mining monitor (january 2017) · of us and china. for coking coal and thermal coal, prices...
TRANSCRIPT
Mining Monitor (January 2017)
Strategic Research Division,
Corporate Research Office
27 January 2017
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
MUFG Union Bank, N.A.
Table of Contents
1. Overview 3
2. Iron Ore 5
3. Coal 9
4. Copper 13
Mining Monitor | 27 January 2017 2
5. Aluminum 17
6. Nickel 21
7. Zinc 25
8. Gold 29
1. Overview
Mining Monitor | 27 January 2017 3
Takuya Eto
Strategic Research Division,
Corporate Research Office
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.
Mining Monitor | 27 January 2017 4
Mined Commodities Price Forecasts by Strategic Research Division
Although the prices of mined commodities increased by and large in 4Q’16, prices will be under pressure due to
supply recovery. Non-ferrous metals prices remain bullish and are likely to grow or remain the same level.
1. Overview
Mined Commodity Price Trends
In 4Q’16, the prices of mined
commodities except gold increased,
but some of them fell in December.
This price fluctuation was mainly due
to supply trends in China.
With regard to iron ore, price rally
was largely driven by strong demand
of US and China. For coking coal and
thermal coal, prices decreased in
December. In 2017, returning supply
will lead to lower price of them.
Prices of non-ferrous metals were
supported by improvement of Chinese
economy in 4Q’16. Since zinc market
is estimated to be firmly in deficit,
price will continue to perform strongly
during 2017. Copper and aluminum
are also likely to increase slowly due
to ramp-up of new mines. As to nickel,
price will decrease moderately caused
by supply increase in Indonesia while
global demand will grow continuously.
Meanwhile, gold price is expected to
be bottomed out and increase
gradually supported by speculative
demand.
Yr Avg 1Q (f) 2Q (f) 3Q (f) 4Q (f) 1H (f) 2H (f) 1H (f) 2H (f)Iron Ore ($/t) 58 77 72 66 63 60 55 56 52
YoY 5% 60% 29% 12% -11% -20% -14% -6% -5%
QoQ - 9% -6% -9% -4% - - - -
Coking Coal ($/t) 142 179 158 140 128 117 112 107 103
YoY 22% 65% 75% 66% 65% -30% -17% -9% -8%
QoQ - 131% -12% -11% -9% - - - -
Thermal Coal ($/t) 65 81 73 68 66 65 65 64 64
YoY -8% 29% 25% 17% 25% -15% -3% -1% -1%
QoQ - 53% -10% -6% -3% - - - -
Copper ($/t) 4,866 5,119 4,763 4,668 4,617 4,617 4,726 4,904 5,132
YoY -11% 9% 1% -2% -13% -7% 2% 6% 9%
QoQ - -3% -7% -2% -1% - - - -
Aluminum ($/t) 1,605 1,654 1,603 1,584 1,576 1,595 1,644 1,724 1,798
YoY -4% 9% 1% -2% -8% -2% 4% 8% 9%
QoQ -3% -3% -1% -1% - - - -
Nickel ($/t) 9,605 10,103 9,901 9,852 10,050 10,565 11,101 11,637 11,990
YoY -19% 18% 12% -4% -7% 6% 12% 10% 8%
QoQ -6% -2% -1% 2% - - - -
Zinc ($/t) 2,091 2,665 2,718 2,746 2,691 2,651 2,611 2,540 2,465
YoY 8% 59% 41% 22% 7% -2% -4% -4% -6%
QoQ 6% 2% 1% -2% - - - -
Gold ($/oz) 1,250 1,153 1,159 1,168 1,181 1,205 1,223 1,238 1,249
YoY 8% -3% -8% -12% -3% 4% 4% 3% 2%
QoQ - -5% 1% 1% 1% - - - -Source: Bloomberg, BTMU Strategic Research Division, MUB Strategic Research
20192017 20182016
Chloe Lim
Strategic Research Division (Singapore)
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.
2. Iron Ore
Mining Monitor | 27 January 2017 5
Iron ore prices remained buoyant in
4Q’16, rising 50% YoY to average at
US$71/t. This brought full year
average price in 2016 to US$58/t, up
5% YoY.
The price rally in 4Q’16 was mainly
driven by heightened speculations on
strong China and US demand, and
potential weather-led supply constraint
in Australia in early-2017.
Even as Chinese government curbed
speculative trading in late-November
and temporarily closed ports and steel
mills in December to reduce smog,
prices traded within US$78-84/t in
December. This can be attributed to
speculative trade positions taken to
hedge against a weakening Yuan.
Meanwhile, China’s iron ore port
inventories continued to climb and
reached a two-year high by end-2016.
In the near-term, potential weather-led
supply constraint in Australia is
expected to provide some support for
iron ore prices.
