copper

Trade Winds bimonthly update volume 36

As expected, a big hit to the steel sector, following on from our previous publication, it was expected that there would be a steel increase for the month of June and unfortunately the news broke last week Friday as ArcelorMittal announced another increase with prices increasing across the board in the region of 8%-10% on base product.

This, once again, is another blow to the sector and downstream players with contracts and projects continuously being re-looked at as well as critical stock levels affecting delivery times.

Following extracted from an article published by CNN 19/05/2021

China and the United States are in a race for scarce commodities to rebuild their economies after the pandemic. That’s pushing prices through the roof — and is now threatening to throw Beijing’s recovery plans off course.

The cost of everything needed for China’s post-pandemic infrastructure boom, from steel and coal to glass and cement, is soaring. The price of rebar, a type of steel used to reinforce concrete, recently hit 6,200 yuan ($965) per metric ton in Shanghai, up 40% this year, and a new record high. Iron ore, which is used to make steel, has topped 1,240 yuan per metric ton ($194) on the Dalian Futures Exchange, a 25% increase since the start of the year.

Thermal coal, glass and aluminum are hitting all-time highs in China. The price of plasterboard is rising too. The situation with steel has become so acute that China’s leaders are warning of damage to the economy. And a popular idiom for defenseless — “without an inch of steel in hand” — is now being used much more literally on social media to describe desperate buyers.

China was the only major economy to dodge a recession last year when the pandemic hit, but it launched a $500 billion infrastructure-led plan to support its recovery from the slowest rate of growth in decades.

Construction is also part of the economic recovery in the United States and may accelerate soon. President Joe Biden proposed in March a roughly $2 trillion infrastructure plan aimed at helping the nation recover from the coronavirus pandemic, and reshaping the US economy to counter China’s rise.

“Small businesses are facing even tighter cash flows, because they have less negotiation power when prices increase in their upstream sector,” wrote Luo Zhiheng, chief macro analyst for Guangzhou-based Yuekai Securities. “They either have to accept higher production costs, or cut their production and sit on the sidelines.”

Recovery efforts hit a snag

The spike in steel and iron ore prices comes down to a combination of factors. Along with construction, electric vehicle production is also fueling the rise, according to analysts at Fitch Ratings. Cars need high-strength steel that can reduce weight and improve performance, and production of electric, hybrid and fuel cell cars have been skyrocketing.

China’s efforts to reduce carbon emissions has also caused steel supply to tighten, the analysts wrote in a report this week. China produced more than half of the world’s output of steel last year, and Beijing has been pressuring the industry to reduce output in pursuit of its goal to become carbon neutral by 2060.

A bruising trade battle between China and Australia may also be inflating prices. Beijing has put up barriers to entry on several Australian exports over the last year, including coal. While one of Canberra’s most important exports, iron ore, has been spared, Beijing has been looking for ways to reduce its reliance on the country.

There are already some signs that the price hikes are hitting China’s construction sites and factories, according to Wang Jiechao, chief construction sector analyst for Pacific Securities. He wrote in a Monday report that many construction companies, foundries and small household appliance manufacturers have stopped taking orders because of production losses.

“The rapid increase in commodity prices has seriously eroded the profitability of downstream manufacturing companies,” Wang added.

A recent survey of 460 construction companies nationwide revealed that many firms are feeling the pinch. Some 56% of respondents to the survey — conducted by 100njz.com, a Chinese construction industry data provider — said that the price hikes have affected their work schedules to varying degrees. Among them, 30% said they have suspended construction to control costs, while the rest have slowed projects down.

Meanwhile, 44% of the respondents to that survey said that although they are still moving ahead with construction as planned, they have had to reduce their steel purchases, which could lead them to consider suspending work in the future.

It’s also bad news for employment, according to Luo of Yuekai Securities, who noted that small businesses are struggling with the price hikes and also account for 80% of the country’s urban jobs.

Luo pointed out that April’s unemployment rate for young people aged 16 to 24 remained high at nearly 14% and their working hours decreased, “possibly because small businesses were running below capacity under the pressure of rising costs.”

