SP Angel . Morning View . Virus outbreak ahead of holidays risks Chinese growth outlook
Paul Kettle
SP Angel . Morning View
11:51, 24th January 2020

SP Angel . Morning View . Friday 24 01 20

Virus outbreak ahead of holidays risks Chinese growth outlook

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Pan African Resources  FOLLOW (PAF LN) – Six month production on course to meet guidance level

 

 

Mercedes-Benz cuts EV production forecasts due to a battery supply bottleneck.

  • Daimler has halved its initial production of goal of 60,000 vehicles for its Mercedes-Benz EQC model down to 30,000 for 2020.
  • The Company cites a shortage in supply from partner company and battery supplier LG Chem. Daimler had targeted selling 25,000 EQC vehicles in 2019 as they try to cut fleet emissions to ~95 grams per kilometre to avoid heavy fines, but only managed to produce around 7,000 vehicles.
  • This is not the first report of a supply bottleneck, Reuters reported in late 2018 that Tesla expected a shortage of key minerals used in battery production due to long term supply challenges. (Reuters)
  • In 2019 researches on the Security of Supply of Mineral Resources multi-institute program calculated that for the just the UK fleet of 31.5m vehicles and to meet targets of all new sales to be BEV in the UK by 2035, assuming use of NMC 811 batteries, would require 2x the world’s total annual cobalt production, 75% of lithium production and 50% of all copper production. (Petroleum economist)

 

Mini nuclear reactors – Rolls Royce plans to build 15 mini nuclear reactors by 2029

  • The plan is to deliver the reactors by lorry and presumably add to the nation’s distributed energy
  • This sounds like a very good idea when compared with huge nuclear power stations where costs and timescales seem to unmanageably overrun and where the resultant electricity does not seem that cheap either.
  • Russia already has floating nuclear power stations while there are many nuclear powered submarines in operation worldwide.
  • We suspect the small scale of a mini-nuclear power station should make the nuclear reaction much easier to manage, contain and connect into the grid.

 

Dow Jones Industrials

 

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Nikkei 225

 

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23,827

HK Hang Seng

 

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Shanghai Composite

 

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FTSE 350 Mining

 

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AIM Basic Resources

 

-0.48%

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Economics

China – Authorities extended a public transport shutdown to 12 cities, affecting more than 36m people, in an attempt to limit the outbreak of the coronavirus.

  • Roadblocks preventing private cars from leaving Wuhan and restrictions are set to be extended to two more cities this evening.
  • As of Friday mid-afternoon, 25 people are reported dead and 881 had confirmed infections that kicked off in the central city of Wuhan.
  • There were another 1,073 suspected cases of the Sars-like virus in 20 provinces, FT reports.
  • The outbreak comes at a time of peak spending on travel, entertainment and gifts with celebrations planned to start today.
  • Beijing has already cancelled mass Lunar New Year celebrations while local face mask manufacturers are reopening factories shut for a national holiday and offering up to four times normal pay as consumers emptied out stock in stores, according to Reuters.
  • The World Health Organisation decided against declaring the outbreak a global health emergency so far.
  • “Make no mistake, this is an emergency in China… but it has not yet become a global health emergency,” the WHO said in a statement.

 

Eurozone – The economy failed to pick up in January with an improvement in the manufacturing sector compensated by a weaker rate of expansion among service providers.

  • On a positive note, growth in Germany picked up (Composite PMI 51.1 v 50.2 in December).
  • However, growth in France slowed affected by nationwide strikes and the rest of the single currency area was near stagnation.
  • New business orders increased for the second month in January, but the rate of expansion remained marginal.
  • “The failure of growth to accelerate was in spite of some areas of positivity… the service sector remained in expansion, while the worst of the manufacturing downturn looks to have passed and industry appears to be moving towards stabilisation,” Markit said.
  • Markit Manufacturing PMI: 47.8 v 46.3 in December and 46.8 forecast.
  • Markit Services PMI: 52.2 v 52.8 in December and 52.8 forecast.
  • Markit Composite PMI: 50.9 v 50.9 in December and 51.2 forecast.