6
Iron Ore Prices and Inventories
Higher prices in 2016 were largely driven by speculation despite steady rise in China’s port inventories to a two-year
high.
2. Iron Ore
1) Price Trends
Mining Monitor | 27 January 2017
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China Iron Ore Port Inventory (RHS) Iron Ore Fines 62%, CFR China Import Spot Price (LHS)
($/t) (Mt)
Source: Bloomberg, BTMU Strategic Research Division
Global iron ore production is
expected to fall modestly in 2016,
mainly due to production cuts in
China and Brazil.
As for global demand, a slight
decline is expected in 2016 against a
backdrop of China's weak
consumption growth and Brazil’s
demand contraction. As a result,
global market is estimated to be in
deficit in 2016.
For 2017, while China’s output is
projected to continue falling, higher
supply from Australia and Brazil
coupled with concerns of China’s
subdued consumption may cause
global market to return to a slight
surplus. Thus, progressive price
softening is expected during the year.
Looking further, given more low-cost
production from Australia and Brazil
and lacklustre growth in China’s
import demand in the next two years,
rising market surplus is expected. As
such, prices are likely to continue
falling from 2017.
7
Outlook for Iron Ore Prices
Influence Factors on Iron Ore
Despite progressive price softening in 2017, prices may see some support from China’s demand for seaborne supply
to offset its falling output. Further price decline is projected in 2018 and 2019 in view of growing low-cost supply.
2. Iron Ore
2) Outlook
Mining Monitor | 27 January 2017
($/t)
Yr Avg 1Q (f) 2Q (f) 3Q (f) 4Q (f) 1H (f) 2H (f) 1H (f) 2H (f)
Price 58 77 72 66 63 60 55 56 52
YoY 5% 60% 29% 12% -11% -20% -14% -6% -5%
QoQ - 9% -6% -9% -4% - - - -
Source: Bloomberg, BTMU Strategic Research Division
2017 20192016 2018
2017 2018 2019
Price Trend Progressive price softening
Increase
・Low-cost supply is expected to
increase in Australia and Brazil,
underpinned by ramp-up of Roy
Hill operation and commissioning
of S11D project
Increase Moderately
・Steel demand growth in
developing countries (excluding
China) from infrastructure-
related investments
・Lacklustre growth in China's
import demand
Source: BTMU Strategic Research Division, MUB Strategic Research
Decrease
・Steel demand growth in developing countries (excluding China)
from infrastructure-related investments
・China's imports are expected to rise to offset on-going decline in
domestic production to meet demand
・Higher low-cost supply, led by Australia and Brazil
Supply
Demand
Increase
Increase
Mining Monitor | 27 January 2017 8
2. Iron Ore
3) News Flow
Source: Various sources, BTMU Strategic Research Division
Anglo American set to start its last phase production at Minas-Rio Complex in 2019 – 03 January, 2017
Anglo American aims to have the operating license for final phase of its Minas-Rio mine in Brazil by end-2018. This is expected to help the mine to reach
its full capacity of 27 million tons by 2019. In addition, it is expected to add at least another 10 years to this mine’s production life. According to Anglo
Brazil’s CEO Ruben Fernandes, the final development of Minas-Rio mine will need an investment of about US$308 million.
Back in October 2016, the company was given the operating license for phase 2, which increased production capacity to 17 million tons at the Minas-
Rio complex.
Spot iron ore prices to average higher in 2017 than 2016: Metallurgical Mines Association of China (“MMAC”) – 19 December, 2016
MMAC believes average seaborne iron ore prices in 2017 will rise moderately from 2016, to over $60/t CFR China. Vice chairman of MMAC, Lei Pingxi,
said at a meeting with the association members that while China’s iron ore production in 2017 is expected to drop, its demand is likely to remain steady
or improve slightly and thus strengthening average prices. This is despite Chinese government’s continued pollution control efforts, reigning in of
overcapacity and consolidation within the steel industry, which is likely to cap steel output.
According to National Bureau of Statistics, China's domestic run-of-mine iron ore production fell -3.6% YoY to 1.2 billion tons in January-October’16.
China's domestic iron ore miners, which were forced to halt or cut production since 2H’14 due to mounting losses, are unlikely to resume operations
soon unless there is sustainable uptrend in prices.
Vale inaugurates Carajás S11D project in Brazil and starts first shipment in January 2017 – 18 December, 2016
Vale officially commissioned its S11D mine in Brazil’s Carajás region, Pará state. The US$14.3 billion project – which includes a mine, plant, railroad
and port logistics – will enable the company to consolidate its position as the miner with the lowest production costs in the industry.
