Commodity Review

Commodity Review 20201522  by Andrew Pedler – Now Available

Commodity Review 20201522 by Andrew Pedler – Now Available

China

Comments of particular interest are noted with ‘*’.  

Matau’s Comments:  

  • Base metals are starting to show some price recovery though some of Covid-19’s effected supply-shock continues.  Demand is improving. 
  • China’s industry & energy output has increased markedly during April kin most segments.  
  • USA housing starts collapsed in April. 

SUMMARY  

*Copper  China’s physical infrastructure expanded considerably since 2009.  More Cu is needed for plans

*Cobalt  Supply disruptions due to coronavirus lockdowns.  The issue now is sulphur (lack of). 

*Nickel  Indonesian expansion plans are faced with a deep waste problem.

Zinc & Lead  Mid-term outlook ‘constructive’ though near-term requires caution.  

*Tin  Tightness has returned, strongly.  Watch semi-conductors for demand.    

Aluminium  Europe still pushing for its aluminium smelters, to protect its industrial base.

*Gold  Central Banks have been adding to Reserves since 2018.  Prescient or wary of USD?

Platinum & Palladium  Balancing Covid-induced supply disruptions with industrial demand, similarly disrupted.

*Oil  Oil demand may struggle to bounce back soon from Covid-19. 

*Coal  Steel mills adopting hybrid models for pricing of LVPCI and semi-soft coking coal. 

*Iron Ore  China’s steel demand growth far outpaces expectations from investors and industry. 

Shipping  Cape and Panamax vessel rates up this week.  

General 

Maps of China:  Provinces & High Speed Railways

China – Industry and Energy Output:  Strong recovery in most segments in April.

USA – New Housing Starts:  Collapsed in April.

Commodity Review 20201522  by Andrew Pedler – Now Available

Commodity Review 20200515 by Andrew Pedler – Now Available

Singapore

Comments of particular interest are noted with ‘*’.  

Matau’s Comments:  

  • Base metals are starting to show some price recovery as Covid-19 has effected a supply-shock. 
  • Shipping data through Singapore (for April) shows the impact of the various Asian Covid-19 restrictions, 
  • USA Industrial Production and Capacity utilisation for April return significant downturns.

SUMMARY   

*Copper  As China returns to work from deep lockdowns during Feb, a demand recovery is not surprising. 

*Cobalt  Prices appear to be bottoming, as enquiry rates increase.  Very little ‘spot’ material available.   

*Nickel  Philippine Ni miners now allowed to operate up to full capacity, under strict protocols.

*Zinc & Lead  A broad mini-recovery across base metals, accompanied by supply-shock due to Covid-19.   

Tin  Sharp stock draws.  Production dented by low prices and government mandates.      

Aluminium  China’s Al output at 10 mo high.  Price recovery in April after smelters cut supply.

Gold  Economic contractions globally & low reported GDPs, favour holdings of gold.  

*Platinum & Palladium  Deficits in Pt & Pd now highly likely this year.  South African mines closed.

*Oil  Demand recovering in China.  Brent prices ‘anchored’ around USD/bbl.  WTI recovering.  

Coal  Mixed factors incl: supply from Qld & Datong China, USA demand delays & Indonesian legislation.  

Iron Ore  China’s iron ore port inventories at three-year lows, coupled with steel production resuming.  

Shipping  Cape & Panamax rates down.  

General  

*Port of Singapore:  Bulk & Tanker traffic growth +ve.  Container & *Passenger traffic -ve growth.  

Japan – LNG prices:  Continued low spot prices.  

*USA – Industrial Production & Capacity Utilisation: IP & Cap.Util. both reported down heavily.   

Commodity Review 20201522  by Andrew Pedler – Now Available

Commodity Review 20200508 by Andrew Pedler – Now Available

Gold & Rigs & Iron Ore

Comments of particular interest are noted with ‘*’.  

