May Newsletter – 18.05.2020
- Researchers say market manipulation is destroying traditional safe havens
- Nickel, cobalt prices benefit as electric car action shifts to Europe
- Copper deficit story dead: CRU
- Australia to be world’s top gold producer in 2021, overtaking China with its expansion plans – report
- Aiming to thwart China, U.S. senator pushes rare earths funding bill
- Satellites Show Scale Of Suspected Illegal Dredging In South China Sea
- As demand implodes, the zinc supply chain starts to adjust: Andy Home
- Some See Promise In Wyo’s Critical Minerals. But Are They Viable?
Researchers say market manipulation is destroying traditional safe havens
The University of Sussex Business School released an analysis stating that widespread market turmoil caused by the covid-19 pandemic means regulators have so much on their plates right now that large-scale manipulation of the markets remains below their radar.
In the view of the researchers behind the study, this is the reason why prices of safe-haven assets such as gold and bitcoin are not surging.
By tracking trades on the markets in recent months, a team at the University’s CryptoMarketRisk project noticed huge sell orders on gold futures, massive pump and dump on copper futures and large spoofing orders on key crypto exchanges.
DURING MARCH AND APRIL 2020, THE CORRELATION BETWEEN THE S&P 500 INDEX AND GOLD WAS PLUS 20%. IN SEPTEMBER 2008, IT WAS MINUS 40%
They say that some single trades on COMEX have been so large as to move prices, which is a clear contravention of US laws on market abuse.
“As funds flow out of equities, one would expect demand for gold and bitcoin to increase. But this time around, safe havens have behaved completely differently. Gold and bitcoin have fallen at the same time as US equities,” Carol Alexander, a professor at the Business School, said. “As the S&P 500 crashed in March 2020, gold had its worst week in eight years when it should have been its best, because of massive shorts on COMEX gold futures. Bitcoin has also been driven down by some pretty obvious manipulation bots on the unregulated crypto derivatives exchanges, especially BitMEX.”
According to Alexander, the world is witnessing financial market manipulations on a scale and frequency that have rarely been seen before.
“The lack of integrity by a few powerful market players is causing a major financial market melt-down from which the current form of our global economy may never recover.” the professor said.
Alexander and her team first noticed the irregular behaviour when comparing the current situation to the 2008 financial crisis. Back then, the Lehman Brothers’ collapse resulted in the correlations between the S&P 500 index and gold, or the Swiss Franc, or US Treasuries to be all around minus 40%. During March and April 2020, however, the correlation between the S&P 500 index and gold was plus 20%.
When it comes to the bitcoin/US dollar rate, as the S&P 500 index plummeted in early March 2020 so did bitcoin, which is unusual for this cryptocurrency whose behaviour has regularly been completely uncorrelated with any traditional asset.
“Their correlation was plus 63% then, and it remains unsettlingly high at 40%,” the financial expert said.
Nickel, cobalt prices benefit as electric car action shifts to Europe
While electric car sales were crashing in China, the world’s largest EV market by a country mile, customers were still busy kicking tires in Western Europe.
Year to date sales of battery-powered vehicles in the world’s second-largest car market surged 37% compared to last year to 142,000 units, according to Schmidt, a market researcher.
Preliminary data from Schmidt show EVs made up 6.7% of total car sales on the continent in April – in countries like Norway seven out of 10 new cars sold are now electric (mostly thanks to radical incentives – you even pay half-price for ferry rides and until recently, free parking anywhere). In the UK it was one in three.
Total auto sales in Europe (excluding the UK) fell by 80% with cities under lockdown. EU EV sales dropped by a comparatively healthy 30% last month.
Sales in China also slumped by almost a third during April, but that figure constitutes a bounce-back – sales of electric cars slumped 80% compared to 2019 the month before.
Tesla’s boss may be running afoul of the law, but its mass-market Model 3 continues to find buyers (despite a mysterious 64% drop in sales in China and unexplained closure of its new Shanghai factory even as covid-19 wanes in the country), not least in Europe where the Model 3 tops the charts. And with the first Model Ys being delivered, the EV pioneer looks set have a much better year than its ICE rivals.
Upstream, the news is not quite so rosy.
Benchmark Mineral Intelligence, a battery supply chain pricing agency and megafactory tracker, shows a deteriorating market.
Prices for the raw materials tracked by the MINING.COM EV Metal Index are all down: The price of lithium dropped 40% year-on-year in March, cobalt (–15%), nickel (–2.4%) and graphite (–26.2%).
Copper deficit story dead: CRU
CRU director of copper research and strategy Vanessa Davidson says the outlook for the red metal has changed “dramatically” since January.
“Over the last quarter, the COVID-19 pandemic has developed from an emerging threat into a very significant reality,” Davidson said on a webinar.
CRU believes Chinese copper demand slumped by 22.1% in the March quarter, while demand for the rest of the world dropped 12.1%.
The consultancy now expects copper demand for China to fall 5% in 2020, and 6% for the rest of the world.
