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COMMODITY NEWSBRIEFS: 17 FEBRUARY 2016

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Natasha.Havenga@transnet.net

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FAST MOVING CONSUMER GOODS TIGER WARNS OF GREATER INFLATIONARY PRESSURES ON RAW MATERIAL COST BASE (Engineering News, 17/2/2016) Given the sustained weakness of the rand, JSE-listed Tiger Brands said on Tuesday that it was likely that the inflationary pressures on the group’s raw material cost base would intensify over the balance of the year. “In a constrained consumer environment, where competition is intense, it is expected that trading conditions will remain challenging as the company seeks to pass through price increases,” Tiger Brands advised in a statement to shareholders. However, the company believed its portfolio of “market-leading” brands, together with a rigorous focus on cost control would help to mitigate these challenges. Volumes and margins would also continue to be managed “judiciously” to ensure long-term sustainable profit growth. The group achieved a 7% increase in turnover from continuing operations in the four months ended January 31, compared with the prior corresponding period. During this period, domestic sales volumes softened marginally as a result of increased levels of pricing pressure and a slow-down in consumer demand. “With consumers under considerable financial pressure, the impact of the depreciating rand and rising soft commodity prices were only partially offset by price increases,” Tiger Brands explained. Conversely, benefiting from rand weakness, as well as the turnaround of underperforming operations, the exports and international businesses delivered an improved underlying performance. INTERMODAL CT EXPECTS 123% INCREASE IN DRY BULK (FTW, 17/2/2016) The Port of Cape Town is set for a massive increase in dry bulk volumes due to the ongoing drought in the country. According to port manager Sipho Nzuza an increase of at least 123% is expected for the dry bulk terminal this year. “This is due to the expected increase in agricultural imports due to the drought effect.” According to the Western Cape department of economic opportunities, estimates are that the national agricultural production has declined by more than 42%. “It has been estimated that we will need to import 750 000 tons of maize because of the decline in production,” said Western Cape Minister of Economic Opportunities, Alan Winde, in a statement. “At the current maize price, this would result in a trade loss of R2.4 billion.” The national department of agriculture is forecasting that should the current conditions persist, maize imports could reach five to six million tons - not only a major cost, but also placing a huge burden on the country’s logistics and transport systems.

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INDUSTRIAL SA’S EXPORTERS FAIL TO CASH IN ON WEAK RAND TO BOOST SALES (Business Report, 17/2/2016) When he came back to South Africa to take over the reins at the Department of Trade and Industry, Lionel October was convinced that South Africa could leapfrog to prosperity through boosting its industrial exports in much the same way as manufacturing giants like Germany, South Korea and China had done. October had also discovered that these powerful industrial exporters were able to weather the recessionary storm much better than countries such as Ireland and Iceland, which prior to the recession had built thriving financial services industries instead of focusing on being exporters of manufactured goods. South Africa is still a heavy exporter of raw minerals and has struggled to grow its industrial exports despite the rand depreciating sharply against the dollar over the past five years. In theory, a weaker currency is supposed to be good for local exporters by making their goods cheaper to foreign buyers. No country in recent memory has industrialised on the back of a strong currency, and this occurring without protecting its key infant industries from foreign competition. To illustrate how stagnant our export growth is, we sold $126.6 billion (R1.99 trillion at current rates) worth of exports in 2011, roughly 30.4 percent of our gross domestic product (GDP) , $118bn (29.7 percent of GDP) in 2012, $113.5bn (31 percent of GDP) in 2013, and $109.5bn (31.3 percent of GDP) in 2014. Not even a 50.2 percent drop in the value of the rand against the US dollar since 2011 has acted as a stimulant that gives local industrial exporters a competitive advantage. Many reasons have been advanced by economists as to why South African exporters are unable to capitalise on a hugely depreciated rand. Economists cite labour strikes, the high cost of labour, weak global economy, power cuts, infrastructure bottlenecks, and rising electricity tariffs as possible factors that hamstrung local manufacturers from flooding the international markets with their lowly-priced goods. There is no doubt that these factors hold back our exporters from reaching their potential, but Chris Malikane, an associate professor of economics at the University of Witwatersrand, advanced an interesting theory that explained the inability of our local manufacturers to win a respectable share of the global trade. Malikane has publicly argued that the private and foreign ownership of strategic industries such as mining, which supply raw materials to the manufacturing sector, was responsible for stifling the growth and the competitiveness of the local manufacturing industry. Malikane adds that South Africa’s strategic minerals are being exported raw and those supplied locally are sold to downstream consumers at hugely inflated prices, going against the policy of encouraging beneficiation. He proposes that the government remedy this by nationalising companies that mine key strategic minerals and supply these minerals to downstream consumers at prices equal to the cost of mining them. This strategy could make South African manufacturers globally competitive and avoid the controversial import-parity pricing (IPP) imposed by monopolies, oligopolies and cartels on downstream manufacturers. Until South Africa boosts its export competitiveness and starts attracting foreign direct investment, we will struggle to register decent economic growth higher than 5 percent, instead of the less than 1 percent growth expected this year. IRON ANGLO TO SHED SA COAL, IRON ORE ASSETS (Business Day, 17/2/2016) Anglo American will be a company of just 16 assets within four years, shedding dozens of mines and reducing head count by 78,000 to focus on diamonds, platinum and copper. The radical overhaul will set it on a course well away from the giant diversified miners. It will retain platinum mines through its 78% stake in JSE-listed Anglo American Platinum, its 85% stake in De Beers, and a number of copper mines. But it would shed Kumba Iron Ore, its South African coal businesses, and manganese stakes. In the latest iteration of its restructuring, Mr Cutifani and chief financial officer René Médori outlined a strategy focusing on just the three mineral groups and a cutback from the 55 mines it held at the end of last year, ending its tenure as one of the world’s leading diversified mining companies. Anglo will remove 68,000 employees from its payroll through asset sales, and cut another 10,000 internal jobs, leaving it with 50,000 employees. It employed 162,000 people three years ago. The noncore assets would be sold between now and 2019, with the bulk of the sales this year, raising between $3bn and $4bn. That would be in addition to the $2bn in assets sold last year to pay down borrowings and bring net debt to less than $10bn by December. The balance of the sales would happen over the next two or three years to get net debt to $6bn. Analysts remained sceptical on Tuesday, echoing concerns raised by rating agency Moody’s on Monday, which downgraded Anglo American’s credit rating to below investment grade or junk status. One analyst said there was a "high execution risk associated with this restructuring plan, as challenging market conditions are likely to slow the pace of the portfolio transformation". Its three large competitors have, for example, pushed iron-ore production hard, despite slowing demand from China, the world’s biggest steel maker, leading to a collapse in prices and an oversupplied iron-ore market.