Matau’s Comments:  

  • There are abundant conflicting influences on supply / demand balances for most commodities, driven mostly by restrictions and issues related to the COVID-19 pandemic, which coupled with political decision making, makes forecasting with confidence very difficult.  Many companies have withdrawn guidance on their forecast results. 
  • Fundamentals for long term expectations do not appear to have materially, changed, if normal expectations for economics prevail post-COVID.
  • Coronavirus – the battle continues, with China, Australia & NZ emerging from lower infection rates and Europe and notably USA opening up at higher infection rates.  Russian rates have increased markedly too. 
  • Gold – Retains safe-haven status through jump in ETF uptake, though with corresponding slump in Jewellery demand.  
  • Base metals:    Watch the base metals as countries emerge from lockdowns … 
  • Oil markets continue to re-stabilise, as best they can, with significant storage issues.  However rig numbers have been slashed, notably in USA.  Saudi’s rig numbers increased yr-on-yr. (… the benefits of low cash costs).  USA’s traditional ‘driving’ season may be stunted this year.  
  • Iron ore:  Chinese and South Korean demand may be a salve for Australia’s lockdown battered economy

SUMMARY   

*Copper  Mine-supply is starting to ramp back up.  Headwinds and Tailwinds at the same time. 

*Cobalt  China Molybdenum Cu-Co product exports from DRC diverted through non-South African ports.    

Nickel  China port stocks of Ni ores is falling.  

*Zinc & Lead  Zn concentrate TC’s lower in an uncertain market.  China’s Pb-acid battery Capacity util’n is lower.   

Tin  Global tin mine supply to contract in 2020.  Difficult to forecast re-opening timings – uncertain times.  

*Aluminium  Tariffs have done nothing to reduce USA’s import dependency.  “They never could.” 

*Gold  Gold price steady though retains safe-haven.  Market expects equities rallies.  

*Platinum & Palladium  CHN (WA) & IPT (NSW) both report stunning Pt & Pd intercepts at exploration projects.

*Oil  Prices rose despite ongoing increases in USA oil stocks.  Expect volatile prices ahead. 

Coal  China’s long Labour Day holidays slow trade this week.  U/G explosion at Grosvenor mine Qld.

*Iron Ore  Brazil – China shipments reduced while Australia-China & South Africa-China shipments rose.  

Shipping  Despite a resilient iron ore market, long haul Cape-sized shipments pricing fell.  

General  

*Gold – Supply-Demand & Central Bank holdings:  ETF’s up but Jewellery down.  

*Port Hedland – Iron Ore shipments:  Shipments fared well thus far thanks to China & Sth.Korea.

*Baker Hughes – World & North American Rig Counts:  massive cuts in USA oil rig counts.  

Japan – Industrial Production:  continued negative growth over all.  

Commodity Review 20201522  by Andrew Pedler – Now Available

Commodity Review 20200501 by Andrew Pedler – Now Available

USA UK

Comments of particular interest are noted with ‘*’.  

Matau’s Comments:  

  • There are abundant conflicting influences on supply / demand balances for most commodities, driven mostly by restrictions and issues related to the COVID-19 pandemic, which coupled with political decision making, makes forecasting with confidence very difficult.  Many companies have withdrawn guidance on their forecast results. 
  • Fundamentals for long term expectations do not appear to have materially, changed, if normal expectations for economics prevail post-COVID.
  • Coronavirus – the battle continues, with China, Australia & NZ emerging from lower infection rates and Europe and notably USA opening up at higher infection rates. 
  • Gold – Retains safe-haven status though the investment market is looking (nervously) toward several countries relaxing coronavirus restrictions and restarting industries.  
  • Base metals:  
    • We note that base metal inventory movements on Chinese exchanges are all reductions, while those of European and North American exchanges vary.   
    • China stockpiles base metals when prices are low (at three different levels). 
  • Oil markets continue to re-stabilise, as best they can, with significant storage issues.  

SUMMARY   

Copper  A surplus for 2020 forecast, but supply is shrinking, through cutbacks and restrictions. 

Cobalt  Cobalt has numerous supply chain issues, albeit facing a drop in demand.   

Nickel  CTM, IGO, ORN, LEG, CZN.  ASX Ni stocks with projects to watch carefully.

Zinc & Lead  The world changed in April after setting a high contract TC.  Expectations of oversupply shrinking. 

*Tin  When the going gets tough in base metal markets, the Chinese get stockpiling.  Financing s/p’s.     

