Battery Metals

London copper prices slid for a second session on Friday with concerns over global economic growth and U.S.-China trade tensions weighing on the market.

FUNDAMENTALS

* Three-month copper on the London Metal Exchange gave up 0.4 percent to $6,219.50 a tonne by 0203 GMT.

* Weak data in recent weeks in key global economies, including in top metals consumer China, has stoked fears of a recession.

* Industrial output in Europe’s biggest economy, Germany, registered an unexpected fourth consecutive monthly decline in December, data showed on Thursday, while the Bank of England said Britain faces its weakest economic growth in a decade.

* U.S. President Donald Trump said on Thursday he did not plan to meet with Chinese President Xi Jinping before a March 1 deadline set by the two countries to achieve a trade deal.

* The remarks confirmed comments from administration officials who said the two men were unlikely to meet before the deadline, dampening hopes of a quick trade pact and sparking a drop in U.S stock markets.

* Chilean state copper miner Codelco saw a 1.9 percent drop in its output in 2018, at 1.8 million tonnes, while production at the world’s largest copper mine, Escondida, shot up 34 percent in the same year, Chile’s copper commission said on Thursday.

* Russian aluminium giant Rusal said on Friday it sees demand for aluminium growing in 2019 with potential for prices to rise. In a filing, the Hong Kong-listed company also said the market for alumina, an oxide key to the aluminium smelting process, may be expected to be more balanced.

Lead prices may get a boost as environmental crackdowns on smelters in China curb output in the world’s biggest market for the battery metal as inventories tumble.

A record-breaking cold blast in United States could deepen potential shortages, creating a spike in demand as drivers scramble to replace batteries damaged by the big freeze.

Benchmark lead prices on the London Metal Exchange have gained around 4 percent this year after sliding 18.8 percent in 2018, its biggest annual loss since 2011.

Lead inventories in warehouses registered with the LME have slid by a third over the past month to the lowest levels since April 2009, while metal stored in Chinese non-exchange depots have tumbled by 70 percent.

Two years of weaker mine output have resulted in global market deficits, with the gap mainly made up by inventories, but these are now running very low, said Farid Ahmed, lead analyst at consultancy Wood Mackenzie.

Inventories cover just over one week of global lead demand.

“There’s not a lot of lead around. We could see some fireworks in the next several months, there could be an acute squeeze,” Ahmed said.

A clampdown on polluting smelters in China has resulted in a significant proportion of smelters idle or operating at reduced rates, he added.

Last year, primary lead output in China fell 2.3 percent. While secondary, or recycled, lead production increased by 5.9 percent and offset that decline, this year the authorities are launching a crackdown on illegal lead battery recycling.

The recent U.S. cold snap could also exacerbate the situation. “We note that 40 percent of auto battery demand arises from replacement – which tends to peak in the winter months as battery failures increase,” Robin Bhar, head of metals research at Societe Generale, said in a note.

The shutdowns have helped spur a sharp rise in Chinese imports of refined lead.

But after the major erosion of LME stocks, what’s left in LME warehouses is old, low quality metal that is largely not suitable for Chinese battery makers.

“You’ve got this big China pull, really extreme China tightness at the moment, but there’s a very big quality deferential between the metal that’s attracted into China and most of the metal that’s left on the LME.” said Oliver Nugent, analyst at Citibank in London.

Mine production is due to recover this year, but there is a lag as unprocessed ore works its way through the value chain into refined metal and therefore will not help the market in the next few months, analysts said.

The International Lead and Zinc Study Group forecast that lead mine supply is due to increase this year by 4.1 percent to 4.77 million tonnes after falling 0.4 percent in 2018.

Any squeeze should be temporary, since mine supply is due to continue to increase, leading to a global surplus of 106,000 tonnes by 2020 and 109,000 tonnes the following year, according to Citibank.

The boss of one emerging manganese producer says investors got too excited too quickly over the battery metals thematic, but the rapidly growing demand is very real.

Manganese is a battery metal because it is used in making the cathode of a lithium-ion battery. The cathode is used to conduct electricity flows out of a battery or device.

