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COMMODITY NEWSBRIEFS: 26 FEBRUARY 2016

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Natasha.Havenga@transnet.net

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FAST MOVING CONSUMER GOODS TOUGH YEAR AHEAD FOR SA RETAILERS AS MASSMART STALLS (News24, 26/2/2016) Massmart reported flat annual earnings on Thursday and highlighted the difficulties South African food retailers are likely to face this year as shoppers contend with rising prices, mounting debt and high unemployment. The retailer, majority owned by Wal-Mart Stores, earns 91% of its revenue in South Africa, with an economy expected to grow by less than 1% this year. The biggest worry this year is how inflation will affect the lowest income earners, Chief Financial Officer Hans van Lierop told Reuters. Massmart, which also sells appliances and building materials to wealthier shoppers, supplies staples such as maize and rice in bulk to traders who sell them on to poor urban and rural consumers. Though retailers absorb some of the cost increases, maize and sugar prices could climb by a double-digit percentage due to a severe drought in southern Africa, said Van Lierop. Poorer South Africans spend a large part of their income on food and transport, so even when retailers do not pass on price increases they struggle to afford anything but essentials. Massmart noted a slowdown in general merchandise sales toward the end of 2015 as business confidence sagged and the currency depreciated to new lows. The rand has declined 20% against the dollar since October, offsetting gains for consumers from lower fuel prices. Rival Shoprite also noted the impact of transport costs on customers when it reported an 8.9% rise in half-year profit on Tuesday. INTERMODAL DEPRESSED DRY-BULK, COMMODITIES MARKETS TAKE HEAVY TOLL ON GRINDROD (Engineering News, 26/2/2016) A gloomy dry-bulk shipping market and poor commodities environment had impacted heavily on shipping and freight services group Grindrod in the financial year ended December 31. The outlook for both these markets did not suggest much reprieve in the new financial year either. Grindrod CEO Alan Olivier on Thursday announced a net loss of R1.37-billion on the back of massive $100-million impairment in the company’s shipping business, as declining dry-bulk shipping rates impacted heavily on ship-carrying values. Impairments were also necessary in the rail and mineral logistics businesses. Headline earnings were down 23% to R558.8-million, compared with the same period last year. “Clearly, 2015 was a very difficult year for us,” noted Olivier. He said global dry-bulk seaborne trade had declined by 0.1% in 2015 – the first decline since the global financial crisis. It was expected that growth would resume in 2016, but at a slow 1.9%. This decline had seen freight rates in this market “reach the absolute bottom” in recent weeks, with a supply glut in the market. He did not expect Grindrod’s dry-bulk shipping unit to be profitable in 2016. The tanker side of the Shipping business, however, was expected to remain profitable in 2016. The fall-off in commodities had also impacted Grindrod’s Freight Services business in the 2015 financial

