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Basic Materials Roundup: Market Talk

1 Jun 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.

0617 GMT - Australia's main stock index logged its first 3-week losing streak since late March as the market today was once again irritated by recent sore spots. The S&P/ASX 200 fell 0.4% to 5990.4, putting the week's drop at 0.7%. It's struggled after nearly breaking early 2018's 10-year high, with commodities and financials being key pressure points. Energy fell 0.8% today while financials lost 0.9%, hitting another 19-month low. But materials climbed 0.5%. Notable individuals included ear-implant firm Cochlear jumping 3.7% to fresh record highs. (kevin.kingsbury@wsj.com; @kevinkingsbury)

0426 GMT - US steel prices may be continuing to rise, but Smartkarma's Charles Spencer sees them skidding in China. Chats with steel brokers there hint at a decline with a pickup from delayed infrastructure projects expected to wane at a time there's lots of domestic steel. Unsold inventories are some 20% higher than a year earlier and 50% above 2016's lows, he notes. "In fact, inventories today are back to levels last seen in 2014, just before steel prices went into a major correction." He's as a result bearish on some steel stocks, including Angang. He sees shares falling to HK$6.50 in current months; they're currently at HK$8.05 and down 15% from early February's 6 1/2-year high. (kenan.machado@wsj.com)

0202 GMT - If you missed Oz Minerals' strategy day, you didn't miss much, says Credit Suisse. Presentations "appeared designed to educate a gaggle of new sell-side analysts" and introduce new members of the management team. There was a particularly notable lack of new information on Avanco takeover offer, with management warning "not to expect material disclosure of their value proposition until ownership is above 90%," the bank notes. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

0145 GMT - Citi doesn't think private-equity firm Lone Star will get a clear run at Sino Gas & Energy despite yesterday's A$530 million($401 million) deal. The investment bank thinks a A$4.5 million breakup fee isn't likely to deter Chinese firms already familiar with Sino Gas' assets or able to better navigate operating risks there. "We think it makes sense for JV partner [China New Energy Mining] or an integrated gas firm such as ENN to counteroffer," says Citi, whose stock target has been A$0.27. The Lone Start deal would pay A$0.25. Shares are up 3.2% at A$0.24. (david.winning@wsj.com; @dwinningWSJ)

0030 GMT - The imposition of steel tariffs against the EU, Canada and Mexico has already generated fresh US steel-price gains. The price for Midwest hot-rolled coil rose 0.5% to a 10-year high of $893.50/ton, says S&P Global Platts, putting the year's jump at 36%. The tariff news has increased fears about supply availability as the EU, Canada and Mexico together account for about 40% of US steel imports. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

Moody's U.S. steel outlook is now positive. "Supply Worries Aside, US Steel Demand Looks Good -- Market Talk," published at 20:19 ET, incorrectly said the view was raised to stable.

20:19 ET - While tariffs threaten US steel supplies, Moody's says higher demand in its 12-18 month outlook has its outlook for sector rising to positive. "Improved demand levels from 2017 are proving sustainable in 2018." Signs of solid economic growth are also making the ratings firm more upbeat. (rhiannon.hoyle@wsj.com; @RhiannonHoyle) Corrections & Amplifications

This market talk item was corrected on June 1, 2018 at 0027 GMT to reflect that Moody's U.S. steel outlook is now positive, not stable.

0012 GMT - Surging chemical prices are the latest driver for IHS Markit's materials price index, which has risen 6 of the past 7 weeks. Excluding chemicals, which jumped 8%, the 1.6% increase in the index would have been a decline, the data provider notes. "The rebound in chemical markets last week marked a stark contrast to conditions seen earlier this year" and was underpinned by production outages and falling inventories. "The question is whether chemical prices--along with the wider commodity complex--can sustain the strength of the last two months." (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

2350 GMT - Moody's cautious view on coal is partially offset by a good market for steelmaking products. The ratings firm, which has a stable outlook on the North American coal industry, says "while thermal-coal production is in long-term secular decline" as power producers increasingly turn to natural gas, "met-coal fundamentals are stronger with a combination of better margins for steel producers and logistical constraints." Still, Moody's notes that a big drop in met-coal prices or an accelerating decline in thermal-coal usage could tip its outlook to negative. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

2328 GMT - Bigger would be better for Gold Road Resources at its Gruyere operation in Western Australia, says Canaccord. The investment bank lifts its stock target 11% to A$1.05 while contending an annual processing rate of 7.5 million tons of ore outlined in Gold Road's feasibility study is too low. It thinks 8.5 million can be handled, highlighting development of satellite pits nearby and an additional cutback at Gruyere. Gold Road fell 5% in May to A$0.76, dropping the year's gain to 7.9%. (david.winning@wsj.com; @dwinningWSJ)

2154 GMT - Canadian bonds rose after the government released 1Q growth data which fell short of investor expectations. The economy grew 1.3% in the quarter versus expectations of 1.8% as debt-laden consumers slowed consumption and as declines in exports weighed on growth, said David Rosenberg, chief economist at Gluskin Sheff + Associates. Investors also sought bonds as concerns grew about President Trump's willingness to rely on tariffs to resolve trade disputes, which could weigh down trade globally. The yield on Canada's 10-year government note fell to 2.245% from 2.266% Wednesday, according to Tradeweb. (daniel.kruger@wsj.com)

2149 GMT - Canada has a message for US producers whose goods stand to be affected by C$16.6B in retaliatory Canadian tariffs: call your local lawmaker and members of Congress to get the Trump administration to reconsider levies on imported Canadian steel and aluminum. Foreign Minister Chrystia Freeland issued the advice in a recent interview with the Canadian Broadcasting Corp., adding that its list of targeted items--US-made steel, aluminum and some agricultural products--was ready in the event the Trump administration opted to drop Canada's exemption on steel and aluminum tariffs. She said she spoke with US Trade Representative Robert Lighthizer early Thursday, and told him she was "very disappointed," and believed the tariffs on Canadian metals "was a mistake." (paul.vieira@wsj.com; @paulvieira)

(END) Dow Jones Newswires

June 01, 2018 04:20 ET (08:20 GMT)

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