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COMMODITY NEWSBRIEFS: 9 MARCH 2016

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Natasha.Havenga@transnet.net

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INDUSTRIAL SOUTH AFRICA’S CURRENT ACCOUNT GAP WIDENS, RAISES LIKELIHOOD OF RATE HIKE (Engineering News, 9/3/2016) South Africa's current account deficit widened more than expected on Tuesday, pushing the currency lower while raising the likelihood of a second interest rate hike next week as the central bank fights to keep inflation in check. A sharp fall in exports combined with a decreased inflow of foreign investment combined to stretch the current account shortfall to 5.1% of gross domestic product (GDP) in the fourth quarter of 2015, from a 4.3% gap in the third, the South African Reserve Bank said. Economists surveyed by Reuters had expected a 4.35% gap for the fourth quarter. The data highlights the economic strains on South Africa, where about a quarter of the population is unemployed and food prices are rising due to a drought, a combination that could hurt the ruling African National Congress' chances in the local government polls expected after May. The rand extended early losses to more than 1%. "The weakened export performance partly reflects the sluggish global economic environment, low commodity prices, and a lack competitiveness in South Africa’s manufacturing sector, despite the weaker rand," said investment bank Stanlib's chief economist, Kevin Lings. Imports rose but only slightly, slowed by the weaker currency and a sluggish domestic economy. The bank sees GDP growth in 2016 at only 0.9%. South Africa's trade balance deficit was also wider, swelling to R57-billion from a R22-billion shortfall previously. The rand, down nearly 25% against the dollar in the last 12 months, wiped out any gains to be had by exporters, and will likely trigger higher consumer prices already amid the country's worst drought in decades. "Though the depreciation in the exchange value of the rand boosted the export earnings of domestic producers, these benefits were more than fully offset by a further fall in international commodity prices," the bank said. South Africa's manufacturing sector, which accounts for 13% of GDP, has seen growth flat line and its share of global exports shrink, and despite the weaker currency remains hamstrung by power shortages and rising wages. When the central bank raised benchmark lending rates by 50 bps to 6.75% in January it cited the exchange rate and food price developments as significant threats to the inflation outlook and the upper limit of its target of 6% target for headline prices STEEL See article “MERAFE CASH SKYROCKETS ON FERROCHROME VENTURE’S SUPERB SHOWING” under heading CHROME & MANGANESE

