SP Angel . Morning View . Good start to earnings season as trade deal buoy risk sentiment

SP Angel . Morning View . Friday 17 01 20

Good start to earnings season and trade deal buoy risk sentiment

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Rio Tinto (RIO LN) – Q4 and 2019 production results highlight “value over volume”

Sibanye-Stillwater - cuts close to 1,142 jobs at the Marikana platinum mines despite record palladium prices

 

China 2019 - crude steel production gains 8.3% to 996mt as China ramps infrastructure spending

• China is heading to break the 1bn tonnes of steel mark this year as the nation posts a new annual steel production record
• China is ramping up steel production to meet new infrastructure and property expenditure to offset the negative effects of the Trade War with the US.
• Steel production rose 12% yoy in December to 84mt with the daily average rising 1.5% from November at 2.7mt.
• Blast furnaces remained profitable while we understand that EAF electric arc furnaces which process scrap steel have seen negative margins.
• Ferro-Vanadium prices rose 6.8% in the week to Wednesday in Western Europe as steel producers restocked on ferro-alloys for structural and construction steels.
• Chinese steel production is expected to continue to rise despite slowing demand from Automotive manufacturers.
• The China Iron and Steel Association forecast China steel demand to rise by just 2% to ~890mt in 2020.
• A number of commentators expect 2019 to be a peak for Chinese steel production forecasting significant falls.
• We expect China to continue to raise production as it reactivates and accelerates further infrastructure expenditure during trade war negotiations.

 

Chinese luxury textile manufacturer struggling with bond repayments

• News that a giant luxury textile manufacturer in China is struggling with debt repayments may be a sign of trouble to come.
• Shandong Ruyi Technology was rescued in October with capital from a local authority financing vehicle.
• While Shandong Ruvi has kept up payments on its bonds since Jining City Urban Construction investment Co has yet to pay its Rmb3.5bn commitment.

 

Dow Jones Industrials		+0.92%	at	29,298
Nikkei 225		+0.45%	at	24,041
HK Hang Seng		+0.60%	at	29,056
Shanghai Composite		+0.05%	at	3,075
FTSE 350 Mining		+1.51%	at	19,596
AIM Basic Resources		+0.75%	at	2,121

 

Economics

China – Growth came in line with estimates holding up at 6.0% in Q4/19 taking total growth for the year to 6.1% (2018: 6.6%).

• A series of economic data for December showed a pick in growth rates in industrial production and investments as well as no change in retail sales’ rate of expansion; the data was ahead of market expectations.
• “The signing of the “phase-one” trade deal takes China out of the most turbulent waters, but it will hardly be smooth sailing ahead – sizable US tariffs will continue to weigh on the external sector, and sentiment is weak,” Bloomberg Intelligence commented on the news.
• Market expects further normalisation in Chinese growth to sub-6% levels as authorities refocus the economy from state investment to local consumer driven model.
• The renminbi was trading 0.35% stronger this morning around the level 6.86.
• GDP (%yoy): 6.0 v 6.0 in Q3 and 6.0 forecast.

 

UK – Retail sales significantly miss estimates posting a monthly decline in December despite wide discounts.

• The data included Black Friday and Cyber Monday as well as captured the November 24 and December 28 period that would reflect results of the Conservatives’ win in December 12 general elections.
• Weak data pulled the pound lower (-0.16% against the US$) as the case for a potential rate cut goes stronger.
• Markets are pricing in a 70% chance of a rate cut on January 30.
• Core Retail Sales (%mom/yoy): -0.8/+0.7  v -0.6/+0.8 in November and 0.8/3.0 forecast.

 

US – retails sales rose 3% in December revised from the previous estimate of 0.2%

• Retail sales are rising despite a cut in auto sales indicating good underlying confidence and economic growth
• The US Fed saw modest expansion through December. Retail sales rose 5.8% in December compared with a year ago while sales rose 3.6% in 2019.

US homebuilder records highest back-to-back readings since 1999 (Reuters)

 

Turkey – The central bank cut the benchmark rate by 75bp to 11.25% arguing that “inflation outlook continued to improve and inflation expectations sustained their wide-spread decline”.

• The lira climbed 0.4% on the news as some traders expected a stronger cut.
• Latest data on inflation showed prices’ growth accelerated for a second month in December to 11.8% and policy makers expect it to slowdown to single digits from Q2 and end at 8.2%.

 

South Africa – The central bank unexpectedly cut rates by 25bp taking the benchmark to 6.25%, the lowest level in four years.

• The decision was driven by weaker economic growth and inflation projections.
• 2020/21 GDP growth rates and inflation rates estimates were reduced to 1.2/1.6 from 1.4/1.7 and 4.7/4.6 from 5.1/4.7, respectively.
• The central bank signalled a further 25bp reduction is on the cards.
• Moody’s credit rating update due later this quarter will be watched closely as risks of the nation losing its investment grade status are building up.