Prices are rising everywhere you look

China is still exporting a lot steel, but the government is starting to discourage that in a bid to shore up supply at home. Authorities announced in April that starting this month, they would end export tax rebates for most of the steel products. Customs officials have also cut import tariffs for some steel.

Local governments, meanwhile, have opted for harsh measures in a bid to keep prices down. Late last week, regulators in Shanghai and the steelmaking hub Tangshan summoned major steel mills and ordered them to fix their prices “at reasonable levels.” Mills could face “severe punishments” if they collude to drive up steel prices, according to government statements.

Major futures exchanges in Shanghai, Dalian, and Zhengzhou have also tightened trading rules for steel or coal contracts, and have raised trading fees to cool down the market. Three top coal index compilers even stopped publishing daily updates. The move was to “stabilize market prices,” the state-backed China Coal Transportation and Distribution Association, one of the index compilers, said last week.

Still, prices for the metals remain elevated. And some analysts have pointed out that it will be tough for China to reign in commodity prices without compromising elsewhere.

Certain areas within South Africa are again plunging into total darkness without any prior notice from Eskom as the embattled state power supplier continues to struggle to keep the lights on across the nation which in turn affects all industries within the country, adding further costs to production as producers look to other means of power supply.

South Africa’s manufacturing surges, by 3.4% month-on-month according to data received for March.

The above-average output lifted the volume index to 99.6, a level last seen in January 2020. Last year the index had dropped to 54 by April, the lowest level it had been on record.

In comparison, by March this year, the level of production was up by 4.6% year-on-year.

It is noted that the annual recovery was driven by the manufacturing of food and beverages, as well as motor vehicles and parts.

Border updates,  and the recently opened One Stop Border Post at the Kazungula Bridge between Zambia and Botswana has already resulted in a significant reduction in the time it takes hauliers to use the once-treacherous Zambezi River crossing.

Delays, especially during last year’s coronavirus outbreak which caused mass disruptions on either side of the river, were further exacerbated by heavy rains earlier this year, with at least, on average one if not two of the three pontoons frequently being out of order, the rush to make up for lost time often resulted in trucks slipping off the ageing ferries.

However, this seems to be a thing of the past now as transit times have gone from an average 40 hours in April to 22 hours since the bridge opened on May 10, operations are going smoothly with minimal teething issues.

Transporters can now rejoice as one of the region’s most notorious border crossings has been wholly transformed.

No further delays or updates have been reported at Beitbridge or Kasumbalesa.

Protests claim a life, and the South African Police Service has confirmed that a driver burned to death in his cab last night on the outskirts of Harrismith after protesters threw stones at his truck on the N5 highway.

Protests over service delivery flared up earlier in the week along the N5 and N3 highways, major pass throughs between Durban and Johannesburg.

Whilst the police have been monitoring the stretch of road during the week, unfortunately the loss of life occurred.

Record copper price not all good for Zambian miners, and copper mining companies in Zambia are at odds with the record prices of copper, which have brought them significantly higher royalty bills than previously under the country’s current tax regime.

Zambia uses a sliding scale to determine its mining royalty rate for copper, linked to the international copper price. The scale is adjusted in that royalties are paid at higher levels as the commodity price climbs and is reduced as prices fall.

Starting at the minimum threshold of 5.5% when the copper price is less than $4,500/mt, rising to 10% when the copper price is $9,000/mt or higher. Which in turn means that copper mining companies are currently paying the maximum threshold for mining royalties.

Since 2019, when the new Zambian mining tax regime came into effect, mineral royalty payments have not been treated as a deductible expense when calculating corporate income tax. Income is taxed at the rate of 30% a year for base and industrial minerals miners. The effect of this is that mining companies are paying “double tax” as the companies are taxed on income that has already been paid over as a royalty.

Zambia is highly dependent on mining as its major productive industry, with the sector contributing 10% to the country’s GDP in 2019. Zambia’s mining sector accounted for 28% of the government’s revenues and 77% of export earnings, with copper accounting for over 90% of the sector’s exports.

In 2020, large scale copper mining companies recorded an increase in total copper production of 9.7% year on year.