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CONSTRUCTION, BUILDING MATERIALS & CEMENT S AFRICA’S ‘R1BN A DAY’ INFRASTRUCTURE SPEND TO BE MAINTAINED (Engineering News, 9/3/2016) With the expansive development of infrastructure keeping South Africa above the recessionary threshold, Economic Development Minister Ebrahim Patel on Tuesday said more major projects would be announced soon as government aimed to maintain the “extraordinary spending” undertaken in “tough times”. South Africa had spent some R290-billion last year – more than R1-billion every working day – on infrastructure projects, and more was to come as government planned to unpack major new infrastructure projects this year. Speaking at a post-State of the Nation Address Economic Sectors, Employment and Infrastructure Development Cluster briefing, in Pretoria, Patel said, despite being in a period of immense economic pressure, it maintained an “extraordinary amount” of spending on infrastructure to stabilise the economy. The scale-up of the infrastructure programme was a high priority, with Patel announcing in February the fast-tracking of 20 infrastructure projects identified by Cabinet and bringing a number of them to construction within the next 6 to 15 months. This included the Clanwilliam and Mzimvubu dams; the new N2 Wild Coast highway from East London to eThekwini; a large water pipeline to the Lephalale/Waterberg area; the N3 De Beers pass and 28 additional renewable-energy plants. In addition, talks were under way with a Chinese consortium to invest $3.9-billion within the Musina Special Economic Zone for metallurgical technology, processing, steel plant and mine construction, and energy, to advance beneficiation and add value to the country’s mineral wealth. Infrastructure funding had been approved for the development of a 1.8 MW hydrogen fuel cell, with government engaging leading fuel cell original-equipment manufacturers to establish manufacturing facilities in South Africa. GRAIN ‘CLIMATE CHANGE COULD NEGATIVELY AFFECT AFRICA’S CROP OUTPUT’ – REPORT (FTW, 9/3/2016) Researchers have warned that climate change will claim vast swathes of land needed to grow staple food crops in sub-Saharan Africa, particularly maize, bananas and beans. Transformation of agricultural systems, for example switching crop types or moving out of agriculture, is projected to be necessary in some cases, said the authors of a study in the environmental journal, Nature Climate Change. The research, published yesterday (Monday), pointed out that up to 30% of areas growing maize and bananas might become unsuitable due to the negative effects of climate change. Given that solutions, such as breeding improved crops, can take a minimum of 15 years to complete, the authors stressed the urgency for action, pointing out that banana-growing regions in West Africa would have to change their land use in the next ten years. The same applies to bean-growing regions in Angola, South Africa, Uganda, Tanzania and Zimbabwe by 2050 CHROME & MANGANESE MERAFE CASH SKYROCKETS ON FERROCHROME VENTURE’S SUPERB SHOWING (Engineering News, 9/3/2016) Ferrochrome company Merafe, which generates revenue and operating income primarily from its chrome venture with mining and marketing major Glencore, shot the proverbial lights out in 2015, when its cash generation went through the roof and every box was ticked, from upped production to improved safety. China’s imports of 2.6-million tonnes of South African ferrochrome last year was 24% higher than in 2014. The Glencore proxy’s weak-rand-boosted operating activities generated 212% more cash to R956-million on a 13%-higher 377 000 t despite the 12% net decline in the ferrochrome price. JSE-listed Merafe’s headline earnings soared 65% to 13.9c a share on 23%-higher R4.4-billion revenue. Merafe shares in 20.5% of the chrome venture’s earnings before interest, taxation, depreciation and amortisation (Ebitda). After a decade of ongoing investment in a suite of projects, Merafe is in harvest mode within the Glencore-Merafe Chrome Venture, which owns and operates several chromite mines and 22 ferrochrome furnaces with a combined installed capacity of 2.34-million tons of ferrochrome a year. Merafe’s revenue rose primarily on 18%-higher ferrochrome sales to 372 000 t and the 17% weaker average rand/dollar exchange rate that a 12% decline in net ferrochrome prices partially offset. The average European benchmark ferrochrome price decreased from 118.5c/lb in 2014 to 107c/lb in 2015. As a percentage of total revenue, chrome ore revenue rose to 11%, 2% up on 2014. Merafe’s 31%-higher R851.9-million Ebitda share was boosted by a foreign exchange gain of R83.4-million. Global stainless steel production, which consumes the ferrochrome, totalled 41.6-million tonnes last year, a 0.5% year-on-year decrease. While stainless steel production in China was 1.4% lower at 306 000 t and a significant decline was also recorded in Japan, India increased output by 7% and the introduction of import tariffs on Asian stainless steel supported European producers. While global demand for ferrochrome fell 2.2%, Chinese ferrochrome