First production is expected in late-December’16 and its first shipment in January’17. With an annual production rate of 90 million ton, this project will
have a four-year ramp-up phase instead of the original two-year as Vale focused on “margins over volume”. The C1 cost of S11D’s iron ore delivered at
the Ponta da Madeira maritime terminal in São Luís, Maranhão state is estimated to be $7.70/t, 41% lower than Vale’s current average C1 cost.
Iron ore exports from Australia and Brazil rose in latest year-to-date trade data – 15 December, 2016
Australia exported 664 million tons of iron ore in 10M’16, up 5% YoY, according to Australian Bureau of Statistics data.
Similarly, Brazil’s trade data posted 4% YoY increase in the country’s iron ore exports to 338 million tons in 11M’16. Its iron ore exports to China grew
strongly with shipments increasing 18% YoY to 193 million tons in the same period. So far, China accounts for about 61% of Brazil’s export share.
William Cheung
Strategic Research Division (Hong Kong)
THE BANK OF TOKYO-MITSUBISHI UFJ, H.K.
3. Coal
Mining Monitor | 27 January 2017 9
The global coking coal price rose by
99.5% in 4Q’16 from the last quarter.
But price started to fall in December.
The recent price decrease was
because China has temporarily
eased restrictions on coal production
amid rapid price increase in previous
months. The increase coal supply to
the market has led to a price fall in
December.
The global thermal price remained
high at $92/ton in 4Q’16, but it began
to go down in December.
The price fall was due to supply
increase as a result of relaxed coal
mining restrictions. Also, mild
temperature in December has hit the
heating demand in North Asia, which
put downward pressure to the price
to a lesser extent.
Mining Monitor | 27 January 2017 10
Coal Prices
Both coking coal and thermal prices remained high in 4Q’16. But prices began to fall in December as result of policy
easing on coal production in China.
3. Coal
1) Price Trends
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Spot Price (Coking Coal) Spot Price (Thermal Coal)($/t)
Source: Bloomberg, BTMU Strategic Research Division
In 2016, the global coal supply fell
moderately against a backdrop of
operation restrictions in China, while
global demand remained weak. As a
result, the global coal market is
estimated to have moved into deficit.
However, it will return to production
surplus from 2017 to 2019, mainly due
to policy relaxation on coal production
in China and re-opening up idle mines
in Canada, Australia and US.
The global coking price is expected to
fall, as a result of recovery from supply
disruption last year, policy-driven
supply increase in China and idle
mines re-opening. Then, price will
decrease modestly till 2019 as policy
impact from China gradually diminishes
and re-startup of idle mines slows
down.
Meanwhile, the global thermal coal
price could decrease due to production
ramp up. Price will then fall slightly till
2019 amid gradual switching to low
carbon fuels globally.
Mining Monitor | 27 January 2017 11
Outlook for Coal Prices
Influence Factors on Coal
Global coal market will return to production surplus from 2017 to 2019. Coal prices are likely to decrease in the
forecast period.
3. Coal
2) Outlook
2017 2018 2019
Price Trend Decrease after 4Q'16
Increase moderately Increase slightly Increase slightly
・Recovery from supply disruption
and operational issues last year
・Flexibility in coal capacity cut
execution in China
・Production ramp up in Canada,
Australia and US
・Flexibility in coal policy capacity
cut execution in China
・Production ramp up in Canada,
Australia and US
・Flexibility in coal policy capacity
cut execution in China
Increase slightly Increase slightly Increase slightly
・Growth of steel demand in
developing countries except
China
・Increase of energy demand in
developing countries
・Growth of steel demand in
developing countries except
China
・Increase of energy demand in
developing countries
・Switching to low carbon fuels in
developed countries.
・Growth of steel demand in
developing countries except
China
・Increase of energy demand in
developing countries
・Switching to low carbon fuels in
developed countries.
Source: BTMU Strategic Research Division, MUB Strategic Research
Supply
Demand
($/t)
Yr Avg 1Q(f) 2Q(f) 3Q(f) 4Q(f) 1H (f) 2H (f) 1H (f) 2H (f)
Coking Coal 142 179 158 140 128 117 112 107 103
YoY 22% 65% 75% 66% 65% -30% -17% -9% -8%
QoQ - 131% -12% -11% -9% - - - -
Thermal Coal 65 81 73 68 66 65 65 64 64
YoY -8% 29% 25% 17% 25% -15% -3% -1% -1%
QoQ - 53% -10% -6% -3% - - - -
2017 2018 20192016
Source: Bloomberg, Thomson, BTMU Strategic Research Division
China continues overcapacity fight in coal sector in 2017 – 29 December, 2016
After accomplishment of 250 million tons of capacity cut target in 2016, China will aim to raise its target for capacity cut in coal sector by more than 10%
in 2017, according to the National Energy Administration in China. This is because the capacity removal in 2016 has not fundamentally improved the
supply-demand balance in coal sector, and more capacity should be reduced in the next three to five years. Besides, stricter rules for controlling coal
capacity and elimination illegal production capacity will be another focus in 2017, according to NDRC (National Development and Reform Commission).