Kamoa-Kakula starts production ahead of schedule, the joint venture between Ivanhoe Mines and Zijin Mining has achieved production several months ahead of schedule.

Whilst the company has described this feat as a “historic achievement” President of DRC, Felix Tshisekedi has said that the country is open for business and investment.

Although this exploration journey started well over two decades ago, it is also noteworthy that the Kakula deposit itself was discovered just over five years ago, which is remarkable progress by the mining industry.

In April, the Kakula mine mined 357,000 tonnes of ore grading 5.70% copper including 121,000 tonnes grading 8.40% copper from the mine’s high-grade centre.

Kakula is anticipated to be the highest-grade major copper mine in the world with an initial mining rate of 3.8-million tonnes a year, with an expected climb to 7.6-million tonnes a year in the third quarter of 2022.

Phase 1 is expected to produce 200,000 tonnes a year of copper and phases 1 and 2 combined are forecast to produce 400,000 tonnes a year. The current copper price also allows Ivanhoe and Zijin to mull over the acceleration of the Kamoa-Kakula Phase 3 concentrator.

France, the latest nation to aid Mozambique, after meeting with the French president, President Filipe Nyusi of Mozambique has advised that France has shown “complete willingness” to provide whatever is necessary for Mozambique’s fight against terrorism in the northern province of Cabo Delgado.

France has shown support but has left sovereignty in the hands of Mozambicans.

This appears to mean that any French assistance in the fight against Islamist terrorism will take into account the lines of intervention laid down by the Mozambican government.

The two countries must advance quickly to sign the agreements which will define the type of support granted by France.

As reported in the previous publication, the Portuguese government has also stressed its readiness to assist Mozambique in the fight against terrorism.

Some Portuguese troops are already in Mozambique providing the Mozambican defence and security forces with technical assistance and training.

The aim that the Mozambican government is to build up the capacity of the country’s own military than to rather have foreign intervention.

“Rain beats the leopard’s skin but it does not wash out the spots”

Trade Winds bimonthly update volume 23

Level 1 restrictions eased, on Wednesday night 11th November 2020, South Africa’s president, Cyril Ramaphosa announced the easing of South Africa’s level 1 lockdown, opening the borders up to international travellers as well as allowing alcohol to be sold within the pre-covid trading hours, this is yet another step in slowly opening up the economy and to allow more growth, although opposition parties and leaders have bemoaned the extension of the state of the disaster it seems the people of South Africa as a whole are feeling more positive.

Border updates, the Beitbridge saga continued since the last report, however as of yesterday it is noted that congestion has eased significantly, with compliments pouring in from the transport industry about the SA Revenue Service’s decision to discontinue issuing CN2 gate passes at Beitbridge, an intervention that now appears to have completely decongested northbound transits. There is however a slight delay on the Zimbabwean side as authorities were overwhelmed with trucks crossing from the SA side but they are dealing with each truck in good time. 

This is a breath of fresh air since the 21st of October when the congestion began, reports of crime and violence emerged as well as a driver losing their life.

We hope the new system implemented can keep traffic at a free flow for some time to come.

A joint effort between DRC and Zambian officials have effectively decongested the Copperbelt crossing of Kasumbalesa, that in the past has been known as a notoriously problematic border.

Prior to the Covid-19 lockdown, Kasumbalesa’s fragile workability could result in cargo disruption at any given time. The impact was immediately felt when COVID-19 hit, leading to a northbound cargo queue stretching some 90 kilometres south-east through Chingola towards Kitwe.

Knowing that vast action was needed to clear the border and boost imports and exports into the region which is known for its copper mines, DRC and Zambian authorities got together to combat a troublesome border which resulted in the decongestion in under a week. This just proves once again that when people come together nothing is impossible.

Zimbabwe under pressure to end gold sales, Gold mining investors are pressuring Zimbabwe to change a law forcing producers to sell their output to the central bank, who then part pays them in local currency that is useless outside the country.

Whilst mining investment is key to rebooting Zimbabwe’s collapsing economy, the nation suffers from a shortage of dollars. As the rally in bullion generates more interest in the industry, the government is weighing its options on whether to grant investors gold-trading licenses.

