SP Angel . Morning View . Friday 05 11 21
Expect China to slow into 2022 as Winter Olympics and Paralympics slow production
Gold prices rise $1,800/oz as central banks talk down policy tightening expectations
Kavango Resources (Kavango Resources PLC (LSE:KAV, OTC:KVGOF)) – COO appointed
PolyMet Mining (NYSE:PLM) – Q3 report shows company focused on continued legal defence of its permits
Power Metal Resources* (Power Metal Resources PLC (AIM:POW)) – Phase I test work completed at Athabasca Basin
IGTV: Cornish Metals*, Mkango *, Kodal * – Fed to consider potential China slowdown when looking at rates https://youtu.be/FjIMHHXKzXg
VOX Markets: 03/11/21: https://audioboom.com/posts/7973357-john-meyer-on-iron-ore-china-s-slowing-growth-cornish-metals-kodal-minerals-ramble-metals
*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts.
We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate.
China – slowdown to accelerate as China extends New Year shutdown till after the Winter Olympics and Paralympics
Li Keqiang calls China’s economy fragile, downplaying short term commodity friendly shift in policy.
China is struggling with the impact of the debt crisis at Evergrande and other highly indebted property developers
One marker for this is Sany Heavy Industries which makes yellow machinery for construction and is particularly strong in concrete pumps used in the early stages of most larger construction projects.
Sany Heavy Industry Co. share fall highlights plight of Chinese construction sector
Sany shares have fallen from a high of CNY48 in February to CNY23 today highlighting the collapse in demand for concrete pumping, diggers/excavators and other yellow machinery.
Production of cement fell 13% in September. Production of steel also 14.8%.
China property development starts fell 13.5% yoy in September with floor space sales falling similarly
CNY and Olympic shutdown
China normally shuts down for seven days every New Year but the disruption for manufacturers and other industry can last for around 40 days as companies strive to reopen.
This year will see extended shutdowns for any polluting industry particularly in mining, smelting, steel making, alloying, cement and related industries.
HK stocks slide as major property developer defaults
Onshore China property index down 2%.
HK Chinese developer down 2.4%.
Shanghai stocks down 0.6%, HK stocks hit 1-month low.
Developers down: China Aoyuan; -12%, Seazen Group; -5%, Sunac China; -4%, Agile Group; -4%.
Kaisa Group shares halted after missing an interest payment on its $2bn ‘wealth management’ products. It has a $59mn payment due on Nov.11th and 12th.
Fitch, S&P and Moody’s have slashed Kaisa’s bond ratings.
Kaisa has $3.2bn in offshore notes due over next 12 months. (SCMP)
Evergrande is the only developer with more offshore debt than Kaisa.
Kaisa’s chairman has begged for ‘some time to work out a solution’, citing ‘unprecedented pressure on its liquidity’.
Chinese banking stocks fell over exposure to the sector. ICBC and Construction Bank both down 1.2%.
Baltic Dry Index hits 5-month low
Overall Baltic index down 9.3% to lowest since June 11th.
Capesize down 12.3%.
Rates for capsizes carrying iron ore and coal down $3.8k to $27k.
An easing of capsize congestion at Pacific charging ports pointed to by analysts. Also weakening forward freight agreements weighing on sentiment.
Restocking has created its own disruption
Western companies are working hard to restock inventory levels, particularly where imports from China are involved.
Restocking by retailers ahead of Black Friday and Christmas has combined with inventory build by manufacturers looking to take advantage of new growth in the US and greater confidence as the UK and Europe emerge from the Coronavirus pandemic.
Dow Jones Industrials -0.09% at 36,124
Nikkei 225 -0.61% at 29,612
HK Hang Seng -1.41% at 24,871
Shanghai Composite -1.00% at 3,492
US – Employment numbers for October are due later today with estimates for a 450k reading, up on 194k in the previous months.
Estimates are for unemployment rate to tick 0.1pp lower to 4.7% amid improving labour force participation.
Germany – Industrial production unexpectedly contracted in September on the back of global supply chain disruptions.
Lengthening supply delivery times were exacerbated by a shortage of staff and key components and materials.
Output was down 1.1%mom following a 3.5%mom drop in August and compared to a 1.0%mom expected.
Industrial output in France also disappointed posting a decline in September versus no change forecast.
UK – The central bank decided to keep rates unchanged at historic lows of 0.1% arguing it needs more time to gather information on the effect of the furlough programme winding down.
Governor Bailey commenting on the decision earlier today insisted the central bank is determined to start raising rates but stopped short of giving an indication when that may be.
The pound is down 1.8% over two days against the US$ trading around 1.3450.
UK property price hits an all time high of GBP270k despite expectations for a pullback after the end of the stamp duty holiday, according to the Halifax data.
