Copper ETFs to Watch on Strong Global Fundamentals

Date Mar 19 2018 17:07:14 Source:Zacks Equity Research

Copper is undoubtedly the most talked-about industrial metal and is currently seeing a rally in price, driven by strong demand from the world’s largest consumer, China, and robust global economic growth.

Increased Demand in China

China is the biggest consumer of copper, accounting for around 50% of the global demand for the metal. Although Chinese imports of the metal declined slightly in February on a monthly basis, it rose on a year-over-year basis. In the first two months of 2018, China’s unwrought copper imports increased 10.4% from the same period last year. Moreover, copper concentrate imports rose 14.5% year over year.

China’s Industrial output grew 7.2% year over year in the first two months of 2018 compared with 6.2% last December and above 6.1% projected by analysts. Therefore, the emerging market nation has been showing signs of strong growth despite facing risks like the crackdown on pollution, increasing financial threats and concerns surrounding possibilities of a trade war with Trump-led United States (read: China Had a Strong Start in 2018: ETFs to Buy).

Global Economic Scenario

Strong global economic growth is driving demand for the red metal. The Organization for Economic Cooperation and Development raised its global growth forecast for 2018 and 2019 to 3.9% from a previous estimate of 3.6%. The agency expects a rebound in trade and global business investment to lead the way for global growth. "We think that the stronger economy is here to stay for the next couple years," acting OECD chief economist Alvaro Pereira told Reuters.

Copper is widely used in construction as well as manufacturing activities. Thus, strong global economic fundamentals bear a positive outlook for the industrial metal’s demand. Moreover, requirements for charging stations to support the higher attention grabbed by electric cars in the future are expected to drive demand for copper.

Let us now discuss a few ETFs focused on providing exposure to copper (see all Industrial Metal ETFs here).

iPath Dow Jones-UBS Copper ETN JJC

This fund offers exposure to one of the most widely-used industrial metals. It seeks to deliver the returns of copper and tracks the Dow Jones-UBS Copper Subindex Total Return index. The index provides returns available through unleveraged investments in futures contracts on the metal.

It has AUM of $68.3 million and charges a fee of 75 basis points a year. JJC trades in an approximate volume of 51,000 shares. It has returned 15.4% in a year.

Global X Copper Miners ETF COPX

This ETF seeks to provide exposure to copper mining companies and can be used to attain portfolio diversification through equity exposure to the metal. It tracks the Solactive Global Copper Miners Index.

It has AUM of $89.3 million and charges a fee of 65 basis points a year. COPX trades in an approximate volume of 64,000 shares. It has returned 22.3% in a year.

United States Copper Index Fund CPER

This fund seeks to provide exposure to copper by tracking the return of Summer Haven Copper Total Return index.

It has AUM of $14.1 million and charges a fee of 80 basis points a year. CPER trades in an approximate volume of 8,000 shares. It has returned 14.5% in a year.

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Edited by SHMET

Battery makers descend on Australia, Canada cobalt developers

Date Mar 19 2018 16:59:01 Source:Reuters
By Melanie Burton and Nicole Mordant

MELBOURNE/VANCOUVER (Reuters) - Nervous Asian battery makers are turning to early-stage cobalt projects in Australia and Canada to lock in supplies of the critical battery ingredient ahead of expected shortages as demand for electric vehicles revs up.

Mine developers say interest from Japanese and Korean firms is particularly strong as they compete with rivals from China, which has built deep supply chain ties with the Democratic Republic of Congo, the world's top producer.

The central African country accounts for nearly two-thirds of global cobalt output and production is set to rise despite concerns over the use of child miners and rising royalties.

"We are starting to see the first signs of an arms race to secure long term cobalt supplies," said Joe Kaderavek, chief executive of Australia's Cobalt Blue <COB.AX>.

"With over 85 percent of new global cobalt supply over the next decade coming from Africa, in a region where the Chinese have entrenched relationships, the Korean and Japanese cobalt processing industries are very focussed upon Australian and Canadian projects."

