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COMMODITY NEWSBRIEFS: 27 JANUARY 2016

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Natasha.Havenga@transnet.net

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IRON WORLD BANK LOWERS 2016 OUTLOOK ON 37 OF THE 46 COMMODITIES IT TRACKS (Engineering News, 27/1/2016) The World Bank has lowered its 2016 price forecast for 37 of the 46 commodities it monitors and has warned that low prices for oil and other commodities are “likely to be with us for some time”. The bank’s latest ‘Commodity Markets Outlook’ cut its price outlook for oil this year to $37/bl, from a forecast of $51/bl in October. For non-energy commodities, the largest decline is expected in iron-ore prices, with the report forecasting a 25% decline in 2016, owing to reduced imports from China’s steel producers and new capacity in Australia and Brazil. Iron-ore prices fell from an average of $96.9/t in 2014 to $55.8/t last year, with prices plunging 15% in the fourth quarter to average $47/t. The price of the ferrous mineral fell to $41/t in December and bank is forecasting an average price of $42/t for 2016. It is also only projecting a modest recovery to $51/t by 2020. Iron-ore prices had fallen for eight consecutive quarters and were currently barely one-fourth of the high reached in 2011, owing to continued oversupply, weak demand and destocking at Chinese mills. “Global seaborne iron-ore demand may be nearing a peak due to China’s transition to a less-metal intensive economy and as a result of rising scrap metal availability. More low-cost iron-ore capacity awaits development in Australia, and will continue to displace high-cost output in other areas,” the report states. Besides iron-ore, other non-energy commodity prices fell 4% in the fourth quarter of 2015, to a level almost 40% below their early 2011 highs, on continued large inventories and ample supplies. SCRAP TRUCKERS SLATE PLANS TO SWITCH ALL SCRAP METAL TO PE (FTW, 22/1/2016) A government gazette notice from the International Trade Administration Commission (Itac) that all waste or scrap metal will have to be exported via the port of Port Elizabeth has met with a hail of gunshot objections from the road transport industry. But all is not lost for these irate truckers. At least that’s according to Foster Mohale, manager of communication services for Itac. In his response to a query on the subject, Mohale made it clear that this notice was intended to seek public comments on these new proposed amendments to Itac’s existing amended export control guidelines on the exportation of ferrous and non-ferrous waste and scrap, dated September 12, 2014. “Therefore,” Mohale said, “the content of the notice is neither a decision nor a resolution by Itac, but a call for comments on the proposals.” But adverse comments have already started, with an initial broadside aimed at the move to PE being released by Carl Webb, MD of Project Logistics Management and adviser for both the Road Freight Association (RFA) and the SA Association of Freight Forwarders (Saaff). He said that, at present, almost all the scrap steel – mostly originating from the Reef’s industrial belt – was containerised, and shipped out

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via Durban. “None of it currently goes through PE,” Webb said. However, he noted that all the Chinese shipping lines that called at PE would be delighted. “They can offer much better rates than anybody else, and would be delighted to pick up the large quantities of scrap steel at that port – mostly bound to feed the Chinese steel industry’s major demands for this product.” But while it may delight them, it does anything but delight the SA road transport industry, which hauls scrap steel to the coast on the inland leg, according to Webb. “With all scrap steel in future having to be shipped via PE,” he said, “this means that about 30% of the return loads from the Reef to Durban will have to be re-routed to PE – from where there are a limited number of return loads to the Reef.” He also pointed out that the distance was also about 80% further – with resultant cost increases. “Of course this should mean re-routing to rail. But it cannot cope with existing volumes, let alone the increased volumes that will arise.” Webb was also adamant that this would mean that the Durban/Reef truck route costs would have to be increased to allow for vehicles returning empty. FUEL See article “WORLD BANK LOWERS 2016 OUTLOOK ON 37 OF THE 46 COMMODITIES IT TRACKS” under heading IRON COAL WESCOAL’S FLAGSHIP COLLIERY HITS PRODUCTION TARGET (Mineweb, 27/1/2016) Wescoal’s flagship Elandspruit Colliery is hitting its monthly production target of 165,000 tonnes (t) of run-of-mine (ROM) coal on a continuous basis. In a voluntary trading update, the miner said development at the Mpumalanga mine is at an advanced stage, with upgrades carried out on haulage roads and water control systems. “Work at the Wescoal processing plant to implement cost-saving and debottlenecking projects is on track to be completed before the end of the current financial year,” it added. Wescoal has reported “progress” in acquiring resources contiguous to its Khanyisa Colliery. It has also reached an agreement, subject to approval from the Department of Mineral Resources, which may extend the life of mine by three to four years. It said mining activities at Khanyisa are subject to the receipt of a water use license, for which it applied in February 2015. In spite of the challenging local business environment and pressure on operating margins, Wescoal said its trading division continues to meet expectations. Although less than expected, it said the R52 million raised through recent fund raising initiatives was “sufficient to initiate crucial de-risking and optimisation projects” across the company. Wescoal, which produces domestic, export and Eskom grade coal, said an oversupply in the global coal market had negative impact on domestic and export price expectations. “However, the weakening exchange rate will have a positive impact on the rand price of export coal going forward,” it said. COST-PLUS MINES UNDER SCRUTINY AS ESKOM ROLLS OUT NEW COAL PROCUREMENT STRATEGY (Engineering News, 27/1/2017) Eskom group executive for generation Matshela Koko reports that the utility has taken an in principle decision to migrate from investing in cost-plus coal mines, which are increasingly underperforming, to fixed-price coal contracts. Koko also insisted that the group no longer faced a so-called “coal cliff”, reporting that it had secured 80% of its needs for the next five years, as well as all of its requirements for 2015/16 and 2016/17. This included 11-million tons in the form of short-term contracts. He acknowledged that the main reason for the reduction in coal-supply risks related to lower-than-forecast electricity demand and, therefore, coal burn. Eskom’s coal burn fell from well above 120-million tons in previous years to 119-million tons last year and consumption was expected to fall further during the 2015/16 financial year, which ended in March. The move away from the cost-plus model – which had hitherto helped bolster supply security and stimulated the development of a large coal export industry – had been driven primarily by Eskom’s weakened financial position. GRAIN SA MAY FACE COSTLY SORGHUM IMPORTS (Business Day, 27/1/2016) Once the world’s seventh biggest exporter of sorghum, SA may have to import a significant amount of the grain this year, as risk-averse farmers are thought to have planted less of the crop despite its ability to tolerate hot, dry weather. The country may have to ship in as much as 90,000 tonnes of sorghum in the 2016-17 production year, according to estimates from