“There was a huge enthusiasm for battery raw materials well in advance of the emergence of the real demand for these products,” Euro Manganese  CEO Marco Romero told Stockhead.

“I think there was an excessive exuberance … that then was followed by a disappointment.

“And ultimately, I believe market interest, valuation and investor interest should balance out.

“There probably will be other rushes, other ups and downs in the market over time, but there is no doubt that the fundamental demand for these products is on the increase and will be so for the foreseeable future.”

The proof is in the billions of dollars being spent by major carmakers, according to Mr Romero.

“Audi by 2025 expects one third of its cars to be electric,” he said.

“Today you’re just beginning to be able to buy Audi electric automobiles.

“You can imagine that in a period of six years, all of a sudden a third of the models being electric is quite a dramatic change.”

Mercedes, meanwhile, was the first major carmaker outside of China to build its own battery plant.

German chemical giant BASF discovered late last year that by upping the amount of manganese and using much less nickel and cobalt it can slash the cost of an electric car battery by way more than half.

BASF is developing a battery chemistry that comprises 70 per cent manganese, 20 per cent nickel and less than 5 per cent cobalt.

Until recently the push by battery makers was for a chemistry make-up of 80 per cent nickel, 10 per cent manganese and 10 per cent cobalt.

The lithium ion battery market is forecast to increase by about 24 times in the next 20 years.

The primary cathode chemistry in 2040 will be nickel-manganese-cobalt and lithium-nickel-manganese oxide.

This will require more than 1 million tonnes of manganese metal equivalent.

Euro Manganese, which was the first company to dual list in Australia and Canada at the exact same time back in October, owns the rights to the largest manganese deposit in Europe.

The company is looking to build a larger-scale demonstration plant this year so it can start delivering large-scale multi-tonne samples of finished product to customers for testing and qualification.

A preliminary economic assessment released last week showed Euro Manganese’s Chvaletice project in the Czech Republic would have an after tax net present value (NPV) of $593m and internal rate of return (IRR) of 22.6 per cent.

The project would recycle 27 million tonnes of tailings material to produce 404,100 tonnes of high-purity electrolytic manganese metal and 2.35 million tonnes of high-purity manganese sulphate.

Cannacord Genuity recently initiated coverage of Euro Manganese and has placed a $1.10 share price target on the company, which today was trading at 26c.

The Federal Reserve’s dovish turn last week should enable gold to hold above the $1,300-an-ounce level that the market reclaimed last month, says the consultancy Metals Focus.

In December, Fed policymakers hiked rates for the fourth time in 2018, and markets expected more in 2019 despite certain risks, such as weakness in global equities since October, the consultancy said in a report Tuesday.

At their January meeting, policymakers did not hike rates again, a decision markets expected. However, the underlying message in Fed communications was construed as more dovish than in the past, with officials acknowledging challenges to economic growth globally, Metals Focus said.

“The new language also suggests that the central bank is likely to take a more patient approach this year…,” Metals Focus said. “Importantly, the Fed also pointed towards adjusting its asset-reduction plan if economic or financial conditions warrant it to do so (since 2017, the Fed has been reducing the size of its balance sheet).”

Economic concerns have become more pronounced as the U.S.-China trade dispute pushed annualized growth in China’s gross domestic product to its lowest level in three decades, Metals Focus said. Analysts also cited the ongoing Brexit issue, as well as weaker economic activity in the euro zone and some emerging-market nations.

“Coming to gold, the Fed’s dovish tilt is likely to help prices hold above the key $1,300 level,” Metals Focus said. “While a recovery in equity markets will act as a headwind, further dollar strength appears unlikely, thus helping to support gold at around current levels.”

As of 9:14 a.m. EST Wednesday, spot gold was trading steady for the day at $1,314.80 an ounce.

“Importantly, based on current implied probabilities, the policy divergence between the Fed and the European Central bank is likely to narrow by end-2019. This should translate into dollar weakness and in turn, more sustained upside for gold in the final months of this year,” Metals Focus added.

London nickel fell on Thursday, extending its pullback from a more than four-month peak reached the day before on supply concerns, while copper retreated after a three-day rise amid a stronger dollar.

