JLN Metals interviews the CME Group’s Young-Jin Chang on the new hot-rolled steel options and scrap steel futures; Glencore upped its offer for Xstrata to 3.05 shares for every Xstrata share, but the deal may still meet resistance from Qatar’s sovereign wealth fund, Xstrata’s second-largest investor; and huge stockpiles of copper may be a warning sign that demand within China is decelerating drastically, say some analysts.

Yesterday’s top stories were:

“RBS to Close Precious Metals Trading Desk” by Dow Jones Newswires; “Factbox: Glencore and Xstrata” by Reuters; and “There may be too little gold to restore the gold standard” by The Telegraph UK.

Quote of the Day:

“The problem is, is these rallies that are based on purely monetary policy around the world are very fragile rallies, and they cause a lot of volatility in the market. We could rally, we could see $1,800 and we could pull right back down.”

– Anthony Lazzara of Lido Isle Advisors, in “Gold ‘A Really Questionable Rally’: Hedge Fund Pro” by CNBC.

Observations – Statistics – Commentary

JLN Metals Interview: Young-Jin Chang, Director, Metals, Research and Product Development at CME Group, on CME hot-rolled steel options and scrap steel futures

The CME Group launched its scrap steel futures Monday, Sept. 10, and last week saw the first trades in its hot-rolled coil steel options, which were launched in December.

Following up on the interview we conducted on the scrap contract with the CME’s Harriet Hunnable last month, JLN Metals editor Sarah Rudolph spoke with Young-Jin Chang about both of these new products and how they can be used together and as parts of the CME Group’s Virtual Steel Mill.

Q:  This is the first time the hot-rolled steel options have traded, but they were actually launched several months ago. Why do you believe you are seeing interest in the contracts now?

A: It is typical after we launch a new product for it to take some time before we see trading, mainly because it takes some educational effort for people to understand what the product is about and get up to speed. We finally saw that happening in August. It’s a combination of the market and where the price is trending. When the market is less volatile, maintaining the status quo, you see less trading activity, especially in options.  

Q: How many of the options contracts were traded?

A:  There were 1,000 contracts traded Aug. 31. We are very excited by that. That is a very solid number for a first trade.

Q: The CME scrap steel futures launched Monday. Can the two contracts be used in concert?  How will they complement each other?

A: They complement each other very well. About 60 to 65 percent of the steel produced in the U.S. is based on scrap metal, through EAFs (Electric Arc Furnaces).  Considering that, scrap can account for as much as 85 percent of the raw material cost of steel. It is the main raw material for a lot of steel manufactured in the U.S. and the most volatile component of steel.

The hot-rolled coil options fit well with what we already have so far in our Virtual Steel Mill. We’re the only exchange that offers a variety of ferrous products from coking coal to scrap to iron ore to hot-rolled coil that is really targeted for a global audience, not just the Midwest.

The products in the CME’s Virtual Steel Mill help people to fix their raw material costs. There is a strong relationship between the scrap and the hot-rolled coil, so participants can do a spread between those two products to help manage their risk.

The major movement in the hot-rolled coil contracts came from service centers. These centers also generate the scrap we are launching. This ties into the Virtual Steel Mill concept.

Q: What type of users do you expected to trade these products?

A:  The products in the Virtual Steel Mill address the entire chain of production, from scrap processors, to steel producers, to steel service centers, to end users (manufacturers). They are designed to help the industry manage risk from raw material all the way through finished product.

The hot-rolled coil options were the natural next step from the hot-rolled coil futures. And then it made sense to introduce scrap as the next component.

Q: What factors are currently driving demand for hot-rolled steel and scrap steel?

A: More than anything it is price volatility. Volatility in prices is here to stay, and businesses have started to seek stability in the marketplace.

Q: Steel derivatives are relatively new: both the CME and LME started trading them in 2008, I believe. Why did they take longer to come to market than, say, copper derivatives?

A: I think they are on par with how other metals and energy products have developed. There is a big learning curve with something this new to the market.

When China came into the market in 2004, volatility came more into play as they needed a lot of raw materials to build their infrastructure. Then the financial crisis in 2008 added to the volatility, and the industry needed to manage those volatility concerns.

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Qatar keeps Glencore guessing on Xstrata bid
Reuters
Qatar, Xstrata’s second-largest investor, has held back immediate support for Glencore’s raised bid for the miner, despite an apparent rapprochement last week, saying in a rare statement on Tuesday it was still considering its position.
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***A statement from Xstrata’s board is due by September 24.

