Calmer Markets Benefit Metals

Concern remains about the direction of the global economy, but base metals benefitted last week from President Trump's toned-down rhetoric and expectations of lower interest rates in the US and Europe.

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The price of all the major metals, with the exception of gold, improved last week, helped by toned-down rhetoric from Donald Trump. The US President told his Chinese counterpart Xi Jinping at the G20 summit that the US would restrict its criticism of Beijing's approach to Hong Kong. The US administration has also eased restrictions on US companies selling to Huawei, the Chinese telecoms equipment maker. The ban now only applies to products that are related to national security.

Nevertheless, concern remains about the direction of international markets. A survey of investors by Absolute Strategy Research showed that the risk of a global slowdown is at its highest for at least four years, and the chair of the Federal Reserve, Jay Powell, said last week that uncertainty regarding the US economy had "increased in recent months". This underpinned market expectations of a cut in US interest rates later this month, and the S&P 500 equity index broke through 3,000 on Wednesday, July 10, for the first time.

Despite inflation data for June showing the largest month-on-month increase in US consumer prices in almost 18 months there has been heightened expectations of a cut in interest rates. This prospect has crimped demand for floating-rate investments, and US loan funds have this year suffered their longest streak of withdrawals in more than four years.

The low interest-rate environment is demonstrated by Germany selling €3.2 billion of new 10-years bonds (known as bunds) at negative interest rates. The appeal of eurozone sovereign debt has been polished by the US-China trade skirmish, signs of a slowdown in the German economy and persistent low inflation. Many analysts expect the European Central Bank to announce new monetary-easing measures to assist the sluggish eurozone economy.

In the June quarter, Singapore's trade-dependent economy suffered its slowest rate of growth in a decade. The figures come ahead of the publication today of China's second-quarter growth statistics. Economists polled by Reuters expect China to report a growth of only 6.2%, its slowest expansion in three decades.

Mining Markets

Nickel was the stand-out performer on metals markets last week, up 8.0% to close on Friday in London at US$13,470/t. The price of iron ore (62% Fe) also continued to rise, up 3.8% over the week at US$118.6, having retreated from almost US$123/t on Tuesday. Aluminium rose 1.4% to US$1,827/t, copper improved 1.1% to US$5,955/t and zinc edged up 0.8% to close on Friday at US$2,431/t.

Lower interest rate expectations globally helped strengthen precious metals prices in the second half of last week. Gold had fallen to US$1,392/oz on Wednesday, but strengthened to US$1,424/oz on Thursday before slipping to close at US$1,414/oz in London on Friday, down 0.1% from the previous Friday.

Gold's value as a store of wealth was illustrated on Friday by news that hackers had stolen US$32 million from a bitcoin exchange in Japan. Bitpoint discovered on Thursday evening that its online wallet was empty. This loss follows a series of attacks on cryptocurrency exchanges that, says the Financial Times, have brought the whole concept of digital money into disrepute.

Investors in Zambia have been rattled by the government's decision in May to put Konkola Copper Mines into administration. The company, one of the country's largest copper producers, is majority owned by India's Vedanta, but Zambia's state-owned mining company, which owns a minority stake, is seeking to wind-up the company, which it accused of breaking investment promises. In response, Vedanta last week launched an international injunction on the liquidation with a South African court.

In other corporate news last week, BHP Group was reported to be considering the sale of its thermal coal assets in Australia and Colombia. Also, Legal & General has signaled its opposition to Barrick Gold's plans to acquire the shares it does not already own in Acacia Mining. L&G says it raises "serious questions" about the treatment of minority shareholders. 

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.