Trading remained subdued, however, with markets in China still closed for the week-long Lunar New Year holiday.

* NICKEL: Three-month nickel on the London Metal Exchange dropped 0.2 percent to $12,925 a tonne by 0346 GMT, above a session-low $12,855. It ended 0.9 percent lower at $12,925 per tonne on Wednesday as the dollar firmed.

* COPPER: Three-month LME copper slid 0.6 percent to $6,241 a tonne, having reached a two-month high in the previous session.

* The dollar index, a gauge of its value versus six major peers, hovered close to its two-week high in early Asian trade.

* A stronger greenback makes dollar-denominated metals more expensive for holders of other currencies.

* TRADE TALKS: U.S. Treasury Secretary Steven Mnuchin said on Wednesday that he and other U.S. officials will travel to Beijing next week for trade talks, aiming to clinch a deal to avert a March 2 increase in U.S. tariffs on Chinese goods.

* ZINC: London zinc rose 0.3 percent to $2,712 a tonne, after it pulled back from a seven-month high touched on Tuesday.

* COLUMN: Zinc has been on the climb this year, defying broader macroeconomic gloom and a previous consensus that its bull run was well and truly over.

* VALE: The Brazilian state of Minas Gerais cancelled Vale SA’s licence to operate a dam at one of its largest mines, the company said on Wednesday, following the collapse of another dam in the state that killed an estimated 300 people.

Nickel finished below $13,000 on Wednesday as profit-taking set in, following Monday’s 5 percent surge when a Brazilian state court ordered Vale to stop using eight tailings dams, INTL FCStone analyst Edward Meir said.

“Vale concerns continue to lend an element of support to nickel, not in the sense that the company’s nickel supply is in any way imperilled, but more on concern about the fines and operational restrictions that could be imposed on the company by the Brazilian government,” Meir said in a note.

Nickel prices fell on Tuesday as traders took profits after betting the metal up to four-month highs in the previous session on concerns that Brazilian miner Vale could be forced to curtail supply.

Nickel surged 5 percent on Monday after a Brazilian state court ordered Vale to stop using eight tailings dams following a disaster last month that probably killed more than 300 people.

The order will hit nine percent of Vale’s iron ore production, but analysts say the company’s nickel output should emerge unscathed.

“We don’t find it credible. (Vale) do have one asset in Brazil but most of their nickel assets are outside the country and the process of (producing) nickel versus iron ore is not similar,” said Vivienne Lloyd, an analyst at Macquarie.

NICKEL: Benchmark London Metal Exchange (LME) nickel closed down 1.7 percent in official midday rings at $13,040 a tonne, having hit $13,265, not far off Monday’s four-month peak at $13,275.

TECHNICALS: Nickel on Monday broke through the 200-day moving average, sparking technical follow-up buying.

POSITIONS: LME data shows one firm holding a large short or sell position <0#LME-FBR>, while another holds between 50-80 percent of cash contracts and warrants <0#LME-WHC>, indicating the firm that is short might get squeezed.

NICKEL STOCKS: “Nickel stocks are continuing to decline in the LME’s warehouses MNI-STOCKS, yet this is nothing new. Nickel production is likely to be expanded considerably this year. We see no justification for the (price) surge,” said Commerzbank in a note.

OTHER METALS: Copper, zinc and lead all hit multi-month highs before retreating, with copper reaching a two-month high, zinc a seven-month high and lead a six-month peak.

GLOBAL MARKETS: Miners and banks helped world stocks extend their white-hot start to the year, while the dollar was straining for a fourth day of gains as traders waited for U.S. President Donald Trump’s State of the Union address.

TRADE DEAL: U.S. President Donald Trump said last week he would meet Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as Trump and his trade negotiator both cited substantial progress in two days of talks.

METAL PRICES: Copper ended up 1 percent at $6,231, aluminium ended up 0.2 percent at $1,922, zinc closed down 2.1 percent at $2,741, lead closed down 1.2 percent at $2,102 while tin closed up 0.2 percent at $20,850.