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consumption increased 2.1%. Global ferrochrome production decreased by 4.6% to 10.7-million tonnes in 2015, the biggest decline coming from China, which reduced output by 9% to 3.7-million tonnes. Comparatively, South Africa saw a marginal year-on-year decrease in ferrochrome production from 3.75-million tonnes in 2014 to 3.71-million tonnes in 2015. Chinese chrome ore imports rose 10.9% to 10.4-million tonnes in 2015 and exports of chrome ore from South Africa rose 31.8% year-on-year, with the proportion of South African chrome ore imported into China increasing from 61% in 2014 to 73% in 2015. This increase in South African chrome ore exports was due in part to the end of the platinum strikes, while the depreciation of the rand offered support to South African chrome-ore producers throughout 2015, offsetting the recent fall in dollar prices, Merafe said. MINERAL MINING SA MINE SECTOR’S REVIVAL UNLIKELY (Business Report, 9/3/2016) The remnants of South Africa’s 160-year-old mining industry would prove difficult to rebuild as bad policy decisions and ideology haunt the industry, which accounted for more than 8 percent of gross domestic product just a few years ago. Peter Major, a director for mining at Cadiz Corporate Solutions, said this week that poor policy decisions and rhetoric had resulted in more than 400 000 gold miners and 600 000 subsidiary industry people being put out of work in the past 20-plus years. “The majority of the mining policy and legislative decisions, including black economic empowerment, were not thoroughly thought through,” Major said. “Our mining industry got hit the hardest. But manufacturing, agriculture and clothing have been decimated as well. Much of what is left today are remnants.” Highly “risk averse” investors have voted with their feet and many South African mining companies have gone global and spun off their local operations to reduce risk. Roger Baxter, the chief executive of the Chamber of Mines, said apart from depressed commodity prices, rising electricity costs, the increase in other cost areas and falling commodity prices had pushed the mining sector into loss-making territory. Baxter noted that mining was the only loss-making sector of the South African economy in 2014, incurring an aggregate R10.6 billion loss after taxes and dividends. “To be able to attract investment to sustain mines and even to grow the South African mining industry South African mines need to improve our global competitiveness. Last year, BHP Billiton spun off its South African assets to form much of South32. Anglo American said last month it would sell its iron ore and coal assets as it narrowed its strategy and portfolio to focus on just diamonds, platinum and copper. NON-FERROUS METALS COPPER, NICKEL PRICES RETREAT ON WEAK CHINESE EXPORT DATA (Mining, 9/3/2016) The rally that had investors clambering back into mining stocks came to an abrupt end today, as disappointing export data from China showed continuing signs of weakness in the world's top commodities consumer. Traders were quick to hit their sell buttons as official figures released in Beijing today showed exports in February were down a whopping 25.4 percent from the previous year – equal to the worst performance since May 2009, when the world was in the grips of a global recession. Imports were down by 13.8 percent, the 16th consecutive decline. Getting mining-commodity specific, the worst-hit metals were copper and nickel, not surprisingly, given their dependence on industrial demand. Copper was on track for its biggest daily loss in four months Tuesday, dropping 2.4 percent to $4,878 a tonne on the London Metal Exchange. The red metal had surged 7 percent last week, for its best weekly performance since 2011, on Friday hitting as high as $5078 a tonne on the Comex in New York. Nickel was worse off, sliding 5.1 percent to $8,880 a tonne on the LME, giving back the 2 percent gains on Friday that put last year's worst-performing metal at $9,340 a tonne. The grim metal price finishes came on the heels of a bearish set of reports from Goldman Sachs. The influential bank said the 20-month commodity rout had further to run and prices needed to remain lower for longer to rebalance markets that are still groaning under the weight of plentiful supplies. NO ESCAPE FOR ESKOM FROM BHP BILLITON DEAL, SAYS S AFRICAN ENERGY REGULATOR (Engineering News, 9/3/2016) There was no imaginable way for Eskom to escape from its onerous contract to supply BHP Billiton’s Hillside smelter and ease the knock-on effect on the ordinary consumer, the National Energy Regulator of South Africa said in response to questions from MPs on Tuesday. Nersa’s head of electricity regulation, Thembani Bukula, told Parliament’s portfolio committee on energy the deal rested on two pillars — Eskom having excess capacity and the buyer constituting an exception — and both were still in place. “It is clear Nersa can’t revoke a contract that two parties entered into. There is an irrevocability

