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Basic Materials Roundup: Market Talk

21 Mar 2018 8:20 am

The latest Market Talks covering Basic Materials. Published exclusively on Dow Jones Newswires at 4:20 ET, 12:20 ET and 16:50 ET.

0648 GMT - If metal prices continue to rise, the adoption of electric vehicles could stall by the early 2020s, Berenberg says. As car maker's ramp up electric-car production, they count on battery costs to decline as scale increases. But over the last year, higher prices for cobalt, lithium and nickel have slowed down this price deflation, Berenberg says. Higher metal prices mean that battery costs may bottom out at a higher price than previously anticipated. In this case, electric-vehicle sales could stagnate once purchase subsidies in China, Europe and the U.S. fall away, says Berenberg.(Max.Bernhard@dowjones.com; @mxbernhard)

0645 GMT - Copper and cobalt miners in Zambia are under renewed pressure as government moves to conduct fresh tax audits running back 6 years. Stephen Mwenya, a Lusaka-based economist, says the development sets a stage for a potential standoff between Africa's No. 2 copper producer and some of its top miners. It may "unsettle" a sector that has slowly been recovering from the global commodity slump of a few years back. The state tax body contends it has already uncovered underpayments by a prominent miner and may extend the audit period should it find a pattern of premeditated tax evasion. First Quantum Minerals, Zambia's biggest copper producer, says it's in possession of a tax assessment from Zambia's tax body that amounts to around $8 billion. It "refutes" the assessment. (nicholas.bariyo@wsj.com; @Nicholasbariyo)

0617 GMT - Asian credit markets have gotten quieter ahead of the looming FOMC rat hike, with companies preferring to wait to launch new deals and investors seeing no reason to buy right now. At least 18 dollar-bond deals are waiting to be launched in Asia, according to market participants. The include India's JSW Steel, which is looking to raise up to $1 billion from 5- and 10-year bonds. The firm says it has no immediate need for cash but wants to raise the money anyway to lock in lower interest cost and repay debt ahead of future rate hikes. But Thailand's largest independent power producer didn't wait. Ratchaburi Electricity, in a rare visit to the bond market, yesterday sold $300 million of 10-year bonds. It got more than $500 million of orders. (manju.dalal@wsj.com)New Hope Corp.'s share price is feeling the weight of uncertainty over its proposed expansion of the Acland operation, which has faced challenges and is currently before a judicial review. Morgans says the risk of Acland having to wind down may put a cloud over the stock in the short term, but it thinks the Australian coal producer "will continue to enjoy solid cash flows, to pay dividends and to enjoy significant growth optionality regardless." New Hope, which is down 16% so far this year, "is trading at a circa 6% discount to our conservative NPV which ascribes either no value or substantial discounts to much of New Hope's hard asset base, including Acland Stage 3," says Morgans. It keeps a hold rating and lifts its target 1% to A$2.23/share. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

2204 GMT - What does the sale of Rio Tinto's Hail Creek mean for Kestrel, the other coal mine on Rio's chopping block? Macquarie says, "flexing our modelling for a US$150/ton long-term price that we estimate Hail Creek has been transacted on implies a US$2.0 billion NPV for Rio's [80%] stake in Kestrel." That compares to the US$1.5B valuation Macquarie has on Kestrel, based on a US$125/ton long-term coal price. Still, Rio has a good track record on results from asset sales, it says. While Macquarie forecasts cash from the Hail Creek deal will be given back to shareholders, it thinks the board will wait for the sale of Kestrel before announcing plans for extra returns. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

2124 GMT - Rio Tinto's sale of its Hail Creek coal mine marks another step in the mining titan's streamlining of its portfolio, notes RBC Capital Markets. Now, "with the balance sheet in a strong position, the question for Rio is becoming when (or if) the company switches from selling assets to buying assets," the broker says. Meantime, cash from the US$1.7B deal is likely to boost investor returns at Rio's midyear result, "something which should be seen favorably in the short term," says RBC. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

2114 GMT - Jefferies expects seaborne coal prices will soften in the near-term after a "surprisingly resilient" period. It is less bearish on the outlook than some, though, saying the picture for supply and demand is undoubtedly mixed. "While we expect demand growth to be tepid, supply constraints and low consensus expectations could offset headwinds and help prices settle into a higher range than the market expects," says Jefferies. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

2048 GMT - Canadian stocks closed higher on Tuesday, as gains in the energy and information technology sectors offset losses in health care and metals and mining. The S&P/TSX Composite Index was up 26.97 points, or 0.2%, to 15616.36. The blue-chip S&P/TSX 60 Index edged up to 923.47. Trading volume was 323.8M, as declines outpaced advances 804 to 792. (maria.armental@wsj.com; @mjarmental)

2024 GMT - Jefferies says the US$1.7B deal struck for Rio Tinto's Hail Creek coal mine, to be sold to Glencore, looks right on the money. "This valuation is in line with our NPV estimate of US$1.76 billion and is a win-win as it makes strategic sense for both companies," says Jefferies, which names Rio and Glencore as two of its favorite mining stocks. The bank says it's "a positive sign that both sides viewed the deal as attractive and were able to execute quickly and decisively." (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

1748 GMT - The Stoxx Europe 600 closes 0.5% higher at 375.57 as the euro falls against the dollar following a drop in German economic confidence. The single currency falls 0.6% to $1.2264 after fears about trade wars caused the German ZEW economic sentiment report to fall to 5.1--an 18-month low. Germany's Dax gains 0.7% and France's CAC-40 rises 0.6%. John Wood Group PLC is the pan-European index's biggest faller, down more than 6% as it swung to a pretax loss in 2017 after an acquisition. Belgian precious-metal refining group Umicore rises 5.7% after comments by speakers at the FT Commodities Global Summit about potential rising demand for commodities needed to make electric car batteries. (philip.waller@wsj.com)

1733 GMT - The Belgian stock market Bel-20 closes up 0.4% at 3935.78, in line with nearly all European markets closing higher. The best performers of this session are Umicore, up 5.7% and Solvay SA, up 0.8%. Sofina SA and Etablissementen Franz Colruyt NV close flat, while bpost SA is down 3.9%, followed by Ontex Group N.V., down 2.9%. (valentina.pop@wsj.com)

1619 GMT - U.S. and German automotive companies haven't woken up to China's future dominance of electric vehicle production, says Ivan Glasenberg, chief executive of Glencore PLC. Mr Glasenberg told the FT Commodities Global Summit that with China buying up most of the world's cobalt -- a key ingredient in lithium ion batteries -- the German and U.S. car industries will trail the Asian powerhouse in global electric vehicle sales. "At the moment car companies haven't really woken up to that fact, only now they're sort of panicking a bit about cobalt," he says. Glencore, the world's largest cobalt miner, recently agreed to sell a chunk of its production to Chinese company Gem Co in a three-year deal. (sarah.mcfarlane@wsj.com)

(END) Dow Jones Newswires

March 21, 2018 04:20 ET (08:20 GMT)

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