SP Angel Morning View -Today’s Market View, Friday 15th September 2023

China commodity production ramps up as optimism grows over economic recovery

MiFID II exempt information – see disclaimer below

Power Metal Resources* (POW LN) 0.85p, Mkt cap £18m – Anomalous gold at Tati in Botswana

Sunrise Resources (SRES LN) 0.085p Mkt Cap £3.5m – Project update as JV talks continue

China commodity production ramps up as optimism grows over economic recovery

• Crude refining and aluminium smelting both hit record high levels in August.
• Crude refining climbed 20% yoy to 64.7m on increased plant activity after a maintenance period.
• Aluminium smelting jumped 3.1% to 3.6mt on easing hydropower shortages in Yunnan/
• Steel production climbed 3.2% yoy in August as mills ramp up output in advance of a seasonal construction period in the Autumn.
• Infrastructure investment from local governments has been supported by a desire to fill bond quotas.
• Coal production climbed 2%.

Iron ore climbs to April highs as positive housing data boosts sentiment

• Iron ore prices climbed to $121/t, now up 8% this week and the highest since April.
• Data pointed to a bounce in Chinese housing data for August, with 17 cities posting gains.
• Beijing continues its fiscal easing policy, lowering the reserve requirements for the second time this year.
• Iron ore stockpiles are hitting their lowest points in over three years and steel product output is on the climb.

Copper prices hold higher as yuan strengthens on positive economic data

• Copper prices are holding around the $8,400/t mark.
• The move tracks a stronger renmimbi, which has climbed to its highest point against the dollar in two weeks.
• China’s industrial output posted a 4.5% rise in August vs 3.7% in July.
• Property investment remains weak and construction equities are selling off again.
• LME stocks remain high and have posted sharp growth to October 2022 highs since July.

Chinese EV and ICE vehicles undercut Western manufacturers

• IEA reckons the EVs will now make up 35% of global sales in 2030. That’s a huge increase from the 25% projected last year
• China is estimate to have a manufacturing cost advantage of 20-25%
• Chinese cars are cheaper for a number of reasons
  • Use of cheaper Lithium phosphate batteries – yes they have lower range but they are cheaper to produce,
  • Low-cost workforce (all unions have to be affiliated with the ACFTU ‘All-China Federation of Trade Unions’),
  • Lower cost components,
  • State subsidies for new factories,
  • Low-cost power in many regions, sometimes by way of subsidy, sometimes from new hydropower,
  • Compliant and diligent workforce, gone are the days of China producing cheap plastic toys,
  • Abundance of gigafactories to buy batteries from – China has around half the world gigafactories,
  • China has around 75% of global Li-ion battery installed capacity and had 77% of all lithium-ion battery capacity last year (BNEF),
  • Relatively new automotive factories do not carry legacy issues,
• China produces around 2.2m new vehicles a month representing around 32% of global production giving the industry significant scale and cost advantages
• By comparison the UK produced 0.8m cars last year exporting 8 out of 10 of all vehicles accounting for ~10% of total exports.
• Of the £77bn of trade within the automotive industry vehicles contributing £67bn turnover and £14 bn value added to the UK economy.
• The industry also typically invests some £3bn each year in R&D with the automotive industry accounting for 10% of the total workforce and 11% of UK GDP. (SMMT).

Economics

US sanctions Russian copper and coal mining companies

• The US has sanctioned Russian Copper Co. and its owner Igor Altushkin.
• The Treasury has also sanctioned SUEK JSC, the largest steam coal miner.
• Vorkutaugol, another coal miner, and OMK, a steel-pipe producer was also sanctioned.

US  – PPI rose 0.7% mom in August vs 0.3% mom in July and 1.6% yoy in August vs 0.8% yoy in July

• Core PPI rose 0.2% mom in August vs 0.4% in July and 2.2% yoy in August vs 2.4% in July
• Retail sales rose 0.6% vs 0.5% and 2.2% yoy vs 2.4% yoy
• Retail sales ex auto slipped slightly to 0.6% mom vs 0.7% mom

China – The PBoC cut the bank reserve requirement ratio by 0.25% to 5%

• PBoC previously cut the RRR ‘reserve requirement ratio’ on exchange accounts to 4% from 6%

ECB – raised rates 0.25% to 4.5%.

