Cobalt price boost as electric vehicle loadings surge

After hitting near decade highs in March last year within a stone’s throw of $100,000 per tonne, cobalt prices fell off a cliff.

Glencore’s decision last month to mothball the world’s largest cobalt mine breathed new life into the market, but so far the response has been relatively muted with the metal still trading in the mid-$30,000s.

Even at these levels, cobalt is a pricy raw material for electric vehicle manufacturers and battery makers have been working hard to find a substitute for cobalt, or at least reduce the required loading.

First generation Nickel-Cobalt-Manganese (NCM111) batteries had a chemical composition of 1 part nickel, 1 part cobalt and 1 part manganese. NCM batteries with lower cobalt content (622, 523 chemistries) are quickly becoming the standard in China, which is responsible for half the world’s electric car sales, and a much greater proportion of EV battery manufacture.

The industry is now fast moving towards even higher nickel content at the expense of cobalt and manganese with the market share of NCM811 increasing rapidly although it still only represents a tiny portion.

Tesla is a proponent of nickel-cobalt-aluminium (NCA) technology which requires less than a third the amount of cobalt and the EV pioneer says the batteries in its latest model already match NCM811.

A new report by Adamas Intelligence suggest despite the ongoing thrifting of cobalt in batteries deployed by EV manufacturers, the per vehicle loading of cobalt jumped by 45% in the first half of this year compared to H1 2018.

The Toronto-based research company, which tracks EV registrations and battery chemistries in more than 80 countries says cobalt deployed per vehicle has gone from 2.1 kg in 2018 H1 to 3.1 kg in 2019 H1. 

Strong battery electric vehicle sales relative to hybrids, plus the Chinese industry’s growing adoption of NCM cathode chemistries in place of lithium ion phosphate (LFP) was behind the increase says Adamas.

Overall in 2019 H1, 7,200 tonnes of battery-grade cobalt were deployed globally in batteries of all newly-sold passenger EVs combined, an increase of 81% over last year according to the report.

Source: Benchmark Mineral Intelligence Cobalt Price Assessment August 2019

Palladium price peaks at new record high, rhodium roaring

Palladium hit a fresh all-time high on Friday on persistent worries about supply from South Africa and prospects of a pickup in demand in China.

Nymex Palladium futures gained 1.5% to $1,636.60 an ounce in New York in morning trade before easing back. Palladium’s gains for the year now top 40% or $477 per ounce.

The threat of labour unrest in South Africa, which together with Russia are responsible for more than 80% of global platinum group metal output, loomed large again on Friday after the militant union Amcu re-elected its firebrand leader.

Amcu rose to prominence in 2012 when clashes between police and striking workers at the Marikana mine in the African nation’s prolific platinum belt left 34 dead.

Any signs of stimulus from the Chinese auto market could lead to additional upside price potential.

BMO Capital Markets

More than three-quarters of palladium ends up in catalytic converters for gasoline engines and the rise in the precious metal comes despite a severe slowdown in vehicle sales around the world.

Top consumer China has seen sales drop for 14 out of the last 15 months and in August 9.9% fewer cars and truck rolled off lots compared to last year. Annual sales in no 2 market US is also expected to come in below 2018’s total.

What has lifted palladium is greater average loadings per vehicle as more stringent emissions standards are implemented in China and Europe. BMO Capital Markets in a recent note said “any signs of stimulus from the Chinese auto market could lead to additional upside price potential.”

Robust rhodium

Sister metal rhodium is also on a roll, more than doubling in price so far this year. Rhodium, also used mainly in autocatalysts, exchanged hands at $5,400 an ounce on Friday in New York, the highest in 11 years.

Due to rarity, the small size of the market and concentrated supply prices are typically volatile.

Rhodium (and sister metal ruthenium) stands out when it comes to price swings – rhodium touched $10,025 an ounce just before the 2008 financial crisis hit, but would drop 90% before the end of that tumultuous year.

Platinum was trading flat on Friday at $945.10 after briefly scaling $1,000 an ounce two weeks ago. Given the historically weak price, some investors are using the opportunity to stock up on the metal.

ETF holdings of platinum has expanded rapidly this year, reaching 3.3m ounce last week, up 38% or 916,000 ounces in 2019.

In contrast, palladium ETF vaults have been emptying as investors lock in some of the gains. Palladium-backed ETF holdings total 655,000 ounces, down 120,000 ounces year to date.

Iron ore price plunges, “panic” selling of coking coal

Benchmark iron ore prices sank on Thursday as doubts about the efficacy of Chinese economic stimulus resurfaced, while coking coal prices plummeted amid oversupply and import restrictions imposed by Beijing.

The Chinese import price of 62% Fe content ore fell 3.3% on Thursday to $93.23 per dry metric tonne according to Fastmarkets MB, after coming close to triple digits last week.