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Anglo was getting out of iron ore and was considering exit strategies for its 69.7% stake in SA’s largest iron ore miner, the JSE-listed Kumba Iron Ore, said Mr Médori. The options include a demerger or sale of shares. Anglo will also sell all its South African coal assets, including its mines that provide Eskom with coal, as well as its export thermal coal mines. The group will sell thermal and metallurgical coal mines in Australia and Colombia. Mineral Resources Minister Mosebenzi Zwane said the sales were a good opportunity to increase the involvement of black South Africans in the domestic mining industry. Sibanye Gold has declared its interest in Anglo’s South African coal sales, with the inclusion of the export-focused mines sure to make the offering more attractive to the gold producer, which wants to add coal to its portfolio to drive an energy strategy that would make it less dependent on Eskom’s increasingly expensive electricity. COAL See article “ANGLO TO SHED SA COAL, IRON ORE ASSETS” under heading IRON TIMBER, PAPER, PUBLISHING MONDI LIFTS FY EARNINGS (Engineering News, 17/2/2016) International packaging and paper group Mondi expects to report a 24% to 29% increase in basic earnings a share to €1.21 to €1.26 for the year ended December 31, compared with the €0.97 recorded in the prior financial year. Headline earnings a share would rise by 22% to 27% to €1.21 to €1.26 for the year under review, compared with the €1 recorded the year before, while underlying earnings a share would be 22% to 27% higher at €1.31 to €1.36 for 2015, compared with €1.07 in 2014. Underlying profit for the full year was expected to be higher than the €767-million reported for 2014. Mondi had recognised a net special item charge after tax of €48-million for the 2014 financial year and it expected the equivalent special item charge for the 2015 financial year to be €47-million CHROME & MANGANESE See article “ANGLO TO SHED SA COAL, IRON ORE ASSETS” under heading IRON GENERAL DROUGHT PUSHING SOUTH AFRICA TO THE BRINK OF RECESSION – MOODY'S (Engineering News, 17/2/2016) South Africa's worst drought on record risks tipping an already weak economy into recession as rising agricultural imports feed into rising inflation, ratings firm Moody's said on Tuesday. "The worst drought on record in South Africa is aggravating the ongoing economic slowdown, threatening near-zero growth if not a recession in 2016," said Moody’s Senior VP and lead analyst for South Africa Kristin Lindow. A severe drought caused by an El Nino weather system has swept across southern Africa since mid-2015, threatening the maize crop, which serves as a staple in the region, forcing countries like South Africa to up imports to plug the shortfall. "Normally a net exporter of grains, South Africa will now need to import substantial amounts of grain to compensate for domestic production shortfalls," Lindow said. Inflation figures due on Wednesday are expected to show consumer prices rising just short of 6%, the South African Reserve Bank's upper target. South Africa's central bank raised its benchmark interest rate by half a percentage point in January, after raising it by a total of 50 basis points in 2015, citing the deteriorating inflation outlook. "We expect this to lead to more rapid and sizeable monetary tightening that will further restrain growth," Lindow said. "The increase in rates will serve as a further brake on an already weak economy, with an intensifying drought aggravating existing problems that have taken their toll on investor confidence over the past year," Lindow said. The central bank slashed its 2016 growth forecast to 0.9% from 1.4% previously, while the International Monetary Fund sees growth at only 0.7% in 2016. Moody's said the drought would also stretch South Africa's already wide trade and current account deficits. South Africa is targeting a budget deficit of less than 4%, and Finance Minister Pravin Gordhan is expected to announce a raft of cost cutting measures when he delivers his speech next Wednesday. Moody's currently rates South Africa's debt at two notches above sub-investment, but with a negative outlook. Fellow ratings firms Fitch and Standard and Poor's have South Africa just one notch above junk. CURRENCIES AND PRICES