 

ECB – The central bank kept the policy unchanged, in line with market estimates, while highlighting that downside risks were “somewhat less pronounced” after a “moderate increase” in inflation and a phase one deal.

  • The US-China agreement was a “critical development”, although the global growth outlook remained “tilted to the downside”.
  • Ms Lagarde announced a framework for the revision of the inflation target along with the effectiveness and potential adverse effects of the tools used to provide core price-stability mandate.
  • The last time the central bank carried out a review was back in 2003 while changing its mandate for target inflation from between zero and two per cent to a narrower objective of “below but close to 2%”.
  • Many economists expect the bank to opt for a 2% target, in line with the Fed and the Bank of England, which in turn would suggest monetary authorities would be more accommodative regarding further monetary stimulus.

 

UK – PM Johnson is expected to sign the Withdrawal Agreement Bill (WAB) in the coming days after the legislation passed all parliamentary stages on Wednesday.

  • Earlier this morning, the President of the European Commission, Ursula von der Leyen, and President of the European Council, Charles Michel, signed the WAB in Brussels.
  • Members of the European Parliament will be voting on the deal once Johnson signs the WAB.
  • The pound jumped on the release of better than expected PMI data on the back of receding political uncertainty.
  • The composite index showed business activity expanded for the first time in five months on the back of a surge in new orders.
  • Hiring and inflation have also picked during the month.
  • Business outlook climbed to the strongest since June 2015.
  • “It seems likely that the rise in the PMI kills off the prospect of an imminent rate cut by the Bank of England, with policymakers taking a wait and see approach as they assess the performance of the economy in the post-Brexit environment,” Markit commented on the data.
  • Markit Manufacturing PMI: 49.8 v 47.5 in December and 48.8 forecast.
  • Markit Services PMI: 52.9 v 50.0 in December and 51.1 forecast.
  • Markit Composite PMI: 52.4 v 49.3 in December and 50.7 forecast.

 

Currencies

US$1.1046/eur vs 1.1082/eur yesterday.  Yen 109.63/$ vs 109.53/$.  SAr 14.345/$ vs 14.331/$.  $1.314/gbp vs $1.312/gbp.  0.685/aud vs 0.687/aud.  CNY 6.908/$ vs  6.932/$.

 

Commodity News

Gold US$1,559/oz vs US$1,554/oz yesterday

   Gold ETFs 82.0moz vs US$81.8moz yesterday

Platinum US$1,007/oz vs US$1,008/oz yesterday

Palladium US$2,461/oz vs US$2,490/oz yesterday

Silver US$17.80/oz vs US$17.70/oz yesterday

            

Base metals:    

Copper US$ 6,008/t vs US$6,081/t yesterday - Copper set for biggest weekly drop in 17 months amid China virus scare (Reuters)

  • Copper is on track for its biggest weekly drop In 17 months as the WHO declare the virus an emergency in China.
  • The price of copper fell 1.9% yesterday, its sharpest daily fall in nearly six months.
  • Trading volume was also thin, as exchanges close for the new year. The Shanghai Futures Exchange will be closed for a week from today.

Eurasia Resources Group is to suspend operations at its Chambishi Metals smelter and refinery in Zambia due to a shortage of copper and cobalt concentrates.

