SP Angel Morning View -Today’s Market View, Friday 23rd June 2023

EU growth pulls back as higher borrowing costs starts to weigh on consumers

MiFID II exempt information – see disclaimer below

Phoenix Copper* (PXC LN) – Extension of Loan Facility

Siemens Energy (ENR 1N) – Siemens Energy issues profit warning over quality problems with wind turbine business

Gold – $1,913/oz – Price continues to suffer as Powell emphasises need for further rate hikes

• Gold is languishing near three-month lows, whilst silver is set for its worst week in eight months.
• Powell testified to Congress again yesterday, calling for potentially two more rate hikes this year and dismissing expectations/hopes of a cut.
• Short-duration treasury yields have climbed to their highest since March amid the SVB crisis, although the 10-year yield has eased from highs made on the 21^st of May.
• Gold’s support will come from signs of weakness in the US economy, so US jobless claims will likely take centre stage going forward as inflationary pressures ease.
• Retail traders are losing confidence in the gold trade as prices ease, with ETFs selling over 174koz yesterday, the most in three months.

Copper eases from six-week highs as inventories hover around multi-decade lows

• Copper prices jumped 1.3% to $8,675/t before paring gains to $8,496/t.
• Inventory levels continue to slide, with LME warehouses nearing levels of October 2021 when copper saw a supply squeeze pushing prices over $10,000/t.
• Copper warrants have fallen 19,175t recently to 30,125t to lowest level since October 2021.
• The move coincided with a front-page article in Chinese state-media calling for further stimulus.
• The pullback followed a strengthening dollar on Powell and Fed hawkishness.
• Zinc down 2.9%, lead down 1% and nickel down 8.3% on the week. 

Ford-SK On venture to receive $9.2b US loan for battery plants

• The US Department of Energy (DoE) will lend the Ford-SK On joint venture $9.2b to help it build three battery plants in Tennessee and Kentucky.
• When built, the three plants will produce 120GWh a year.
• The loan will be the biggest amount awarded by the government’s Advanced Technology Vehicles Manufacturing program.
• Ford and SK announced in 2021 they would invest $11.4b to build a F-150 EV assembly plant and three battery plants in the US with Ford investing $7b.

Shipping – Drewry’s World Container Index drops 3.5% this week to $1,53.75 having lost 600pts this year

• The Drewry’s composite index is down 80% since September 2021
• Japanese container exports have collapsed 25.8% yoy in May to 45,523 TEUs

Panama canal – Worst drought in century restricts shipping through the Panama canal.

• The canal operators are restricting the depth of water in the canal to reduce water consumption along the 51-mile canal.
• Panama’s rainy season typically starts in May and runs through to December with this year’s El Niño is not expected to be particularly unusual.
• The canal has reduced draft to 14.4m from 15m previously.

Economics

US – Initial weekly jobless claims were little changed from the previous week with the less volatile 4w average coming in above late pre-pandemic years suggesting tight market may be easing.

• Initial Jobless Claims (‘000): 264 v 264 (revised from 262) previous week and 259 est.
• Chicago Fed national activity index fell -0.15 in May vs 0.14 in April
• Existing home sales rose 0.2% to 4.3m units in May from -3.2% to 4.29m in April
• Kansas City Fed manufacturing index collapsed to -12 in June vs -2 in May

EU (UK + eurozone) – Flash consumer confidence index -16.1 in June vs -17.4 in May

• Drought conditions have lowered water levels in the Rhine reducing shipping capacity

Eurozone – Business output growth nearly stalled in June with the Preliminary Composite PMI hitting the lowest level in five months.

• New orders dropped for the first time since January, employment growth slowed and future output expectations also weakened.
• On a positive side, inflationary pressures abated with final goods and services prices climbing at the weakest rate since Mar/21.
• Although, inflation in the services sector remained persistent feed into strong regional core inflation measures.
• Manufacturing PMI: 43.6 v 44.8 May and 44.8 est.
• Services PMI: 52.4 v 55.1 May and 54.5 est.
• Composite PMI: 50.3 v 52.8 May and 52.5 est.

Germany – Economic growth slowed down in June following robust expansions recorded in the three months to May as a severe manufacturing downturn was accompanied by a pullback in expansion in the services sector.

