gold

Trade Winds bimonthly update volume 52

Mittal shutdown postponed; ArcelorMittal has announced that their planned shutdown at the Newcastle Furnace has been delayed till the end of March.

The announcement comes after the mill decided to build up steel supplies to carry the industry over the three months that it will be in care and maintenance.

There is the rising concern that South Africa will once again face a shortage of steel at the beginning of the second quarter going into Q3 due to Mittal’s shutdown as well as price increases to go along with the shortage.

Please be mindful of the shutdown and plan accordingly.

Global steel prices expected to remain elevated in 2022, players within the steel sector are becoming increasingly cautious in their purchasing requirements. The forward view on global prices is, gradually, turning more negative, particularly for coil products. The record high values reached towards the end of 2021 took many by surprise.

The peak of the price highs occurred at differing points in each region. European prices peaked at their highest level in June of 2021, while those in North America peaked in September as Asian prices levelled off.

The outlook for the start of 2022 is clouded again by Covid-19 sweeping across the globe. The ominous Omicron variant perhaps slowed the recovery in the steel market.

Prices are expected to find support above historical averages, due to increased mill input expenditure and moves to decarbonise the industry. The economic outlook for 2022 is also relatively strong. This is despite downside risks associated with new Covid variants and the expected tightening of monetary and fiscal policy in many countries.

Supply chain shortages are still disrupting the global steel market and are preventing a strong recovery in 2022. Due to the backlogged steel orders, the demand will remain high throughout the year. 

Because of the demand for the limited inventory available, steel prices will continue to go up in 2022. The U.S. steel industry is currently valued at $180 billion and began to boom in 2020 thanks to the disruptions caused by COVID-19. 

Increased business and consumer spending habits have driven up the demand for steel-bearing products, which are needed for everything from vehicles to food cans. Buyers in some instances are willing to pay more for these products and will continue to pay increased prices throughout 2022.

ATDF, again denies protest, The Port of Richards Bay was the scene of a peaceful, albeit illegal, protest against the employment of undocumented foreign truck drivers on Thursday morning as protesters pulled over several truck drivers before the police intervened.

Upon arrival at the scene, SAPS spoke to a person who was identified as the leader of ATDF on site however, the secretary for the All Truck Drivers’ Forum, Sifiso Nyathi, said the organisation had nothing to do with the protest and that it appeared that unemployed people were using the name, although they had no affiliation to the forum.

Nyathi said the ATDF would oppose the hiring of illegal immigrants via formal, legal channels.  Forums have been set up to engage with all relevant parties and government authorities and hopefully it will result in a workable policy that allows the industry to move forward in a positive and safe way.

Airfreight on a tricky path, spike in demand, soaring rates, and a tricky balance between certain markets remaining closed to curb Covid and others reopening to global trade, necessitate fine footwork from the airfreight sector.

The current situation of high demand and even higher rates was expected to last for the duration of the 1st quarter, before tapering off in Q2.

At least that’s what Aero Africa is hoping for, that there’s respite for shippers somewhere in the near future.

Until then, the struggle to find space and allocation for clients in a confined market continued, especially out of China.

Snags on the ocean side are fuelling an overflow of critical orders to air, sustaining demand, but capacity into Africa and its important sub-Saharan transhipment hub of South Africa remained a problem.

South Africa’s block space agreement out of China is on hold because the carriers are on hold, China cannot commit to freighters in South Africa because they are going into the US where the yield is better and as a result, options out of China have become few and far between, with agents fighting for space that is often elsewhere allocated because of market dynamics which is attributed to the strength of the dollar and the primacy of American imports to name a few.

Ocean freight costs expected to remain high throughout 2022, Shipping rates are expected to stay elevated well into 2022, setting up another year of booming profits for global cargo carriers.

The spot rate for a 40-foot container to the US from Asia peaked at just over US$20,000 last year up from less than US$2,000 a few years ago and was recently hovering near US$14,000.

Tight container capacity and port congestion also mean that longer-term rates set in contracts between carriers and shippers are running at around 200% higher than a year ago, which signals that elevated prices are here to stay for the foreseeable future.

Larger customers like retail or tech giants have the power to negotiate better terms in those deals or absorb the added expenses whereas the smaller importers and exporters that rely on carriers to haul everything from electronics and apparel to grains and chemicals, cannot easily pass those costs along or weather long periods of stretched cash flows.

Regulators from the US, the EU and China met in September and determined there was so far no evidence of anti-competitive behaviour in container shipping. Governments are on high alert as global supply chains are being pushed to the breaking point.

The US Federal Maritime Commission says it has increased monitoring of carrier alliances, to better track trends and spot potential illegal behaviour, such as artificially limiting supply or not competing on prices.

