Economies on the Mend

The IMF appears to have been too gloomy in its recent messages, and the global economy is on the mend after positive economic announcements from China, the US and Europe.

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Recent messages from the International Monetary Fund appear to have been too gloomy. The global economy seems to be on the mend after positive economic announcements for the first quarter in China, the US and Europe.

The eurozone's economy in the first quarter accelerated to a GDP growth of 0.4%, compared with only 0.2% in the final quarter of 2018, and growth elsewhere in the European Union has been even stronger. In China, growth has stabilised at an annual rate of 6.4%, with industrial production rising at an annual rate of 8.5% in March, which is much stronger than analysts had predicted. The US economy has also outperformed expectations so far this year, and factory orders rose by the most in seven months in March.

The week ended with President Trump decrying the slow pace of trade negotiations between the two countries. He said a 10% tariff on US imports of hundreds of billions of Chinese goods would rise to 25% on May 10. Nevertheless, investors have been betting on calm markets, with a recent rush to sell derivatives tied to the Vix index (Wall Street's gauge on volatility in equity markets).

Despite the improved economic signals, metal markets have again been weak, partly due to the continued strength of the US dollar, with the greenback last week reaching its highest level since May 2017 (measured as an index against a basket of major currencies). Copper was the main casualty last week, with the red metal's three-month contract on the LME down 2.6% to close on Friday at US$6,233/t. With Chinese buyers absent during the country's extended public holiday, copper fell to an 11-month low.

Other metals were also weak, with the three-month aluminium LME contract closing on Friday down 2.1% at US$1,801/t. Nickel fell 1.8% last week to US$12,205/t, but zinc improved 0.3% to US$2,774/t and iron ore (62% Fe) jumped 2.0% to close in London on Friday at US$94.7/t.

Gold slipped 0.8% last week to US$1,271/oz despite news of a 7% increase in global demand for the precious metal in the first quarter, compared with a year ago. The World Gold Council last week confirmed that Central Banks had purchased a total of 145.5 t of gold, worth about US$6 billion, up 68% on the first quarter 2018. Total gold demand in the March quarter was 1,053 t, up 7% from a year earlier, with jewellery accounting for over 530 t.  

There was better news last week for the price of uranium, with France announcing a 10-year delay in the shut-down of a major part of its nuclear-power industry — as discussed in last Thursday's Picks and Blasts blog. Meanwhile, Kyrgyzstan's parliament has moved to ban uranium exploration and mining, despite previously granting licenses to foreign miners. The Central Asian state does not produce significant volumes of uranium, but a handful of companies — including those from the US, Australia and China — are exploring local deposits.

Corporate News

Cobalt refiners were in the news last week with some spectacular falls in equity prices. The market valuation of China's largest cobalt refiner, Huayou Cobalt, fell 10% on Monday last week after the company said a collapse in the metal's price had almost wiped out its first-quarter profit. Belgium-based cobalt refiner Umicore also recently saw a record drop in its share price. The price of cobalt has fallen almost 60% over the past year because of soaring production of the metal. The battery metal is currently trading under US$17/lb, compared with a record US$40/lb a year ago. 

UK-listed Sirius Minerals announced last week that it has secured a US$2.5 billion revolving credit facility from JP Morgan. This is a major plank in the company's effort to raise US$3.8 billion for its polyhalite (a natural fertilizer) mine in North Yorkshire. However, the announcement triggered a 20% fall in the company's share price to a three-year low because of higher funding costs and a discounted share-placing price of 15-18p for the offering of new shares and convertible bonds worth US$800 million.

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.