“One of the key drivers of activity in the housing market over the past 18 months has been the race for space, with buyers seeking larger properties, often further from urban centres,” Halifax wrote.
London remained the weakest performing area in the UK with annual inflation of just 0.8%, marking the lowest yoy increase in prices since Feb/20, as people are increasingly opting to homeworking and moving outside of the capital.
Portugal – President calls snap elections two years ahead of schedule as the parliament fails to approve the minority socialist government’s 2022 budget, FT reports.
Marcelo Rebelo de Sousa announced that the ballot will be held on January 30.
The decision comes after two radical left parties including the anti-capitalist Left Bloc and hard-line Portuguese Communist Party voted with the right-of-centre opposition to reject the governing Socialist party’s budget in October.
Support from both parties offered the governing party the necessary majority to approve spending in previous budgets.
Australia – The central bank does not expect first rate hike before 2024 according to the base case in its quarterly forecasts report.
The economy is expected to post a 3% growth this year held back by a contraction in the third quarter due to virus lockdowns with he growth accelerating to 5.5% in 2022.
Inflation is expected to normalise to the 2.5% midpoint of the central bank’s target by end-2023.
US$1.1557/eur vs 1.1560/eur yesterday. Yen 113.81/$ vs 114.23/$. SAr 15.289/$ vs 15.250/$. $1.346/gbp vs $1.366/gbp. 0.738/aud vs 0.744/aud. CNY 6.400/$ vs 6.395/$.
Aluminium hits 4-month low as coal supply increases
Aluminium fell 7.5% to $2.9k/t – lowest since June 22.
China’s daily coal output rose to 11.2mt yesterday – 1mt increase from Oct.
Aluminium prices had been hit by China’s energy crisis last month.
Zinc down 2.7%.
Gold US$1,798/oz vs US$1,774/oz yesterday
Gold ETFs 98.1moz vs US$98.1moz yesterday
Platinum US$1,038/oz vs US$1,047/oz yesterday
Palladium US$2,034/oz vs US$2,044/oz yesterday
Silver US$23.89/oz vs US$23.54/oz yesterday
Rhodium US$14,100/oz vs US$14,100/oz yesterday
Copper US$ 9,500/t vs US$9,513/t yesterday
Aluminium US$ 2,558/t vs US$2,659/t yesterday
Nickel US$ 19,230/t vs US$19,345/t yesterday
Zinc US$ 3,163/t vs US$3,330/t yesterday
Lead US$ 2,356/t vs US$2,371/t yesterday
Tin US$ 36,695/t vs US$37,130/t yesterday
Oil US$81.1/bbl vs US$82.4/bbl yesterday
Oil prices continue to reverse earlier gains following a report that Saudi Arabia’s oil output will soon surpass 10MMbopd for the first time since the outset of the COVID-19 pandemic
The report, from Saudi-owned Al Arabiya TV, came after the nation, along OPEC+ agreed to stick to previously agreed upon production increases
The group confirmed that there will be no change in the 400,000bopd quota increase on a monthly basis, despite calls from the US for extra supply to cool rising prices
Saudi Arabia has already dismissed calls for speedier oil supply increases from OPEC+, however a Al Arabiya TV report confirmed the country will reach 10MMbopd in December
Following yesterday’s announcement, the Biden administration criticised the decision to keep oil output steady, saying OPEC and its allies appeared “unwilling” to use their power to help the global economic recovery
Top producers Saudi Arabia and Russia are confident higher oil prices will not elicit a fast response from the US shale industry
However, US companies have pledged to preserve capital and prioritise investor returns
Still, several large oil companies plan to increase output or shale spending next year
Natural Gas US$5.591/mmbtu vs US$5.696/mmbtu yesterday
Natural gas futures drifted lower on yesterday after the latest government inventory report showed looser supply/demand balances
Still, prices recovered in afternoon trading as the market shifted its focus back to cold weather in the East this week and the potential for more widespread freezes later in November
The weather is expected to be warmer than normal throughout the US mid-West over the next 6-10 days but then the warm weather will move east and sit there for the following 8-14 days
There are no significant tropical disturbances in the Atlantic that are treating to become a tropical cyclone over the next 48-hours
US supply of natural gas increased slightly in the last week
The EIA expects Henry Hub prices will decrease after the first quarter of 2022, as production growth outpaces growth in LNG exports, and will average US$4.01/mmbtu for the year
US exports of LNG are establishing a record high this year, a new record high anticipated for next year
The EIA expects LNG exports to average 9.7Bcf/d this year (3.2Bcf/d more than the 2020 record high of 6.5Bcf/d) and to exceed annual pipeline exports of natural gas for the first time
The year-on-year increase in LNG exports coincides with slight growth in US natural gas production
US dry natural gas production is expected to average 92.6Bcf/d this year, which is 1.1Bcf/d more than in 2020 but 0.3Bcf/d less than in 2019
Uranium UXC US$43.8/lb vs $46.1/lb last week
Iron ore 62% Fe spot (cfr Tianjin) US$92.5/t vs US$96.8/t – Chinese iron ore futures fall for 4th consecutive week as demand softens
Iron ore futures down 3.2% to $87.65/t. -12.1% this week.
