Copper was once again approaching the psychologically important $3 a pound level on Wednesday on the back of falling inventories, booming Chinese demand and pandemic hit supply from South America, the US and Africa.

Copper for delivery in December trading in New York jumped 1.5% to $2.9965 a pound ($6,605 a tonne) in afternoon trade, bringing gains for 2020 to more than 7% and a whopping 50% since the covid-19 lows struck in March.

“CHINA IS IMPORTING MORE REFINED METAL FROM NEARLY EVERY COUNTRY SUGGESTING A STRUCTURAL SHIFT NOT A TEMPORARY CHANGE”

Jonathan Barnes – Roskill

A new report from Roskill suggests the rally in copper – which has surprised many with its speed – has further to go.

Jonathan Barnes, associate consultant for copper at the London-based metal and minerals research firm, says while the effects of covid-19 could decrease world consumption of the metal by 3%–4% this year, the drop in mine output and scrap flows has been greater.

Signs of panic buying

The effect of this is most visible in the fall in stocks around the world.

Total visible stocks globally, which include those on exchanges and bonded warehouses in China fell by 40% from March to end-July to below 600,000 tonnes. Inventories in LME warehouses are at 13-year lows.

China is responsible for more than half the world’s copper consumption and the country is sucking up copper at record-setting rates.

“China is importing more refined metal from nearly every country suggesting a structural shift not a temporary change,” says Barnes.

“If you are looking for signs of panic buying, you can find evidence of that in China – total Chinese stocks represent less than two weeks’ consumption at current rates of use.”

In the rest of the world, where demand has dropped by much more relative to China, stocks represent only one week of consumption.

Secondary shortfalls

The lack of available scrap – imports are down 50% in the first half – after Beijing delayed new importing rules, has forced the Chinese buyers to replace secondary sources with cathode, further driving down visible inventories.

Roskill estimates a roughly 300,000 tonne shortfall in imports of secondary materials – scrap, ingots and granules – into China in January to July.

Barnes believes global scrap flows may not normalize until the first quarter of next year, but would depend on new rules in China.

Barnes says Roskill’s sources have not been able to confirm that China’s State Reserve Bureau has been buying up strategic stocks of copper, “but if they were, they probably would have done so earlier, when prices were much lower.”

Two-year restocking cycle

Disruptions to mine supply could be between 750,000 to 1 million tonnes in 2020, with eight out of the 10 largest miners recording lower output during the first half of the year.

China’s concentrate imports are down year on year while sourcing anodes and blister from the central Africa copper belt is also hitting roadblocks.

Barnes says China’s two-year restocking cycle is rising in amplitude as the country’s dominance in the copper market increases and he expects an 11.5% rise for the full year in copper imports.

The country has a structural copper market deficit and it restocks whenever LME prices appear attractive. Moreover, says Barnes, China can take a long term view and use tomorrow what it does not need today.

Roskill expects trade data to show another bumper August for imports, despite being a seasonally muted month for shipments.

Parallels to post-GFC

Barnes says the copper price will likely rise further towards the end of 2020, and that the current environment has strong parallels to the rebound in the copper price after the global financial crisis.

Copper hit a low of $1.32 a pound in January 2009, then surged to $3.55 by April the next year on its way to an all-time peak of $4.58 (more than $10,000 per tonne) in February 2011.

Mongolia has achieved notable success in protecting the health of its citizens and preventing the community spread of COVID-19. As of mid-August 2020, Mongolia had experienced no deaths from COVID-19 and 300 cases, all imported. Mongolia’s containment strategies allowed the country to re-open businesses internally and hold a successful national election. But its success has come at a price, as the country is now struggling to restart its export-driven economy and deal with mounting international debts.

A protester waves a Mongolian flag during a demonstration at Sukhbaatar Square in Ulaanbaatar, Mongolia, 27 December 2018 (Photo: Reuters/B. Rentsendorj).

In January 2020, Mongolia began working closely with the World Health Organization (WHO) and activated the country’s inter-agency emergency management system. This empowered the State Emergency Commission (SEC) — a governmental body led by the National Emergency Management Agency (NEMA) — to lead the country’s coronavirus response.

Mongolia began health screening of travellers in late-January and halted all international flights and trains by early March when its first case was discovered. Mongolia requires that anyone arriving from abroad undergo testing, spend three weeks in a government-monitored quarantine facility and then two additional weeks in self-quarantine. In February, the country sharply curtailed Lunar New Year celebrations, and July’s Naadam festival was held without spectators.

Mongolia’s strict measures paid off — there has been no community transmission of COVID-19 in the general population. More than 60,000 Mongolians have returned from abroad since the start of the pandemic. Approximately 300 of these returnees, mostly from Russia, have tested positive. 289 have recovered with no deaths recorded. Most businesses in Mongolia reopened in May, including restaurants, hotels and holiday resorts. Mongolia’s isolation and small population have helped the country stop the spread of COVID-19, but there are concerns that relaxing travel restrictions could lead to a surge in cases.

Life and economic activity within the country have largely returned to normal, but the border closures and global economic slowdown have severely impacted Mongolia’s economy. In the first six months of 2020, Mongolia’s GDP fell 9.7 per cent, exports fell by over 40 per cent and the government deficit rose to almost 10 per cent of GDP as revenues fell and expenditures rose to address the pandemic. Mongolia’s exports are dominated by natural resources including coal, copper, oil and agricultural products hit by falling international demand.

Mongolia’s most important mining project, Oyu Tolgoi — a massive underground copper and gold mine being developed by Rio Tinto — was already facing delays and cost overruns due to technical issues and disputes with the Mongolian government, which holds a 34 per cent share. Copper exports from the operating part of the mine have been delayed due to border closures. Travel restrictions have also prevented the rotation of key personnel, creating more uncertainty and delays for the project that is now not expected to come online until 2023. Mongolia’s herders in rural areas have also been impacted as demand for their main product, cashmere, plunged during the key early-spring buying season.

Mongolia’s economy is tightly tied to China, where the country sends more than 90 per cent of its exports. While steps have been taken to reopen the border to trade, COVID-19 precautions and market disruptions have resulted in an ongoing reduction in exports. Concerns have been raised about Mongolia’s government debt levels which have risen to 77 per cent of GDP.

The IMF warned that Mongolia faces longer term economic risks due to high government and private debt levels, a heavy reliance on natural resource exports and uncertainties in global economic recovery. Mongolia has already tapped into international aid from the Asian Development Bank, the World Bank and the IMF to cover its short-term government financing needs. But the country risks debt distress if the economy is unable to recover in the near future.

Mongolia held its scheduled parliamentary elections on 24 June 2020. The election campaign period was shortened and public gatherings were restricted due to COVID-19, but Mongolia was able to learn from South Korea’s experience and held the election with minimal disruptions. The success of the government in controlling COVID-19, an electoral system that favours major parties and voters’ desire for political stability helped the ruling Mongolian People’s Party (MPP) win 62 of 76 seats.

The pandemic was not a major issue in the election as all parties and candidates pledged to maintain strict controls. The most important related issue concerned the more than 10,000 Mongolian citizens living in other countries who wanted to return to Mongolia. Some candidates supported restricting these flights to prevent passengers from bringing COVID-19 into Mongolia, while others urged the government to speed up repatriations and allow as many Mongolians as possible to return. The overwhelming victory of the MPP ensured that repatriation flights will continue, with 4000 Mongolian’s expected to return in August 2020.

Mongolia has achieved success in its public health response working closely with neighbouring countries and global organisations. China, South Korea and Japan have all provided Mongolia with donations of equipment and expertise, and in late-February Mongolian President Khaltmaa Battulga was the first foreign head of state to visit Chinese President Xi Jinping after the start of the pandemic.

The country’s success also illustrates the challenges it faces due to its isolation and its economic dependence on global markets and other countries, especially China. Mongolia’s high debt levels will limit the new government’s ability to offer programs to reduce the social and economic effects of the pandemic and leave the country vulnerable to a prolonged global economic slowdown.

Charles Krusekopf is Professor at the School of Business, Royal Roads University, British Columbia.

Mendee Jargalsaikhan is a postgraduate research scholar at the Asia Pacific Foundation of Canada and a director at the Mongolian Institute for Innovative Policies.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.

The Mongolian government on Tuesday extended the country's heightened state of readiness for another 15 days until Sept. 15 amid the COVID-19 pandemic.

The decision to extend the heightened state of readiness was made as part of efforts to prevent the spread of the COVID-19, the government's press office said in a statement.

As of Tuesday, the Asian country has confirmed 298 COVID-19 cases, all imported.

Thanks to the early introduction of social distancing and rigid health protocols for cross-border flows, no local transmissions or deaths have been reported in Mongolia so far. Enditem

MOSCOW - Russia's Gazprom <GAZP.MM> plans to set up a company to prepare to build another gas pipeline linking Russia to China but that will run through Mongolia, the Russian gas producer said on Tuesday.

Gazprom currently operates the Power of Siberia gas pipeline that connects Russia directly with China and is considering to build up more routes to increase annual supplies to China to 130 billion cubic metres at some point. REUTERS

Read more at https://www.todayonline.com/world/gazprom-set-company-mongolia-gas-supplies-china

Ulaanbaatar /MONTSAME/. A Memorandum of Understanding (MoU) on the establishment of a joint Mongolian-Russian special purpose company to develop a feasibility study of the project on building pipelines between Russia and China going through the territory of Mongolia was signed today. The MoU was signed by Deputy Prime Minister of Mongolia Ya.Sodbaatar and Deputy Chairman of the Board of Directors and the Chairman of the Management Committee A.Miller on behalf of their respective Governments.

The participants of the meeting noted that the realization of the project to build Power of Siberia-2 gas pipeline connecting Russia and China though the territory of Mongolia, which will transport 50 billion cubic meters of natural gas a year to China, has taken a step forward.

The meeting reviewed the implementation of the bilateral joint plan and agreed on further measures and activities to be taken by the sides. Next week, a “Confidentiality Agreement” will be established between Gazprom PJSC and Erdenes Mongol LLC.

At the request of the Russian side, Prime Minister of Mongolia U.Khurelsukh took part in the virtual signing ceremony and delivered an address.

In his address at the signing ceremony, PM U.Khurelsukh highlighted that the signing of a Memorandum of Understanding on jointly exploring the possibilities of implementing the project was one of the most important results of his official visit to Russia in December 2019.

Emphasizing that the successful implementation of the project is significant to not only enrich the comprehensive strategic partnership between Mongolia and the Russian Federation but also advance bilateral cooperation to a new level, the PM pledged to put special attention to the progress of the project and provide relevant support and assistance.

Gazprom PJSC, China National Petroleum Corporation (CNPC) and Erdenes Mongol LLC are working on the implementation of the project, reports the Media and Public Relations Department of the Government.

Global markets remained steady on Tuesday after Washington and Beijing reaffirmed their commitment to their historic trade agreement even as the two economic giants have disagreements on multiple fronts.

Top US and Chinese officials in charge of the implementation of the trade deal – Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin – continued telephone discussions on Tuesday. The trade talks, originally scheduled for August 15, became the first formal conversation on the matter between the two sides since early May.

READ MORE

Rising US-China tensions create unthinkable additional burden on American economy – Professor Wolff to Boom BustRising US-China tensions create unthinkable additional burden on American economy – Professor Wolff to Boom Bust

In brief statements after the talks, both delegations described the deal’s progress as positive. China's Ministry of Commerce said that Beijing had “a constructive dialogue” with Washington, adding that the sides agreed “to continue pushing forward” the Phase 1 trade deal.

The US Trade Representative’s office (USTR) confirmed that the two countries are committed “to taking the steps necessary to ensure the success of the agreement.” However, Lighthizer's office also noted that the significant increases in purchases of US products by China were also part of the discussion, together with “future actions needed to implement the agreement.”

The call came as investors globally raised concerns over increasing tensions between the two economic superpowers. Chinese stocks ended slightly lower on Tuesday, with Hong Kong’s Hang Seng sliding around 0.2 percent and Shanghai Composite falling 0.4 percent. Elsewhere in Asia, stocks were trading higher, including in Japan, with its Nikkei 225 gaining around 1.4 percent.

Meanwhile, European stocks moved slightly higher, with markets in Britain, Germany and France trading in positive territory.

The Trump administration continues to attack Beijing over a slew of issues – from the handling of the Covid-19 outbreak to national security threats allegedly posed by Chinese tech companies. The last escalation saw Chinese tech firm ByteDance filing a lawsuit challenging the US government’s crackdown on its video app TikTok, which faces the threat of a ban in the US.

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Chip supplier Qualcomm seeks to avert ‘costly’ US ban on exports to Huawei – report

Washington also says Beijing is not holding up its end of the bargain in the trade deal amid the coronavirus pandemic. According to the agreement signed in January, China is supposed to buy $77 billion in additional US goods and services in 2020 and $123 billion in 2021 to meet the $200 billion total. Trade data suggests that China is far from reaching the target, despite recently boosting American farm goods purchases, including soybeans. According to the Peterson Institute for International Economics, China’s year-to-date total imports of covered products from the US stood at $40.2 billion, meaning that its compliance is less than 50 percent

South Korea has ordered the closure of all schools and kindergartens in the greater Seoul area following a rise in coronavirus cases there.

Nearly 200 staff and students have been infected in the greater Seoul area over the past two weeks.

Remote learning will continue until 11 September, the Ministry of Education said.

Health authorities have warned that the country is on the brink of a nationwide outbreak.

All students in the greater Seoul area, home to over 25 million people, will now take classes online with the exception of those in their final year of high school who are due to take university entrance examinations in December.

Schools with fewer than 60 students and special education schools are allowed to choose whether to follow the ministry's guidelines, the Korea Times said.

Most of South Korea's schools reopened in stages between 20 May and 1 June after cases in the country appeared to fall.

South Korea has reported 310 deaths and 17,945 cases since the pandemic began, according to data from Johns Hopkins University.

The country had been viewed as one of the world's coronavirus success stories for its management of the disease - however in recent weeks infections in the country, particularly the greater Seoul area, have increased.

On Tuesday, 280 new Covid-19 cases were reported - the 12th day of triple digit increases in a country used to case numbers below 30.

Many of the new infection clusters are linked to a number of right-wing Protestant churches whose members took part in a mass rally in Seoul just over a week ago.

Authorities in Seoul have ordered masks to be worn in indoor and outdoor public places for the first time. Churches, nightclubs and karaoke bars have also closed.

The government has warned that if cases continue to rise, tougher social distancing rules could be enforced. It could mean that many businesses across the country would have to close for the first time during the pandemic.

(The opinions expressed here are those of the author, Clyde Russell, a columnist for Reuters)

Rio Tinto may have inadvertently triggered the law of unintended consequences with its blasting of an Aboriginal heritage site at one of its Australian iron ore mines, and the subsequent slap on the wrists for some senior executives.

The board of Rio cut the bonuses of three senior executives including Chief Executive Jean-Sébastien Jacques as part of the company’s review into the destruction of two historically significant caves in Western Australia state, against the wishes of the Aboriginal traditional owners.

Rio, which overtook Brazil’s Vale as the world’s biggest iron ore miner last year, destroyed the Juukan Gorge caves in May as part of an expansion of its Brockman 4 mine.

hile the blasting met legal requirements, Rio has faced a public and investor backlash for allegedly putting profits ahead of heritage, a view amplified by the revelation that the company had alternatives to destroying the caves but chose not to pursue them.

The Rio board review said there was no single “root cause or error” that resulted in the destruction of the caves, rather it was a “series of decisions, actions and omissions over an extended period of time.”

The board recommended improving procedures and setting up new processes to ensure this type of incident doesn’t happen again.

The board’s review likely fails what Australians refer to as the “pub test,” which means whether the average patrons of a typical bar believe the actions are reasonable and appropriate.

The loss of about $3.7 million in bonuses for the three executives is a very mild punishment, given their level of remuneration and the fact that Jacques, along with head of iron ore Chris Salisbury and Simone Niven, the executive responsible for corporate relations, bear responsibility for what has become a public relations disaster for the company.

The board’s soft-pedalling of the cave destruction was condemned by shareholder advocacy group the Australasian Corporate Centre for Responsibility, and several institutional investors.

While Rio will no doubt hope the issue blows over with the passage of time, it’s more likely that it leads to a renewed focus on environment, social and governance (ESG) issues.

Shareholders are becoming increasingly aware of the financial risks of companies that are viewed as not having leading ESG programmes and a culture of doing the right thing.

Social licence to operate, along with climate change, comes up often as the top concerns for miners, with a survey last year by consultants EY showing 44% of mining executives viewed keeping a social licence as their top concern.

Miners to change

Unfortunately, the Rio incident with the Juukan caves shows that miners may still have some way to go in order to be seen to be placing ESG issues at the heart of their operations.

Rio isn’t alone in this, with other leading mining companies seeming to fall short in this area, despite public commitments that it is their top priority.

Like Rio’s corporate affairs boss Niven, other miners have executives listed as having responsibility for ESG issues, such as outgoing BHP external affairs chief Geoff Healy, Tim Langmead at Fortescue Metals Group, Anik Michaud at Anglo American and Luiz Osorio at Vale.

Glencore is unusual among major miners in not having an executive with ESG responsibilities listed on its website.

But merely having an executive named doesn’t mean these people are among the most important decision makers in the companies they work for.

All the executives’ names above have additional responsibilities and none of them have a public profile worth speaking about.

In effect, they are largely invisible and take little or no public part in the debate over ESG issues.

This hardly speaks to mining companies that appear to view ESG issues as front and centre of their existence.

For companies to be taken seriously, it would likely take the appointment of senior executives, with real power over the decision-making process, to become involved in placing ESG at the heart of each company’s mission.

If Rio had somebody like this, somebody could have stopped the blasting even if the CEO wanted it to proceed, somebody who understood that the negative optics of blowing up the caves considerably outweighed the potential profits, then it may have avoided the current mess.

However, it’s likely that ongoing shareholder demands for increased ESG accountability, coupled with activism by interest groups, will force miners down the path of making ESG more than just the current statements of principle.