Davidson said it would represent the biggest downturn since the 1970s and China’s first year of negative growth since 2006.
CRU has lowered its 2020 demand forecast from January by 1.8 million tonnes to 22Mt, with China to account for 800,000t and the rest of the world the other 1Mt.
“While we expect a demand recovery in 2021, and we’re forecasting global growth of 4.6%, the effects of the pandemic are expected to be long-lasting, and at no point in time do we expect copper consumption to return to previously forecast levels within the years to 2024,” Davidson said.
“This is the key reason we no longer believe a market deficit will develop in this market by the mid-2020s.”
More than 330,000t of copper has been impacted by COVID-related cutbacks and CRU sees close to 700,000t as being under threat.
Another 159,000t has been impacted by price-related cutbacks, mainly by Freeport-McMoRan, with more expected.
CRU sees a 5% decline in production in 2020, before a 4.6% rebound next year.
The firm previously forecast 850,000t of copper production from uncommitted projects in 2024, which has now been reduced by more than 300,000t.
“Our base case view is that without price-related cutbacks, the copper market will suffer persistent and unstainable surpluses over the next five years,” Davison said.
CRU sees a copper cathode surplus of nearly 850,000t this year, which could balloon to 2Mt by 2024 without cutbacks.
Its copper price forecast for 2020 has been revised down to US$5200 per tonne, which is around current levels, from $6300/t.
The price could hit $6600/t by 2024, down from CRU’s previous forecast of $7150/t, which Davidson said would be too low to incentivise new production.
Australia to be world’s top gold producer in 2021, overtaking China with its expansion plans – report
Australia will overtake China as the world’s number one gold producer in 2021, led by its major expansion plans and higher gold prices, according to a report by Resources Monitor.
Cost-effectiveness of Australia’s mining gives it a unique advantage to beat China in the race for the top position.
“Reflecting Australia’s role as a cost-effective producer, it will overtake China next year as the world’s largest gold producer,” the report published on Monday stated.
Resources Monitor, an information company with a focus on Australia, came to this conclusion by looking at the margins of major gold-mining companies working in Australia for the past 18 months, including Newcrest, Saracen, Silver Lake and Northern Star.
“Gold prices have been rising for the past 18 months and, alone among nearly all minerals, have continued rising this year,” the report noted. “For the past 18 months, most gold-mining companies have been making attractive margins.”
Solid margins and higher gold prices have pushed plans to expand existing mines and develop new mines to advanced stages, Resources Monitor pointed out.
Existing mines that are expanding include Cadia Valley in NSW (Newcrest Mining), Carosue Dam in WA (Saracen Mineral Holdings), King of the Hills in WA (Red5), Tanami in NT (Newmont Australia), the report highlighted.
Some major new mine development consists of Bardoc (Bardoc Gold) in WA, Karlawinda (Capricorn Metals) in WA, McPhillamys in NSW (Regis Resources), the report added.
Aiming to thwart China, U.S. senator pushes rare earths funding bill
(Reuters) – U.S. Senator Ted Cruz introduced legislation on Tuesday to help revive the U.S. rare earths industry with tax breaks for mine developers and manufacturers who buy their products, the latest attempt by Washington to break China’s control over the strategic sector.
China is the largest global processor of rare earths, a group of 17 minerals used to make electronics and military equipment. The country has threatened to stop exporting the specialized minerals to the United States amid the ongoing trade war, prompting efforts by Washington to help revive its domestic rare earths industry.
Cruz’s legislation, if approved, would let mining companies deduct from their tax bill the costs of building rare earths mines, processing facilities and equipment purchases.
It would also let electronics manufacturers deduct 200 percent of the cost of U.S. rare earth products, including magnets, a measure designed to entice companies to buy fewer of the strategic minerals from China and more from the United States.
“I believe China is the most significant geopolitical threat to the United States for the next century,” Cruz, a Texas Republican, said in a statement.
The bill would also require the Pentagon to use U.S.-derived rare earth products in all weaponry.
Similar bills from other senators have yet to pass, though elements from them all could eventually be folded into broader U.S. military funding legislation, congressional staffers have said.
Reuters reported last month that a Chinese company’s minority stake in the only U.S. rare earths mine has prompted concerns from scientists at the U.S. Department of Energy. The U.S. Department of Defense decided to fund the mine’s owner, MP Materials in April.
Australia-based Lynas Corp also received Pentagon rare earths funding.
Satellites Show Scale Of Suspected Illegal Dredging In South China Sea
An unrelenting fleet of China-based dredging vessels are churning up the South China Sea. They are accused of acting illegally, and of causing ecological damage. Satellite images show the incredible scale of the activity. Many tens of vessels, possibly hundreds, are involved. The sand goes to land reclamation, possibly including artificial islands in the South China Sea.
On April 17 the Taiwanese Coast Guard reportedly chased 40 illegal dredging vessels from an area at the northern end of the South China Sea. The above satellite image, taken on April 13, shows this activity. Another image, taken on May 3 confirms that the vessels returned and continued dredging.
