and provide trading transparency to stimulate liquidity. Investors can find current financial disclosure and Real-Time level 2 quote for Macarthur on www.otcmarkets.com. Macarthur trades in the United States on OTCQB under the symbol “MMSDF”.
Cameron McCall, Chairman of Macarthur Minerals. Mr. McCall said:
“Global Markets have recently seen iron ore prices surge dramatically on the reduced supply as a result of the shutdowns and disasters that have occurred in Brazil, a leading producer of Iron Ore. states aWith continued demand and a significant supply reduction Macarthur is well positioned to advance the Ularring Hematite and Moonshine Magnetite Projects located 175km northwest of Kalgoorlie, Western Australia into production in a timely manner.”
The full release can be found at: https://web.tmxmoney.com/article.php?newsid=7965805934807637&qm_symbol=MMS
Cadence holds approximately 10% of the issued equity interest in Macarthur, which is an Australian mining exploration company focused primarily on iron ore, nickel, lithium and gold in Western Australia. It also has a lithium project in Nevada, USA.
Cadence Minerals CEO Kiran Morzaria commented: “On behalf of Cadence Minerals, we fully support the move by Macarthur to list on the OTCQB and thereby expand its investor reach. In addition, the reduction in iron ore supply and consequential surge in price further strengthens the Macarthur investment proposition.”
This news release is not for distribution to United States Services or for Dissemination in the United States.
– Ends –
Qualified Person
Kiran Morzaria B.Eng. (ACSM), MBA, has reviewed and approved the information contained in this announcement. Kiran holds a Bachelor of Engineering (Industrial Geology) from the Camborne School of Mines and an MBA (Finance) from CASS Business School.
Forward-Looking Statements:
Certain statements in this announcement are or may be deemed to be forward-looking statements. Forward-looking statements are identified by their use of terms and phrases such as ”believe” ”could” “should” ”envisage” ”estimate” ”intend” ”may” ”plan” ”will” or the negative of those variations or comparable expressions including references to assumptions. These forward-looking statements are not based on historical facts but rather on the Directors’ current expectations and assumptions regarding the Company’s future growth results of operations performance future capital and other expenditures (including the amount. nature and sources of funding thereof) competitive advantages business prospects and opportunities. Such forward-looking statements reflect the Directors’ current beliefs and assumptions and are based on information currently available to the Directors. Many factors could cause actual results to differ materially from the results discussed in the forward-looking statements including risks associated with vulnerability to general economic and business conditions competition environmental and other regulatory changes actions by governmental authorities the availability of capital markets reliance on key personnel uninsured and underinsured losses and other factors many of which are beyond the control of the Company. Although any forward-looking statements contained in this announcement are based upon what the Directors believe to be reasonable assumptions. The Company cannot assure investors that actual results will be consistent with such forward-looking statements.