SP Angel Morning View -Today’s Market View, Friday 16th June 2023

Copper climbs as China considers more stimulus

MiFID II exempt information – see disclaimer below

Delta Lithium (DLI AU) – Japanese conglomerate invests $46.4m to advance Delta’s Australian pegmatite projects

First Quantum Minerals (FM CN)– Rumours of informal takeover offer from Barrick

IGTV:  https://www.ig.com/uk/market-insight-articles/ev-metals-to-regain-momentum–despite-economic-uncertainty–sp-a-230606

VOX Markets Podcast:   https://audioboom.com/posts/8310999-john-meyer-on-china-s-mixed-manufacturing-figures-plus-atlantic-lithium-goldstone-res-anglo-asi

• *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.

Copper heads higher on sustained China stimulus bets and weak dollar

• Copper prices rallied past $8,600/t last night, set for their third weekly gain an up c.3% this week.
• The metal is enjoying speculative bets from traders that weak Chinese economic data will trigger further stimulus measures from Beijing.
• Industrial output data yesterday showed growth fell to 3.5% in May vs 5.6% in April.
• GDP growth forecasts in China are being slashed by analysts, with analysts suggesting China’s post-covid recovery has petered out.
• Sliding copper inventories are also supporting prices, with Shanghai stocks sliding 20% today and now down 70% from February highs.
• Copper is also benefiting from a weak dollar after ECB hawkishness pushed the euro to a five-week high against the greenback.
• China’s property index has halted its rally, now down 1.5% from a peak reached last week following data highlighting sustained weakness in investment and new builds.

Weak dollar lifts gold prices despite hawkish Fed pause on Wednesday

• Gold prices ticked back to $1,961/oz on the spot market having fallen to lows of $1,927/oz yesterday.
• The move followed a sharp drop in the US dollar, which was partly moved by US jobless claims data in a sign the strength of the US labour market may be cooling.
• Powell has been emphasising a weaker US labour market, which weighed on US yields, lifting gold prices.
• Expectations of a 25bp hike in July remain over the 63% mark, providing a floor to yields.
• We anticipate gold price volatility to continue as traders assess the longer term trends of US interest rate paths, inflation dynamics and euro strength.

Aluminium – China NBS reports primary aluminium output up 1.1% yoy to 3.42mt in May

Economics

US – Retail sales came in stronger than expected in May, although, the growth rate remained low suggesting restrictive monetary policy is weighing on personal consumption.

• A separate report, the labour market eased last week with a less volatile four week jobless claims average continued to climb hitting the highest since early 2018 (excluding Covid related spike over 2020-21).
• Retail Sales (%mom): 0.3 v 0.4 April and -0.2 est.
• Retail Sales ex Auto (%mom): 0.1 v 0.4 April and 0.1 est.

Fed signalled two more hikes could be on the cards in an “aggressive skip”

• Does this mean the Fed are more concerned about sticky inflation than they are letting on
• Or does the Fed have another, unseen, agenda; to continue to raise the value of the US dollar to maintain US dollar dominance as the world’s global transactional currency.
• Next FOMC meetings are on 25/26 July and 19/20 September, dollar strength all the way – probably
• Fed Fund rate 5.6% vs 5.1%
• NY Empire State manufacturing index +6.6 in June vs -31.8 in May
• Philadelphia Fed manufacturing index +12.7 in June vs -10.4 in May
• US weekly jobless steady at 262k
• Industrial production -0.2% in May vs 0.5% in April
• Manufacturing output 0.1% in May vs 0.9% in April
• Capacity utilisation 79.6% in May vs 79.8% in April

China – Chinese apartments selling as cheap as ‘cabbage’ after market rout

• A Beijing man has bought a two-bedroom apartment in Hebi for $2,528.
• The man stated in an interview that ‘the flats were sold very cheaply, like cabbage.’
• Real estate agents are reporting anecdotal evidence of a pick-up in appetite for cheap apartments in smaller, less developed cities.
• However, Anjuke, China’s main real estate platform, notes apartments are selling at a 27% discount to 2021 peaks in Hebi.
• Prices in Huainan, Rushan and Gejiu are selling 24% lower from 2021 peaks.
• May Chinese house price index rose 0.1% yoy in May vs -0.2% in April
• Unemployment held stable at 5.2%
• Youth unemployment remains extraordinarily high at 20.8% in May vs 20.4% April as the ‘Lay-flat’ generation continue to lay-flat.
• Youth unemployment was 13.6% last year and 11.7% as an average over the past five years – While youth unemployment is higher in China than most other developed nations we are concerned that this is also a global phenomenon to some degree and will have profound social and economic consequences for generations.
• Thankfully, we are hugely impressed by the work ethic of our younger colleagues at SP Angel who appear motivated and who use their technology skills to great effect.