Aluminium  Aluminium market forecast for a ‘hefty’ supply surplus in 2020.  

Gold  Near term outlook for relaxation of COVID-19 measures, but currency debasement is an issue.  

Platinum & Palladium  Diving car sales (globally) slashed car sales.  South Africa’s lockdown has slashed Pt output. 

Oil  Cushing Oklahoma – a scramble for storage for oil.  

Coal  Demand in India and China for (spot) coal is low, due to COVID restrictions and impacts.  

Iron Ore  China’s PMI is >50.  Steel mills are rapidly cranking up capacity.  

Shipping  Cape & Panamax rates slipped.  

General  

*USA – Purchasing Managers’ Index:  Down heavily, the most since GFC.  

USA – Construction Spending:  Positive growth over all.  

Germany – Industrial Production, Durable Goods, Construction:  IP -ve but durable goods +ve.  

UK – Industrial Production:  Growth -ve for IP, manufacturing and electricity & gas.

Commodity Review 20201522  by Andrew Pedler – Now Available

Commodity Review 20200424 by Andrew Pedler – Now Available

Steel China

Comments of particular interest are noted with ‘*’.  

Matau’s Comments:  

  • Coronavirus:
    • China is emerging from COVID-19.  Its March Industry and Energy output data this week, supports that with positive yr-on-yr growth in a wide range of segments.  Remember that this is March data and China is still in the process of opening up its businesses again … however it is a reasonable start. 
    • Yes, its customer countries are still dealing with peak infections and restrictions, so a recovery in demand is lagging a potential supply recovery.  
    • Its imports of raw materials are surging, both for domestic consumption and into stockpiles (at cheap prices). 
  • Gold – Retains safe-haven status though the investment market is looking (nervously) toward several countries relaxing coronavirus restrictions and restarting industries.  
  • Base metals:  
    • Base metals markets remain more focused on the sentiment associated with collapse in global demand, both at the first-use fabricator and the end-use consumer stage.  However supply is being affected by travel and transport restrictions.  Development decisions are being deferred.  Market balances are not easy to estimate in this market.  The commentary in this week’s Copper section reasonably describes the variables and current uncertainties in assessing supply & demand.  
    • We note that base metal inventory movements on Chinese exchanges are all reductions, while those of European and North American exchanges vary.  
  • Oil markets continue re-stabilise, with Brent & WTI prices with not so large a gap.  Global and in particular USA rig counts have reduced and are expected to fall further. 
  • Steel production is often considered a proxy for the industrial capacity and health of a country’s manufacturing sector.  However while globalisation has blurred those interpretations somewhat, for many of the 64 steel producing nations, their steel output is the most timely data we often see.  
  • Investors should identify and evaluate commodities, and companies, that they plan to invest in when global economies and sectors recover.  

·         The environment is remarkably volatile with many jumping to conclusions on thinly detailed data.  

·         Analysis needs to be rigorous, and the commodity markets and companies robust.  

·         Turning points may be executed quickly, so investors need to have intended investment targets already understood.  

·         Whenever you forecast something you will be precisely wrong.  What matters is:  by how much; in which direction; and how robust your forecast really is. 

  • The sentiment associated with “we are recovering” may well see prices overtake reality from time to time.  Be aware of what fundamental values really are, and do check with of the age-old travel question … “are we there yet”.  Right now, as much as we would like to be, we are definitely not, … yet.  

SUMMARY   

*Copper  Near term outlook uncertain but long term is little changed.  If anything will get tighter. 

*Cobalt  Chinese new incentives to buy EVs now, by progressively reducing subsidies.  

*Nickel  Indonesian government has put a floor under the price of nickel ore. 

Zinc & Lead  NCZ draws investment.  IBG re-optimising Citronen.  China’s Pb smelter operating rates are up. 

Tin  Coronavirus issues restricting imports of Sn concentrate into China.  nb:  AVZ & NTU not for China (upon Aust Govt intervention).  

Aluminium  Aluminium industry is notoriously slow to respond to price signals.  The signals are not good.  

Gold  Au retains safe-haven status.  Price increased with further price increases forecast.  

*Platinum & Palladium  Creditemployment, and consumer confidence, are all working against car sales.  