Steel output curbs from Beijing have caused sluggish demand.
163 Chinese blast furnaces registered 62% capacity (Nov. 5th) vs 66.17% last week. (Mysteel)
China is expected to continue policing steel output through to the Beijing Winter Olympics.
Construction rebar -0.6%, stainless steel -0.6%, HRC down 2.2%.
Chinese steel rebar 25mm US$781.6/t vs US$794.7/t
Thermal coal (1st year forward cif ARA) US$109.0/t vs US$114.0/t – Chinese coal miners commit to slash prices following Beijing’s intervention
Miners in Shanxi, Shaanxi and Inner Mongolia have agreed to cut prices.
10 major coal companies have already slashed prices. (NDRC)
Thermal coal futures down 45% since Oct. 19th.
Shanxi miners will not sell coal for more than $188/t.
The NDRC has reported an increase in coal supply following its directive to 150 mines to expand production in Sept.
Thermal coal swap Australia FOB US$152.3/t vs US$156.8/t
Coking coal swap Australia FOB US$341.0/t vs US$341.0/t
Cobalt LME 3m US$58,500/t vs US$58,300/t
NdPr Rare Earth Oxide (China) US$118,748/t vs US$118,839/t
Lithium carbonate 99% (China) US$27,421/t vs US$27,442/t
China Spodumene Li2O 5%min CIF US$1,630/t vs US$1,590/t
Ferro-Manganese European Mn78% min US$2,132/t vs US$2,145/t
China Tungsten APT 88.5% FOB US$315/t vs US$315/t
China Graphite Flake -194 FOB US$635/t vs US$635/t
Europe Vanadium Pentoxide 98% 7.6/lb vs US$7.7/lb
Europe Ferro-Vanadium 80% 32.45/kg vs US$32.45/kg
China Ilmenite Concentrate TiO2 US$387/t vs US$387/t
Spot CO2 Emissions EUA Price US$69.2/t vs US$68.7/t
Soaring raw materials prices begins pushing EV battery prices higher
Chinese battery makers have told Bloomberg that a surge in metals prices has led to them asking clients to pay more for EV batteries.
Chinese manufacturer Gotion High-Tech sent a letter to customers in mid-October seeking to adjust battery prices due to the jump in the costs of cathode materials.
BYD has said it will raise prices of its battery products by 20% from this month due to cost inflation.
Battery prices have been declining year-on-year since 2014, however Benchmark Mineral Intelligence forecast that prices will rise next year on the year prior.
EVs are expected to start costing the same as gas vehicles once battery pack reach $100/kWh, with Bloomberg forecasting they fell to $137/kWh last year.
Rising battery prices add a key hurdle as governments try and push the transition to cleaner transportation, threatening to delay the inflection point when EVs are cheaper than ICE vehicles and governments can stop offering subsidies.
SES unveils hybrid li-metal battery, plans to build Shanghai Gigafactory
SES has developed a high-performance hybrid lithium-metal battery.
The battery combines a liquid electrolyte and a solid coating as opposed to an all-solid solution.
It delivers 107Ah, energy density of 417Wh/kg. It weighs less than 1kg.
SES’ Shanghai Giga factory will have capacity of 1GWh of li-metal batteries pa.
Production capacity will be ready by 2023.
Griffin Mining (GRIFFIN MINING (AIM:GFM)) 98.4, Mkt cap GBP172m – Griffin to be allowed to receive deliveries of vital operating supplies to site till end-December
Griffin Mining reports it has received notification and signed documentation from the City and County regulatory authorities in Hebei, China that vital operating supplies will be allowed to be delivered to the Caijiaying Mine Site until midnight on the 31st December 2021.
Mining will stop for the Chinese New Year holiday with the break in operations extended into the first quarter of 2022 due to the Winter Olympic and Paralympic Games.
The Mine will be allowed to re-open on the 14th March 2022 by the authorities.
The Chinese new year holiday runs from Monday 31st January to 6th February though many take a longer break in China.
The break is complicated this year by the Winter Olympics which run from Friday 4th February to Sunday 20th February.
The winter Paralympic games run from 4th March to 13th March hence the closure of the mine till the 14th.
Beijing will be the first city to host both the Summer and Winter Paralympic games.
While the mine would normally shutdown through the first quarter for the Chinese New Year the extended shutdown will impact concentrate production from the operation.
