WA & South Korea Tie-Ups, China Cries Wolf to the WTO, and Nickel Remains Fickle
MARKETS UPDATE
After a positive start to the week, the Chinese market eased this week despite a raft of Government promises, seeing the REMX benchmark down over 2.5% for the week. (1)
Positive news in lithium with the flow on effects of the Rio Tinto / Arcadium deal, and General Motors’ new investment agreement with Lithium Americas helping drive sentiment in Australian and North American critical mineral equities. We think that the situation with the Chinese stimulus and the uncertainty surrounding the outcome of the US election will ensure higher volatility in our space in the weeks to come.
GEOPOLITICAL INSIGHTS
After a visit to Perth, Western Australia, last month from South Korea’s Minister of Trade, Inkyo Cheong, the two regions strengthened their cooperation in renewable energy and critical mineral supply chains under a new memorandum of understanding (MOU). The MOU was signed by South Korea’s Minister of Trade, Inkyo Cheong, on behalf of Korea’s Ministry of Trade, Industry and Energy (MOTIE) and WA Premier Roger Cook.
This commemorated the 10th anniversary of a bilateral free trade agreement (FTA) between Australia and South Korea. South Korea is now Australia’s fourth largest trading partner, with two-way trade between the countries having doubled from $33 billion in 2013 to ~$71 billion in 2023. South Korea is Western Australia’s third-largest trading partner with $18.1 billion of goods traded in 2023. Under the FTA, more than 99% of Australian exports to the Republic of Korea are eligible for duty-free access. Australia’s Minister for Trade and Tourism, Don Farrell, stated: “To date, Australia’s world-class resources have been at the centre of our economic relationship with the Republic of Korea – we are the largest supplier to Korea of LNG, coal and iron ore.”
South Korean steelmaker POSCO, purchases more than $7bn worth of Australian resources each year, making it the largest single private customer of Australian exports. POSCO Future M (POSCO’s battery material and chemical company) has indefinitely suspended plans to jointly establish a nickel refining and precursor production facility at Pohang with China's Huayou Cobalt. We wonder if this will be the start of more deals from POSCO with Australian companies like Black Rock Mining.
China continues to cry wolf to the World Trade Organization (WTO) over the United States’ Inflation Reduction Act (IRA). China has succeeded in its second attempt to establish a dispute panel at the WTO to review whether subsidies from the IRA unlawfully favor US goods over imports from China.
The WTO’s dispute settlement body agreed to set up the committee after the US blocked China’s first attempt to this end in July. The panel will rule on whether certain tax credits under the IRA are compatible with international trade rules. After the US justified its actions in July as necessary to combat climate change, China argued that Washington uses this as a pretense for protectionism, with the IRA discriminating against Chinese and non-Chinese products by requiring domestic content for subsidies.
The US responded by saying Beijing used the complaint to distract from its own practices, harming fair competition, including overcapacity, forced labor, weak environmental protections, heavy subsidization, and forced technology transfers. The WTO recently pointed out that China’s disclosures on its industrial subsidies are not complete and detailed enough to get a clear picture of how much the government supports domestic manufacturers.
This whole charade is the pot (China) calling the kettle (USA) black…
SUPPLY CHAIN OBSERVATIONS
Nickel, the ficklest commodity of them all, has seen its price seesaw around current levels of ~USD$17,000/tonne for the past year. Chinese-owned nickel mines in Indonesia continue to flood the market, and nickel inventories have been rising over the past year, adding to the pricing pressure. China and Indonesia are expected to account for 80% of new capacity additions in nickel over the next three years. On the demand side, stainless steel demand is expected to be the key driver for nickel with rising LFP battery demand weighing on nickel.
The London Metal Exchange (LME) has canceled the suspension of primary nickel deliveries from the Harjavalta refinery in Finland, which is one of the largest nickel refining plants in Europe. The plant has an annual production capacity of 65,000 metric tonnes of nickel, which it produces from raw materials sourced mainly from Russia.
The suspension was previously put in place to stop the listing of nickel produced by Russian nickel major Nornickel. Nornickel produced 209,000 tonnes of nickel in 2023. Supposedly, the suspension decision was related to the LME’s responsible sourcing campaign rather than Russia-related sanctions. The suspension was announced in July and was due to come into effect on October 3rd.
The LME notified all LME members, warehouse companies and their London agents, saying that the suspension of Nornickel’s nickel cathodes and briquettes from Harjavalta had been canceled and the brand was acceptable for LME warranting with immediate effect.
Interestingly, Harjavalta has yet to complete its routine responsible minerals audit. In April, the LME banned from its system all Russian aluminum, copper, and nickel produced after April 13 to comply with US and UK sanctions imposed over Russia’s 2022 invasion of Ukraine.
MINING & EXPLORATION NEWS
Lithium deal flow continues this week with Lithium Americas and General Motors (GM) entering into a new investment agreement to establish a joint venture (JV) to fund, develop, construct, and operate the Thacker Pass lithium project in Nevada. GM will allocate USD $625 million in cash and letters of credit to Thacker Pass alongside the conditional commitment for a USD $2.3 billion US DOE loan. Under the terms of the Investment Agreement, GM will acquire a 38% asset-level ownership stake in Thacker Pass for USD $625 million in total cash and letters of credit, including USD $430 million of direct cash funding to the JV to support the construction of Phase 1 and a USD $195 million letter of credit facility that can be used as collateral to support reserve account requirements under the DOE Loan. The JV Transaction replaces the USD $330 million Tranche 2 common equity investment commitment from GM under its original investment agreement with Lithium Americas announced in January 2023.
Atlantic Lithium, the Africa-focused lithium exploration and development company targeting the delivery of Ghana’s first lithium mine, announced that the Minerals Commission of Ghana has issued a Mine Operating Permit (MOP) for the company’s flagship Ewoyaa lithium project. This permit was the final regulatory approval required ahead of starting construction of the project, which will comprise the Ewoyaa lithium mine and processing plant. Atlantic's June 2023 DFS confirmed that Ewoyaa has the potential to produce 3.6Mt of spodumene concentrate over a 12-year mine life. Atlantic now needs to execute on the project financing for Ewoyaa.
Dual ASX & TSX-listed, Resouro, who owns the Tiros titanium-rare earths project in Brazil, has appointed Alistair Stephens as CEO. Alistair will be Australia based with Chris Eager continuing as Executive Chairman based in South America.
TG Metals released preliminary results from metallurgical testwork on the Burmeister deposit, within the Lake Johnston Lithium Project in Western Australia. The results supposed the potential to achieve a SC6 (6.0% Li2O spodumene concentrate) concentrate utilizing HLS processing technology. A combination of Ore Sorting and HLS technology is the preferred processing method, over other more complex mineral processing flowsheets to produce a course, quality spodumene concentrate.
SOURCES: (1) Market Data from Bloomberg Market Data from Bloomberg as of 7:00 AM ET, October 18, 2024, in the local currency. (2) Additional data courtesy of Arcadium Lithium plc (ALTM US, LTM AU), Atlantic Lithium Ltd. (ALL LN), Black Rock Mining (BKT AU), General Motors Co (GM US), Lithium Americas (LAC US), Nornickel (Private), Posco Holdings Inc (005490 KRX), Posco Future M Co Ltd (003670 KRX), Resouro Strategic Metals Inc. (RAU AU & RSM CN), TG Metals Limited (TG6 AU), and Zhejiang Huayou Cobalt Co Ltd (SHA 603799).
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