Coking coal prices plunge as Chinese output rises – 28 December, 2016
The global coking coal prices have decreased sharply after China lifted the restrictions on production of coking coal. Chinese coking coal production is
recovering, as the Chinese government temporarily relaxed the limits on the number of days that coal mines can operate. Also, some coal mines in
overseas (i.e. US) which was suspended operation are planning to re-open soon. As such, the global coking coal supply is likely to increase in the near
term. According to the market consensus, the global coking coal prices are likely to decrease from above $300/ton in late 2016 to an average of
$200/ton in 2017, which suggests that a sharp turnaround is coming.
China’s steps to fight demand rampant pollution hits Asian coal demand – 21 December, 2016
Asian thermal coal prices are set to come under pressure as China takes measures to fight against rampant smog. The Chinese government has
temporarily shut the coal-fired power stations and stopped handling coal cargos at some major Chinese ports (i.e. Tianjin Port) to reduce thermal coal
consumption. Besides, the mild temperature in the Northern Hemisphere is likely to restrain heating demand. Based on the weather forecast by
Thomson Reuters Eikon, the temperature could be warm in most of Asia’s Northern Hemisphere, which will not see a jump in North Asian coal demand.
As of 20 December, the thermal coal prices were around $88/ton, down from $100/ton in early November after the China’s mining restrictions were
loosened and early winter cold snap eased.
Global coal demand to slow over next five years: IEA – 12 December, 2016
According to the latest forecast announced by the IEA (International Energy Agency), the global coal demand is expected to slow down over the next
five years. The average annual growth in global coal demand could fall to 0.6% from 2015 to 2021, compared with average yearly growth of 2.5% over
the past decade. The slowdown could be due to the Chinese government’s measures to limit coal consumption, as well as increasing use of renewable
energy in developed countries like US.
Mining Monitor | 27 January 2017 12
3. Coal
3) News Flow
Source: Various sources, BTMU Strategic Research Division
Satoshi Kondo
Strategic Research (NY)
MUFG UNION BANK, N.A
4. Copper
Mining Monitor | 27 January 2017 13
After being mostly dormant this
year, copper prices picked up
steam in November and climbed to
18-month highs at almost $6,000/t,
benefitted mainly from expectations
of an infrastructure rebuild program
of president-elect Donald Trump
and sharp drop in inventories at the
LME.
In December, the prices dropped
back down to around $5,500/t, the
level seen in the wake of the
November presidential election,
against a sharp increase in
inventories at LME and profit-taking
as anticipation of market rally on
Trump victory cooled down. And
yet, the year-end prices came in
above 17.4% compared to the
year-end 2015.
Mining Monitor | 27 January 2017 14
Copper Prices and Inventories
Copper prices somewhat calmed down after Trump rally, but ended sharply higher than early 2016.
4. Copper
1) Price Trends
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LME Inventory (RHS) SHFE Inventory (RHS) LME Spot Price (LHS)($/t) (Kt)
Source: Bloomberg, MUB Strategic Research
Copper output continues to grow
strongly in 2016. China, although at a
little slower pace compared to 2014
and before, is the main driver.
On the demand side, although there
was some improvement since mid-
2016, it is expected to remain at a low
growth level. As a result, the supply
surplus is estimated to remain in 2016.
In 2017, the supply-demand balance
surplus is expected to continue as the
growth in demand remains weak.
However, the surplus is expected to
improve after reaching a peak in 2017,
turning to a deficit in 2019, as the
demand growth should remain slow
but solid, coupled with limited supply
growth from major production
countries such as Chile.
In respect of copper price, we expect
the decline to continue until 2H’17. As
the supply-demand balance begins to
improve in 2018, the prices are
expected to bottom out, reaching
$5,000/t during 2019.
Mining Monitor | 27 January 2017 15
Influence Factors on Copper
Outlook for Copper Prices
A market surplus is expected to peak in 2017, turning to a deficit by 2019 as growth in supply falls below demand.
Prices are expected to bottom out in 2H’17, subsequently rising gradually.