Zambia to continue with plans to sell KCM, Zambia’s state-appointed liquidator who is managing the affairs of KCM said he would proceed with the dismantling of the company and the sale of its assets.

This was after the Lusaka Court of Appeal earlier this month declined to discharge the liquidator, Milingo Lungu, despite ruling earlier that he should arbitrate a dispute with KCM’s majority shareholder, Vedanta Resources.

ZCCM Investment Holdings, a 20.6% stake holder in KCM, applied to put the company into provisional liquidation in 2019. Vedanta argued the step was unlawful as there were conditions in their shareholders’ agreement allowing for dispute resolution.

ZCCM said Vedanta had failed to invest in KCM’s assets and had not paid dividends as previously promised.

Despite being asked to enter into arbitration proceedings with Vedanta, Lungu said that he would divide KCM into halves, effective January 31, and then embark on an asset disposal programme.

Zimplats allowed to set up solar plants. The Zimbabwe Energy Regulatory Authority announced on Friday that it had granted Zimplats a licence to construct, own, operate and maintain a 105 MW solar power plant at Ngezi Mine.

A similar notice was also published but this time for the generation of an 80 MW solar power plant at Zimplats’ Selous Mine in Chegutu.

Zimplats says setting up the two power plants will cost the company as much as $201 million.

Zimplats is not the only miner that has turned to solar power as gold miner Caledonia Mining, which runs Blanket Mine in Zimbabwe is constructing a 12 MW solar plant which is expected to be operational this year and will exclusively supply Blanket with approximately 27% of its daily electricity usage. 

Copper prices on the rise, the copper price rose on Wednesday, supported by expectations of further policy easing in China.

March delivery contracts were exchanging hands for $9,856/tonne on the Comex market in New York, up 2.3% compared to Tuesday’s closing.

The most-traded March copper contract on the Shanghai Futures Exchange was steady at $11,026.46/tonne.

China, the world’s biggest buyer of metals, has been stuck in a property market slump, credit stress and repeated virus outbreaks. In response, the central bank this week cut its policy interest rate for the first time in almost two years, signalling the beginning of an easing cycle. 

China’s copper exports rose to an annual record of 932,451 tonnes in 2021, according to customs data.

Gold also rose to its highest in two months this past Wednesday.

Fears that insurgents planning more attacks in Cabo Delgado, The SADC has warned that insurgents are regrouping for more coordinated attacks.

While SADC has noted considerable gains in Cabo Delgado, there are genuine fears that insurgents have withdrawn to regroup and are planning rejuvenated attacks. 

“The insurgency is not yet neutralised. The violent extremists are regrouping, launching attacks from several parts of Cabo Delgado and they are also expanding to neighbouring province Niassa where they have launched significant attacks,” said Professor Adriano Nuvunga – the Director of the Centre for Democracy and Development.

SADC sent in its Standby force into Mozambique’s gas-oil rich Cabo Delgado in July last year, a month after Rwanda sent in troops.

At the onset of the SADC Mission in Mozambique, Nuvunga said the insurgents were disbanding. However, six months later, they had changed their strategy.

At the beginning of the deployment, the country saw violent extremists disbanding. Now they have seen them regroup and move in terms of recruitment.

On December 15 last year, Islamic extremists in Nova Zambezia, Macomia district, beheaded a pastor and instructed his wife to take his head to the police with a message: “While you [government forces] are walking on tarred roads, real men [insurgents] are in the woods.”

As a show of power, the insurgents operating from the bush ambushed SAMIM forces in the east of Chai in the northern Macomia district on the night of December 19, resulting in the death of a South African soldier.

Intel also suggests that the insurgents have support within communities they operate, with some civilians assisting them in transporting arms.

Since the insurgency began in 2017, there have been 1,111 cases of political violence with 3,627 reported fatalities during these attacks and 1,587 reported fatalities from violence targeting civilians.

“Great things are done by a series of small things brought together.”

Trade Winds bimonthly update volume 48

Steel price increases on the way? After our last Trade Winds update advising of a steel increase of R1200.00/Ton set for next week, rumour has it that the two other major steel mills are increasing their prices as of next month.

Prices are increasing, demand remains high but with ArcelorMittal’s care and maintenance closure at their Newcastle Plant, supply has dipped and is expected to continue to be low throughout Q4 and into Q1 next year.

The care and maintenance is expected to start from 22nd November 2021 and run into early next year.

Whilst the strike remains in place at the Vanderbijlpark plant there is little to no disruption at the moment.