  • ERG is putting the Chambishi refinery on care and maintenance  due to a lack of copper and cobalt concentrate feedstock for the plant.
  • Chambishi has a capacity of 6,800tpa of cobalt and 55,000tpa of copper.
  • Zambia introduced a 5% import tax on copper concentrates last year which has restricted the flow of concentrates from the DRC.
  • Zambia also raised its sliding scale on royalties by 1.5% to 6% from 4% in September and introduced a new 10% tax on copper prices over $7,500/t
  • Glencore also closed its Mopani Copper Mine last year on low copper prices and tax issues. Mopani had been fed with ore from Mufulira and the DRC.
  • The Zambian government has been reacting for some time to claims by the ceo of Vedanta that it made a minimum of US$500m plus US$1bn every year. The claims were in contrast to the minimal profit and tax reported in Vedanta’s Zambian subsidiary accounts.
  • Zambia has adjusted its copper taxes ten times in the past 16 years with most adjustments made since the government allegedly discovered Vedanta were transfer pricing value out of Zambia.

Aluminium US$ 1,795/t vs US$1,797/t yesterday

Nickel US$ 13,310/t vs US$13,325/t yesterday

Zinc US$ 2,346/t vs US$2,638/t yesterday

Lead US$ 1,958/t vs US$1,987/t yesterday

Tin US$ 17,015/t vs US$17,145/t yesterday

            

Energy:            

Oil US$62.2/bbl vs US$62.5/bbl yesterday - The Chinese Coronavirus epidemic continues to threaten oil demand in one of the world’s largest oil markets

  • Oil demand was at the forefront of all the pricing moves throughout 2019, and the potential impact of dampened demand from the world’s second largest oil consumer appears to have outweighed even significant geopolitical risk, as well as tangible oil production outages such as the attacks on Saudi Aramco oil facilities in September and Libya's current nearly complete outage of over 1MMbopd
  • Oil demand growth is the biggest factor weighing on prices, China’s oil demand has been growing at an annual rate of 5.5%, while comparatively, US oil demand has been growing by 0.5%
  • Most of the demand loss will come from jet fuel as the risk of disease discourages travellers
  • Brent futures are down 0.6% to $62.3/bbl, whilst WTI futures were down 0.5% to US$56.3/bbl

Natural Gas US$1.908/mmbtu vs US$1.938/mmbtu yesterday - Yesterday the EIA reported that domestic supplies of natural gas fell by 92Bcf for the week ended 17 January

  • That was slightly larger than the decline of 88Bcf forecast by S&P, but well below last year and five-year average draw for the period
  • Total stocks now stand at 2.947Tcf, up 554Bcf from a year ago, and 251Bcf above the five-year average
  • The slide below $2/MMBtu to a low of $1.83/MMbtu this week has come as much of the US experienced unseasonably mild temperatures, reducing demand for natural gas that is widely used in heating as well as electricity generation
  • In addition, warmer temperatures in parts of Europe and Asia have also cut demand for natural gas, which feeds back into the US price given its growing role as a major exporter of liquefied natural gas

Uranium US$24.45/lb vs US$24.50/lb yesterday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$90.8/t vs US$94.1/t - Iron ore prices weighed by China virus outbreak (Seeking Alpha)

  • Iron ore futures in China fell 2.3% to $93.70/t on fears that the virus could delay the spring restart of construction projects.
  • The virus could also reduce consumption of consumer goods, cutting demand for steel used in manufacturing of autos and appliances.

Chinese steel rebar 25mm US$570.6/t vs US$568.7/t

Thermal coal (1st year forward cif ARA) US$61.0/t vs US$60.3/t

Coking coal futures Dalian Exchange US$184.3/t vs US$183.6/t

            

Other:   

Cobalt LME 3m US$32,500/t vs US$32,500/t

NdPr Rare Earth Oxide (China) US$40,387/t vs US$40,249/t

Lithium carbonate 99% (China) US$5,573t vs US$5,554/t - Galaxy Resources to reduce lithium mining by 60% (mining-technology)

  • The company plans to scale back production from its Mount Cattlin mine in Western Australia, whilst continuing to construct its Sal de Vida project in Argentina.
  • Mount Cattlin produced 1.79mt of ore in 2019 which refined to 191,569t of lithium concentrate.
  • The company said it was scaling back production until market conditions improve, as the price of lithium has fallen 44% compared to this time last year.