“What has happened has definitely irked policymakers in China. That puts a lot of pressure on coal imports for the end of the year.”

Vivek Dhar, commodities analyst for Commonwealth Bank

On the Dalian Commodities Exchange iron ore futures closed down 4.6% at 638 yuan (just under $90 a tonne) and Shanghai rebar – the world’s most traded steel contract – lost more than 3%.

The Australian export price of metallurgical coal (FOB hard coking coal Fastmarkets MB) used in steelmaking tanked 7% to $122.50 a tonne. That’s down almost $70 a tonne compared to the start of the year.

Fastmarkets MB in a market report says the availability of ample cargoes of lower quality seaborne coking coal and a lengthy, uncertain customs clearing process “have raised the possibility of traders engaging in panic selling”:

“There seems to be some panic selling among traders who are concerned about a further drop in demand with the import quotas at Chinese ports nearly exhausted,” a buyer source in the country said.

Import volumes remain strong, for now

China’s iron ore purchases in August totalled just under 95m tonnes, up 4.2% from July and 6.2% from last year, customs data showed, marking the highest level of imports since January 2018.

Iron ore imports are set to reach another record in 2019, with annualized shipments running at 1.12 billion tonnes, despite the fall in output following the deadly dam burst in Brazil in January.

Beijing’s imposition of import quotas and onerous customs procedures was aimed at shoring up local coal miners, but to date it has had little impact.

The country imported 220m tonnes of coal (steam and coking coal) during the first eight months of the year compared to 280m tonnes for all of 2018.

Montel quotes Vivek Dhar, commodities analyst for Commonwealth Bank in Melbourne as saying higher prices for domestically-produced coal is behind the strong import numbers, but Beijing is keen to limit imports to around last year’s volume:

“What has happened has definitely irked policymakers in China,” said Dhar. “That puts a lot of pressure on coal imports for the end of the year.”

At least two northern ports – Qinzhou and Fangcheng – had already imposed additional customs delays, he said, with a chilling effect on imports likely to gain in the coming months. 

CHARTS: Mining is riding out US-China trade war

A new report by BMO Global Commodities Research suggest that while overall Chinese trade is struggling if you look beyond headline figures, mining firms have few reasons to worry.

US trade is in freefall and total Chinese imports may be down 5% compared to last year but, says BMO, imports of raw materials and ores “continue their seemingly perpetual upward trend.”

China’s iron ore purchases in August totalled just under 95m tonnes, up 4.2% from July and 6.2% from last year customs data showed, marking the highest level of imports since January 2018.

With both crude oil imports and refined product exports both rising oil is increasingly following metal’s path in this regard.

Iron ore imports are set to reach another record in 2019, with annualized shipments running at 1.12 billion tonnes, despite the fall in output following the deadly dam burst in Brazil in January.

Similarly China’s imports of copper concentrate are up 10.8% in the first eight months of the year compared to same period in 2018. Unrefined copper imports are running at an annualized rate of 21.4 million tonnes, on course to handily beat 2018’s record 19.7 million tonnes. The strong performance come despite zero growth in global copper mine supply.

Imports of bauxite, the primary ore for manufacturing aluminium, are up by more than 30% year to date and and nickel ore shipments to China have expanded by some 15% in 2019.

BMO points out that even the coal trade is buoyant, despite the many import restrictions placed on the fuel by Beijing.

In our opinion, while the trade war has caused many problems for China, it has not shaken the overall commodity business model of importing raw materials, having enough process capacity and ideally exporting a small amount of finished product as an inflation hedge.

With this, Chinese sourcing of commodity raw materials remains highly strategic. Indeed, with both crude oil imports and refined product exports both rising oil is increasingly following metal’s path in this regard.

The 8 times since Black Monday stocks investors wish they’d held gold

Climbing higher on the back of safe haven buying, the price of gold camped out above $1,500 an ounce on Monday after the strike on Saudi oil infrastructure added further worries to already unnerved markets

A recent study by the World Gold Council, shows during times of stress on financial markets gold usually outperforms equities. In fact, the metal has done so during eight of the last nine shocks to financial markets starting with 1987’s Black Monday on Wall Street through to last December’s rout on US markets.

The WGC points out in a report looking at gold as a commodity investment, that the metal tends to find favour during good times but is also negatively correlated with other assets during so-called risk-off periods:

This dynamism reflects gold’s dual nature as both a consumer good and an investment. When economic conditions are benign, expenditure tends to increase on items such as jewellery or technological devices, and this works in gold’s favour.

During times of systemic risk, however, market participants seek high-quality, liquid assets that preserve capital and minimise losses. This can also benefit gold by boosting investment demand and driving up prices.