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year, with coal throughput at its Matola terminal, for example, declining by 14%, to 3.5-million tons. The capacity at this terminal is between seven and eight-million tons. Coal throughput at Richards Bay dropped by 33%. Grindrod had been forced to reduce its rates to ensure that commodity exporters and producers keep on producing and exporting, said Olivier. Grindrod would look to diversify the geography in which Freight Services operate, as well as the commodities the business handled, in an effort to smooth out some of the price volatility seen in the coal market, for example. Grindrod would also scrap some of its capital projects, in light of a weak commodities market. The Richards Bay coal terminal expansion would continue, as would the Maputo port and Matola coal terminal dredge, in order to improve costs efficiencies. However, Grindrod was withdrawing from the Saldanha crude-oil tank storage facility project, while the North-west Zambian rail link project required an improvement in the copper market. GRAIN SA MAIZE CROP SEEN DOWN 27% TO 7.255MT ON DROUGHT (Engineering News, 26/2/2016) South Africa will likely harvest 7.255-million tonnes of maize in 2016, 27% less than the 9.95-million tonnes reaped last year because of a scorching drought and late plantings, a government agency said on Thursday. The forecast harvest, which the Crop Estimates Committee (CEC) said would be the smallest crop since 2007, was 5.6 higher than market expectations of 6.87-million tonnes, according to a Reuters' poll of traders. It was 2.5% lower than the CEC's previous estimate of 7.44-million tonnes. The crop will comprise an estimated 3.195-million tonnes of white maize and almost 4.1-million tonnes of yellow, the CEC said in its second 2016 maize forecast. Domestic maize prices have been scaling all-time peaks as drought concerns have mounted after South Africa last year recorded its lowest rainfall levels since records began in 1904. Late rains have brought some hope to parts of the maize belt but much of the crop was planted months later than usual so yields are expected to be poor. The situation is especially worrying for the white variety of maize, which is the staple source of calories for many households and is not widely grown outside of the region. Yellow maize, used for livestock, can be easily sourced elsewhere. An El Nino weather pattern is forecast to keep much of the maize belt hot and dry until the end of the growing season in April and record-high temperatures were posted in many parts of South Africa in January. South African maize farmers are also estimated to have planted 1.965-million hectares for the 2016 season, down 26% from the 2.65-million hectares they seeded last year, the CEC said. The CEC also gave its final estimate for the 2015 winter wheat crop, which it pegged at 1.457-million tonnes, down 16.7% from 2014 and the smallest harvest since 2010. TIMBER, PAPER, PUBLISHING MONDI POSTS STRONG FY RESULTS (Engineering News, 26/2/2016) International packaging and paper group Mondi has posted significant improvements across its operations, lifting earnings by more than 25% for 2015. Basic headline earnings a share increased from €0.99 in 2014 to €1.23 apiece in 2015, while basic earnings a share increased 27% to €1.24 for the year ended December 31, compared with the €0.97 recorded in the prior financial year. Profit for the period increased to €645-million from the €497-million achieved in 2014. Operating profit increased 24% to €900-million in 2015 and the achieved group revenue of €6.8-billion was up 7% on the prior year. “2015 was an extremely successful year for Mondi. We made significant progress across a number of key areas and again delivered excellent results. Our focus continues to be on growing the packaging side of our business while, at the same time, investing appropriately in our uncoated fine paper operations,” CEO David Hathorn said. Mondi’s capital investment programme continued during the year under review, delivering incremental operating profit of €50-million, with a further €60-million anticipated in 2016. Going forward, the group would maintain its strong capital investment pipeline of €450-million in major projects, including a €310-million investment in a new 300 000 t/y kraft top white machine at Mondi’s Ružomberok mill, in Slovakia. “Our outlook for the business remains positive. While we are currently seeing some softness in certain of our packaging paper grades, we are also seeing firmer prices in the European uncoated fine paper markets following recent industry capacity rationalisation,” said Hathorn. CHROME & MANGANESE MANGANESE WRITEDOWNS PUSH SOUTH32 TO $1.7BN HALF-YEAR LOSS (Mining Weekly, 26/2/2016) Australia's South32 on Thursday reported a first-half loss of $1.7-billion, hurt by big write-downs for its manganese and energy coal businesses. South32 is the dominant global producer of manganese, and has interests in alumina, silver, nickel