UK – Two UK Trade Unions refuse to back motion to condemn Russian invasion of Ukraine

• The headline in the Telegraph tells it all.
• We have suspected Russian influence and probable funding of UK Trade Unions for decades.
• Russia appears to conquer Ukraine at any cost and that potentially exposes its subversive influence in UK and EU unions and politics
• At the very least it highlights union leaders alignment with Moscow, communism and the enemy within.
• For example Mike Lynch, leader of the National Union of Rail, Maritime and Transport Workers is an alleged Marxist who described Ukraine as being ‘held to ransom by neo-Nazis’.
• Lunch’s predecessor was also an unashamed member of the Communist party while other RMT members are also known to be Russia sympathisers.

North Korea – renewed partnership with Russia may conflict with Chinese influence

• Russia’s reach into North Korea might destabilise relationships with the Chinese.

Congo Basin – poses highest risk for Africa’s next Coup

• Semafor reckons the environment forebodes greater than normal Coup potential within the Congo Basin
• The Congo Basin includes: Cameroon, Central African Republic, Republic of Congo (Brazzaville), Democratic Republic of Congo, Equatorial Guinea and Gabon.

South Africa – ESKOM claims nation is not at Stage 7 load shedding

• Local press reports claim Eskom has imposed Stage 7 load shedding on Tuesday this week.
• Eskom claims it has not but Loadshedding.com claims Eskom shed >7,000MW worth of electricity from the grid despite classifying this as Stage-6.
• According to Eskom’s own definition, losing 7,000 MW equates to Stage 7 load shedding.
• Breakdowns in generators, delays to repairs, ongoing corruption and a severe lack of investment are just a few of the contributory factors.
• Much local industry appears to be installing its own capacity with many giving up on the concept of longer term stable power provision by Eskom.

Nigeria – Total system power grid collapse blacks out Nigeria

• The grid also collapsed at least four times last year.
• This latest collapse was caused by a fire and explosion in a transmission line connecting two power plants.

Argentina – Inflation rose mom 12.4% in August vs 6.3% mom in July and a whopping 124.4% yoy in August vs 113.3% yoy in July

Libya – 11,300 people are estimated to have died in recent flooding by the Libyan Red Crescent

• Many were swept away when two dams burst flooding the town of Derna.
• The Libyan president claimed in a TV broadcast that funds and maintenance and inspection programs had been set in place with the implication the local authority had not fulfilled its duties.
• Other major natural disasters according to Wikipedia were:
  • 4,000,000 – China floods, 1931
  • 2,000,000 – Yellow River flood, China, 1887
  • 655,000 – Tangshan earthquake, China, 1976
  • 500,000 – Bhola cyclone, Bangladesh, 1970
  • 316,000 – Haiti earthquake, 2010
  • 300,000 – Antioch earthquake, Byzantine Empire (now Hatay/Turkey), 526 AD
  • 300,000 – Coringa cyclone, India, 1839
  • 300,000 – Calcutta cyclone, 1737
  • 300,000 – Ganja earthquake, Azerbaijan, 1139
  • 273,400 – Haiyuan earthquake, China, 1920

Currencies

US$1.0653/eur vs 1.0737/eur previous. Yen 147.74/$ vs 147.18/$. SAr 19.004/$ vs 18.808/$. $1.242/gbp vs $1.248/gbp. 0.646/aud vs         0.643/aud. CNY 7.274/$ vs 7.277/$.

Dollar Index 105.25 vs 104.68 previous.

Commodity News

Precious metals:

Gold US$1,917/oz vs US$1,907/oz previous

Gold ETFs 89.0moz vs 89moz previous

Platinum US$914/oz vs US$902/oz previous

Palladium US$1,251/oz vs US$1,255/oz previous

Silver US$23.04/oz vs US$23/oz previous

Rhodium US$4,100/oz vs US$4,100/oz previous

Base metals:

Copper US$ 8,456/t vs US$8,394/t previous

Aluminium US$ 2,210/t vs US$2,233/t previous

Nickel US$ 20,260/t vs US$20,210/t previous

Zinc US$ 2,562/t vs US$2,536/t previous

Lead US$ 2,257/t vs US$2,222/t previous

Tin US$ 25,810/t vs US$25,820/t previous

Energy:

Oil US$94.2/bbl vs US$92.5/bbl previous

Natural Gas US$2.706/mmbtu vs US$2.722/mmbtu previous

Uranium UXC US$62.10/lb vs US$60.75/lb previous

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$121.3/t vs US$118.6/t

Chinese steel rebar 25mm US$537.2/t vs US$536.4/t

Thermal coal (1st year forward cif ARA) US$128.5/t vs US$128.5/t

Thermal coal swap Australia FOB US$165.5/t vs US$166.0/t

Coking coal swap Australia FOB US$313.0/t vs US$305.0/t

Other:  