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JSE AS AT 17:00PM 16 FEBRUARY 2016

All Share Index

16/02 49,387 - 0.93%

Industrials Index

16/02 40,824 - 1.08%

Financials Index

16/02 39,775 - 1.40%

Top 40 Index

16/02 43,951 - 0.96%

Industrial 25 Index

16/02 68,378 - 0.63%

Financial 15 Index

16/02 14,682 - 1.77%

Resources 10 Index

16/02 26,469 - 1.42%

Alt-X Index

16/02 1,525 + 0.78%

WORLD INDICATORS

FOREX

Rand/Dollar 06:31 15.7988 + 0.56%

Rand/Pound 06:45 22.5508

- 0.48%

Rand/Euro 06:45 17.6428 + 0.55%

COMMODITIES

Gold (usd/oz) 06:45 1,208.90 - 0.07%

Platinum (usd/oz) 06:33 938.00

+ 0.47%

Brent (usd/barrel) 06:27 32.53 - 2.49%

WORLD MARKETS

Wall St (DJIA) 16/02 16,196 + 1.39%

Germany (DAX) 16/02 9,135

+ 1.87%

Japan (Nikkei) 06:45 15,657 - 2.48%

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3month

(Business Report, 17/2/2016)

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(TFR Commercial Management: Business Performance Dept)

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

95 ULP (c/l) 1194.00 1200.00

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Diesel 0.05% (c/l) 972.47 910.47

Diesel 0.005% (c/l) 977.87 914.87

Illuminating Paraffin (c/l) 594.028 535.028

Liquefied Petroleum Gas

(c/kg) 1892.00 1893.00

GAUTENG

93 LRP (c/l) 1209.00 1215.00

93 ULP (c/l) 1209.00 1215.00

95 ULP (c/l) 1237.00 1243.00

Diesel 0.05% (c/l) 1005.17 943.17

Diesel 0.005% (c/l) 1010.57 947.57

Illuminating Paraffin (c/l) 647.028 588.028

Liquefied Petroleum Gas

(c/kg) 2074.00 2075.00

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

(SAPIA online)

Daily prices for 16 February 2016

LME Official Prices, US$ per tonne

Contract Aluminium Alloy Aluminium Copper Lead Nickel Tin Zinc NASAAC

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Contract Aluminium Alloy Aluminium Copper Lead Nickel Tin Zinc NASAAC

Cash Buyer 1560.00 1528.00 4583.00 1821.00 8265.00 15400.00 1678.00 1675.00

Cash Seller & Settlement 1570.00 1528.50 4583.50 1821.50 8270.00 15405.00 1679.00 1676.00

3-months Buyer 1585.00 1526.50 4580.00 1822.00 8295.00 15300.00 1681.00 1685.00

3-months Seller 1595.00 1527.00 4580.50 1822.50 8300.00 15325.00 1682.00 1690.00

15-months Buyer 15015.00

15-months Seller 15065.00

Dec 1 Buyer 1660.00 1590.00 4555.00 1832.00 8435.00 1700.00 1750.00

Dec 1 Seller 1670.00 1595.00 4565.00 1837.00 8535.00 1705.00 1760.00

Dec 2 Buyer 1640.00 4555.00 1848.00 8535.00 1700.00

Dec 2 Seller 1645.00 4565.00 1853.00 8635.00 1705.00

Dec 3 Buyer 1700.00 4570.00 1878.00 8620.00 1703.00

Dec 3 Seller 1705.00 4580.00 1883.00 8720.00 1708.00

(London Metal Exchange, 17/2/2016)

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