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of the contract that needs to be taken into account, even if it is not in the public interest,” he said. “But what we have to accept though is that those contracts were negotiated at the time where we had excess capacity and they were based on the fact that they would be consuming large amounts.” Bukula added: “So the distinguishable features … still exist. BHP Billiton is still by far the largest consumer of electricity and we still have excess capacity. We still have 43 000 MW of installed capacity and 30 000 MW peak demand. So those two conditions still exist, so to revoke that contract is not going to a walk in the park.” The contract was signed in 1992 and was seen at the time as a spur for industrial development but has become a millstone for Eskom since. The electricity supplied to BHP Billiton’s smelters was not based on production costs but instead tied to the rand-dollar exchange rate and the price of aluminium in US dollars per tonne. The opposition has been slamming Eskom over the deal for years, while its expiry date has been contested between the parties. It was meant to come to an end in 2020 but BHP Billiton has argued that a supplementary agreement inked in 2001 has put it back to 2028. TRANSNET TPT SPEAKS OUT ON TARIFF HIKE (FTW, 9/3/2016) Transnet Ports Terminals’ (TPT) recently announced tariff hike - a well-above inflation rate of 9% - has attraction bitter complaint from the private sector. This after the SA Ports Regulator granted Transnet National Ports Authority (TNPA) no increase on last year’s cargo dues. The issue was aired in sister print publication FTW with comments like “purely monopolistic behaviour” and “more about making bottom line profit rather than acting in the interest of the country” among the reactions recorded. Although contacted on Friday for an “immediate response”, TPT’s response – carried in full below – only reached us over six hours after FTW had gone to print on Monday morning. “In line with annual tariff adjustments TPT will, effective April 1, increase its cargo handling tariffs for container handling at levels commensurate with its continued capex funding requirements as well as to accommodate operating cost increases as a result of the consumer price index (CPI), increased energy costs, etc,” it said. “The increases comprise a blended mix of adjustments which in part are volume-driven yet also aimed at minimising the impact on non-recoverable parts of its service offerings. TPT has recently invested extensively in new container handling quayside and landside cranes and ancillary equipment and will continue to do so to ensure that SA ports can continue to boast best-in-class terminals and facilities. “While cognisant of the prevailing market and trade conditions, TPT remains committed to the Transnet market demand strategy (MDS), whose objectives include a counter-cyclical investment strategy aimed at creating and providing capacity ahead of demand, promoting skills development, providing world class infrastructure and technology; and improving global and regional maritime connectivity, amongst others. “TPT will continue to collaborate with customers and industry at large to structure bespoke and innovative solutions to meet the country’s port users’ needs.” CURRENCIES AND PRICES

JSE AS AT 17:10PM 8 MARCH 2016

All Share Index

8/03 52,248 - 0.81%

Industrials Index

8/03 42,011 - 1.15%

Financials Index

8/03 41,386 - 1.14%

Top 40 Index

8/03 46,229 - 0.80%

Industrial 25 Index

8/03 70,538 + 0.19%

Financial 15 Index

8/03 15,306 - 1.35%

Resources 10 Index

8/03 30,514 - 3.78%

Alt-X Index

8/03 1,503 - 0.06%

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WORLD INDICATORS

FOREX

Rand/Dollar 05:40 15.4517 + 1.39%

Rand/Pound 05:55 21.8703

+ 0.71%

Rand/Euro 05:55 16.9498 + 0.93%

COMMODITIES

Gold (usd/oz) 05:58 1,254.60 - 1.06%

Platinum (usd/oz) 05:58 971.00

- 1.42%

Brent (usd/barrel) 05:36 39.65 - 2.91%

WORLD MARKETS

Wall St (DJIA) 8/03 16,964 - 0.64%

Germany (DAX) 8/03 9,693

- 1.34%

Japan (Nikkei) 05:48 16,563 - 1.31%

3month

(Business Report, 9/3/2016)

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(TFR Commercial Management: Business Performance Dept)

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Petrol/ Diesel Price

YR2016 06-Jan-16

03-Feb-16

02-Mar-16

06-Apr-16

04-May-16

01-Jun-16

06-Jul-16

03-Aug-16

07-Sep-16

05-Oct-16

02-Nov-16

07-Dec-16

COASTAL

95 LRP (c/l) 1194.00 1200.00 1131.00

95 ULP (c/l) 1194.00 1200.00 1131.00

Diesel 0.05% (c/l) 972.47 910.47 925.47

Diesel 0.005% (c/l) 977.87 914.87 928.87

Illuminating Paraffin (c/l) 594.028 535.028 552.028

Liquefied Petroleum Gas (c/kg)

1892.00 1893.00 1773.00

GAUTENG

93 LRP (c/l) 1209.00 1215.00 1146.00

93 ULP (c/l) 1209.00 1215.00 1146.00

95 ULP (c/l) 1237.00 1243.00 1174.00

Diesel 0.05% (c/l) 1005.17 943.17 958.17

Diesel 0.005% (c/l) 1010.57 947.57 961.57

Illuminating Paraffin (c/l) 647.028 588.028 605.028

Liquefied Petroleum Gas (c/kg)

