SP Angel Morning View -Today’s Market View, Friday 1st December 2023

Chinese manufacturing PMI surprises on the upside with markets awaiting Powell’s speech later today

MiFID II exempt information – see disclaimer below

Chaarat Gold (CGH LN) – Kyrgyz Republic MOU

Dundee Precious Metals (DPM CN) – Reserve increase and mine life extension at Chelopech, Bulgaria

Lithium prices extend slide as banks point to 2024 surplus on rising Australian spodumene supply

• Spodumene prices fell to $1,460/t and LCE prices in China slumped to $14,630/t (down c.75% this year)
• UBS has flipped bearish lithium, joining Goldman Sachs and JP Morgan, expecting supply to increase by 40% in 2025.
• This surplus is expected to stem from Australia and Latin America, where output is expected to increase 22% and 29% respectively.
• UBS suggests 2024 April contracts are currently being priced at $1,290/t, or c. $12,900/t LCE.
• End users continue to destock and Shanghai Metals Market, although Mysteel reports some Jiangxi players are cutting production into this pricing environment.
• Jiangxi lithium refiners are reportedly suffering negative margins at current prices.
• DSO shipments from Africa are reportedly slowing on weak economics. (SMM)
• CATL is expected to fuel an increase production in China by 40% next year, fuelled by a major Jiangxi project coming online.
• End users seem to be waiting patiently for the downtrend to continue before restocking.
• We expect M&A activity to continue with equities following weakening spot prices lower.
• Pilbara held A$3bn in cash as of last reporting period.
• EV sales are expected to continue to grow at levels of 25% to 9.44m units next year, albeit down from 31% this year and 90% in 2022. (CITIC)

Gold holds steady as inflation data meets expectations and labour market continues to slow

• Gold prices are holding around $2,046, despite a slight reversal in the dollar.
• PCE data, the Fed’s primary inflation gauge, came inline with expectations, as deflation continues.
• US continuing claims came in higher than expected, with the labour market showing further signs of slowdown.
• The 10-year sold off slightly yesterday, with yields rising above 4.3% having hit mid-September lows.
• Manufacturing PMIs will be in focus today as markets look for clues over growth rates going forward.

Iron ore resumes rally as steel sector picks up from slump

• Iron ore prices are climbing back above $130/t, having risen 20% in November.
• The climb comes despite data yesterday showing combined contract sales fell 30% in November yoy.
• China’s property sector continues to suffer from a contraction triggered by Xi Jinping’s effort to delever in 2021.
• However, the past month has offered signs of optimism for the steel industry.
• Steel prices are rising on seasonally low inventories and weak production as margins suffer.
• Gross profits at steel mills in China in Q3 fell 34% yoy. (Mysteel)
• Steel demand is expected to continue to rise from the wind, solar and automotive sectors in 2024.
• Analysts expect a period of restocking following a sustained run of inventory depletion.

Copper extends rally as deficit hopes rise in 2024 following Panama disruption

• Copper extended gains to an 11-week high yesterday at $8,550/t.
• The move has followed a combination of the shutdown of First Quantum’s Cobre Panama mine earlier this week (1.5% of global supply) and a weaker dollar.
• Yangshan copper premiums have weakened slightly, however.
• China has ramped up buying on a rise in the Yuan, following a sustained period of weakness which limited importing capability.
• Chile and Peru are seeing supply disruptions too, with Las Bambas facing more strikes.
• Lower TCRC charges are pointing to expected shortfalls in concentrate supply, fuelled by China’s massive CAPEX investment in smelter capacity this year.
• Copper inventories are declining in Shanghai as import premiums increase, increasing domestic demand.

LME inventories rise but remain very low relative to historical levels with copper at 0.77% of global production

• Much of the rise in copper stock is down to undeliverable Russian metal with >80% said to be of Russian origin
• SHFE inventories are lower than the LME at 0.12% of global production.
• SHFE copper stocks fell 27% this week to 26,149t indicating to us that copper metal really is in short supply even if a lack of strong buying activity has held prices back
• Any positive change in sentiment and liquidity will likely cause copper prices to swing higher.
• The UK High Court ruled the LME acted legally when it cancelled nickel trades and suspended the market on 22^nd March.
• The principal is that the market move passed the ‘Elephant test’ which applies when there are no specific rules defining an orderly or disorderly market.
• With the ‘Elephant test’ it is a case of “knowing one when you see one” according to the judges.
• We note LME Trading Rule 22, not only permits the LME to “temporarily halt or constrain trading” in a disorderly market but also to “cancel, vary or correct any Agreed Trade or Contract” where the exchange “considers it appropriate” (Reuters).
• We also see UK Courts as taking the view that it’s the right of the owner of ‘The Market’ to set the rules and even make them up when they so choose – this may prove to be a dangerous precedent with the HKEX owing the LME exchange.