Xstrata investors warm to Glencore offer
Helen Thomas, Javier Blas and Anousha Sakoui in London – FT.com
Glencore’s revised offer for Xstrata has received a mostly warm reception from the miner’s shareholders with several top-20 investors pointing to “broad-based” support for the last-ditch compromise to save the $80bn merger.
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Barrick Says African Unit Sale Talks Still at ‘Very Early’ Stage
Liezel Hill and Christopher Donville – Bloomberg
Barrick Gold Corp. Chief Executive Officer Jamie Sokalsky said talks about a sale of the company’s majority stake in its African unit to China National Gold Group Corp. are still at “very early” stage.
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Gold ‘A Really Questionable Rally’: Hedge Fund Pro
CNBC
Investors shouldn’t necessarily trust a bullish gold market, calling it “a fragile rally,” Anthony Lazzara of Lido Isle Advisors told CNBC on Monday.
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[Video] Maybe We Hit Peak Platinum: CEO
Kitco
Michael Jones, CEO Platinum Group Metals, talks with Kitco about company progress and industry news.
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As the Euro Tumbles, Spaniards Look to Gold
GoldSeek.com
The unremitting deterioration of the eurozone’s sovereign debt landscape continues to fuel uncertainties about the longevity of the euro as a strong currency.
jlne.ws/RCcyLB

Mining industry payments to Canadian governments reached $9 billion in 2011: Report
The Mining Association of Canada (MAC) today released its annual report on mining industry payments to Canadian provincial and federal governments. The report, prepared by ENTRANS Policy Research Group, found payments reached an estimated $9 billion last year in aggregate mining taxes and royalties, corporate income taxes and personal income taxes.
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India Ventures Into Rare Earths, To Launch Soon Monazite Processing Plant
IB Times
India will soon foray into rare earths mining as it targets to open by December its 10,000 tonnes capacity monazite processing plant in the eastern state of Odisha.
jlne.ws/RCcziC

Lead Stories

Glencore Confirms Final Xstrata Offer
DANA CIMILLUCA And ALEX MACDONALD – WSJ.com
Glencore International PLC officially put its revised offer for Xstrata to the miner’s board and shareholders, seeking to win their approval for new terms and keep the huge merger deal from turning hostile or collapsing.
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***3.05 Glencore shares for every Xstrata share, up from a prior ratio of 2.8. On Monday, Xstrata shares rose 1.2% in London to 1,026.5 pence ($16.44).

***“Still, the deal is far from done…”

Glencore and Xstrata – Happy ending
The Economist
IN ANY good romantic comedy (or “romcom” in the lingo) you know the ending: the lovers will eventually end up together. The trials and tribulations of the consummation are what make for the entertainment along the way. So it seems with Glencore, a huge commodity trader and miner, and its efforts to join together with Xstrata, another mining giant. Rarely has a mining merger provided so much entertainment for the casual viewer.
http://jlne.ws/ODAObB
***Possibly more entertaining than the typical “romcom” these days

Copper Surplus Presents Puzzle
CAROLYN CUI – WSJ.com
Standard Chartered analyst Judy Zhu was startled when she made her regular round of China’s copper warehouses. The stacks of copper slabs inside the warehouses in Shanghai last month had grown by 20% since July, she estimated. Some piles had reached the ceiling.
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China’s iron-ore miners cut output as prices fall
Reuters
A slide in iron-ore prices to three-year lows is forcing many high-cost miners in top consumer China to curb output, industry sources say, in a move that could reduce the surplus in a market weighed down by near record Chinese stocks.
jlne.ws/RCcBHo

Lonmin, Gold Fields Miners Escalate Strikes In South Africa, Endangering Production
International Business Times
Strikes at South African mines controlled by Lonmin PLC, the world’s third-largest platinum producer, and Gold Fields Ltd., the fourth-largest gold miner, escalated Monday, further endangering production of the metals.
jlne.ws/RCcBXG

Impala platinum workers demand second pay hike
Reuters
Impala Platinum, the world’s No.2 platinum producer, said on Tuesday workers had demanded a second pay hike this year, to effectively double their wages in six months, the latest sign of labour unrest in the sector.
jlne.ws/RCczz6

Private group to mine gold in India for 1st time
Xinhua
For the first time, the government of India has given the go-signal for a private group to mine gold in India’s southern state of Karnataka, a collaborative venture between an Indian firm and a South African gold mining company. Hospet-based Ramgad Minerals and Mining Ltd (RMML), a Baldota Group company, is now in advanced stages of its gold mining operations in the Gadag district of Karnataka.
jlne.ws/RCcCec

Goa suspends all mining activities temporarily
Reuters
India’s western Goa state temporarily suspended all mining activities, effective Tuesday, after an expert panel formed by the federal government found “serious illegalities and irregularities” in mining operations, the state government said in a statement late on Monday.
jlne.ws/RCcCeg