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and coking coal - industrial mainstays hard hit in the wake of China's economic pullback. It took a $916-million impairment charge on its Australian manganese business, and a $518-million charge on its South African energy coal unit, underscoring the deterioration in industrial demand for imported raw materials in China. Spun off last year by BHP Billiton, South32 is the largest producer of manganese ore and a top producer of manganese alloy, used in making aluminium products such as drink cans. The non-cash charges were flagged by the company on February 4, along with plans to cut hundreds of jobs. South32 Chief Executive Graham Kerr recently warned that challenging conditions and low prices would continue in the manganese market and called for supply-side discipline. The half-year loss compared with a pro forma profit of $339-million a year ago. Underlying earnings, excluding non-cash impairments and the impact of foreign exchange, slumped 94% to $26 million. The company maintained its production guidance for the full year, but has cut capital expenditure by $150-million. NON-FERROUS METALS SOUTH32 SAYS TO MAINTAIN LOWER ALUMINIUM OUTPUT IN S AFRICA (Mining Weekly, 26/2/2016) Australian miner South32 said it plans to run its South African aluminium division at current reduced rates until at least mid-2016, as it wrestles with a sector-wide downturn. In September, South32 suspended the operation of 22 smelting pots, or electrolytic cells, equivalent to 3% of the unit's total aluminium-making capacity, in response to a deterioration in markets for the metal. The pots would remain offline for at least the remainder of fiscal 2016, ending June 30, the company said at a briefing after the release of its half-year results. "Any decision will be determined by where prices go," said Mike Fraser, S32's chief operating officer for the Africa region. The production loss is expected to amount to 18 000 t of aluminium by the end of June. South32 produced 352 000 t of aluminium in first half fiscal 2016, steady on a year ago, but its average sales price fell 30% to $1 642/t. Goldman Sachs this week said the aluminium market was facing its biggest fundamental shock in a generation. Last year plummeting prices led to worldwide production cuts of around 5.5-million tonnes with the bulk, about 4-million tonnes, in China. GENERAL SA’S CREDIT RATING UNCHANGED FOR NOW – S&P (Moneyweb, 26/2/2016) National Treasury’s 2016 Budget lacks “significant policy announcements” that could immediately spur GDP growth or provide “much-needed business confidence to the private sector,” ratings agency Standard & Poor’s said on Thursday. S&P said that efforts to boost confidence and GDP growth continued to “remain limited”, particularly in the area of labour relations where strikes have held back higher GDP growth. The ratings agency announced that South Africa’s international and national scale ratings would not be immediately affected by Treasury’s 2016 Budget. S&P has South Africa’s international scale, or foreign currency, rating at BB-, which is one notch above junk status. It also has the country on a negative outlook, suggesting that a downgrade to ‘junk’ may be imminent. Speaking to Moneyweb on Wednesday, finance minister, Pravin Gordhan said that he believed Treasury had done “more than enough, not just for rating purposes but to ensure that as a country and as an economy we begin to move in a more optimistic and different direction. So our fiscal numbers, I think, are more than exciting, and would surprise many people.” The minister said the targeted budget deficit for the 2016/2017 year will be 3.2%, decreasing in the following two tax years to 2.8% and 2.4% respectively. S&P, however, warned that South Africa’s fiscal consolidation “remains vulnerable to lower-than-excepted GDP growth and shortfalls in revenues”. The ratings agency flagged the vulnerability of the fiscal trajectory to the weak balance sheets of state-owned enterprises, which may require further support from government going forward. CURRENCIES AND PRICES

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JSE AS AT 17:00PM 25 FEBRUARY 2016

All Share Index

25/02 48,373 + 0.79%

Industrials Index

25/02 40,074 + 0.92%

Financials Index

25/02 38,855 + 1.15%

Top 40 Index

25/02 42,743 + 0.68%

Industrial 25 Index

25/02 66,328 + 0.34%

Financial 15 Index

25/02 14,255 + 1.29%

Resources 10 Index

25/02 26,453 + 1.65%

Alt-X Index

25/02 1,519 + 0.19%

WORLD INDICATORS

FOREX

Rand/Dollar 06:29 15.5662 - 0.34%

Rand/Pound 06:40 21.7564

+ 0.08%

Rand/Euro 06:40 17.2166 - 0.002%

COMMODITIES

Gold (usd/oz) 06:40 1,236.60 + 0.59%

Platinum (usd/oz) 06:31 921.00

- 1.29%

Brent (usd/barrel) 06:25 35.10 + 2.01%

WORLD MARKETS

Wall St (DJIA) 25/02 16,697 + 1.29%

Germany (DAX) 25/02 9,331

- 0.91%

Japan (Nikkei) 06:39 16,325 + 1.15%

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3month

(Business Report, 26/2/2016)

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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

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

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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 25 February 2016

LME Official Prices, US$ per tonne

Contract Aluminium Alloy Aluminium Copper Lead Nickel Tin Zinc NASAAC

Cash Buyer 1550.00 1599.00 4652.00 1707.50 8495.00 16200.00 1761.50 1665.00

Cash Seller & Settlement 1560.00 1600.00 4655.00 1708.00 8500.00 16225.00 1762.00 1666.00

3-months Buyer 1575.00 1576.00 4646.00 1702.00 8525.00 16000.00 1768.00 1675.00

3-months Seller 1585.00 1577.00 4647.00 1704.00 8550.00 16050.00 1769.00 1685.00

15-months Buyer 15715.00

15-months Seller 15765.00

Dec 1 Buyer 1645.00 1632.00 4635.00 1728.00 8670.00 1785.00 1730.00

Dec 1 Seller 1655.00 1637.00 4645.00 1733.00 8770.00 1790.00 1740.00

Dec 2 Buyer 1682.00 4635.00 1745.00 8770.00 1778.00

Dec 2 Seller 1687.00 4645.00 1750.00 8870.00 1783.00

Dec 3 Buyer 1742.00 4650.00 1775.00 8855.00 1775.00

Dec 3 Seller 1747.00 4660.00 1780.00 8955.00 1780.00

(London Metal Exchange, 26/2/2016)

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