The vessels use suction dredges to suck up the sand. Each self-propelled dredging barge can carry hundreds of tons of sand and makes frequent trips. According to to the president of the Taiwanese Society for Wildlife and Nature, Jeng Ming-shiou, quoted in local media, Chinese ships are dredging more than 100,000 tonnes a day. This activity has been taking place for several years.
Analysis of open sources suggests that the sand is taken back to China where it is unloaded at ports like Qiwei in Fujian province. The sand is likely used for vast land reclamation projects, such as an extension to Hong Kong Airport.
It is not only Taiwan where the Chinese dredgers face resistance. In August 2019 a large dredging vessel run aground near Aparri, Cagayan, on the north coast of the Philippines. This Chinese vessel was reportedly involved in a legitimate dredging activity in Philippines. The sand was apparently destined for Hong Kong Airport expansion. The legitimacy of the operation was questioned locally however where there is opposition to ‘black sand mining’.
Black sand is particularly relevant to the Philippines. It is used in concrete and steel products, as well as jewelry and cosmetics. It can also contain Magnetite, a type of iron ore which is a valuable commodity. Its extraction may have a significant negative impact however. It can affect fish stocks and cause erosion, endangering local communities.
As demand implodes, the zinc supply chain starts to adjust: Andy Home
LONDON, May 12 (Reuters) – The London Metal Exchange (LME) zinc price has bounced by 20% from its March low of $1,685 a tonne to $2,020.
This is part of a broader mini-recovery across the base metals complex as the market focuses on the supply shock running alongside the demand shock caused by the spread of the coronavirus.
Lockdowns and quarantine measures have taken a particularly heavy toll of the zinc supply chain, with mine closures in key producer countries such as Peru and Mexico.
Analysts at Goldman Sachs estimate that 25% of global zinc mine supply has been forced either to shut down completely or curtail operations.
However, the title of the bank’s April 21 research note – “The recent zinc rally is a churn not a turn” – tells you that Goldman does not expect much more price upside.
The analyst consensus is that a more fundamental rebalancing of supply and demand will be needed to save zinc from revisiting the price lows.
There are signs, though, that the process is already starting.
Mining companies in Peru are set to restart operations in the coming days and ramp up to about 80% of normal production levels in a month, according to Pablo de la Flor, executive director of the National Society of Mining, Petroleum and Energy.
However, not all of them may return.
The zinc price collapse is forcing some miners to idle production irrespective of local quarantine rules.
Early casualties include Coeur Mining’s Silvertip operations and Trevali’s Caribou mine, both in Canada.
“As the pandemic continues to depress zinc prices, we have taken strong measures to reduce cash outflows and preserve liquidity,” Trevali said of its decision to place Caribou on care and maintenance until further notice. The mine produced 34,000 tonnes of zinc last year.
But it’s not only smaller operators.
Glencore has reduced its 2020 zinc production guidance by 105,000 tonnes to 1.16 million tonnes, partly reflecting temporary COVID-19 closures at the Matagami mine in Canada and the Antamina mine in Peru, but also the deferral of a new mine in Kazakhstan.
Development of the Zhairem mine will be completed, but “delivery to market of expected zinc production (is) being intentionally delayed until 2021”, the company said in its first-quarter production report.
This is reminiscent of Glencore’s voluntary 500,000-tonne cut in zinc production during the previous major price downturn in 2015. The company’s chief executive, Ivan Glasenberg, has been an outspoken critic of the mining industry’s history of prioritising volume over value at times of low prices.
Some See Promise In Wyo’s Critical Minerals. But Are They Viable?
Wyoming’s current coal market decline coincides with a sudden national awareness of the serious shortage of certain critical materials, including several with deposits located in the state.
With residents and lawmakers scrambling for new economic avenues, could Wyoming be the nation’s new go-to source for rare earth elements that now come mainly from China?
Last week, U.S. Sens. Mike Enzi and John Barasso sent letters to the Secretaries of Defense and Interior urging the Department of the Interior “to support the full range of domestic rare earths supply chain development, from extraction through separation and purification into the magnets, metals and alloyed forms of rare earths that are critical to our advanced weapons platforms.”
The Wyoming senators, joined by four others, stated, “It is clear that our dependence on China for vital rare earths threatens our U.S. manufacturing and defense industrial base.”
Wyoming hosts at least one deposit of these elusive minerals. Proven reserves from past exploratory drilling indicate that if the Bear Lodge project in Crook County were up and running, it could be the nation’s premier domestic source for rare earth elements. Other deposits containing uranium, lithium and helium exist around the mineral-rich state.
But bringing new mining projects to fruition requires traveling a long, hard road — especially when the financial markets lost enthusiasm for mining decades ago.
President Donald Trump signed an executive order in late 2017 calling for greater federal support for exploration and development of these resources, as well as for streamlining onerous permitting processes. The order launched the first stage in taking stock of U.S. critical minerals locations and inventory, the Earth Mapping Resources Initiative, a federal and state project started last year and overseen by the U.S. Geological Survey.