Indian Gold Loans on the Rise Again
Resource Investor
Loans backed by physical gold appear to be increasing again in India, as shown by quarterly data and statements from the management of Muthoot Finance, one of the biggest lenders in the country’s non-bank sector.
jlne.ws/RCczzh

Futures & ETF News

[Video] Will Higher Gold Hurt Job Growth?
Kitco
Kitco interviews Philip Klapwijk, analyst at Thomson Reuters, about the impact of gold and other commodity prices on the global economy.
jlne.ws/RCcyLv

Euro gains help boost gold in London trade
Reuters
Gold rose on Tuesday, helped by a rise in the euro ahead of a key ruling from a German court on the legality of the euro zone bailout fund, while holdings of the metal in exchange-traded products reached a record high.
jlne.ws/RCcCuK

Prospecting the Gold and Silver Miner ETFs
ETF Trends via Yahoo! Finance
Gold miner ETFs have been outperforming bullion prices since mid-July. Following several false starts, the question is whether miner shares are finally ready to lead precious metal prices.
jlne.ws/RCczPD

Market Realizes It Has Already Priced In QE
Zero Hedge
Casting a broad eye across all asset classes today, the theme of QE-Off was quite apparent . USD strength, Gold/Silver leaking lower, Stocks gathering downward momentum, Treasuries underperforming, and VIX rising rapidly with notable term structure flattening.
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Company & Production News

[Video] Not Enough High-Quality Deposits – Brent Cook
Kitco
Kitco speaks with Brent Cook of Exploration Insights about the state of large and small scale mining.
jlne.ws/RCcyLv

David Goguen: ‘Senior Golds Look To Juniors For Growth’
The Gold Report
Senior producers seeking to replenish depleted gold reserves will be looking to promising juniors to provide needed ounces, suggests Dave Goguen, director of institutional sales for PI Financial Corp. In this exclusive interview with The Gold Report, Goguen provides his views on where senior gold producers will be hunting and which companies will meet newly stringent criteria in the risk-averse but increasingly gold-hungry world marketplace of today—and tomorrow.
jlne.ws/RCczPN

IAMGOLD announces launch of US$500 million senior notes offering
IAMGOLD Corporation today announced that it intends to offer up to a US$500 million aggregate principal amount of senior unsecured notes due 2020. IAMGOLD intends to use the net proceeds of the Notes for general corporate purposes, including the funding of capital expenditures and exploration.
jlne.ws/RCczPR

Brazil Court Smoothes Way for Anglo American’s Iron Ore Project
Euro Investor
A Brazilian federal court has overturned an injunction that looked set to pose a further hitch to globally-diversified mining company Anglo American PLC’s Minas-Rio iron ore project in Brazil’s Minas Gerais state.
jlne.ws/RCcA65

Brigus Gold Makes New High-Grade Gold Discovery
Brigus Gold Corp. is pleased to announce that exploration drilling on the southern portion of the Black Fox Complex confirms a new multiple horizon gold zone within the Grey Fox South gold mineralized corridor located approximately 400 metres to the east and running sub-parallel to the 147 Zone.
jlne.ws/RCcCLe

Alcoa Recognized as One of the 50 Most Engaged Workplaces in the United States
Business Wire
NEW YORK—-Alcoa announced today it has been recognized as one of the 50 Most Engaged Workplaces in the United States by Achievers, a leader in employee reward and recognition solutions. This is the second year in a row Alcoa has received the award for leadership and innovation in engaging its employees.
jlne.ws/RCcCLi

SolGold and Newmont seek potential buyers for Guadalcanal Joint Venture
Ian Lyall – Proactiveinvestors (UK)
SolGold announced this morning that it and partner Newmont Mining (NYSE:NEM) are seeking potential buyers for their Guadalcanal Joint Venture.
jlne.ws/RCcCLk

AM Gold Announces Regulatory Approval for the Pinaya Option and Joint Venture Agreement Along With a Message from the CEO
Press Release
VANCOUVER, BRITISH COLUMBIA–(Marketwire – Sept. 11, 2012) – AM Gold Inc. (TSX VENTURE:AMG)(FRANKFURT:AMX) (“AM Gold” or the “Company”) is pleased to announce that it has received final approval from the TSX Venture Exchange for the Pinaya option and joint venture agreement (the “Option and JV Agreement”) with Rokmaster Resources Corp. (“Rokmaster”) (particulars of the Option and JV Agreement were announced on July 17, 2012).
http://jlne.ws/ODED0z

Miscellaneous News

Gold coins on discount in India
Shivom Seth – MINEWEB
Gold prices may have ended at a five-month high, marking their biggest monthly gain since January this year, but in India discounts are on offer. India Post has announced a 6.5% discount on the sale of gold coins on the occasion of Pushya Nakshatra which falls on September 12, this year.
jlne.ws/RCcA6h