China's credit loosening may not do much for commodity demand: Russell

Date Oct 08 2018 15:33:48 Source:Foreign media

China's commodity imports may get a shot in the arm from Beijing's decision to ease credit conditions in the world's second-largest economy, but it may not be as big a boost as followed prior monetary loosening.

The People's Bank of China on Sunday announced a steep 100 basis point cut in the level of cash that banks must hold as reserves, matching a similar move in April. 

The easing of the reserve requirement ratios (RRRs) will inject a net 750 billion yuan ($109 billion) into the banking system, making it easier for banks to extend credit.

The loosening of monetary conditions appears to be aimed at shoring up confidence in China's economy, which has been battered by the escalating trade war with the administration of U.S. President Donald Trump.  

There are signs that China's economy is feeling some pain from the tariff barriers being erected, with equity prices struggling and certain indicators, such as fixed asset investment, trending weaker.

In prior years, relaxing credit conditions has resulted in much of the freed-up cash being used for infrastructure and housing construction, thereby boosting demand for raw material such as iron ore, steel and copper as well as thermal and coking coal for energy to process them.

There is generally some expectation that the extra cash in the economy will flow through to additional spending on commodity-intensive activity, such as building railways and apartment buildings.

But it's worth noting that April's lowering of the RRRs didn't really do much for the level of iron ore imports, which have remained in a narrow band for much of the year, and are down 0.5 percent in the first eight months of the year compared with the same period in 2017.

Coal imports have been stronger so far in 2018, but this is more likely a reflection of stronger demand for thermal power generation, as well as robust steel output and production restrictions on the domestic industry.


Official trade data for September has yet to be released, but vessel-tracking data compiled by Refinitiv suggests a pullback in seaborne coal imports in the month. China's seaborne coal imports were 16.3 million tonnes in September, the data showed, down sharply from 19.9 million tonnes in August and the weakest month since February last year.

A drop in coal imports may not be too surprising given it's currently the shoulder season between the summer and winter power demand peaks, and higher prices may also have caused some reluctance among Chinese buyers.

Iron ore imports also tracked weaker in September, but not by much, with the Refinitiv data estimating 86.4 million tonnes, down from August's 87.3 million.

Iron ore imports this year have held in a remarkably steady range, according to the vessel-tracking data, with March's 81.4 million tonnes being the softest and May's 91.3 million being the strongest.

What the data suggests is that China's demand for iron ore hasn't been much affected by either the trade dispute with the United States, or by earlier stimulus efforts.

Iron ore prices in China were also largely unmoved by the easing of credit, with Dalian Commodity Exchange futures opening slightly stronger after the week-long national day holidays.

The front-month contract rose as high as 499.5 yuan ($72.40) a tonne in early trade on Monday, up from a close of 493 yuan on Sept. 28, but by midday it was trading around 494 yuan.

This is perhaps recognition that any stimulus will take some time to work its way through the system and if there is any boost to commodity demand, it will take several months to materialise.

Zambia says open to dialogue with miners over tax increases

Date Oct 08 2018 15:17:53 Source:Mining

Zambia's Finance Ministry said on Sunday that it was open to dialogue with mining companies over the government's plans to increase mining taxes.

Africa's second-largest copper producer said late last month that it would introduce new mining duties and increase royalties to help bring down mounting debt.

Large miners such as First Quantum, Glencore and Vedanta Resources have often criticised the Zambian government over rising costs at their operations.

"We remain open to dialogue with mining companies that are willing to amicably discuss the transition to the new mining tax regime," a Finance Ministry statement quoted minister Margaret Mwanakatwe as saying.

The statement said a tax policy review committee would be appointed to deal with technical issues related to the tax changes and that the ministry had taken note of criticism by Zambia's Chamber of Mines.

The Chamber of Mines said this week that some companies had already scrapped expansion plans over the tax hikes and that the country's copper output could fall.

The tax increases are part of government efforts to trim the fiscal deficit to 6.5 percent of gross domestic product in 2019 from 7.4 percent this year.

Mining accounts for more than 70 percent of Zambia's foreign exchange earnings.

Concerns about Zambia's rising debt, alongside accusations of additional hidden borrowing and government corruption, have spooked investors and Western donors in recent months.

The International Monetary Fund has put on hold talk about an aid package due to Zambia's debts, which it describes as unsustainable.

Gold falls as China's policy ease supports dollar

Date Oct 08 2018 15:14:37 Source:SHMET

Gold fell on Monday as the dollar firmed after China's central bank eased its domestic policy to support the economy amid concerns that an escalating trade dispute with the United States could hurt growth.

The People's Bank of China (PBOC) on Sunday announced a steep cut in the level of cash that banks must hold as reserves, stepping up moves to lower financing costs and spur growth.

Spot gold was down 0.5 percent at $1,196.61 an ounce at 0441 GMT. U.S. gold futures fell 0.5 percent to $1,200.50 an ounce.

"Although the dollar index has not gained much, the decision by China might be seen by some market participants as some sign of softness as a result of the trade war, which could benefit the dollar," said John Sharma, an economist at National Australia Bank.  

The dollar was up 0.1 percent against a basket of six major currencies, as China followed an easing in domestic policy by allowing yuan to fall, though the drop was not as sharp as some had feared.