Plastics, HDPE, Rubber and PVC have once again climbed in pricing due to international force majeures as well as the rising price of oil which directly fuels the raw material price of the abovementioned products.

Border updates, Beitbridge is currently recording preclearance times that have not been seeing in decades.

According to the latest GPS data received from the once heavily congested transit, it is now taking less than 12 hours for a truck to pass through the border with the latest on-average processing times as follows:

  • Four hours from Zimbabwe into South Africa.
  • Eight hours from South Africa into Zimbabwe.

To put it into perspective, at the Kazungula Bridge across the Zambezi between Botswana and Zambia, processing still takes longer than 24 hours on average however, the difference is that Kazungula is a single-window one-stop border post compared to Beitbridge which isn’t.

Closer comparison reveals that at Kazungula it takes up to 25 hours for northbound trucks entering Zambia.

Where week-long waiting queues had been the norm up until early October, the speed in which cargo is now being processed at Beitbridge, is simply due to transporters adhering to preclearing procedures. If trucks arriving at the border with documentation not being in order, they are then set to a truck yard where they are then marshalled towards a holding area.

Fines of R20 000 had been recently introduced by the SA Revenue Service for non-compliance with clearing procedures.

This is great news for importers, exporters and everyone involved at the border as the notorious congested border crossing is now a free-flowing port.

Truck drivers’ strike struck off the roll, the imminent truck driver struck has been cooled as government has stepped in.

The South African Transport and Allied Workers Union (Satawu) has welcomed government’s plans to crack down on foreign drivers who are working in the country illegally.

The Departments of Labour, Transport, Police and Home Affairs recently announced that they may change legislation to make it tougher for non-South African workers in the sector which includes the prohibition of foreign nationals from operating South African registered trucks using foreign professional driving permits.

It follows last month’s blockading of several national highways by striking truck drivers.

Load-shedding to be eased by energy investments, as new electricity generation capacity comes online, energy investments are said to help overcome the debilitating load-shedding that the country is currently experiencing.

Cyril Ramaphosa has said that energy continues to be an area of growth in South Africa as the 25 preferred bidders in the fifth round of the Renewable Energy Independent Power Producer Procurement Programme were together, expected to invest around R50 billion into the economy.

South Africa has recently secured an initial commitment of around R131 billion to fund a just transition to a low-carbon economy by investing in renewable energy, green hydrogen and electric vehicles.

The country has been once again rocked by power cuts this past week with stage 4 load-shedding disrupting the day to day lives of citizens and businesses.

Airfreight on the rise, latest figures show on airfreight that year-on-year capacity for October has increased by 17% with a three percentage point drop-off in dynamic load for the same year on year period, with take-up currently standing at 68%, an increase of 2% from the previous month suggesting that demand is slowly catching up.

Interestingly flights ex-Asia Pacific-Europe remained virtually full, lifting rates by a further 20% over September 2021, while Apac-North America rates reached a double-digit level per kilo. Overall, international rates rose 10% month over month.

Although capacity for air cargo is increasing, neutral consolidator CFR Freight says available space is limited and that rates are regularly upsold at the time of booking due to excessive demand.

It is recorded that rates have increased by up to 37% at the end of September compared to the previous year.

Maersk signs transport deal, Vestas, a Danish wind turbine manufacturer has gone into a joint venture with Maersk in a long-term strategic partnership for all its containerised transport needs which in turn will ensure that Vestas gets direct access to container capacity at a fixed price

The deal includes door-to-door transport from the company´s suppliers to their factories and service warehouses, as well as containerised site parts and transport equipment.

Airfreight shipments are included in the deal.

Non-containerised road transport and outbound shipments will continue to be managed by DSV and other partners.

Metal sector to continue its recovery into the new year, S&P Global Market Intelligence states that the metals sector is set to continue its rebound from the effects of the covid-19 pandemic through 2022. 

Pent-up consumer spending, government stimulus efforts and the accelerating energy transition are all contributors to the continuation of driving demand, prices and exploration budgets.

The upswing in demand growth will drive prices higher across a range of metals in the medium term and there is a projection of increase in iron ore price volatility into 2022 due to the combination of underlying market tightness, potential supply disruptions and project delays as well as global supply and power constraints.

Copper on the other hand is expected to have a demand from solar and wind energy generation to reach 852,000 tonnes by 2022 and the growing electric vehicle market to account for 1.1 million tonnes in 2022.

Margins are also expected to remain healthy in 2022 for most metals, following the high prices and relatively steady costs experienced by producers in 2021.

Gold price climbs to 5-month peak, Gold kept its hot streak going this past Wednesday, rising by 2% to a five-month high after a surge in US consumer prices last month elevated gold’s appeal as an inflation hedge.