• Separately, property prices are reported to have dropped 6.8%yoy in Q1/23 on the back of higher borrowing costs and weaker economic outlook.
• Although, signs are the rate of decline is slowing down with prices reported to have dropped 3.1%qoq compared to a 4.9%qoq decline in Q4/22.
• Manufacturing PMI: 41.0 v 43.2 May and 43.5 est.
• Services PMI: 54.1 v 57.2 May and 56.3 est.
• Composite PMI: 50.8 v 53.9 May and 53.3 est.

France – Growth slumps at the end of Q2/23 with the headline Composite PMI dropping sub 50 mark and reaching the lowest level since the start of 2021.

• A sharp drop in the services sector was mainly the reason for the Composite index to slipping into a contractionary area with sector’s companies cite inflation and challenging financial conditions as reasons that led to lower business activity.
• Manufacturing PMI: 45.5 v 45.7 May and 45.3 est.
• Services PMI: 48.0 v 52.5 May and 52.1 est.
• Composite PMI: 47.3 v 51.2 May and 51.0 est.
• Business confidence rose to 101 in June vs 99 in May
• Business climate indicator steady at 100.

Italy – Italy issues orange heatwave warning alert for 14 cities as temperatures expected to rise to > 40°C

Norway – raises rates by 50bp to 3.75%

UK – A series of economic data released this morning show consumer spending remains depressed with growth pulling back as people feel the pressure from higher borrowing costs and persistently strong inflation.

• Recognising stronger than expected inflation, the central bank announced a higher than forecast rate hike taking benchmark rates up by 50bp to 5.0%.
• Growth in the services sector that was a core driver in the spring is now seen slowing down.
• While, labour market remains resilient with jobs growth accelerating in June as companies in the service sector continued to fill vacancies.
• The PMI report concludes that further monetary tightening measures “add further to the likelihood of a recession later in the year, which is looking increasingly inevitable as collateral damage in the fight against inflation”.
• GfK Consumer Confidence: -24 v -27 May and -26 est.
• Retail Sales (%mom): 0.3 v 0.5 April and -0.2 est.
• Retail Sales ex Auto Fuel (%mom): 0.1  v 0.7 April and -0.3 est.
• Manufacturing PMI: 46.2 v 47.1 May and 46.8 est.
• Services PMI: 53.7 v 55.2 May and 54.8 est.
• Composite PMI: 52.8 v 54.0 May and 53.6 est.

Andrew Bailey, the Plank of England raised rates by 0.5% to 5%

• Surely there are other ways of slowing the economy other than hitting home-owning mortgage holders who are probably not splashing out in the current environment?
• Did the Treasury consider cutting VAT which would reduce inflation in the short term while providing some relief from higher prices?
• Remember around 50% of all houses in London are bought with cash and no mortgage so raising interest rates does not affect this group.

Australia – Aboriginal Cultural Heritage Act 2021 – comes into effect from 1 July, 2023

• Miners and explorers will need to be careful to avoid any historic aboriginal sites
• Historic sites should be avoided else delays in permitting will occour.

Zambia agrees $6.3bn debt restructuring deal following 2020 default

• Zambia has reached an agreement with its creditors, primarily China, to restructure $6.3bn worth of its national debt.
• Zambia’s debt will be restructured over 20 years, with a three-year grace period when only interest payments are due.
• The deal has been facilitated by other 20 nations looking to support debt relief from debt-laden emerging markets.
• Macron’s visit to Beijing has been credited as a catalyst for progress in the negotiations.
• Zambia continues to improve as an investment-friendly jurisdiction for the mining sector, with today’s announcement a testament to creditor’s faith in Hakainde Hichilema, who is looking to triple the Country’s copper production by the end of the decade.
• This will come as good news to Arc Minerals*, Tertiary Minerals* and a host of international copper explorers, developers and miners looking to build on the country’s wealth of copper mineralisation.

*SP Angel acts as Nomad and Broker to Tertiary Minerals *SP Angel acts as Nomad and broker. An SP Angel analyst has driven across the Zambian copper belt, flying the British flag, to visit Arc’s licenses West of Solwezi.