Economics

US – Inflation pulled back in October with core measure coming in broadly in line with expectations.

• The news is a welcome data point for the Fed that is maintaining tight monetary policy to bring inflation down to 2% levels.
• Fed Chairman Powell will be speaking later today and may provide some commentary on latest market developments with investors now fully pricing in the first rate cut by April next year.
• Weekly Jobless Claims (‘000): 218 v 211 previous week (revised from 209) and 218 est.
• PCE (%mom): 0.0 v 0.4 September and 0.1 est.
• PCE (%yoy): 3.0 v 3.4 September and 3.1 est.
• Core PCE (%mom): 0.2 v 0.3 September and 0.2 est.
• Core PCE (%yoy): 3.5 v 3.7 September and 3.5 est.
• CB consumer confidence 102 for November vs 99.1 in Q2),
• Dallas Fed manufacturing index -19.9 November vs -19.2 in October
• Richmond Fed manufacturing index -5 November vs 3 in October
• PCE price index 0% in October vs 0.4% in September and 3% yoy in October vs 3.4% yoy in September

China – Private manufacturing survey sees the sector returning to growth at the fastest pace in three months in November helped by domestic demand.

• New business orders continued to expand posting the strongest reading since June, although, overseas demand was weak with new export orders registering a contraction for thee fifth straight month.
• Manufacturing related employment continued to fall, albeit, at a reduced pace.
• Inflation pressures remained subdued with final goods prices broadly unchanged on the month.
• Caixin Manufacturing PMI: 50.7 v 49.5 October and 49.6 est.
• Zhongzhi Enterprise Group companies continue to threaten financial stability with ~US$41bn of net liabilities on US$28bn of assets and that’s before the assets have had a fire-sale writedown
• Evergrande with >US$300bn of liabilities continues to work to ward off its financial collapse. The company is expected to present a revised restructuring on Monday for offshore creditors having offered a stake in its EV subsidiary and a haircut on their bonds.

Israel – Israeli military resumed fighting against Hamas in Gaza following a week long ceasefire as talks to extend it to an eighth day did not come through.

• Temporary pause allowed for the release of about 100 Israeli women and children and foreigners held hostage by Hamas in return for around 240 Palestinian prisoners freed from Israeli jails.
• PM Netanyahu accused Hamas of failing to meet its commitment to release “all the kidnapped women” and of launching rockets into Israel.

Currencies

US$1.0894/eur vs 1.0943/eur previous. Yen 148.06/$ vs 147.06/$. SAr 18.796/$ vs 18.731/$. $1.265/gbp vs $1.269/gbp. 0.662/aud vs 0.663/aud. CNY 7.144/$ vs 7.131/$.

Dollar Index 103.38 vs 102.91 previous.

Commodity News

Precious metals:

Gold US$2,043/oz vs US$2,043/oz previous

Gold ETFs 86.1moz vs 86.2moz previous

Platinum US$933/oz vs US$933/oz previous

Palladium US$1,013/oz vs US$1,013/oz previous

Silver US$25.30/oz vs US$25/oz previous

Rhodium US$4,450/oz vs US$4,500/oz previous

Base metals:

Copper US$ 8,495/t vs US$8,440/t previous

Aluminium US$ 2,195/t vs US$2,215/t previous

Nickel US$ 16,685/t vs US$16,835/t previous

Zinc US$ 2,458/t vs US$2,489/t previous

Lead US$ 2,114/t vs US$2,134/t previous

Tin US$ 23,595/t vs US$23,400/t previous

Energy:

Oil US$80.7/bbl vs US$83.9/bbl previous

• Crude oil prices slumped in response to the announced OPEC+ voluntary cuts of 2.2mb/d during 1Q24, which appear to be more ambiguous and less significant than market expectations.
• Brazil announced it would join the cooperation charter of the OPEC+ oil alliance in January 2024, although we note that the charter does not bind its members to making production cuts.
• US natural gas prices fell as the EIA storage report detailed an unexpected 10bcf w/w build to 3,836bcf last week (vs -13bcf draw exp), with storage levels now 9.8% above last year and 8.6% above the 5-year average.
• Media reports that Occidental Petroleum is in talks to buy US private CrownRock for an enterprise value of over $10bn, which would add 86,000 net acres in the northern part of the Midland Basin, Texas.