South Korean battery maker SK Innovation Co Ltd <096770.KS> locked in a seven-year supply deal with Australian Mines <AUZ.AX> last month, helping to win funding for a project that has yet to make a final investment decision and does not expect to produce any cobalt until at least 2020.

At least half a dozen Australian and Canadian mine developers are currently in talks on potential supply deals with battery and automakers for production at some point beyond late 2019-2021, company executives told Reuters.

These include Australia's Aeon Metals <AML.AX>, Northern Cobalt <N27.AX> and Cobalt Blue, and Canada's Ecobalt <ECS.TO> and Fortune Minerals <FT.TO>. 

China's Beijing Easpring Material Technology Co <300073.SZ>, which makes products for battery makers, has also signed a binding five-year deal with Australian mine developer Clean Teq <CLQ.AX>.

"We are speaking to a number of parties about the balance of the offtake - that includes not just Chinese potential customers but also customers from other parts of the world," Clean Teq's CEO Sam Riggall told Reuters.

In an indication of heightened demand, Riggall said automotive companies were also showing interest, along with cathode manufacturers, the direct users of cobalt, a key material in lithium-ion batteries.


In the DRC, production is set to rise sharply driven by commodity giant Glencore Plc <GLEN.L>, the world's biggest producer, and Russia's ERG, taking DRC's share of global output to over 75 percent by 2023, according to UK-based Darton Commodities.

Glencore last week agreed to sell around a third of its cobalt production over the next three years to Chinese battery recycler GEM Co Ltd <002340.SZ>.

Developments in Australia and Canada will be small to mid-size, producing around 1,000 to 5,000 tonnes each, in a global market expected to swell to some 157,000 tonnes by 2023.

Fortune Minerals said it has signed 25 confidentiality agreements, while Australia's Ardea Resources <ARL.AX> said it has seen significant interest.

"Certainly some of the groups that we have spoken to have said that they won't look at DRC sources, they want clean ethical sources of cobalt," said Ardea Managing Director Matthew Painter.

Japan's Panasonic <6752.T>, the main battery supplier to Tesla Inc <TSLA.O>, said it was aware of issues in the DRC and was looking to source some material elsewhere, and it was also looking at lowering its dependency on cobalt.

"Regarding concerns about procuring cobalt and other raw materials, we are addressing this by establishing advance procurement contracts and developing new procurement routes," the company said in emailed comments.

South Korea's Samsung SDI <006400.KS> and LG Chem <051910.KS> declined to comment specifically on procurement but also said they were looking at other methods to source cobalt and to reduce usage.


Despite surging share prices for some cobalt developers, analysts warn the projects are not without risk, given fickle technology and the high cost of processing out contaminants like arsenic, found in some North American operations.

Clean Teq shares more than doubled in the second half last year, but have since slipped 20 percent, partly because it has twice delayed the date of its definitive feasibility study, said Larry Hill, an analyst with Canaccord Genuity in Australia.

Still, the company easily raised A$150 million ($117 million) this month, and pulled forward its production timeline by a year.

"There's still a lot of upside in any cobalt supply that is ex-DRC," said James Eginton, an investment analyst with Sydney's Tribeca Global Natural Resources Fund, which took part in the raising.

"The challenges of the DRC make anything that comes out of anywhere else a lot more attractive."
Edited by SHMET

Trading Upstart Looks to Disrupt Glencore-Teck Zinc Benchmark

Date Mar 19 2018 16:56:15 Source:Bloomberg
By Danielle Bochove and Susanne Barton

     (Bloomberg) -- If a couple of Glencore Plc alumni have their way, their former employer will lose some of its sway in setting global zinc treatment charges.

     In July, Boris Eykher and Ilya Chernilovskiy launched Open Mineral, a cloud-based trading platform that helps miners sell semi-processed ore directly to smelting companies without using a trader as an intermediary.