4. Copper
2) Outlook
($/t)
Yr Avg 1Q (f) 2Q (f) 3Q (f) 4Q (f) 1H (f) 2H (f) 1H (f) 2H (f)
Price 4,866 5,119 4,763 4,668 4,617 4,617 4,726 4,904 5,132
YoY -11% 9% 1% -2% -13% -7% 2% 6% 9%
QoQ - -3% -7% -2% -1% - - - -
Source: Bloomberg, M UB Strategic Research
2017 20192016 2018
2017 2018 2019
Price Trend
Increase Increase Moderately Flat Growth
・Continuous supply increases by
low-cost players
・Postponement to the restart of
Glencore's African operation
・Lower supply growth from major
production countries such as
Chile and Peru
・Restart of Glencore's African
operation
・Lower supply from major
production countries such as
Chile and Peru
Source: BTMU Strategic Research Division, MUB Strategic Research
Supply
Demand
Moderate decrease throughout 2017, bottoming out in early 2018
Increase Moderately
・Lower but stable demand growth without any meaningful re-acceleration factor
Copper supply from Indonesia disrupted by export ban – 12 January, 2017
Freeport-McMoran Inc, the owner of the word’s second-largest copper mine Grasberg in Indonesia, halted exports of copper concentrates from
Indonesia as a result of an export ban which took effect on 12 January, 2017. While disruption of supply could provide support to copper prices, any
disruption from the current export ban is not expected to last long enough to have an immediate impact on prices owed to ample inventory ahead of the
Chinese New Year, and as the regulators continue to work on resolution to ease the ban. A spokesman from Freeport commented that the company
was “working cooperatively with government officials to ensure that our operations can continue without interruption.” According to the company, the
target production from the Grasberg mine is 180,000 – 200,000/t of copper ore per day.
Chinese copper imports November reached highest level in five months in November – 22 December, 2016
According to customs data, China’s net refined copper imports rose to the highest level since June to 277kt, up 46% m-o-m, supported by price rallies
and declined output. The domestic copper prices gained on stronger Chinese demand and an inflow of speculative funds. Production fell to the lowest
level in five months, sliding 2.3% m-o-m to 720kt.
Codelco reached wage deal at Chilean mine – 16 December, 2016
Codelco, a state-owned copper mining company, reached a wage deal at its Chuquicamata copper mine in Chile, one of its largest operations. The
wage negotiations at the mine are regarded as a precursor of other Chilean copper mines, such as the Escondida, the world’s largest mine owned by
BHP Billiton. The offer which was accepted by the six unions at the mine provides no salary increase, but allows to retain all the benefits deemed
favorable to the workers negotiated during prior talks. Codelco, which has already been cutting costs to regain its financial health, shared its intention to
maintain its recent policy of zero raises and tighter bonuses.
Codelco plans to invest $3.8 billion in 2017– 4 December, 2016
The CEO of the world’s largest copper producer, Codelco, said that it plans to invest approximately $3.8 billion ($3.143 billion in projects, $651 million in
mine development) in 2017, up from $3 billion in 2016, and cut more costs. The priority will be to expand the Chuquicamata mine, while expansions at
Andina and Rodamiro Tomic mines would be delayed, as the company prioritizes more profitable projects. The company hopes to reach savings of
$200 million in 2017 ($400 million in 2016, $500-600 million in 2015) from cost cuts, and to achieve a structural savings goal of $2 billion by 2020. The
company had recently cut its five-year investment plan from $25 billion to $18 billion as falling copper prices eroded company earnings.
Mining Monitor | 27 January 2017 16
4. Copper
3) News Flow
Source: Various sources, MUB Strategic Research
Tom Haddon
Strategic Research Division (London)
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.
5. Aluminum
Mining Monitor | 27 January 2017 17
The 2016 closing price was nearly
13% higher than 2015’s close.
However on average across the year,
prices were 4% lower, reflecting the
weak prices at the beginning of the
year.
Despite some intra-month fluctuation
during December, Aluminum prices
finished the month just 1% down
compared to the end of November at
$1,704 per tonne.
Spot price was under downward
pressure by futures spreads pushing
further into backwardation (futures
prices lower than spot prices) which
attracted more inventory into the LME
warehouses to sell on the spot market.
On the other hand, higher alumina
prices (which is around 60% higher
y-o-y) and higher electricity costs, due
to increased coal prices, helped
sustain pricing.
Therefore aluminium prices stayed
range bound during December
between $1,690 and $1,750.
Mining Monitor | 27 January 2017 18
Aluminum Prices and Inventories
December prices stayed range bound as bullish and bearish signals stayed in near equilibrium. Prices finished the
year 13% higher than 2015’s closing price.
5. Aluminum
1) Price Trends
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LME Inventory (RHS) LME Spot Price (LHS)($/t) (Kt)
Source: Bloomberg, BTMU Strategic Research Division
Global aluminum supply is estimated to
increase slightly in 2016 due to return
of Chinese smelters in late Q4.
On the demand side, the growth was
restrained by sluggish economic growth
in Europe. As a result, the market will
move to supply surplus in 2016.