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

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/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

Uber signs deal with Nissan in London EV push (FT)

  • Nissan will make 2,000 of its Sunderland-made Nissan Leafs available to Uber drivers below the market rate, as the ride-hailing company pushes to make its journeys in London emission free by 2025.
  • Drivers will be able to use the money accumulated from Uber’s ‘clean air fee’, (which chares riders 15p per miles on all London journeys) to help pay for the cars.
  • The fee was launched in January 2019 to help drivers switch to electric vehicles by 2025, and has already raised £80m. Drivers may use the funds they have accumulated once they reach £1,000.
  • However, some drivers are reluctant to make the switch to EV, with most concerns centred around the lack of charging infrastructure in London.

 

US Researchers develop method for extracting lithium salts from geothermal plants. (Engineering 360)

  • A team at the Oak Ridge National Laboratory (ORNL) are working to refine a sorbent that can more effectively recover lithium salts from concentrated brines. The brines are produced as a waste product at geothermal plants pumping hot water from geothermal deposits to generate electricity.
  • The brines contain 250-300ppm of lithium. It is estimated as much as 15,000 metric tons of lithium carbonate could be recovered from a single geothermal plant in Salton Sea, California.(Technology.org)  
  • The project is part of a move by the US to onshore lithium production as today it is almost exclusively sourced abroad.
  • The researchers are working to improve to the capacity and selectivity of a sorbent that could extract lithium from the brines. The lithium-aluminium-layered double hydroxide chloride (LDH) sorbent they are developing displayed a recovery rate of 91% of lithium from simulated brine in lab tests. The Team also found replacing some of the aluminium in the sorbent with iron made it more thermodynamically stable.

 

Company News

Pan African Resources (PAF LN) 12p, Mkt Cap £268.2m – Six month production on course to meet guidance level

  • Pan African Resources reports that, following a 14.7% increase in gold sales to 92,941oz during the six months to 31st December 2019 (2018 – 81,014oz) the company is on course to achieve its full year guidance target of 185,000oz.
  • Much of the increase can be attributed to the near doubling of output from the Elikhulu tailings retreatment plant where output rose by 92% to 29,301oz (2018 – 15,292 oz) from the treatment of 6.2mt at an average recovered grade of 0.15g/t gold.
  • The company says that the successful commissioning, during December, of a new pump station, “is expected to increase plant feed rates for the remainder of the financial year, which will have a favourable impact on gold production”.
  • At the company’s largest producer, Barberton, production dipped to 47,356oz (2018 – 50,556 oz) as a results of a combination of community unrest which is being addressed by a combination of legal action against those instigating the disruption and enhanced security to mitigate illegal mining and criminality. Approximately 78% of the production (37,737 oz) came from underground mining with the balance from tailings retreatment.
  • The company advises that Challenging geological conditions at Barberton’s Fairview operation, … are expected to be mitigated by increased mining flexibility in the remainder of the financial year”.
  • The operation to exploit the No. 8 Shaft Pillar at Evander produced its first gold during August 2019 contributing to a total of from Evander 16,248oz during the period. “The project is forecast to contribute 30,000oz of gold or more per annum to the group’s production over a three-year period, once operational steady state is reached”.  Formal commercial production is expected “in the next few weeks, adding further high-margin production from our operations in the second half of this year”.
  • Confirming that the company remained on course to meet its full year guidance of 185,000 oz of production, Cobus Loots, CEO, said that the “first six months of the year saw higher production from Pan African’s high-margin operations and investment in our growth projects, with the group demonstrating its ability to reduce debt and pay dividends to our shareholders”.
  • Net debt fell to R1.6bn at 31st December 2019 from the R1.9bn reported at 30th June 2019 and the company distributed R43m as dividends during December. Detailed interim financial results are scheduled for release on 18th February.

 

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 

 

SP Angel                                                             

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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