Indonesia – Central bank leaves rates unchanged at 5.75%

Turkey – Raises central bank interest rates by 6.5% to 15%

Covid – More than 65m people in the world may have long Covid (Nature reviews Microbiology)

• The estimate is derived from the 651m documented cases and a global rate of 10% infected people.
• Researchers reckon covid immunity lasts at least a year after infection and covid vaccinations. We are hoping immunity will last a lot longer than that.
• Interestingly, immunity appears to last longer in people who have had both the infection and vaccinations.
• Thankfully the Trippledemic of Covid, Flu and RSV appears to have peaked

Currencies

US$1.0879/eur vs 1.0913/eur yesterday. Yen 143.02/$ vs 142.00/$. SAr 18.637/$ vs 18.413/$. $1.271/gbp vs $1.276/gbp. 0.670/aud vs 0.677/aud. CNY 7.180/$ vs 7.194/$.

Dollar Index 102.90 vs 102.65 yesterday..

Commodity News

Precious metals:

Gold US$1,915/oz vs US$1,936/oz yesterday

Gold ETFs 93.4moz vs 93.6moz yesterday

Platinum US$926/oz vs US$960/oz yesterday

Palladium US$1,292/oz vs US$1,364/oz yesterday

Silver US$22.29/oz vs US$23.09/oz yesterday

Rhodium US$5,600/oz vs US$5,900/oz yesterday

Base metals:

Copper US$ 8,496/t vs US$8,567/t yesterday

Aluminium US$ 2,191/t vs US$2,221/t yesterday

Nickel US$ 21,070/t vs US$22,100/t yesterday

Zinc US$ 2,380/t vs US$2,385/t yesterday

Lead US$ 2,142/t vs US$2,145/t yesterday

Tin US$ 27,050/t vs US$26,905/t yesterday

Energy:

Oil US$73.4/bbl vs US$76.3/bbl yesterday

Natural Gas US$2.593/mmbtu vs US$2.500/mmbtu yesterday

Uranium UXC US$56.50/lb vs US$56.50/lb yesterday

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$113.5/t vs US$114.3/t

Chinese steel rebar 25mm US$531.7/t vs US$530.6/t

Thermal coal (1st year forward cif ARA) US$117.0/t vs US$116.5/t

Thermal coal swap Australia FOB US$141.0/t vs US$135.0/t

Coking coal swap Australia FOB US$237.0/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$67,971/t vs US$68,248/t

Lithium carbonate 99% (China) US$42,412/t vs US$42,325/t

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

Ferro-Manganese European Mn78% min US$1,213/t vs US$1,217/t

China Tungsten APT 88.5% FOB US$315/mtu vs US$315/mtu

China Graphite Flake -194 FOB US$735/t vs US$735/t

Europe Vanadium Pentoxide 98% 7.3/lb vs US$7.3/lb

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

China Ilmenite Concentrate TiO2 US$306/t vs US$305/t

Spot CO2 Emissions EUA Price US$98.6/t vs US$99.2/t

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

Battery News

VW to use SiC chips in their EVs for first time this year

• According to German media, the automaker will use silicon carbide (SiC) chips in their EVs this year
• Earlier in the year Tesla announced they were developing a drivetrain that would use 75% less SiC chips which left the industry reeling.
• The chips will initially only be used in the premium segment, the report said citing Volkswagen, adding that a new model incorporating the new SiC-based semiconductors will be unveiled later this year.

Company News

Phoenix Copper* (PXC LN) 26p, Mkt Cap £32m – Extension of Loan Facility

(Phoenix holds 80% of the Empire mining property in Idaho)

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• Phoenix have extended their $2m loan facility (announced 24^th March 2023) for a further three months after the initial three month term.
• The extended period is also at a fixed 4% coupon.
• The original facility was agreed to strengthen dollar operational working capital in line with the 2023 exploration season.
• If Phoenix decides to extend the term beyond the extended initial term, Riverfort Global will be able to convert any principal into PXC ordinary shares, at a price equal to a 10% discount to PXC’s lowest VWAP 10 days before conversion.
• Phoenix is in the process of placing $80m worth of corporate bonds to fund the development of the Empire project.

*SP Angel acts as nomad to Phoenix Copper

Siemens Energy (ENR 1N) Eur16/s, Mkt cap Eur18.5bn – Siemens Energy issues profit warning over quality problems with wind turbine business

• Siemens Energy has withdrawn is profit outlook for the year following a review of its wind turbine business.
• Faulty components at its Siemens Gamesa subsidiary were discovered in January and have hit the company with charges worth of EUR500m, anticipating this to rise to over a billion.
• Rotor blades and bearings are seemingly the primary issue, although design issues may be at fault too.
• Any fall in the production of offshore wind turbines will slow demand for rare earths and related metals

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 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.

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