Natural Gas €43.3/MWh vs €40.0/MWh previous

Uranium UXC US$81.00/lb vs US$80.25/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$130.5/t vs US$129.7/t

Chinese steel rebar 25mm US$576.2/t vs US$575.1/t

Thermal coal (1st year forward cif ARA) US$133.0/t vs US$107.8/t

Thermal coal swap Australia FOB US$133.3/t vs US$127.9/t

Coking coal swap Australia FOB US$322.0/t vs US$322.0/t

Other:

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

NdPr Rare Earth Oxide (China) US$67,554/t vs US$68,009/t

Lithium carbonate 99% (China) US$14,631/t vs US$15,074/t

China Spodumene Li2O 6%min CIF US$1,460/t vs US$1,480/t

Ferro-Manganese European Mn78% min US$1,046/t vs US$1,053/t

China Tungsten APT 88.5% FOB US$300/mtu vs US$300/mtu

China Graphite Flake -194 FOB US$620/t vs US$620/t

Europe Vanadium Pentoxide 98% 6.1/lb vs US$6.1/lb

Europe Ferro-Vanadium 80% 25.25/kg vs US$25.25/kg

China Ilmenite Concentrate TiO2 US$314/t vs US$315/t

Spot CO2 Emissions EUA Price US$75.9/t vs US$76.4/t

Brazil Potash CFR Granular Spot US$325.0/t vs US$325.0/t

EV & Battery news

Tesla Cybertruck launches with prices from $61,000

• There will be three models available, the Rear-Wheel Drive, the All-Wheel Drive and the ‘Cyberbeast’.
• The cheapest of three models will cost $61,000, over 50% more than what Musk touted in 2019, and will start shipping in 2025. The other models will be available next year.
• After the announcement in 2019 Tesla took $100 deposits for the Cybertruck, drawing over 1m reservations. Deposits to reserve a Cybertruck are now $250.
• The Cybertruck disappoints on range. The longest-range version can drive 340mi and has an optional range booster that takes up 1/3 of the bed space to increase range to 470mi. In real-world testing, Tesla vehicles almost always fall 10-20% short.
• The Chevrolet Silverado often exceeds its 450mi rated range.
• The Cyberbeast can do 0-60 in 2.6s and has a towing capacity of 11,000lbs.

BMW and Mercedes to work on charging network in China

• BMW will work with Mercedes-Benz to build a charging network in China, a rare collaboration between the two German luxury carmakers.
• The joint venture plans to build at least 1,000 supercharging stations in China by the end of 2026, providing about 7,000 supercharging piles, BMW said in an announcement.
• The charging network will be open to the public, although BMW and Mercedes-Benz customers will have access to a premium service that includes online booking and a few other features.
• BMW launched a supercharging station program in August, with charging piles supporting up to 600kW of charging power.
• China currently has 2.525m public charging piles across the country.

Company News

Chaarat Gold (CGH LN) 7.2p, Mkt Cap £52m – Kyrgyz Republic MOU

• The Company signed an MOU with the government of Kyrgyz Republic laying out the framework for a cooperation regarding development of Tulkubash and Kyzyltash gold projects.
• The MOU further reinforces the Stabilisation Agreement signed in 2019.
• The government confirmed its commitment to facilitate the development of projects and assist in attracting investment into the country.
• The team is expecting to finalise funding of the Tulkubash project by the end of 1Q24.

Dundee Precious Metals (DPM CN) C$10, Mkt Cap CS1.8bn – Reserve increase and mine life extension at Chelopech, Bulgaria

• Dundee Precious Metals provides an updated MRE for its Chelopech mine in Bulgaria.
• The Company has approved an updated LOM plan that adds 128koz Au and 9mlb of recovered copper between 2024-2032.
• Recoveries of gold is expected to increase 5% on an equal increase in average LOM grade and average copper grades expected to improve by 3%.
• The updated Reserves stand at 17.6mt @ 2.77g/t Au, 8.6g/t Ag, 0.79% Cu for 1.6moz Au, 4.9moz Ag, 3005kt Cu.
• Dundee is continuing to explore for both brownfield and greenfield developments.
• Management believes the Sharlo Dere West and Sharlo Dere prospects, within the Chelopech concession, have potential to add mine life extensions.
• The Company is targeting an MRE for Sharlo Dere to be included in the next Chelopech MRE update.

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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