Last year stock markets suffered their worst performance since the Great Recession a decade ago, with almost all the selling happening in the final months of the year.

During the fourth quarter of 2018, the S&P 500 index of the largest US companies fell 14%, commodities fell 9%, but the price of gold rose 8%.

** The VIX is available only after January 1990. For events occurring prior to that date, annualised 30-day S&P 500 volatility is used as a proxy. Dates used: Black Monday: 9/1987-11/1987; LTCM: 8/1998; Dot-com: 3/2000-3/2001; September 11: 9/2001; 2002 recession: 3/2002-7/2002; Great recession: 10/2007-2/2009; Sovereign debt crisis I: 1/2010-6/2010; Sovereign debt crisis II: 2/2011-10/2011; 2018 Pullback 10/2018–12/2018. Commodities is the Bloomberg Commodity Index.

Chinese factory shocker gives copper price bulls another jolt

The price of copper dropped on Monday amid intensifying worries about China’s economic slowdown, particularly in manufacturing, vital to overall demand for the bellwether metal.

In afternoon trading in New York, copper for delivery in July was trading just off its low for the day of $2.638 a pound ($5,815 a tonne), down more than 2% on the day and wiping out any gains for 2019 in the process.

“Everything indicates that the price of copper will not improve next year.”

Octavio Araneda, CEO CODELCO

Trade worries have dogged copper price bulls for the better part of a year, but more recently weak data from China (and the US and Germany, the world’s top three consumers of industrial metals), has intensified the sell off.

Chinese manufacturing data for August released Monday was nothing short of dismal with the National Bureau of Statistics outlining a 4.4% rise in factory output which was well below forecasts and the lowest reading since February 2002.

The CEO of the world’s number one producer of copper, Chile’s Codelco, did not provide any solace to copper bulls, telling local media that prices will remain depressed through 2020, Reuters reports.

Recently installed chief executive Octavio Araneda, said: “Everything indicates that the price of copper will not improve next year. The trade war is difficult to predict,” adding that the state-owned company would instead seek to immediately boost production.

Canadian economy won’t feel impact of battery metal mining

Hardly three years ago expectations of a demand boom for battery materials used in electric vehicles (EVs) and energy storage reignited interest in the mining sector as the China-induced supercycle in commodities demand started levelling off.

Prices for lithium and cobalt soared (only to fall back again). Same for vanadium. Graphite and rare earth prices made a comeback. Nickel, where EV-related demand is still tiny, was caught up in the euphoria, and the primarily steelmaking metal is holding onto those gains and more.

Longer term mining’s bellwether metal – copper – may benefit the most and aluminum (on a dollar-basis a bigger industry than copper) will feel a sizeable impact.

A new study by Moody’s Investor Services expects “metals consumption for battery electric vehicles (BEVs) will rise sixfold from current levels, as EV penetration reaches 8% of total car sales (our base scenario) by the mid-2020s, and continues to rise rapidly in the second half of the next decade.

But on a country-wide basis the increased output of battery materials – specifically lithium, cobalt, nickel and copper – probably won’t be felt, at least not in the developed world.

According to the authors, of the top battery metals supplying countries, the economy of the Democratic Republic of the Congo could be utterly transformed, Chile and other developing nations would enjoy a significant boost, and Australia’s coffers would fill up nicely.

But, says Moody’s, among the top suppliers , Russia, Canada and China would remain largely untouched:

Given the sheer size of their economies and government budgets and relative diversification of economic activities, we expect Canada, China and Russia to be the least impacted by higher demand for BEV metals.

Future value estimates of metal production do not exceed 0.5% of 2018 nominal GDP, merchandise exports and general government revenue by 2030 (and would be smaller in relation to the 2030 size of these economies and their governments’ budgets).

Nevertheless, these countries will continue to contribute significantly to the supply of these metals indirectly, through companies investing domestically and overseas.

Source: Moody’s Investor Service – Shift to electric vehicles raising battery metals revenue; governance, infrastructure to shape realisation of potential

Three reasons gold price rally is over

Gold managed to trade back above $1,500 an ounce in afternoon dealings in New York on Wednesday, but a new report suggests that’s as good as it’s going to get.

Capital Economics in a note says all the drivers for the rally in the gold price – weakening global growth, safe haven demand and low interest rates – are now baked into the price.

The independent research house argues that gold will end the year around today’s levels and is set to drop by double digits in percentage terms in 2020 based on three factors:

Firstly, US Treasury yields are forecast to recover as “investors’ expectations for monetary easing are disappointed” and the increase in negative-yielding debt (now totalling some $16 trillion), particularly in Europe and Japan, is halted.

