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Metal and iron ore prices rise despite weak economic data in China

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2023-11-20

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Metal and iron ore prices performed well last week, even in the face of another round of weak economic data from China.

Iron ore had another solid week, marking the 12th consecutive week of gains. SGX iron ore futures ended at $US128.35, surpassing $US130 a tonne mid-week. This was a slight increase from the previous week's $US126.81, and prices have risen by a third in the past three months, starting from $US96.28 a tonne on August 15.

While Chinese steel and government authorities express concern about the sharp price increases, domestic demand for steel within China remains weak, and profit margins are thin. Nevertheless, mills and traders continue to import large volumes of ore, as domestic production struggles to meet demand, especially for lower-grade ores.

In October, Chinese iron ore imports nearly reached 100 million tonnes, despite a 5% decline in exports from Australia (from Port Hedland). Crude steel production also decreased, falling below 80 million tonnes for the last month, reaching just over 79 million tonnes. This marked the lowest production level this year, apart from the figures impacted by holidays at the beginning of the year.

Interestingly, the week-long holiday at the start of October did not significantly impact production, as most mills utilised the break for maintenance scheduled later in the year.

Improving confidence in falling US bond yields, a weaker US dollar, and hopes of a recovery in the Chinese economy have contributed to the overall strength of industrial metals, except for nickel, which continued to decline to around $US16,900 a tonne, adding to the woes in the lithium price for IGO Ltd.

Copper traded at around $US8,165 a tonne on the London Metal Exchange, while zinc was priced at $US2,570 a tonne, and lead at $USD2,270 a tonne. Comex copper ended at $US3.73 a pound, marking a 3.8% increase, which should be encouraging for ASX-listed miners like BHP, Rio, and Evolution.

The latest Chinese economic data helped support prices throughout the week. Industrial production in October rose by 4.6% year-on-year, slightly surpassing the consensus forecast of 4.5%. However, investment slowed once again, primarily due to a 9% decline in property investment.

For gold, falling US bond yields brought some relief to traders, especially with the late-week weakness in the US dollar. Comex front month prices ended at $US1,984.70 an ounce on Friday, a slight decrease from Thursday, but still approximately $US40 higher over the week, or 2.1%.

The major commodity news of the week was Glencore's acquisition of 77% of Teck Resources' coal business for $6.93 billion. The remaining portion was acquired by Nippon Steel and Posco of South Korea.

In a news release, Jonathan Price, president and CEO of Teck, stated that the sale would ensure Teck's capitalisation and refocus the company as a Canadian-based critical minerals champion. Additionally, the acquisition enhances Glencore's portfolio by incorporating around 14 million tonnes of high and medium-grade coking coal exports annually, making the planned spin-off in a couple of years more feasible.

Teck had signaled the availability of its coal business last year when it expressed interest in pursuing prospects in renewable minerals like copper and nickel, making its coking coal operations available for sale. Although there was some negotiation and an attempted auction, Glencore emerged as the ultimate buyer.

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