Cobalt LME 3m US$33,420/t vs US$33,420/t

NdPr Rare Earth Oxide (China) US$72,171/t vs US$72,140/t

Lithium carbonate 99% (China) US$22,888/t vs US$23,703/t

China Spodumene Li2O 6%min CIF US$2,550/t vs US$2,610/t

Ferro-Manganese European Mn78% min US$1,033/t vs US$1,036/t

China Tungsten APT 88.5% FOB US$305/mtu vs US$305/mtu

China Graphite Flake -194 FOB US$645/t vs US$650/t

Europe Vanadium Pentoxide 98% 6.4/lb vs US$6.5/lb

Europe Ferro-Vanadium 80% 29.45/kg vs US$29.75/kg

China Ilmenite Concentrate TiO2 US$315/t vs US$313/t

Spot CO2 Emissions EUA Price US$85.9/t vs US$86.8/t

Brazil Potash CFR Granular Spot US$355.0/t vs US$355.0/t

Battery News

Toyota details next generation of EVs and batteries

• Toyota’s next generation of EVs will offer new battery options that will increase range to 497 miles and be up to 40% cheaper than the Toyota bZ4X when they arrive in 2026.
• Toyota will focus on two EV battery options – a range-focused lithium-ion ‘Performance’ battery and an affordability-focused lithium-iron-phosphate ‘Popularisation’ battery.
• Between 2027 and 2028, a lithium-ion ‘High Performance’ pack offering 621 miles of range will replace the ‘Performance’ battery in the line-up. It will also be 10% cheaper, Toyota said.
• The Japanese automaker believes that 1.7m of the 3.5m BEVs that Toyota expects to sell globally by 2030 will use one of these new battery packs.
• Toyota have recently made a breakthrough in solid-state battery technology and expect to be mass producing by 2028, due to the use of a solid electrolyte.
• The first-generation solid-state batteries will offer a range of 621 miles but be able to fill from 10-80% in 10 minutes via a fast charger, compared with the ‘High Performance’ lithium-ion pack’s 20 minutes via a rapid charger.

Company News

Power Metal Resources* (POW LN) 0.85p, Mkt cap £18m – Anomalous gold at Tati in Botswana

• Power Metal provides an update from its geochemical soil sampling programme at the Tati Gold Project on the Tati Greenstone Belt in Botswana.
• Two gold-in-soil anomalies were identified in strike from the 2022 drill intercepts of 40g/t Au and 23.2g/t Au over 1m and 2m respectively.
• 280 infill soil samples were taken over 40m spacing over two grids.
• Samples showed 33 elements including gold from independent lab testing.
• The Company will now target a zone to the southwest extension from historic gold mine Cherished Hope, where a section of historic pitting presents an encouraging exploration opportunity.

*SP Angel acts as Nomad and Broker for Power Metal Resources

Sunrise Resources (SRES LN) 0.085p Mkt Cap £3.5m – Project update as JV talks continue

• Sunrise provides an update on its pozzolan project in the USA.
• The Company commissioned a market study to explore cement market dynamics in Nevada and California.
• The study expects cementitious material demand to increase by 10% pa from 129mt to 154mt by 2030.
• Portland cement capacity is constrained by limited investment and Sunrise’s pozzolan projects will benefit from ‘structural changes in the cement and concrete industries.’
• Sunrise reports it is currently waiting for a bulk sample from the Hazen pozzolan project to test for commercial grinding by a current natural pozzolan producer.
• Sunrise is also in discussions with three companies for a JV of its CS natural pozzolan project.
• These range from a cement and mix-ready group, a materials company and another cement company.

No.1 in Copper:  “The winner of the 2020 Fastmarkets Apex contest for copper was the team at SP Angel comprising John Meyer, Sergey Raevskiy and Simon Beardsmore, with an accuracy score of 93.8%”

No1. In Gold:  “SP Angel’s trio took the top spot for the gold price prediction throughout the year, with an accuracy score of 97.59%”

The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020

Analysts

John Meyer – [email protected] – 0203 470 0490

Simon Beardsmore – [email protected] – 0203 470 0484

Sergey Raevskiy –[email protected] – 0203 470 0474

Sales

Richard Parlons –[email protected] – 0203 470 0472

Abigail Wayne – [email protected] – 0203 470 0534

Rob Rees – [email protected] – 0203 470 0535

Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471

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

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