In 2017, the market will remain to be in
supply surplus as the return of Chinese
smelters.
However with higher input costs
expected in 2017, including electricity
costs and alumina prices, in an
oversupplied environment the market
will be heavily competitive. This is
expected to force those smelters at the
high cost out of the market, gradually
bringing the market to balance by 2019.
Also due to returning Chinese supply,
prices are forecast to be under
pressure through 2017. By 2018, due
to high cost smelters gradually being
forced out the market, it is forecast that
supply will have become tight enough
to produce gradual prices increases.
Mining Monitor | 27 January 2017 19
Influence Factors on Aluminum
Outlook for Aluminum prices
The tighter market has tempted mothballed Chinese smelters back to the market with record production in November
2016 and this is forecast to return the market to surplus in 2017.
5. Aluminum
2) Outlook
($/t)
2016
Yr Avg 1Q (f) 2Q (f) 3Q (f) 4Q (f) 1H (f) 2H (f) 1H (f) 2H (f)
Price 1,605 1,654 1,603 1,584 1,576 1,595 1,644 1,724 1,798
YoY -4% 9% 1% -2% -8% -2% 4% 8% 9%
QoQ -3% -3% -1% -1% - - - -
Source: Bloomberg, BTM U Strategic Research Division
2017 2018 2019
2017 2018 2019
Price Trend Decrease Moderate Increase Increase
Increase Increase Increase moderately
・Returning mothballed Chinese
smelters remain in the market,
following record production in
Nov'16
・Higher cost Chinese smelters
are forced out of the market
due to oversupply and low prices
・High cost smelters remain
uneconomical, limiting supply
growth
Source: BTMU Strategic Research Division, MUB Strategic Research
Supply
Demand ・Solid demand from transport and consumer market
Increase
U.S. launches WTO complaint over Chinese aluminum subsidies - 13 January, 2017
A new complaint against Chinese aluminum subsidies has been submitted by the US government to the World Trade Organization, accusing Beijing of
artificially expanding its global market share with cheap state-directed loans and subsidized energy. The complaint argues that "artificially cheap" state-
directed loans and coal, electricity and alumina for the Chinese aluminum sector causes such prejudice by undercutting global prices and artificially
expanding China's market share. If the complaint is upheld, the WTO has a range of options, one of which could be increased tariffs placed on Chinese
exports.
India not to impose penal import duties on aluminum – 27 December, 2016
India has terminated its investigation on imposition of safeguard or penal duties on imports of aluminium products. The decision is significant as the
Directorate General of Safeguards had initially proposed a five per cent provisional safeguard duty on unwrought aluminium products for 200 days in
April this year after investigating complaints from domestic producers such as Vedanta Ltd, Hindalco, and Balco, which demanded additional protection
against imports. The duty was, however, not imposed at that point of time following protests from exporting countries, and DG Safeguards continued
with its final investigations.
Alcoa says Australia aluminum smelter running at 30% capacity - 21 December, 2016
Australia's 300,000-tonnes-per-year Portland aluminum smelter is operating at below a third of its capacity after power to the plant was temporarily
knocked out three weeks ago, operator Alcoa Corp said. The smelter was hit when a power interconnector between the states of Victoria and South
Australia went down, cutting power to both of the plant's potlines, which allowed molten aluminum to solidify and raised questions about its long-term
future. If 300kt per annum is removed from global supply, it would represent approx 30% of the forecast supply surplus in 2017.
Mining Monitor | 27 January 2017 20
5. Aluminum
3) News Flows
Source: BTMU Strategic Research Division
Tom Haddon
Strategic Research Division (London)
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.
6. Nickel
Mining Monitor | 27 January 2017 21
The 2016 closing price was nearly
15% higher than 2015’s close.
However on average across the
year, prices were 19% lower,
reflecting the stark depths the price
had fallen to during H1’16.
In December, prices were under
almost constant downward pressure,
falling below $10,000 per tonne from
a high of $11,500 at the beginning of
the month, an 11% fall.
The main driver of this December
trend was rising inventories which
remain a critical worry for the market
as they stay resolutely near record
highs.
Rising inventory was driven by off
market stocks returning to LME
warehouses. For off market stocks,
suspicions are that the total is
roughly equal to LME inventory,
meaning that any rise in LME
inventory causes strong corrections
in price.
Mining Monitor | 27 January 2017 22
Nickel Prices and Inventories
December prices suffered under the weight of rising LME inventories and worries that off market stocks will prevent
true rebalancing of the market for some time.