     The company started with $500,000 of the co-founders’ money and another $2.25 million from two early adopters, including Goldcorp Inc. Eight months later, there are 130 companies registered on the platform, including Rio Tinto Group, Nyrstar NV, Shandong Gold Mining Co., Zijin Mining Group Co. and
Sumitomo Metal Mining Co., Eykher said.

     Commodity trading giants won’t be shaking in their boots just yet, with just 10 transactions closing since the launch. As of last week, there were 14 tenders on the platform, representing 100,000 metric tons of concentrate valued at more than $250 million, Eykher said. He expects $3 billion in concentrate to be tendered in 2018, with one quarter of that closing.

     That’s still a drop in the bucket compared with the $65 billion’s worth he believes is available to be freely traded.But he says it will speed up “a little bit” what he sees as the natural demise of annual benchmark treatment charges for zinc.

     Traditionally, prices to process concentrates have been set by bringing key buyers and sellers -- refiners and miners -- to the table to negotiate.

     In the case of zinc, the problem with this system, according to Eykher, is that three players -- Teck Resources Ltd. on the sell side and Glencore and Korea Zinc Co. Ltd. on the buy side -- have a disproportionate impact on the final charge.

     Glencore both negotiates for smelters and is the world’s biggest miner.

                           Fair Price

     Open Mineral is looking to take away business from the likes of Trafigura, Glencore and Louis Dreyfus Co. by charging lower fees and offering greater transparency and fairer prices, Eykher said. He’s working on a plan to use blockchain to secure and streamline trades.

     Trafigura, Glencore and Teck all declined to comment.

     Similar platforms for other commodities, such as coal, haven’t managed to sideline traders, according to Colin Hamilton, head of metals at BMO Capital Markets Ltd. in London.

     “Some of the potential challenges could be provision of trade finance and managing counter-party risk,” Hamilton said.

    “This will affect how viable it would be.”

     Open Mineral also has competition. Metalshub was launched by two former Anglo American Plc executives in December and TradeCloud was started by former Trafigura executives in October.

     Eykher’s hoping his narrow head-start will make the difference.
Edited by SHMET

What to Watch in Commodities

Date Mar 19 2018 16:50:39 Source: Bloomberg
    By Jasmine Ng, David Stringer and Fabiana Batista

     (Bloomberg) -- The time for talking is over; Donald Trump’s tariffs on aluminum and steel imports come into effect this week and all the speculation over rising costs, trade wars and retaliation will be put to test. At least one U.S. smelter has said it’ll be able to resume production while Asian steelmakers signaled they’ll stop exporting to America.

     Elsewhere, troubled commodity trader Noble Group’s existential crisis enters a new phase with the maturity of a 2018 bond, which it doesn’t intend to pay. The excitement over batteries will dominate at metals events from London to Perth while China’s biggest oil company is set to report bumper profits, though a bit less-bumper than expected. Just when you thought crude was a sure-fire bet for 2018, the market’s slipped back into a bearish structure signaling there may still be too
much of it around while sugar’s also in the doldrums.

                           Fast Lane

     The global mining sector is on its best footing in years, according to Goldman Sachs Group Inc., as it enjoys robust global demand and strong free cash flow. Growth in the electric vehicle market not only offers additional need for metals like lithium and cobalt, but also promises to boost iron ore,
phosphate, aluminum and manganese, according to BMI Research.

    The industry should also prepare for increased scrutiny of supply chains for battery metals, it said.
    These issues will be front and center at several major metals and mining events this week. ArcelorMittal, the world’s top steelmaker, joins cobalt producer Eurasian Resources Group and developer Cornish Lithium Ltd. at a two-day conference opening Monday in London, while Rio Tinto Group and Tawana Resources NL, which last week began production at the world’s newest lithium mine, join a Perth forum opening Wednesday. BHP Billiton Ltd. and the China Iron and Steel Association will meanwhile debate prospects for steel raw materials at a separate
event in the Australian city.

Edited by SHMET

Vale seeks new dividend policy as debt falls

Date Mar 19 2018 16:42:34

Iron ore exporter has been deleveraging and selling non-core assets

A new dividend policy to be announced by Vale should be based on a more sustainable cash flow generation rather than profits or debt, according to the chief executive of the world’s largest iron ore exporter.

 The one who will decide on the new [dividend policy] is the board but my preference is that it be linked in some form to the company’s cash generation, not necessarily the [financial] results,” Fabio Schvartsman told the Financial Times in an interview.

Vale has been struggling with how to deal with an industry cyclical downturn while trying to reduce a massive debt load. Its board is expected to decide on the policy this month as the Brazilian miner aggressively cuts debt, setting the stage for steadier cash returns for shareholders in coming years, analysts say.

What you can distribute without hurting the company is the cash you generate,” said Mr Schvartsman.

After investing heavily during the commodity supercycle of the first decade of the century, Vale reported a net loss for the fourth quarter of 2015 of about $8.6bn on a slowdown in China and plunging iron ore prices. This was compounded by the disastrous collapse of a dam the same year at Samarco, a mine that Vale jointly owns with Anglo-Australian miner BHP.

The target is $10bn [debt] . . . the sooner we get there, the sooner we can start paying good dividends

Fabio Schvartsman

But since then, the company has been deleveraging and selling non-core assets, first under former chief executive Murilo Ferreira and now under Mr Schvartsman, who was hired nearly a year ago from paper company, Klabin.

Now, said Mr Schvartsman, his aim was to turn Vale into a more “predictable” company. The company last month announced its results for 2017, in which net profit rose 38 per cent compared to a year earlier to $5.51bn on higher iron ore prices.

While commodity prices would always be volatile, the goal was to control what he called the “rest” — costs, volume, productivity and capital allocation.

If you have the rest under control, to be predictable means that given a certain outlook for prices, I can quickly work out how Vale will perform,” he said.

Net debt fell from more than $25bn in 2016 to $18.1bn in 2017, with a further $3.7bn reduction already sealed this year from the divestment of fertiliser assets and other deals.

Stronger sales last year were driven by Chinese state-supported construction and buyers’ preference for high-grade iron ore, of which Vale is a supplier, to save on coking coal, UBS analyst Andreas Bokkenheuser said in a report. 

Vale was also able to reduce capital expenditure in 2017 to below $4bn, the lowest level since 2005, with the conclusion of construction of its giant mine in northern Brazil, S11D.

The target is $10bn . . . the sooner we get there, the sooner we can start paying good dividends,” said Mr Schvartsman of the company’s 2018 goal for debt.

This change in governance has been well received by the market.

Luiz Otavio Laydner, head of research at Vinci Partners

At $10bn of debt and an iron ore price this year of $67 per tonne, Vale’s net debt to ebitda would be 0.6 times, in line with its competitors, said Credit Suisse analyst Ivano Westin. He said he expected the $10bn target would be reached ahead of schedule.

We expect from this year and for the year ahead double-digit free cash flow yield for Vale. It will be really a massive change in their overall business outlook,” said Mr Westin.

Some analysts warned Vale could see softer demand from China in the second half of this year, however, resulting in a 20 per cent fall iron ore prices. “Our China macro team expects construction activity to slow through 2018,” Mr Bokkenheuser wrote.

Vale shares also face an overhang from the possible sale of part of a stake held by its former controlling shareholder group consisting of Japan’s Mitsui, a unit of Brazilian bank Bradesco, and Brazilian government pension funds in conjunction with development bank BNDES.

The group formerly exercised control over Vale through an entity known as Valepar, which once had more than 53 per cent of voting shares. A lock-up on part of their remaining stake expired in February. The dismantling of Valepar is expected to improve governance at Vale, which investors had suspected was vulnerable to government interference, analysts said.

This change in governance has been well received by the market,” said Luiz Otavio Laydner, head of research at Vinci Partners, an investment house in São Paulo.

Edited by SHMET