Griffin recently reported .11,607t of zinc in concentrate production for the third quarter along with 3,848oz of gold, 68,549oz of solver and 304t of lead in
Conclusion: Many other mines and smelters will be affected by enforced closure due to the winter Olympics and Paralympics in provinces close to Beijing.
The loss of production is likely to cause base metals prices to rise through the period with Western manufacturers expected to raise inventory levels ahead of the closures.
Kavango Resources (Kavango Resources PLC (LSE:KAV, OTC:KVGOF)) 5.2p, Mkt cap GBP21m – COO appointed
Kavango reports that it has has appointed Mr Brett Grist as Chief Operating Officer, who will join Kavango on 7 February 2022, and will join the board of Kavango as an executive director.
Mr Grist is a geologist from the Royal School of Mines, London, with over 22 years of exploration and mining experience in base metals and gold across multiple jurisdictions.
Mr Grist has held a number of senior roles, including CEO, Director, and Exploration Manager and has taken projects from early exploration through resource definition and into development.
PolyMet Mining (NYSE:PLM) 3.32p, Mkt Cap GBP335m – Q3 report shows company focused on continued legal defence of its permits
PolyMet Mining has filed its financial results for the three months ended September 30, 2021.
PolyMet made a loss of $3.8m over the quarter vs $3.3m loss in Q3 20.
Loss for the nine months ended September 30, 2021, was $12.6m compared with $16.8m for the prior year period.
Cash used in investing activities in Q3 21 was $1.5m vs $1.7m in Q3 20.
Cash used in investing activities for the nine months ended September 30, 2021 was $4.7m compared with $6.7m for the prior year.
Currently, only four permits remain in active legal and regulatory action out of the more than 20 permits issued to build and operate the mine.
The status of the four permits is as follows:
The Minnesota Court of Appeals heard oral arguments October 27 on the water discharge permit (NPDES) and will issue a ruling within 90 days of the hearing.
A pre-hearing conference for the Permit to Mine contested case was held November 1. The case relates to the use of bentonite clay capping for eventual closure of the tailings basin at the completion of mining and will continue into 2022.
The Minnesota Pollution Control Agency (MPCA) on October 21 announced it will complete its review of the issues raised by the Court of Appeals with respect to the air permit within 60 days.
The federal wetlands permit remains under review pending US Army Corps of Engineers review of water quality effects. The MPCA has already certified that the project will not adversely affect in-state water quality.
Power Metal Resources* (Power Metal Resources PLC (AIM:POW)) 1.7p, Mkt Cap GBP21m – Phase I test work completed at Athabasca Basin
Power Metal provides a comprehensive update for its uranium exploration project surrounding the Athabasca Basin in northern Saskatchewan, Canada.
The company commenced its Phase I work programme late last month, which is now complete.
Power Metal collected a total of 20 rock samples from Tait Hill (8 samples), Thibaut Lake (7 samples), and Clearwater (5 samples), all of which have been submitted for rush-assay for expedited turnaround at the Saskatchewan Research Council laboratory in Saskatoon.
The samples will be subject to a uranium-exploration analytical package which includes uranium, various base/trace-metals, as well as a suite of rare-earth elements.
Several outcrops were analysed using a RS-125 Spectrometer which measures radioactivity, some of which returned readings as high as 65,535 CPS, which represents the upper limits of the device employed.
All rock samples collected were also analysed on-site with 17/20 samples returning >1,000 CPS, 11/20 samples returning >2,500 CPS, with a individual sample high of 35,000 CPS.
Power Metal has also expanded the land package, staking an additional 1,129-hectare claim to provide further coverage over several uranium-rich lakes surrounding the Company’s Tait Hill uranium Property.
Paul Johnson, CEO of Power Metal, commented: “Power Metal has embarked on a campaign to build significant uranium portfolio exposure for our investors. We started this campaign several months ago with the initial staking of our land package surrounding the prolific Athabasca Basin located in Northern Saskatchewan, and continue to build our uranium exploration project portfolio there, as you will see with the new ground secured today”.
*SP Angel act as Nomad and Broker to Power Metal Resources
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The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020
John Meyer – [email protected] – 0203 470 0490
Simon Beardsmore – [email protected] – 0203 470 0484
Sergey Raevskiy [email protected] – 0203 470 0474
Joe Rowbottom – [email protected] – 0203 470 0486
Richard Parlons [email protected] – 0203 470 0472
Abigail Wayne – [email protected] – 0203 470 0534
Rob Rees – [email protected] – 0203 470 0535
Grant Barker – [email protected] – 0203 470 0471
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Sources of commodity prices
Gold, Platinum, Palladium, Silver
BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
Natural Gas, Uranium, Iron Ore
Bloomberg OTC Composite
Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite
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