Spot gold was up 1.1% at $1,852.36 per ounce, having earlier hit its highest since June 15 at $1,857.09.December gold futures rose 1.4% to $1,856.70 per ounce.

Zimplats planning major expansion, Implats’ Zimbabwe-based unit Zimplats has announced plans to invest a total of US$1.8 billion over the next seven years towards mine expansion, as well as the establishment of a base metal refinery.

The bulk of the funds, amounting to US$386.2 million, will go towards the development of Mupani mine, which is a replacement for the depleting Rukodzi, Ngawarati and Mpufuti mines, whilst the base metal refinery plant will cost US$200 million.  

The miner also plans to set up a 110 MW solar power plant at a total cost of US$201 million.

An expanded smelter will cost US$280 million and will see smelting capacity increased from 132 kilotons to 380 kilotons of smelted concentrators, while the development of Hartley mine will cost US$289 million.

The project will also enhance the company’s capacity to smelt its own resources and for local third parties.

Zambia implements tax breaks, Zambia will implement tax breaks for mining companies, with mining royalties to be deductible from income taxes, something the mining companies have complained about that not being able to deduct royalties resulted in double taxation and deterred investment.

Finance Minister, Situmbeko Musokotwane, did not discuss any changes on the royalty rates. Royalties are currently ranging from 5.5% to 10% which is dependent on the copper price.

Minister Musokotwane also said that the government will cut its budget deficit target, and that debt restructuring negotiations with creditors are expected to conclude in early 2022.

Gemfields finds largest emerald at its Kagem Mine, Gemfields has found a emerald weighing in at a 7,525-carat (1,505g) named Chipembele, which means “rhino” in the local dialect of Bemba.

Whilst there are no official records, it is extremely rare to encounter a gemstone weighing more than 1,000 carats and only a couple of dozen unique enough to deserve their own name.

The last time a comparable emerald was found was in 2018, when the same mining company unearthed a 5,655-carat emerald, name Inkalamu, meaning “lion”. Prior to that, a 6,225-carat dug up a emerald in 2010, which was named Insofu – Bemba for “elephant”.

“You are today where your thoughts have brought you; you will be tomorrow where your thoughts take you”

Trade Winds bimonthly update volume 16

Border Mayhem, despite efforts being made at Beitbridge border post to reduce heavy congestion, things are just not going their way especially since the curfew that was recently placed in Zimbabwe only allows the once 24hour operation to operate on a 12-hour shift. It has been almost two weeks now since the curfew was placed and cargo continues to build up both north and south of the border.

“One of the issues we’re experiencing at the moment is the runners that can’t cross the border,”

“Before the six-to-six night curfew was implemented, runners from Zim would cross the border and collect all the necessary monies for road tolls required to carry on north. These include things like coupons to get through Chirundu.

Unfortunately, because of the curfew, the runners can’t come through anymore and money can only be collected once drivers are on the Zim-side.

Another issue that adds to this is that the Zimbabwe Revenue Authority’s Documents Processing Centre is closed during the curfew.

However, there is some relief as authorities south of the border have been checking trucks in the queue and directing the drivers with incomplete documentation to move their cargo into the various trucking yards thus allowing drivers with correct documentation to proceed to the border.

 It is also noted that trucks are being cleared faster on the Zim side as the officials are easing their expectations on how many trucks should be checked for smuggled goods.

Earlier in the week there were reported positive COVID cases and the border had to be closed for fumigation on Monday.

Following on from Beitbridge, a truck part at Zeerust on the Platinum Highway going onto the Trans-Kalahari Corridor in Botswana has been closed, originally it was said that this was due to a positive COVID case but upon further investigation the result of the closure came from municipal protest action being responsible for the issues that had an impact on the border.

Also, earlier this week, Kasumbalesa had closed its gates. This stems from political unrest in the DRC. Information received indicated that there was ongoing resistance to the political leadership of that province.

It is also noted that that solo journeys were discouraged because of the risk of armed assailants. In one case, assailants sporting assault rifles threatened a driver with his life and immobilised his truck by removing its batteries, which were thrown into roadside bushes.

Cape Town Port Gets the Nod, the middle of month deadline to clear the backlog seems to be well on course and the Western Cape Exporters’ Club (WCEC) had released information indicating that delays at the Cape Town Container Terminal (CTCT) are down to a day.

Based on a daily lockdown report issued by Transnet Port Terminals, the club said there were two vessels berthed at the CTCT – the MSC Shannon and the Santa Isabel with six teams of port staffers working the vessels.