Zimbabwe currently forces gold miners to sell their bullion to Fidelity Printers and Refiners Ltd. It pays them 70% in dollars and the remainder in local currency.

Bravura enters the frame; Nigerian owned Bravura Holdings has $1 billion available for the development of a platinum mine in Zimbabwe.

The 3,000-hectare concession where it plans to dig the mine is in Selous, 80 Kms south of Zimbabwe’s capital Harare which is close to existing platinum mines.

Bravura is one of a number of companies that have secured platinum concessions in Zimbabwe as the government seeks to kick start its stagnant economy. Still, established platinum miners haven’t announced plans to expand their operations.

While Zimbabwe has the world’s third-largest platinum group metal reserves, investors have been deterred by frequent changes to mining laws and currency policies.

Rare diamonds have been discovered in Matabeleland South and Masvingo provinces, the findings come after Alrosa, a Russian mining firm had done extensive exploration at the Malipati Diamond Project and say these findings have the potential to change the face of Zimbabwe’s gem industry.

In collaboration with state-owned diamond miners ZCDC, Alrosa has come to this discovery on finding this “Type II” diamond. Type ll diamonds have no nitrogen in their composition and come with a much higher price tag to them.

Rushinga District in Mashonaland Central province there is a potential new Chinese investor looking at the exploration of iron deposits.

The investor, who already has steel smelters in China’s city of Handani are under pressure to curb pollution, has already partnered local investors with plans underway to develop mines and build smelters, this is, however, subject to an in-depth exploration to confirm commercial quantities and quality of the resource. There is evidence of the existence of iron deposits in mountain ranges of Mavhuradonha, which stretches into Mozambique.

The project has been in the pipeline for the past 18 months, but was delayed due to global pandemic, supply chains disruptions and travel restrictions.

The investor had plans to commence production in 2023.

A special tasks force within the Ministry of Mines and Mining Development, has been formed to oversee the implementation of the project.

Zimbabwe Iron and Steel Company is Zimbabwe’s only integrated steel firm, however operations stopped in 2008 due to lack of capital and poor management. The company had capacity to produce up to one million tonnes annually, the company was among Zimbabwe’s major foreign currency earners.

Kakula tunnels successfully connected, Kakula mine in Kolwezi, DRC which is being developed in the eastern part of the Kakula deposit has reached a major milestone as the Northern and Southern tunnels have now been successfully connected.

Kakula is the first of many underground copper mines to be developed in the 400sq km region, the average grade of copper is said to exceed 8%.

The Kakula Mine is expected to have a mine life of approximately 21 years, whilst Kakula West which is Kamoa-Kakula’s third underground mine to be developed has a projected mine life of approximately 16 years.

The underground development on the south decline was performed by the mining crew of JMMC who are the DRC subsidiary of leading Chinese mining contractor JCHX, the northern decline was performed by Kamoa Copper’s mining crews.

Further developments are planned to commence mid next year where a set of connection drives is expected to hole by June 2021 which will open up an additional high-grade and medium-grade mining block and phase 1 copper concentrate production from the Kakula Mine is scheduled to begin in July 2021.

Earlier in the month Nanjing Hanrui Cobalt Co Ltd, advised that they expect to start their cobalt production line in the DRC Later this month, moving into December.

The 5,000-tonnes-per-year production line in Kolwezi, DRC, was expected to be running earlier this year but due to the COVID-19 pandemic all operations were placed on hold.

The firm was still discussing sales contracts with foreign traders and domestic users.

Terrorising of Mozambique continues!  More than 50 people were killed in a terrorist attack last Friday in northern Mozambique where insurgents attacked a village.

Up to 2,000 people have been killed and about 430,000 have been left homeless in the conflict in the mainly-Muslim province. The militants are linked to the Islamic State (IS) group, giving it a foothold in southern Africa.

The group exploits poverty-stricken areas and the unemployed and grows their numbers by recruiting the youth in their fight to establish Islamic rule in the area. Many locals complain that they have benefited little from the province’s ruby and gas industries.

Zimbabwe president Emmerson Mnangagwa has recent said that he will be sending troops over to help with the insurgents.



 “If you climb up a tree, you must climb down the same tree”