Away from paper markets, a third factor depressing prices in 2020 is gold trading at record highs in China, India and more than 70 other currencies

Capital Economics believes global economic growth will be soft next year, but is sanguine about the possibility of an outright recession “currently anticipated by the market.” As a result investor risk appetite should pick up, tarnishing gold’s reputation as shelter in a storm.

Away from paper markets, a third factor depressing prices in 2020 is gold trading at record highs in yuan and in rupee (and more than 70 other currencies). China and India is responsible for the bulk of global consumer purchases of the precious metal and higher import duties in the latter will only hurt demand further.

Source: Capital Economics

Capital Economics believes gold will decline to $1,350 an ounce by the end of next year. The decline in silver ($18.20 on Wednesday) will be steeper absent a major factor behind gold’s performance – central bank buying – with the metal down to $15 an ounce by end-2020.

Gold hit an intra-day high of $1,566 one week ago – a six-year peak – but a three-pronged attack by determined bears saw the metal suffering one of its worst falls in history last Thursday.

Not that there’s a shortage of bullish prediction for the gold price, most notably Citigroup which yesterday said $2,000 in the next year or two is a strong possibility.

That would constitute a record price in nominal dollar terms, but adjusted for inflation January 1980’s $850 an ounce remains the all-time high.

Iron ore prices rebound on spike in China imports

Benchmark iron ore prices spiked on Monday after trade data showed Chinese imports of the steelmaking raw material remain robust despite an economic slowdown in the top commodity consumer.

The Chinese import price of 62% Fe content ore jumped by 4.4% on Monday to $92.97 per dry metric tonne according to Fastmarkets MB.

“We remain cautious about iron ore prices going into September in light of the still-uncertain trade outlook, the general malaise still plaguing large swathes of China’s industrial economy and a steadily-improving supply picture”

Edward Meir– INTL FCStone London

China’s iron ore purchases in August totalled just under 95m tonnes, up 4.2% from July and 6.2% from last year customs data showed, marking the highest level of imports since January 2018. Iron ore imports are set to reach another record in 2019, with annualized shipments running at 1.12 billion tonnes.

Inventories at Chinese ports are climbing in tandem however, rising for the eighth straight week to 126.7m tonnes.

“We remain cautious about iron ore prices going into September in light of the still-uncertain trade outlook, the general malaise still plaguing large swathes of China’s industrial economy and a steadily-improving supply picture, but we don’t see as drastic a fall as what we saw in August,” Edward Meir, commodity consultant at brokerage INTL FCStone in London, was quoted by Reuters as saying.

Source: Fastmarkets MB Iron Ore Indices Daily Market Report Sep 9, 2019

The rally in iron ore has been a boon for the world’s largest diversified miners providing valuable cash flow for the top 3 producers – Vale, Rio Tinto and BHP – at a time when the copper price and overall metal demand (with the notable exception of nickel) remain soft.

Iron ore peaked in July just shy of $126 a tonne, the highest since January 2014, but declined over the summer months as fears of a shortage on the seaborne market receded.

The price of iron ore is up 28% year-to-date following a dam burst at Vale’s Brumadinho operations in Brazil that killed more 300 people. In response, the world no 1 producer initially suspended 93m tonnes of output, but the Rio de Janeiro-based company has since been able to bring about a third of lost capacity back online.

CHART: Gold price suffers biggest fall in six years

The gold price plunged in early morning trade on Friday, in one of the worst trading sessions in dollar terms in gold market history.

The gold price dropped to $1,514.30 an ounce in mid-morning – down 3% or $46.10 an ounce from the Thursday’s settlement of $1,560.40 on the Comex market in New York.

The trades that crushed gold for delivery in December in morning trade came in three short bursts of one million ounce- plus sell orders, forcing bulls back on the defence after a nearly 10% rally since the beginning of August.

Gold regained some of its footing by lunchtime, still more than 2% down on the day, Friday after 55 million ounces of gold had exchanged hands in total in New York. That’s equivalent to half a year’s global gold production.

The gold futures market has been quiet in recent years, but today’s wild swing is in dollar terms the biggest fall in the price since 2013 when gold was trading at almost exactly today’s levels in the mid-$1,500s.

Wild swings

Gold ended April 15, 2013 over $87 below the previous closing and never recovered on its way to $1,050 an ounce three years later. On that day 10 million ounces traded within 30 minutes described as a “shock and awe” trading strategy by a short seller.

Gold hit a record $1,909 an ounce intra-day on 23 August 2011, but a the next day suffered one of its few triple digit one-day losses when it plummeted $105, ending the week down more than 10% from the all-time high.

Adjusting for inflation, gold’s highest price point ever was on January 21, 1980 when the precious metal hit $850 only to plunge the very next day to $737.50, a 13% fall.

The biggest fall in percentage terms came in February 1983, the yellow metal fell from $475 to $408.50 over two days, a 14% decline.  

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