It is recorded so far that 11,900 containers had been worked at the port last week although this number could have been higher if it wasn’t for a mechanical breakdown. Currently there is maintenance being done on the cranes.

The port has been battered over the past few weeks by heavy winds and massive swells but the waters are calm and the skies are clear which is great news.

More positive news coming from further north off the coast line, Durban Container Terminal took delivery of another 13 electric straddle carriers over the weekend.

According to a Transnet statement, the DCT Pier 2 now has a fleet of 15 new electric straddle carriers which are due to be commissioned and handed over to operations this month.

“The eighth-generation equipment arrived fully assembled with improved drive technology, starting reliability, maintainability, safety, usability, ergonomics as well as an ability for a computer application to read data from the control system via Ethernet – providing comprehensive detail on statistics, real-time performance data and operational reports,” according to Transnet.

Although there is a lot of positives in the industry so far there is however a dark cloud as the industry braces itself for massive additional charges after Transnet National Ports Authority (TNPA) asked for a whopping 19.74% tariff hike for the 2021/22 financial year.

This comes as the Ports Regulator of South Africa on Tuesday confirmed it had received the annual TNPA tariff application and that it had started a process of public consultation.

In its application for a nearly 20% tariff hike, TNPA stated that the South African economy had been challenged with slow economic growth, underinvestment, and increasing levels of unemployment for some time.

“The recent downgrades of South Africa’s sovereign credit rating to sub-investment grade by rating agencies has added to the woes of government burdened with rising debt levels, collapsing state-owned enterprises, and weak business confidence levels.

The Authority argued that it was viewed as a catalyst for economic growth and therefore more than ever needed to deliver on its mandate. To do so it required the 19.74% tariff hike.

Celebrating a milestone, August 24th calls for celebrations in Namibia as The Port of Walvis Bay will celebrate the opening of their new container terminal which was commissioned last year.

The NCT has recorded throughput of 115 146 s (TEU) in eight months of operation, and anticipates an upward growth trajectory despite the effects of Covid-19.

Another milestone for the port was its record-breaking 46 berth moves per hour on the Maersk Lunz earlier this year.

Gold Price Reaches New High, Gold advanced to a fresh record high on Wednesday – pushing towards the $2,050/oz mark after breaking through $2,000/oz on Tuesday on the back of a weakening dollar, falling US Treasury yields and expectations of more stimulus measures for the pandemic-ravaged global economy.

Bullion is up nearly 35% so far this year and is one of the best-performing assets in 2020. The precious metal is benefiting from heightened uncertainty around the long-term effects of the global health crisis, as more investors turn to safe-haven assets and an alternative store of value in a low-yield environment.

DRC suspends tax exemption, Democratic Republic of Congo is suspending the value-added tax (VAT) exemption on imports by mining companies in an effort to bolster state revenue, the budget minister said.

Jean-Baudouin Mayo told the finance minister to implement the government’s decision to suspend the exemption after cabinet agreed the move last week, according to a letter dated July 31.

Congo, Africa’s top copper producer, had exempted mining companies from paying VAT on imports since 2016 to help them during a commodity price downturn.

According to Louis Watum, president of Congo’s chamber of mines, mining firms had not been consulted before the government agreed to reimpose the tax, a move he said would hit cashflow.

“We want to make the government understand that if they begin to row back entirely on legal agreements, it will not help the business climate in our country,” he said.

Congo’s economy, which has been damaged by the coronavirus crisis that hammered the demand of copper and other forms commodities, is forecast to contract by 2.4% this year.

The International Monetary Fund has approved more than $731 million of disbursements in the past year to help the economy.

Congo’s foreign exchange reserves were just $836 million at the end of July, which is only enough to cover just over three weeks of imports, according to the central bank.

ArcelorMittal SA falls deeper, last week Africa’s steel giants released a statement advising that the company fell deeper into a half-year loss as demand for steel dropped due to COVID and output declined after operations were shut during lockdown.

ArcelorMittal SA said some parts of its business would remain idle until demand recovered which includes placing its melting operations at its Vereeniging works on care and maintenance from the third quarter. The company expects steel demand to be between 70% – 75% pre-lockdown levels for the foreseeable future.

Coming from a demanding 2019, the first half of 2020 proved to be a difficult time with the impact on business due to COVID. The steel producer which has long battled against cheap imports, rising costs and an embattled local economy, said last month it had begun talks to cut unspecified number of jobs as it tries to cut costs.

Job cuts are a sensitive topic in South Africa where unemployment currently stands at a record high of around 30%.

Now with the latest rumours of plate shortages looming due to lack of billets, the projected company losses will most likely take a bigger hit. 

“We May Encounter Many Defeats But We Must Not Be Defeated”