Metals Move Higher

With interest rates pegged in the US and Europe, metals move higher despite the lacklustre economic scene. Thermal coal prices suffer as BNP Paribas becomes the latest investor to withdraw from the sector.

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The Federal Reserve has indicated that US interest rates are unlikely to be raised from the current 2.25-2.50% level for the remainder of this year. The US central bank's move to a 'patient' attitude reflects the country's waning economy, and mounting concern over the state of global markets.

With both the Federal Reserve and the European Central Bank indicating they will hold off from raising interest rates in the face of waning economic momentum, volatility across several major asset classes has fallen to its lowest level in years. Wall Street's 'fear index', the Vix, last week hit its lowest intraday level in six months.

With US interest rates pegged back, most dollar-denominated metals moved higher despite the lacklustre economic scene. Gold remained above the important US$1,300/oz level, rising 1.1% over the week to close on Friday in London at US$1,310/oz. Zinc also rose 1.1%, reaching US$2,813/t, with iron ore (62% Fe) up 0.7% to US$86.8/t, nickel improved 0.3% to US$12,980/t and aluminium was little changed at US$1,902/t. Copper was an exception amongst the major metals, falling 1.8% last week, closing on Friday at US$6,321/t.

Gold had fallen below US$1,200/oz at the end of the third quarter last year before a four-month rally saw the precious metal reach an 11-month high of US$1,340/oz in February. A stronger dollar and optimism for a US-China trade deal subsequently triggered a near 3% decline before the metal stabilised at around US$1,300/oz.

With the economies of Germany, Italy and the UK faltering, Spain has become the largest single contributor to European growth. After two recessions in a decade, Spain has achieved a notable recovery, with the local economy growing 2.5% in 2018 — the fifth consecutive year of robust economic growth.

BNP Paribas Asset Management has become the latest big investor to announce it is divesting from thermal coal. The French group is to shed up to €1 billion of stocks in the sector as "coal becomes increasingly uncompetitive as a fuel for power generation.

Many countries have reduced their exposure to coal, or have said they intend ending its use. The price of thermal coal slumped on Friday, with the benchmark (FOB Richards Bay; 50mm, 6,000kcal/kg, +22% volatiles, max 12% moisture, 15% ash and 1% sulphur) closing the week down 13.7% at US$66/t. This is the lowest level since September 2016, the price having peaked at US$108/t in mid-July 2018 and falling from US$102/t at the start of October.

It is not ideal timing for West Cumbria Mining, which last week received planning approval for its £180 million Woodhouse colliery near Whitehaven. The mine will be the UK's first deep coal mine to open in more than 30 years. Coal fueled only 5% of the UK's power supply last year, down from more than one-third in 2013. The government has pledged that all UK coal-fired power generation will cease by 2025.

South Africa is suffering severe power-supply problems, with the state-owned electricity utility company, Eskom, imposing ever more stringent cuts. The latest round of outages prompted an apology from president Cyril Ramaphosa, who pledged to break up the indebted Eskom into three state businesses.

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.