*Oil  Coronavirus restrictions drove demand destruction.  Prices fell in volatile trading.  Storage issues.  

Coal  Coking and thermal prices reduced upon respective reduced demand..  

Iron Ore  Vale & RIO cut fwd guidance.  However their shipments reached yr-to-date highs this week.  

*Shipping  Iron ore supported Cape shipping this week but Panamax demand declined.  

General  

**China – Transport: – reaction & recovery to coronavirus.  Highway traffic was hit hardest.  China is recovering, with the March data showing beginnings of growth again.  

*Baker Hughes – Rig Counts – North America:  Oil rigs cut substantially, not over yet.  

*China – Industry & Energy Output: reaction & recovery (to coronavirus) has been varied, with positive yr-on-yr growth in a wide range of segments.  

*World Steel:  Global production down yr-on-yr.  Only Turkey Iran and Vietnam had +ve growth.  Six countries have contributed to the 14% growth since June 2008. 

*USA – Durable Goods, Vehicles & Electronic products:  Durables & Vehicles down sharply. Electronics and computers relatively stable.

Commodity Review 20201522  by Andrew Pedler – Now Available

Commodity Review 20200417 by Andrew Pedler – Now Available

USA

Comments of particular interest are noted with ‘*’.  

Matau’s Comments:  

  • Coronavirus:
    • China is emerging from COVID-19, but its customer countries are still dealing with peak infections and restrictions, so a recovery in demand is lagging a potential supply recovery.   Imports of raw materials are surging.  
  • Gold – Retains safe-haven status through the investment market is starting to look (nervously) toward relaxing coronavirus restrictions and restarting industry.   
  • Base metals:  
    • Right now base metals markets are still more focused on the collapse in global demand, both at the first-use fabricator and the end-use consumer stage.  However supply is being affected by travel and transport restrictions.  Development decisions are being deferred. 
    • We note that base metal inventory movements on Chinese exchanges are all reductions, while those of European and North American exchanges are additions. 
  • Oil markets have been roiled by recent abandonment of production agreements with OPEC+’s agreed reductions being still too small, while COVID-19 is still at large. 
  • Investors should identify and evaluate commodities, and companies, that they plan to invest in when global economies and sectors recover.  
    • This environment is remarkably volatile with many jumping to conclusions on thinly detailed data.  
    • Analysis needs to be rigorous, and the commodities and companies robust.  
    • Turning points may be executed quickly, so investors need to have intended investment targets already understood.  
    • Whenever you forecast something you will be precisely wrong.  What matters is:  by how much; in which direction; and how robust your forecast really is. 

SUMMARY   

*Copper  Zambia intends revoking Mopani mining licences due to Glencore’s rapid response to COVID-19. 

Cobalt  DRC to begin massive COVID-19 info campaign.  Zero infections in Co-Cu mining region to date.   

*Nickel  China’s port Ni ore stocks at low levels.  Philippine output constraints offset somewhat by demand.

*Zinc & Lead  Zn market wrestling with supply/demand balance.  Paroo Stn Pb mine restart has finance. 

Tin  COVID-19 demand shocks on all base metals.  Many Sn producers reduced or suspended output.     

*Aluminium  ATO escalated transfer pricing probes on RIO, and launched probe into Alcoa & AWC smelters.

*Gold  Safe-haven status, but sentiment and prospects of re-opening businesses may mute price upside.   

Platinum & Palladium  South African Pt mined have been idled for 3 weeks.

*Oil  Lower prices & wider Brent-WTI price gap.  Expect more USA shale-oil rig reductions. 

Coal  Chinese demand remained but Europeans deferred.  Japan traded steel raw materials into China.

*Iron Ore  Chinese raw materials demand remained afoot, but others’ streel mills reduced or closed capacity.  

Shipping  Iron ore supported Cape rates.  Panamax softened on seasonal agri-product demand. 

General  

USA – Treasury Yields:  USA Yields are very low.  

Baker Hughes – Rig Counts:  Rig numbers falling fast as oil price plummets. 

*USA – New House Starts: mild positive growth rate, strongest in the South. 

*USA – Industrial Production & Capacity Utilisation:  IP slumped.  Capacity Util down.