Tariff Truce at G20

It was a quieter week for metals as investors awaited the outcome of the G20 summit in Argentina, and looked forward to this week's important meetings on oil in Vienna and on climate change in Katowice.

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Equity markets have rallied after a temporary truce was agreed on US-China tariffs at the G20 summit in Buenos Aires on Saturday, December 1. According to the deal between President Trump and Xi Jinping, the US will not raise tariffs on US$200 billion of Chinese goods from 10% to 25% next month to enable further dialogue on measures to prevent a trade war. In return, China will purchase a "very substantial" amount of goods from the US to reduce the trade gap.

The US also set a three-month deadline on talks to address China's alleged theft of intellectual property. Reuters reported that the two leaders have also instructed their economic teams to work towards removing all tariffs.

Meanwhile, President Trump seemed to get his way at the G20 on global trade, with the world leaders agreeing to an overhaul of the World Trade Organization. Also, for the first time, the G20 summary statement (widely regarded as the weakest for a decade) omitted any reference to fighting protectionism.

The US Federal Reserve last week flagged a 'hard' Brexit and a sell-off of Italian sovereign debt as near-term risks to the US financial system. Adding to the risk of destabilisation from Europe are the weekend riots in France over rises in fuel taxes, and the rapidly escalating threat of conflict in the Ukraine after Russia seized three naval vessels in a disputed area of the Black Sea.

Despite these threats, stock markets in the US were stronger, and were especially encouraged after the Fed chairman Jay Powell suggested interest rates were closing on "neutral" levels. Investors interpreted his comments as a sign that the central bank was preparing to slow down its rate-rising programme. The Fed is under growing pressure from the White House not to implement any further increases in interest rates as President Trump favours a weaker dollar to boost the country's exports.

The appreciation of the US currency has seen sales of dollar-denominated debt fall to its lowest level in 30 months. Dollar-denominated bonds represented only 45% of all sales in the six months to end-October, compared with 53% in February.

Except for iron ore it was a generally quiet week for metals. The price of 62% Fe material slumped 9.2% to close at US$65.5/t on Friday in London. Nickel improved 2.2% to US$10,985/t but there was little movement for aluminium, copper, zinc or gold. After three weeks of heavy losses, there was a respite for thermal coal last week, with the globalCOAL benchmark up 8.1% to reach US$93.0/t at the end of November.

Oil prices recovered some ground last week on hopes that Russia will co-operate with Opec at the meeting in Vienna this week as the production cartel seeks a cut in global output. Russia is not a member, but President Vladimir Putin said at the G20 meeting that he and Saudi Arabia's Crown Prince Mohammed bin Salman "have agreed to extend our agreement" to limit production.

At US$60/bbl, Brent Crude is still double the US$30/bbl price it suffered almost three years ago but has fallen 30% since touching a four-year high in early October. This decline has left energy equities as the worst-performing stocks on Wall Street this quarter.

Delegates have converged on Katowice in Poland for the 24th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP24). The two-week summit is perhaps the most important climate-change meeting since the 2015 Paris agreement, and is the first to be held since the landmark Intergovernmental Panel on Climate Change (IPCC) report on limiting global temperature rise to 1.5°C came out in October. The IPCC stated that to keep to the goal, governments would have to slash greenhouse gas emissions 45% by 2030.

A recent study showed, however, that CO2 emissions are on the rise again after stalling for four years, and some COP24 negotiators convened a day early because of the pressure to make progress. This is especially urgent following the decision by the US earlier this year to withdraw from the Paris commitment. Meanwhile, the World Bank has announced funding of US$200 billion over five years to support countries that act against climate change.

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.