6. Nickel
1) Price Trends
0
100
200
300
400
500
0
10,000
20,000
30,000
40,000
De
c-0
8M
ar-
09
Jun-0
9
Sep-0
9
De
c-0
9M
ar-
10
Jun-1
0
Sep-1
0
De
c-1
0M
ar-
11
Jun-1
1
Sep-1
1
De
c-1
1
Ma
r-1
2
Jun-1
2
Sep-1
2
De
c-1
2M
ar-
13
Jun-1
3
Sep-1
3
De
c-1
3M
ar-
14
Jun-1
4
Sep-1
4
De
c-1
4M
ar-
15
Jun-1
5
Sep-1
5
De
c-1
5
Ma
r-1
6
Jun-1
6
Sep-1
6
De
c-1
6
LME Inventory (RHS) LME Spot Price (LHS)($/t) (Kt)
Source: Bloomberg, BTMU Strategic Research Division
2016 production is forecast to have
decreased as an environmental
crackdown on mining in the Philippines
took hold.
Consumption is estimated to have been
robust in 2016 as Chinese stainless
steel production (the key end market for
nickel) increased by 11% (Jan-Sep).
As a result, the market is estimated to
have moved into deficit in 2016.
However the scaling back of the ban on
Indonesian nickel ore exports, allowing
around 70% of production to be
exported, is forecast to encourage
increased production in the country and
remove the deficit.
However, the return of Indonesian ore
exports to global markets is forecast to
force some higher cost production from
the market by Q4’17, at which point
prices are forecast to have bottomed
out.
Although, due to large inventories,
prices are not expected to rally higher
than $12,000 per tonne by 2019.
Mining Monitor | 27 January 2017 23
Influence Factors on Nickel
Outlook for Nickel prices
The nickel market is estimated to have entered deficit during 2016. However a partial reversal on an Indonesian
export ban is forecast to return the market to a small surplus in 2017.
6. Nickel
2) Outlook
($/t)
2016
Yr Avg 1Q (f) 2Q (f) 3Q (f) 4Q (f) 1H (f) 2H (f) 1H (f) 2H (f)
Price 9,605 10,103 9,901 9,852 10,050 10,565 11,101 11,637 11,990
YoY -19% 18% 12% -4% -7% 6% 12% 10% 8%
QoQ -6% -2% -1% 2% - - - -
Source: Bloomberg, BTM U Strategic Research Division
2017 2018 2019
2017 2018 2019
Price Trend Decrease
Increase
・Partial lifting of Indonesian ban
on nickel ore stimulates
increased production in the
country
Source: BTMU Strategic Research Division, MUB Strategic Research
Supply
Demand
Increase Moderately
・Some production in Philippines gains environmental approval
after being shuttered in 2016
・Higher cost mines are forced from market as abundant
Indonesian and Chinese production keeps the market
well supplied
Increase
Increase
・Chinese stainless steel output growth remains albeit the rate slows through to 2019 as government
enforced production capacity cuts hamper output
Indonesia eases ban on mineral exports – 12 January, 2017
Indonesia, an important global commodities producer, halted exports of some mineral ores in 2014 as part of a plan to boost economic growth by
promoting the development of a domestic processing industry. However the government announced this week that it would end the prohibition on the
export of nickel ore and bauxite, used to make aluminium, and extend a temporary deal to allow the export of copper concentrate. The new rules allow
exports of low-grade nickel ore, which has added to fears of greater supply. That has hit global prices of nickel, which is used to produce stainless steel.
The price of nickel fell 5 per cent on Thursday to a four-month low on the London Metal Exchange. The removal of the ban could see the country’s state-
owned producer PT Antam ship around 70,000 tonnes per year of nickel ore over the coming years, according to analysts at Macquarie.
Caledonia approves extra nickel ore exports to China – 30 December, 2016
The government of New Caledonia has approved requests from three mining companies to export as much as 2 million tonnes of low-purity nickel ore
annually to China as part of efforts to help the industry to recover from a prolonged slump in prices. The export permits were granted to Eramet's
Societe Le Nickel (SLN), Groupe Ballande's Societe des Mines de Tontouta (SMT) and Societe Mai Kouaoua Mines (MKM), specifically aiming to
compensate for the loss of demand from Australia's Queensland Nickel, which went into administration at the start of this year. SLN will be allowed to
ship 650,000 tonnes of nickel ore a year to China over three years, SMT has permission for 950,000 tonnes over two years and MKM is authorised to
export 350,000 tonnes a year for two years.
Stainless melt shop production up 7% in January-September: ISSF – 20 December, 2016
Stainless steel melt shop production in the first nine months of 2016 rose 7% year on year to 33.585 million mt, figures from the International Stainless
Steel Forum showed Tuesday. Production increased in all regions except Central/Eastern Europe, the ISSF said. Chinese production stood at 18.083
million mt for the January-September period, up 11.4% from the year-earlier period, while output from the rest of Asia was up 4.2% at 7.372 million mt.