"Maybe, the trade war is affecting China more than realized and therefore the need to ease on policy, which dampened demand for gold there," a Singapore-based trader said.

Gold prices have fallen more than 12 percent from a peak in April largely due to strength in the dollar, which has benefited from a vibrant U.S. economy, rising U.S. interest rates and fears of a global trade war.

U.S. unemployment rate fell to near a 49-year low, as per the Labor Department's monthly employment report on Friday, which also showed a steady rise in wages, suggesting moderate inflation pressures that could keep the Federal Reserve on a path of gradual interest rate increases. 

"After very rosy comments from Fed Chair Powell earlier in the week and a decidedly hawkish post-FOMC presser, this data needed only to avoid an improbable disaster to unlock further steepening of the priced-in Fed outlook," said Ilya Spivak, a currency strategist for Dailyfx.

"To that end, its passing seemed to give the green light to traders withholding directional conviction until after event risk has passed."

Spot gold may test a support at $1,193 per ounce, a break below which could cause a loss to the next support at $1,188, while a break above $1,201 could lead to a gain into $1,207-$1,214 range. 

Holdings in SPDR Gold Trust GLD, the world's largest gold-backed exchange-traded fund, fell 0.20 percent to 730.17 tonnes, on Friday.   

Speculators cut their net short position in COMEX gold by 4,186 contracts to 73,128 in week to Oct. 2.  

Meanwhile, spot silver fell 0.7 percent to $14.48 and palladium fell 0.3 percent to $1,066.10. Platinum inched 0.7 percent lower at $814.74 an ounce.

Glencore wins cut to coal carrying costs out of Newcastle

Date Oct 08 2018 15:06:01 Source:Foreign media

      Australia's competition regulator said on Monday the Port of Newcastle must reduce its charges for ships entering the port to carry coal for Glencore GLEN.L, in a big win for the global miner.

The Australian Competition and Consumer Commission said Port of Newcastle Operations Pty Ltd (PNO) should cut its current rate by about 20 percent to A$0.61 per gross tonne, backdated to 2016. The port said it would contest the decision.

"PNO proposed large increases to the current price, but the ACCC found that a reduction in the price for using the shipping channel was appropriate," ACCC Commissioner Cristina Cifuentes said in a statement.

In the course of the arbitration, Newcastle port told the ACCC that the charge for coal ships entering the port should be increased to $1.36 per tonne for this year. Glencore submitted the charge should be reduced to $0.41 per tonne.

The port said it was disappointed by the decision.

"We will use all legal avenues available to contest the decision. We will be lodging a request for review with the Australian Competition Tribunal," it said. 

Glencore declined to comment.

The Port of Newcastle provides the only commercially viable means of exporting coal from the Hunter Valley region and is jointly owned by China Merchants Port Holdings Co Ltd 0144.HK , which took a stake in February, and Australia's Infrastructure Fund.

After being privatised in 2014, the port increased the charge for coal ships by around 40 per cent to $0.69 per tonne in January 2015, and later raised the charge to $0.76 per tonne.

Shanghai steel rebar prices fall on worries of rising stockpiles

Date Oct 08 2018 13:55:54 Source:Foreign media

     Chinese rebar steel prices edged lower on Monday, hit by concerns of a rise in inventories as trading resumed after a week-long national holiday.

  Benchmark construction steel rebar prices on the Shanghai Commodity Exchange SRBcv1 dipped 0.6 percent to 3,917 yuan ($568.01) a tonne as of 0215 GMT.

  However, hot-rolled coil contract SHHCcv1 rose 0.4 percent to 3,862 yuan, recouping losses earlier in the session.

  "Steel demand during national holiday was flat, which indicates stockpiles are likely to continue rising and add pressure to steel prices," said analysts at Orient Futures in a note.

  Consultancy SteelHome and Mysteel did not provide the latest inventory data due to the holiday break. Steel stockpiles held by Chinese traders were at 10 million tonnes on Sept. 28, up from 9.85 million tonnes in the prior week, latest available data from Mysteel showed.

  The Purchasing Managers' Index (PMI) for the steel sector, an indicator showing industrial operations, fell 1.4 percentage points to 52 percent in September amid declining new orders at steel mills, data from the China Federation of Logistics & Purchasing (CFLP) showed on Monday.

  "Steel mills still have very strong incentives to ramp up productions amid good weather condition and high steel prices. However, increasing steel prices crimped purchasing intention from downstream sectors," said CFLP in a statement.

  Prices of steelmaking raw materials climbed on Monday as stepped up environmental checks in Shanxi and Shaanxi curbed production activities at coke and coking coal plants in the two northwestern provinces.

  China's environment ministry at a news briefing before the holiday also warned companies across heavy industry not to flout the nation's tough emission rules despite a ditch of blanket production cuts. 

  The most-active coking coal prices DJMcv1 rose 2.3 percent to 1,287 yuan a tonne. Coke contract for January delivery DCJcv1 gained 1.4 percent to 2,268 yuan.

  Iron ore futures on the Dalian Commodity Exchange DCIOcv1 edged down 0.1 percent to 492.5 yuan a tonne.