 

UK – FCA register cull described as a ‘backward step’ for public trust

• The New Model Advisor paper has described the culling of names on the FCA register as a ‘backward step’ for public trust.
• The public online register, previously gave names and other details on all persons registered with the FCA.
• It was often useful to check if names were on the register and it was particularly useful to see who was Active or Inactive.
• We do hope the FCA listens to the New Model Adviser and reinstates the register in its fullness.

 

EU – EU Commission looks to invest €1tr into combatting climate change in Europe by 2030

• The move has been described as the beginning of a centrally planned economy, sometimes known as Communism in certain quarters

 

Sweden - government expects a return to negative interest rates next year

 

Iran - Supreme Leader Ali Khamenei expected to support Revolutionary Guards in sermon for Friday prayers

• The leader is trying to dampen street demonstrations against the military and the regime after Revolutionary Guards admitted shooting down the Ukranian airliner.
• We suspect the leader has little choice in supporting the guards as the Iranian leader has virtually no control over the armed services despite the clerics overseeing almost every function of the Iranian state.

 

Currencies

US$1.1136/eur vs 1.1156/eur yesterday.  Yen 110.18/$ vs 110.00/$.  SAr 14.395/$ vs 14.368/$.  $1.309/gbp vs $1.305/gbp.  0.691/aud vs 0.691/aud.  CNY 6.859/$ vs 6.879/$.

 

Commodity News

Gold US$1,555/oz vs US$1,555/oz yesterday

   Gold ETFs 81.0moz vs US$81.2moz yesterday

Platinum US$1,014/oz vs US$1,028/oz yesterday

Palladium US$2,382/oz vs US$2,350/oz yesterday

Silver US$18.02/oz vs US$17.96/oz yesterday

           

Base metals:   

Copper US$ 6,318/t vs US$6,328/t yesterday

Aluminium US$ 1,814/t vs US$1,814/t yesterday

Nickel US$ 13,950/t vs US$14,410/t yesterday

Zinc US$ 2,426/t vs US$2,415/t yesterday

Lead US$ 1,990/t vs US$2,031/t yesterday

Tin US$ 17,800/t vs US$17,600/t yesterday

           

Energy:           

Oil US$64.9/bbl vs US$64.6/bbl yesterday

Natural Gas US$2.053/mmbtu vs US$2.133/mmbtu yesterday

Uranium US$24.55/lb vs US$24.60/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$94.1/t vs US$94.3/t

Chinese steel rebar 25mm US$574.7/t vs US$573.0/t

Thermal coal (1st year forward cif ARA) US$61.9/t vs US$63.1/t

Coking coal futures Dalian Exchange US$181.5/t vs US$181.0/t

           

Other:  

Cobalt LME 3m US$32,750/t vs US$32,750/t

NdPr Rare Earth Oxide (China) US$40,674/t vs US$40,557/t

Lithium carbonate 99% (China) US$5,613/t vs US$5,597/t

Ferro Vanadium 80% FOB (China) US$28.5/kg vs US$28.5/kg

Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/kg

Tungsten APT European US$235-245/mtu vs US$235-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,550/t vs US$2,550/t

 

Battery News

 

Kia Motors announce Plan-S which sets out road map to an 11 vehicle EV offering by 2025 (CarDekho)

• The strategy aims to establish leadership in key growth segments including powertrain electrification, mobility services and autonomous driving. (Just Auto)
• The Company is targeting annual sales of 500,000 BEVs and 1 million eco-friendly vehicles by 2026.
• Kia will look to launch their first dedicated EV model on a new platform in 2021. The vehicle will feature a range of 500km plus and a DC faster charger time of less than 20 minutes. (Inside EVs)

 

IBM are developing a new battery built using materials derived from seawater (Irish Times)

• The Company has claimed to be working on a battery with a new chemistry composed of materials that can be extracted from seawater rather than rare earth metals.
• They have been candid over the content of the battery and suggest that production is at least 12 months away. They have teamed up with battery electrolyte supplier Central Glass and battery manufacturer Sidus to expedite this process.
• IBM suggest the battery will be cheaper to build given the lack of rare metals and charge faster than current batteries, reaching 80% capacity in five minutes. In early tests the team noted that the battery could be optimized to surpass lithium-ion batteries in power, energy density and efficiency. (Silicon.co.)

 

Lithium miners hopes lie with EV (Financial Times)

• Lithium prices have been on a downward trend over the past 12 months largely as a result of short term over supply driven by new mines opening in Australia and a reduction in demand from China as the government cut EV subsidies. (Mining.com)
• Prices slumped more than 20% last year and producers like Ganfeng Lithium saw H1 profits fall 59%.
• They are mummering’s that prices could pick up this year with capacity slashed and demand improvements in China as the market comes to terms with the unstoppable shift to EV, the global fleet of EVs is expected to triple by 2030. Smaller miners in Australia that do not produce value added battery chemicals could remain under pressure. (Energy and Capital)
• EV demand is set to improve in 2020, with 250 new models set to be released follow years of announcements and reveals on upcoming production from automakers. (Oil and Gas 360)

 

 

Company News

Rio Tinto (RIO LN)  FOLLOW 4640p, Mkt cap £78.6bn – Q4 and 2019 production results highlight “value over volume”

• Rio Tinto’s fourth quarter and full year 2019 production results show relatively stable production across most commodities with the company emphasising that it is maintaining its long-standing discipline over capital allocation in order to deliver “value over volume”.
• Iron ore shipments from Rio Tinto’s Pilbara operations declined by 3% during the year to 327.4mt from production and within the companies revised production guidance of 320-330mt following the impact of cyclone Veronica during the first half of the year. Guidance for iron ore shipments in 2020 is in the range 340-343mt.
• Including waste removal, the Pilbara iron-ore operations moved the “highest [volumes] on record” and “Our increased focus on waste material movement and pit development will continue in 2020 to improve mine performance and pit sequencing”.
• Development of the Koodaideri iron-ore project is continuing with initial ore production expected in late 2021 as is initial ore from the Robe River Joint-Venture sustaining production projects at West Angelas C&D and Mesas B, C and H at Robe Valley. Further iron ore investment of $749m to expand the operations at Tom Price was approved in November 2019 with initial ore production also expected in 2021.
• Bauxite output rose by 9% during 2019 to 55.1mt ”underpinned by the successful ramp-up of the Amrun mine in Queensland”. Production is building up with a 28% year-on-year increase during the final quarter to 15.1mt driving 2020 bauxite production guidance in the range 55-58mt.
• Mined copper output for the year declined by 5% to 577,400t in response to lower grades “partially offset by higher throughput”.
• At Kennecott Copper, lower grades “impacted the fourth quarter in particular” with output declining by 39% compared to both the preceding quarter and Q4 2018 to 35.4kt as the south wall pushback, which is planned to extend the overall mine life to 2032, drove lower grades. The company expects that grades “will continue to be lower through 2020 before increasing from the first quarter of 2021, with the transition from east wall to south wall mining”.
• Production at the Escondida mine declined by 3% to 341.6kt during 2019”mainly due to grade declines, which were 8% lower than last year, partly offset by higher throughput”. The company also explains that “Fourth quarter production [at Escondida] was 16% higher than the same quarter of 2018 due to higher throughput, offsetting production losses from stoppages associated with the social unrest in Chile”.
• Escondida has taken a charge of $200m relating “to the cancellation of existing coal contracts … Following the signing of renewable power agreements”.
• Copper production from the Oyu Tolgoi open-pit was, as anticipated, 8% lower during the year “as mining activity moved to lower grade areas”. Work continues on the design of the underground development plan for Oyu Tolgoi with results expected to be completed during the first half of 2020 and a definitive estimate expected during the second half.
• Copper production guidance for 2020 is in the range 530-570kt.
• Production of titanium dioxide slag increased by 8% during 2019 to 1.2mt “reflecting continual operational improvement and the restart of furnaces in line with market conditions.” The company comments. However, that “Fourth quarter production was impacted by the curtailment of operations at Richards Bay Minerals … following an escalation in violence in the surrounding communities. A phased restart commenced at the end of December.”
• The company guidance is for titanium dioxide slag production in the range 1.2-1.4mt in 2020.
• Increased exploration spending of US$624m “28% higher than 2018, primarily reflecting increased activity at Resolution Copper in the US and on the Winu and Falcon advanced projects in Autralia and Canada”. Exploration activities are spread across 17 countries and seven commodities although the “bulk of the exploration expenditure in this quarter focussed on copper in Australia, Brazil and Canada, Chile, Colombia, Kazakhstan, Mongolia, Peru, Serbia, United States, Zambia and diamond projects in Canada”.

Conclusion: Rio Tinto says that it finished 2019 “with good momentum … despite having experienced some operational challenges in 2019”. Major developments in the Western Australian iron ore business are scheduled to see initial ore come through in 2021 while the switch to mining the south wall at Kennecott extends the mine life to 2032.

 

Sibanye-Stillwater cut close to 1,142 jobs at the Marikana platinum mines despite record palladium prices

• Power outages from rolling blackouts, load shedding combined with lower platinum prices have made a number of shafts uneconomic.
• The job cuts follow the takeover of Lonmin by Sibanye and a review of the operations.
• A further shaft is at risk of closure depending on its performance over the next three months.
• A further 166 employees were transferred to other operations while another 1,612 were offered voluntary separation packages. 53 chose to retire.
• President Ramaphosa, a former NUM leader and director of Lonmin will be relieved at the minimisation of redundancies which was estimated at 5,270 in September

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

 

Sales

Richard Parlons – 0203 470 0472

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

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Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

⁺SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

Sources of commodity prices
Gold, Platinum, Palladium, Silver	BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel	Bloomberg
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt	LME
Oil Brent	ICE
Natural Gas, Uranium, Iron Ore	NYMEX
Thermal Coal	Bloomberg OTC Composite
Coking Coal	DCE
RRE	Steelhome
Lithium Carbonate, Ferro Vanadium, Antimony	Asian Metal
Tungsten	Metal Bulletin

 

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