Mining Monitor | 27 January 2017 24
6. Nickel
4) News Flows
Source: BTMU Strategic Research Division
7. Zinc
Mining Monitor | 27 January 2017 25
Tom Haddon
Strategic Research Division (London)
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.
The 2016 closing price was 58%
higher than 2015’s close. However
on average across the year, prices
were only 8% higher. Although the
average is lower it still reflects the
situation of a supply deficit in the zinc
market during 2016.
Despite some intra-month gains
during December, zinc prices
finished the month almost 5% down
compared to the end of November at
$2,557 per tonne.
The falling price goes against the
fundamental picture where demand
remains bullish and supply remains
tight, shown by LME stocks
decreasing through December and
SHFE stocks being 45% down since
March.
Therefore the headwinds in
December are likely to have been
driven by a strong US dollar and
some profit taking from long
speculative positions into year end.
Mining Monitor | 27 January 2017 26
Zinc Prices and Inventories
The fundamental picture for the zinc market remains bullish with tight supply but prices cooled slightly in December
as a strong US dollar and market speculators provided headwinds to price growth.
7. Zinc
1) Price Trends
0
500
1,000
1,500
2,000
0
1,000
2,000
3,000
4,000
De
c-0
8M
ar-
09
Jun-0
9
Sep-0
9
De
c-0
9M
ar-
10
Jun-1
0
Sep-1
0
De
c-1
0M
ar-
11
Jun-1
1
Sep-1
1
De
c-1
1
Ma
r-1
2
Jun-1
2
Sep-1
2
De
c-1
2M
ar-
13
Jun-1
3
Sep-1
3
De
c-1
3M
ar-
14
Jun-1
4
Sep-1
4
De
c-1
4M
ar-
15
Jun-1
5
Sep-1
5
De
c-1
5
Ma
r-1
6
Jun-1
6
Sep-1
6
De
c-1
6
LME Inventory (RHS) LME Spot Price (LHS)($/t) (Kt)
Source: Bloomberg, BTMU Strategic Research Division
In 2016, global mined zinc production
decreased driven by mine closures or
capacity reductions in Australia, India,
Ireland and Peru.
On the other hand, demand for zinc is
estimated to increase, mainly due to
China’s consumption growing as
galvanized steel production (the main
end use of zinc) benefited from the
government infrastructure stimulus.
As a result, the market is into a deep
deficit during 2016.
However, the supply response will be
triggered by strong price rally. Glencore
has around 500kt of capacity
mothballed which is assumed to come
online through 2017 and 2018. Other
mine projects in countries such as
Australia, Peru and Russia are also
likely to come online.
Therefore prices will continue to
perform strongly during 2017 as the
market remains in deficit. However the
supply response will bring a cooling of
prices through 2018 and 2019.
Mining Monitor | 27 January 2017 27
Influence Factors on Zinc
Outlook for Zinc prices
A deep supply deficit led to a strong price performance in H2 2016 and this is forecast to continue in 2017. However a
supply response is forecast to halt the rally in 2018.
7. Zinc
2) Outlook
($/t)
2016
Yr Avg 1Q (f) 2Q (f) 3Q (f) 4Q (f) 1H (f) 2H (f) 1H (f) 2H (f)
Price 2,091 2,665 2,718 2,746 2,691 2,651 2,611 2,540 2,465
YoY 8% 59% 41% 22% 7% -2% -4% -4% -6%
QoQ 6% 2% 1% -2% - - - -
Source: Bloomberg, BTM U Strategic Research Division
2017 2018 2019
2017 2018 2019
Price Trend Increase
Increase Moderately
・Other mine projects in countries
such as Australia, Peru and
Russia are also likely to come
online.
Increase Moderately
Source: BTMU Strategic Research Division, MUB Strategic Research
・Glencore currently has around 500kt of capacity mothballed which
is assumed to come online through 2017 and 2018Supply
Demand
Decrease
Increase
・Chinese and US infrastructure stimulus plans provide demand growth for galvanized steel,
offsets sluggish European consumption
Lundin Mining Announces 2016 Production Results– 12 January, 2017
Lundin achieved annual production guidance for copper and nickel. Zinc production was marginally below the most recent guidance. Candelaria's fourth
quarter capped a strong operating year with the highest quarterly copper production of the year. Eagle production met full year guidance on continued
robust performance. Neves-Corvo's zinc plant demonstrated stability with continued zinc recovery improvements, while Zinkgruvan's performance was
impacted by lower than planned zinc head grades in the final quarter.
Zinc smelter mulls output cut – 3 January, 2017
Zhuzhou Smelter Group Company Ltd, the biggest zinc smelter in China by output, is going to cut back production, at a time when the international price
for zinc ore is rising, according to the report by news agency Bloomberg. