Coal dwarfs battery metals in mining deals despite war on pollution

Date Jan 08 2018 16:32:54 Source:Reuters

    LONDON, Jan 5 (Reuters) - Coal and iron ore dominated mining takeovers in 2017, Thomson Reuters data shows, with buyers favouring the heavily polluting devil they know over the uncertainties of a battery-powered future.

    While the biggest deal was in Brazil, China was a top player despite planning to reduce domestic coal and steel-making to tackle smog in its cities. Elsewhere, miners haunted by the overpriced mega-purchases they made before the commodities crash of 2015 hesitated on deals involving the metals needed to run electric cars.

    Mining deals totalled $96.8 billion, based on 2,109 mostly modestly-sized transactions in the past year, Thomson Reuters Deals Intelligence showed. That marked a 10 percent increase in value from 2016 but fell far short of $150-$200 billion totals in the boom years, after which miners had to write billions of dollars off the value of their assets.


    More than $92 billion of the 2017 total was spent on coal, iron ore and steel deals as investors stayed loyal to a sector that still generates steady profits despite the global drive to reduce pollution. 

    Analysts predict continued demand, even though coal is the biggest source of the carbon emissions that the 2015 Paris Agreement aims to curb. Steel-making, which uses iron ore and coking coal, accounts for an estimated seven percent of industrial direct CO2 emissions, industry figures show. 

    For the mining sector, the minerals offer an established way of making money when ultra-low official interest rates mean relatively cheap funding is available to purchase assets.

    "If you are a buyer, maybe you think you can squeeze some cost out of it thanks to the low cost of capital," Brewin Dolphin equity analyst Nik Stanojevic said, adding that emerging markets such as China and India will continue to rely on coal for years to come.

    Demand from these huge and growing economies will help to counter the trend against fossil fuels. 

    Norway's sovereign wealth fund has proposed dropping oil and gas companies from its benchmark index while Britain said on Friday it will set an emissions limit on coal-fired power stations from 2025, forcing them to close unless they use carbon capture technology.

    China is pushing to limit consumption of coal, which is used to produce most of its electricity. But its coal output will still be around 3.9 billion tonnes a year by 2020 and on Friday it announced plans to create several "super-large" mining companies by then.   


    Demand for metals used in making batteries, such as lithium, cobalt and nickel, is expected to soar as China leads the shift to electric vehicles. But investors regard them as less certain to guarantee profits because prices are volatile and the basic minerals require additional processing for use in batteries.

    Lithium and cobalt CBD3 in particular look overpriced. Spot battery grade 99.5 percent lithium carbonate in China AM-995C-LTCB , where most lithium batteries are made, rose around a third in 2017, while cobalt prices more than doubled.

    Analysts and bankers say mining companies are holding fire on battery deals due to the risk of paying too much, as they did for assets at the height of the commodities boom that culminated in 2012.

    "We're hoping the industry has learnt some cautionary lessons," said analyst Paul Gait at Bernstein, adding it would be very unwise to buy projects such as lithium in the current market. "It should be left to its own devices. The lithium price is coming down. There's no way this is the bottom of the cycle."


    The most active dealmaker of the major miners Glencore GLEN.L - whose $46 billion merger with Xstrata in 2013 was the biggest mining transaction of all time - said repeatedly in the past year that it favoured bolt-ons and partnerships to avoid the high levels of debt involved in over-ambitious deal-making.

    In 2017 the number of mining deals grew 27 percent to the highest figure since 2012 as miners focused mostly on relatively small transactions, the Thomson Reuters data showed.

    Brazil accounted for the highest value deal, iron ore giant Vale’s VALE3.SA $21 billion acquisition of shareholder group Valepar - although analysts said this was a matter of standardising the shareholder structure rather than constituting a classic M&A deal. It was the only transaction above $5 billion in 2017.

    Brazil's mining M&A deals in 2017 totalled $22.9 billion, just ahead of China's $18.8 billion as Coral Pearl International Ltd bought Iron Ore Mining International from neighbouring

Mongolia and a Chinese investor group snapped up Huaibei Mining Co Ltd at home.

    The Mongolian deal falls under Beijing's Belt and Road policy of developing infrastructure beyond its borders. This has driven deal-making and allegations from Western analysts that China is simply moving its emissions and excess capacity beyond its borders - as many Western economies have long done.  

    China's deals were down from $37.7 billion in 2016 following the imposition of capital controls, but overall mergers and acquisitions began to pick up late last year.

    With President Donald Trump championing domestic energy production, U.S. companies including CONSOL Energy Inc-Coal Assets and Peabody Energy Corp also made purchases. 

    Elsewhere, Glencore did a deal with Yancoal to buy a stake in coal assets that the Chinese firm acquired from Rio Tinto RIO.AX   RIO.L.

    Shrewd future buys could include nickel or copper - minerals that Gait predicted had further upside as well as exposure to the electric vehicle market that offers a potentially huge source of demand for big miners, once it takes off globally.

    Copper is coveted as a mineral useful to both the old and new economies, but finding high quality projects to buy at the right price is likely to be hard.

    BHP BHP.AX   BLT.L, the world's biggest miner, said it believes exploration, not acquisition, is the best way to find new copper supplies.


Edited by SHMET

PRECIOUS-Gold dips as dollar firms on U.S. rate hike views

Date Jan 08 2018 16:31:58 Source:Reuters

    Jan 8 (Reuters) - Gold prices inched down on Monday after the dollar firmed on expectations of further U.S. interest rate hikes this year. 

    Spot gold XAU= was down 0.1 percent at $1,317.60 an ounce at 0711 GMT. Last week, the metal touched its highest since Sept. 15 at $1,325.86. 

    Spot gold posted its fourth consecutive weekly gain last week.

    U.S. gold futures GCcv1 slipped 0.3 percent on Monday at

$1,318.80 an ounce.     

    "January is usually a good month for gold prices and should remain so on the anticipation of physical demand ahead of the Chinese New Year," said Stephen Innes, APAC head of trading, Oanda.

    "While there could be some downside pressure from a possible U.S. dollar correction, gold will likely remain firm until a March Fed hike possibility comes on the radar," Innes said. 

    The U.S. December non-farm payrolls report on Friday was weaker than expected, but investors reckoned the U.S. Federal Reserve would still raise interest rates multiple times this year, although at a gradual pace. 

    The dollar's index against a basket of six major currencies rose 0.2 percent to 92.155  .DXY  on Monday, up from its Jan. 2 low of 91.751, which was its weakest level since Sept. 20.  USD/      

    Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

    Meanwhile, hedge funds and money managers raised their net long positions in COMEX gold in the week to Jan. 2, U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday. 

    Spot gold may edge up to a resistance at $1,329 per ounce and then start a correction, as suggested by a Fibonacci retracement analysis, according to Reuters technical analyst Wang Tao.

    The Chinese New Year demand is yet to pick up as the prices are too hard to swallow," a Singapore-based trader said.

    "Prices should see $1,340 (in the near term) and if it does not breach that gold should look to ease back below $1,300."

    Physical gold demand across Asia remained subdued last week as prices rallied to a three-and-a-half-month high, keeping retail buyers away from the market.

    Among other precious metals, spot silver XAG= inched 0.6 percent lower to $17.12 an ounce, after having hit a 1-1/2-month high on Friday at $17.29. 

    Platinum XPT= dipped 0.3 percent to $966.50 an ounce, after hitting a more than 3-1/2-month top at $970.5 earlier in the session. 

    Palladium XPD= rose 0.5 percent to $1,096 an ounce. The metal hit a record high of $1,105.70 last week. 


Edited by SHMET

Australia forecasts 20 pct iron ore price drop in 2018 as China demand eases

Date Jan 08 2018 16:31:19 Source:Reuters

    SYDNEY, Jan 8 (Reuters) - Australia on Monday said it expects iron ore prices to average $51.50 a tonne this year, down 20 percent from 2017, because of rising global supply and moderating demand from top importer China as its steel sector shrinks.

    The government projection is out of step with some private forecasts, with UBS and Citi calling for iron ore prices to average around $64 a tonne in 2018 - flat on 2017's $64.30 - with the market proving suprisingly resilient.

    Spot iron ore, currently around $75 a tonne  .IO62-CNO=MB , last traded below $52 in June 2017, but Department of Industry, Innovation and Science resource and energy analyst David Thurtell pointed to an expected contraction in China's steel industry.

    "We're still comfortable with where our forecast sits," he said.

    The world's top three mining companies, BHP BHP.AX   BLT.L and Vale VALE3.SA rely heavily on iron ore sales for the bulk of their revenue despite efforts to diversify more into other industrial raw materials, such as copper, aluminium and coal. 

    Brazil-based Vale is planning to lift iron ore exports 7 percent in 2018 to 390 million tonnes. In Australia, Rio Tinto and BHP, along with Fortescue Metals Group FMG.AX aim to add about 170 million tonnes of new capacity over the next several years.

    The forecast price decline will continue into 2019, when the steelmaking raw material will average only $49 a tonne, the department said in its latest commodities outlook paper.

    "The iron ore price is expected to experience some ongoing volatility in early 2018, as the market responds to uncertainty regarding the impact of winter production restrictions on iron ore demand," it warned.

    The lower prices will reflect growing supply from low-cost producers and moderating demand from China, it said.

    China is in the process of closing ageing, high-polluting steel mills and induction furnaces to curb overcapacity in the sector. 

    China's President Xi Jinping said in October that fighting pollution was one of the country's key tasks through 2020.

    Australia's liquefied natural gas (LNG) exports are forecast to climb to 76.5 million tonnes in the year to end-June 2019, from 63 million tonnes forecast for the 2017/18 fiscal year and 52 million tonnes last year. 

    Between 2016/17 and 2018/19, LNG should add A$14 billion ($11 billion) to Australia's export earnings, while iron ore is forecast to subtract A$10 billion, according to the department.

    The shift follows the construction of $180 billion of new gas projects. The rise in LNG earnings will be underpinned as three remaining projects under construction hit their stride, it said. These are Chevron Corp’s CVX.N Wheatstone project, Inpex Corp’s 1605.T Ichthys and Royal Dutch Shell’s Rds.  Prelude.

    Prices for coking coal, another key steel-making ingredient, are forecast by the department to drift lower over the next eighteen months from last quarter's benchmark price of $192 a tonne as rising supply more than offsets demand.

    It also expects thermal coal prices to ease through 2018 and early 2019, with the Newcastle spot price GCLNWCPFBMc1 forecast to drop 12 percent to an average $77 a tonne in 2018, and by a further 6 percent to $70 in 2019.

($1 = 1.2719 Australian dollars) 

Edited by SHMET

Germans invest heavily in gold in 2017, Deutsche Boerse says

Date Jan 05 2018 16:17:00 Source:Reuters

    FRANKFURT, Jan 3 (Reuters) - Germans are investing heavily in gold, Deutsche Boerse  DB1Gn.DE  said on Wednesday, with holdings of a gold-backed security it offers rising almost 50 percent in 2017.

    Gold is seen as a safe haven for investors during times of uncertainty. Spot gold XAU= prices gained about 14 percent during 2017.

    Deutsche Boerse said its Xetra-Gold notes, which are backed by physical gold, rose in demand to a record 175.04 tonnes of gold at the end of 2017, up from 117.59 tonnes at the end of 2016. The total amount of assets invested in Xetra-Gold are worth 6.1 billion euros ($7.3 billion), Deutsche Boerse said.

    "The increase is due above all to the high demand from institutional investors," said Michael Koenig, managing director of Deutsche Boerse Commodities GmbH. "However, an increasing number of asset managers, family offices and retail investors are becoming interested in gold as an asset class." 

($1 = 0.8322 euros)


Edited by SHMET

New Year bounce extends palladium's rally to record high

Date Jan 05 2018 16:16:25 Source:Reuters

    LONDON, Jan 3 (Reuters) - Palladium extended last year's more than 50 percent surge to hit record highs on Tuesday, as Chinese car sales growth, tightening emissions controls and a swing away from diesel cars in Europe fuelled fears of a metal shortage after years of market deficit.

    Spot palladium  XPD=  hit a peak of $1,096.50 an ounce on Tuesday, just above its 2001 high of $1,095 an ounce.  

    A switch to gasoline-powered and hybrid cars, which use more palladium in their autocatalysts, has fuelled fears that market tightness could lead to a shortage of supply. The market has been in deficit in six out of the last seven years for which data is available. 

    That shortfall has led to a draw-down of available stocks. Holdings of palladium-backed exchange-traded funds fell to their lowest since 2010 last year, with some analysts citing market tightness, which they say drew physical metal out of the funds.

    Palladium, some three-quarters of which is used in catalytic converters, chiefly for gasoline engines, hit a series of 17-year highs in 2017 on expectations that automotive demand would continue to improve.

    "Underlying the speculative investment flows is a very strong fundamental picture," ICBC Standard Bank analyst Tom Kendall said. "Palladium is one of the few metals markets that is genuinely tight and looks like it will continue to tighten." 

    "When you overlay the growth in car sales in China, which is a gasoline market, with the ongoing switch away from diesel in Europe, it adds up to a much better demand story for palladium than for platinum," he said. "That is drawing down inventories, and there is no easy supply response."

    Diesel market share in Europe has been under pressure since carmaker Volkswagen admitted in 2015 that it had used illegal software to cheat U.S. emissions tests, slipping below 50 percent the following year for the first time since 2009.

    Meanwhile, Chinese car sales growth held firm in 2017. 

    While there are solid reasons for palladium's move, analysts said the strength of its recent gains suggests it may be overstretched in the near term. The metal eased 1 percent on Wednesday, though it remains at elevated levels.

    "The fundamentals are strong, it's true, and this is spilling over into continued tight physical availability which is reflected in the outright price and a deeply backwardated forward market," Mitsubishi analyst Jonathan Butler said, referring to the higher price of palladium contracts for imminent delivery versus the more distant future. 

    "But this has the mark of a spec squeeze especially given (Tuesday's) thin trading, right at the start of the year with many market participants still enjoying holidays."

    In the longer term, there are clear risks to the rally. Palladium's heavy reliance on car sales for demand - unlike platinum, its jewellery market is small - could make it vulnerable to a sharp retracement if signs emerge that sales are slowing.  

    A move towards vehicle electrification would also cut down demand for catalytic converters. However, that is too far off to pose a significant risk the market at present, Kendall said. "I don't think it is within anyone's ability to take a commodities investment position on e-vehicles yet," he said. "There are so many unknowns."

    In the meantime, market tightness has sent the metal back to levels not seen since 2001, a time when U.S. carmakers were panicking over the U.S. authorities' shift in emphasis to tackling unburned hydrocarbon emissions, GFMS' head of research and forecasts Rhona O'Connell said. This rally looks more solid, she said.

    "This time around it's genuine fundamentals (that are driving the rally), and some spec activity, in the belief that the pressure on diesel will favour gasoline," she said. 



Edited by SHMET