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Grain SA. This would be an increase on imports of 27,000 tonnes last year and 8,000 tonnes in the previous year. Sorghum is commonly used in the production of beer and in animal feed and is often regarded as a replacement crop for maize due to its low input requirement costs and its ability to withstand severe drought. It is the fifth most important cereal crop in the world. Up until 2014, SA was a net exporter of the grain, and the Southern African Development Community region accounted for 99% of total exports of the grain. Grain SA economist Wandile Sihlobo said the fact that SA would have to import a vast amount of sorghum spoke to the seriousness of the drought, which has devastated most summer crops in the key planting areas of the Free State, Western Cape and North West. “Our preliminary survey shows that South African producers have planted roughly 20,000ha of sorghum this year (which was about a third) of the intended 74,750ha,” said Mr Sihlobo. SA consumes about 167,000 tonnes of sorghum each year. Its production year runs from March to February the following year. Grain SA was reluctant to forecast the size of the expected sorghum harvest for 2016-17, saying a more accurate projection of these figures would be revealed in the crop estimate committee’s first production estimates report due to be released today. But Mr Sihlobo agreed that this season’s harvest would be significantly lower than the 117,000 tonnes SA produced last season and the 265,000 tonnes the country harvested in 2014. Argentina, the US and Australia, which have previously supplied SA with sorghum, are likely to do so once again this year. But imports will come with a hefty price tag, owing to the sharp depreciation of the rand. Without a doubt, consumers will not be spared the higher prices as manufacturers of cereals and other grains will be forced to pass costs on to them. CURRENCIES AND PRICES

JSE AS AT 17:00PM 26 JANUARY 2016

All Share Index

26/01 47,532 + 0.68%

Industrials Index

26/01 38,743 - 0.11%

Financials Index

26/01 37,456 + 0.48%

Top 40 Index

26/01 42,626 + 0.50%

Industrial 25 Index

26/01 67,626 + 0.19%

Financial 15 Index

26/01 13,814 + 0.51%

Resources 10 Index

26/01 24,088 + 2.90%

Alt-X Index

26/01 1,522 - 0.17%

WORLD INDICATORS

FOREX

Rand/Dollar 06:21 16.4050 - 0.77%

Rand/Pound 06:30 23.4885

- 0.14%

Rand/Euro 06:30 17.8195 - 0.67%

COMMODITIES

Gold (usd/oz) 06:30 1,119.93 + 0.99%

Platinum (usd/oz) 06:30 877.48

+ 2.81%

Brent (usd/barrel) 06:30 31.17 + 2.20%

WORLD MARKETS

Wall St (DJIA) 26/01 16,167 + 1.78%

Germany (DAX) 26/01 9,823

+ 0.59%

Japan (Nikkei) 06:30 17,017 + 1.84%

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3month

(Business Report, 27/1/2016)

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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

95 ULP (c/l) 1194.00

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Diesel 0.05% (c/l) 972.47

Diesel 0.005% (c/l) 977.87

Illuminating Paraffin (c/l) 594.028

Liquefied Petroleum Gas

(c/kg) 1892.00

GAUTENG

93 LRP (c/l) 1209.00

93 ULP (c/l) 1209.00

95 ULP (c/l) 1237.00

Diesel 0.05% (c/l) 1005.17

Diesel 0.005% (c/l) 1010.57

Illuminating Paraffin (c/l) 647.028

Liquefied Petroleum Gas

(c/kg) 2074.00

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)

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Daily prices for 26 January 2016

LME Official Prices, US$ per tonne

Contract Aluminium Alloy Aluminium Copper Lead Nickel Tin Zinc NASAAC

Cash Buyer 1505.00 1480.00 4500.00 1638.00 8540.00 13925.00 1551.00 1675.00

Cash Seller & Settlement 1510.00 1480.50 4501.00 1639.00 8545.00 13950.00 1552.00 1680.00

3-months Buyer 1540.00 1480.50 4500.00 1640.00 8590.00 13850.00 1550.00 1690.00

3-months Seller 1541.00 1481.00 4501.00 1641.00 8595.00 13900.00 1551.00 1700.00

15-months Buyer 13750.00

15-months Seller 13800.00

Dec 1 Buyer 1615.00 1540.00 4480.00 1673.00 8745.00 1590.00 1760.00

Dec 1 Seller 1625.00 1545.00 4490.00 1678.00 8845.00 1595.00 1770.00

Dec 2 Buyer 1595.00 4480.00 1698.00 8845.00 1605.00

Dec 2 Seller 1600.00 4490.00 1703.00 8945.00 1610.00

Dec 3 Buyer 1663.00 4495.00 1738.00 8915.00 1610.00

Dec 3 Seller 1668.00 4505.00 1743.00 9015.00 1615.00

(London Metal Exchange, 27/1/2016)

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