2074.00 2075.00 1955.00

YR2015

07-Jan-

15

04-Feb-

15

04-Mar-

15

01-Apr-

15

06-May-

15

03-Jun-

15

01-Jul-

15

05-Aug-

15

02-Sep-

15

07-Oct-

15

04-Nov-

15

02-Dec-

15

COASTAL

95 LRP (c/l) 1083.00 990.00 1086.00 1246.00 1246.00 1293.00 1334.00 1283.00 1214.00 1218.00 1196.00 1197,00

95 ULP (c/l) 1083.00 990.00 1086.00 1246.00 1246.00 1293.00 1334.00 1283.00 1214.00 1218.00 1196.00 1197,00

Diesel 0.05% (c/l) 997.49 895.49 969.49 1090.09 1085.09 1134.09 1138.09 1062.27 1008.27 1061.27 1052.27 1048,47

Diesel 0.005% (c/l) 1001.89 899.89 973.89 1096.49 1091.49 1137.49 1141.49 1067.67 1016.67 1067.67 1057.67 1055,87

Illuminating Paraffin (c/l) 697.728 595.728 668.728 690.828 685.828 727.828 733.828 663.828 608.828 658.828 656.828 657,028

Liquefied Petroleum Gas

(c/kg) 1829.00 1679.00 1833.00 1918.00 1935.00 2035.00 2091.00 2002.00 1887.00 1898.00 1851.00 1847,00

GAUTENG

93 LRP (c/l) 1102.00 1009.00 1105.00 1261.00 1261.00 1308.00 1352.00 1301.00 1232.00 1230.00 1208.00 1209,00

93 ULP (c/l) 1102.00 1009.00 1105.00 1261.00 1261.00 1308.00 1352.00 1301.00 1232.00 1230.00 1208.00 1209,00

95 ULP (c/l) 1124.00 1031.00 1127.00 1289.00 1289.00 1336.00 1377.00 1326.00 1257.00 1261.00 1239.00 1240,00

Diesel 0.05% (c/l) 1028.09 926.09 1000.09 1122.79 1117.79 1166.79 1170.79 1094.97 1040.97 1093.97 1084.97 1081,17

Diesel 0.005% (c/l) 1032.49 930.49 1004.49 1129.19 1124.19 1170.19 1174.19 1100.37 1049.37 1100.37 1090.37 1088,57

Illuminating Paraffin (c/l) 747.928 645.928 718.928 743.828 738.828 780.828 786.828 716.828 661.828 711.828 709.828 710,028

Liquefied Petroleum Gas

(c/kg) 2011.00 1861.00 2015.00 2100.00 2117.00 2217.00 2273.00 2184.00 2069.00 2080.00 2033.00 2029,00

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(SAPIA online)

Daily prices for 8 March 2016

LME Official Prices, US$ per tonne

Contract Aluminium Alloy Aluminium Copper Lead Nickel Tin Zinc NASAAC

Cash Buyer 1575.00 1589.00 4980.00 1876.00 9035.00 17080.00 1804.50 1669.00

Cash Seller & Settlement 1585.00 1590.00 4980.50 1878.00 9040.00 17085.00 1805.00 1671.00

3-months Buyer 1600.00 1588.00 4972.00 1860.00 9085.00 16950.00 1811.00 1680.00

3-months Seller 1610.00 1588.50 4975.00 1861.00 9090.00 16975.00 1812.00 1685.00

15-months Buyer 16420.00

15-months Seller 16470.00

Dec 1 Buyer 1670.00 1647.00 4945.00 1863.00 9205.00 1798.00 1730.00

Dec 1 Seller 1680.00 1652.00 4955.00 1868.00 9305.00 1803.00 1740.00

Dec 2 Buyer 1693.00 4950.00 1870.00 9305.00 1755.00

Dec 2 Seller 1698.00 4960.00 1875.00 9405.00 1760.00

Dec 3 Buyer 1753.00 4950.00 1900.00 9390.00 1743.00

Dec 3 Seller 1758.00 4960.00 1905.00 9490.00 1748.00

(London Metal Exchange, 9/3/2016)

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