25th June 2021
It’s Friday, and despite the food poisoning I gave my household last night (be wary of reheated rice, everyone), I’m excited for the weekend!
I’ve mentioned China’s release of strategic reserves of copper, aluminium and zinc several times in recent newsletters, so it’s about time we had a look at what’s actually going on. The timing is perfect, since the National Food and Strategic Reserves Administration (NFSRA) has just announced the first round of auctions as part of the release, and the numbers have not really impressed markets so far.
Between the 5th and 6th of July, the NFSRA will auction just 20,000 tons of copper, 30,000 tons of zinc and 50,000 tons of aluminium. For reference, that amounts to 2.3% of China’s output of copper for May alone, alongside 5.7% of zinc and a measly 1.5% of aluminium, according to Reuters. If this is a serious attempt to take the heat out of these commodity markets, it hasn’t gone well; the price of copper on the Shanghai Futures Exchange rose 2% over the days around the announcement, indicating that the market did not see this as significant enough to lower prices.
We can expect larger auctions from China’s strategic reserves after these are over, but Glencore CEO Ivan Glasenberg had something to say about that at the Qatar Economic Forum. He thinks that these measures from China are a “short term game”, in part because the fundamentals for these metals are strong, with massive infrastructure spending on the horizon in the US, and partly because China itself will have to replenish its reserves at some point. Obviously Glencore has skin in the metals price game and loves to see them soar, but it’s hard to argue with those points.
Another interesting take on the issue of zinc in particular came from Reuters again. They reckon that the zinc market is heading for a state of over-supply after a price spike in 2018, and that China’s reserves come not from seeing zinc as a strategic metal, but from state buying to prop up prices for local producers in 2009 and 2012. Therefore, those reserves were bought cheaply and reluctantly, so it’s a pretty good deal for the NFSRA if they can sell them back to the market at current, much higher prices. On top of this, refined zinc supplies are currently tight in China due to power rationing in the major zinc-producing region of Yunnan, which is experiencing a drought that is impeding its hydro-electric power production. All this is to say that this might be the last good moment to be selling zinc for some time.
It’s likely that this move is simply the NFSRA testing the waters to see what the appetite is for the release of these reserves. It’s also possible that they are wary of the release working too well, and establishing a situation where Chinese domestic prices are lower than the global market, which traders could exploit for profits, thereby driving prices higher again and making the whole endeavor pointless. We will have to wait and see whether any future moves will be enough to cool the market substantially.
Around the Traps
Goldplay (TSXV:AUC) has by far the biggest news of the week, with a major acquisition for them in Portugal. They’ve got their hands on three copper-gold projects with great potential, including past producing mines. You can read the news release here, plus here is a great interview, which you can also watch below, with Goldplay CEO Catalin Kilofliski, about their recent acquisition.
Have a look at Spotlight’s Project of the Week! It’s Guanajuato Silver’s (TSXV:GSVR) El Cubo and El Pinguico prospects in Mexico, and there’s a lot of great information and some very cool pictures packed into this article by our very own Daniel Croft.
Did you miss The Mining Waffle podcast last week? It’s got everything - rocks, stocks and…blocks, I guess? Check it out here.
Jaguar Mining (TSX:JAG, OTCQX:JAGGF) has been doing some reconnaissance drilling at its Corrego Brandão project in Brazil, and has intersected a significant mineralized zone with grades up to 11.25 g/t over 3.5 m. You can read more in their news release here.
That’s all for me this week, have a great weekend everyone!
- Jane Lockwood