Japan – The central bank left rates unchanged, in line with estimates, as it awaits for more sustainable inflation, Bloomberg reports.

• The decision comes in a contrast to BOJ’s US and European counterparts that are in the tightening rates cycles.
• Governor Ueda is following the view that the cost of prematurely tightening policy could do more damage after years tryin to get prices rising as of a growth strategy.
• The currency is sliding against the US$ on the back of the news currently trading at 141.2, the weakest since late 2022.
• BOJ Policy Rate (%): -0.1 v -0.1 est.
• Trade deficit was Y-1,372bn in May vs Y-432bn in April
• Exports rose 0.6% in May vs 2.6% in April
• Imports fell 9.9% in May vs -3.3% in April

Eurozone – The central bank announced a 25bp hike to 3.5%, the highest level in 22 years, yesterday, as expected, marking the eighth consecutive increase since mid-2022.

• ECB President Christine Lagarde said more hikes including at the bank’s meeting on July 27 are being considered.
• “Are we done? Have we finished the journey? No, we’re not at destination,” Lagarde said at a news conference.
• “Do we still have ground to cover? Yes, we have ground to cover.”
• The ECB also released its updated inflation and growth estimates showing aa slight upwards revision to inflation rates and a downgrade to GDP forecasts.
• Tighter monetary policy outlook saw the € climbing more than 1% on Thursday.
• ECB projections for inflation and economic growth for 2023/24/25 with previous estimates from March in brackets:
• GDP growth: 0.9% (1.0%) 1.5% (1.6%) 1.6% (1.6%);
• Inflation: 5.4% (5.3%) 3.0% (2.9%) 2.2% (2.1%).

Ghana – IMF notes encouraging signs of stabilisation in Ghanaian economy as inflation eases

• The IMF released a statement following a week-long visit to Ghana.
• The report noted that Ghana’s inflationary pressures are easing, international reserves are growing and lower volatility in the Sedi.
• Ghana is looking to restructure $20bn of its $30bn external debt through the IMF’s common framework platform.
• A review is expected for the autumn.

Nigeria – President Bola Tinubu sacks central bank governor Godwin Emefiele over alleged Naira currency redesign scam

• Emefiele has identified the suspended Chairman of the Economic and Financial Crimes Commission, Abdulrasheed Bawa, as an accomplice.
• Emefiele is being held by Nigeria’s Department of State Services (secret police) on allegations of corruption and abuse of office.
• The previous President, Muhammadu Buhari, had ordered that new Naira notes would replace the older currency by January 31, 2023.
• A DSS investigation alleges that Emefiele had funded groups with resources he raised for his failed presidential bid in 2022 and diverted public funds.

Turkey – Inhouse Bloomberg analysts expect the central bank to hike benchmark rates by 650bp next week following up on Finance Minister calls to return to “rational policy making”.

• That would bring the rate to 15% with further hikes expected to bring the rate to 24% by year end.

Currencies

US$1.0939/eur vs 1.0811/eur yesterday. Yen 141.25/$ vs 141.43/$. SAr 18.211/$ vs 18.375/$. $1.278/gbp vs $1.265/gbp. 0.688/aud vs 0.681/aud. CNY 7.124/$ vs 7.154/$.

Dollar Index 102.17 vs 103.32 yesterday.

Commodity News

Precious metals:

Gold US$1,972/oz vs US$1,932/oz yesterday

Gold ETFs 93.8moz vs US$93.8moz yesterday

Platinum US$996/oz vs US$970/oz yesterday

Palladium US$1,393/oz vs US$1,375/oz yesterday

Silver US$24.012/oz vs US$23.30/oz yesterday

Rhodium US$6,100/oz vs US$6,100/oz yesterday

Base metals:   

Copper US$ 8,643/t vs US$8,445/t yesterday

Aluminium US$ 2,289/t vs US$2,224/t yesterday

Nickel US$ 23,324/t vs US$22,560/t yesterday

Zinc US$ 2,510/t vs US$2,443/t yesterday

Lead US$ 2,113/t vs US$2,114/t yesterday

Tin US$ 26,762/t vs US$26,550/t yesterday

Energy:

Oil US$75.7/bbl vs US$73.4/bbl yesterday

• Crude oil prices strengthened on positive industrial data from China boosting hopes for early signs of demand growth. European energy prices remain volatile due to Norwegian outages.
• US natural gas prices rose as the EIA storage report detailed an 84bcf build to 2,634bcf last week (vs 97bcf expected), with storage levels now 26.5% above last year and 15.5% above the 5-year average.
• The EIA also reported that global trade in liquefied natural gas (LNG) increased by 2.6bcf y/y to average 51.7bcf/d, as the US became the world’s largest LNG exporter for the first time in 2022. Japan regained its status as the world’s largest LNG importer, averaging 9.5bcf/d, with Europe growing 65% to average 16.5bcf/d.

Natural Gas US$2.569/mmbtu vs US$2.331/mmbtu yesterday

Uranium UXC US$57.50/lb vs US$55.50/lb yesterday

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$112.9/t vs US$113.4/t

Chinese steel rebar 25mm US$531.3/t vs US$530.2/t

Thermal coal (1st year forward cif ARA) US$113.5/t vs US$107.0/t

Thermal coal swap Australia FOB US$137.0/t vs US$136.0/t

Coking coal swap Australia FOB US$220.0/t vs US$220.0/t

Other:  

Cobalt LME 3m US$29,525/t vs US$29,525/t

NdPr Rare Earth Oxide (China) US$70,027/t vs US$69,945/t

Lithium carbonate 99% (China) US$42,701/t vs US$42,651/t

China Spodumene Li2O 6%min CIF US$4,090/t vs US$4,090/t

Ferro-Manganese European Mn78% min US$1,259/t vs US$1,257/t

China Tungsten APT 88.5% FOB US$320/mtu vs US$320/mtu

China Graphite Flake -194 FOB US$740/t vs US$740/t

Europe Vanadium Pentoxide 98% 7.1/lb vs US$7.1/lb

Europe Ferro-Vanadium 80% 31.75/kg vs US$31.75/kg

China Ilmenite Concentrate TiO2 US$308/t vs US$308/t

Spot CO2 Emissions EUA Price US$97.2/t vs US$93.2/t

Brazil Potash CFR Granular Spot US$340.0/t vs US$340.0/t

Company News

Delta Lithium (DLI AU) A$0.74, Mkt cap A$335m – Japanese conglomerate invests $46.4m to advance Delta’s Australian pegmatite projects

• An Australian subsidy of Idemitsu Kosan, a $9bn Japanese conglomerate, has invested A$46.4m in Delta Lithium through an equity placing.
• The shares were issued at a 7.5% premium to 10-day VWAP.
• Idemitsu now holds 15% of the issued share capital of Delta.
• Delta holds the Mt Ida and Yinnetharra lithium projects.
• Funds will be used for exploration and resource drilling at Yinnetharra and infrastructure upgrades at Mt Ida, with feasibility studies in progress at both projects.
• Japan announced today that it is set to give Toyota $841m via subsidies to boost domestic EV battery production.

Conclusion: The deal highlights the sustained international appetite for hard-rock lithium projects, and we are encouraged to see well-capitalised Japanese conglomerates moving upstream in the lithium supply chain.

First Quantum Minerals (FM CN) – C$33.3, Mkt cap C$23bn – Rumours of informal takeover offer from Barrick

• Bloomberg reports First Quantum has rejected an informal takeover offer from Barrick Gold.
• First Quantum shares rallied 12% yesterday on the back of the news.
• Barrick is supposedly looking to increase its exposure to copper through the acquisition.
• Both companies have declined to comment on the discussions.
• Mark Bristow stated earlier this year that Barrick sees ‘the central African copper belt as offering significant opportunity for our copper initiative and the new business-friendly government there is a breath of fresh air.’
• He followed up by stating that Barrick ‘would consider ‘further opportunities which meet our investment filters and leverage our established in-country investment base.’

Conclusion: We do not feel there is substantial value to be made out of the combination of Barrick and First Quantum Minerals. We see the companies as culturally distinct and we reckon First Quantum investors will do better to hold onto their stock.

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 – John.Meyer@spangel.co.uk – 0203 470 0490

Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484

Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk – 0203 470 0474 

Sales

Richard Parlons –Richard.Parlons@spangel.co.uk – 0203 470 0472

Abigail Wayne – Abigail.Wayne@spangel.co.uk – 0203 470 0534

Rob Rees – Rob.Rees@spangel.co.uk – 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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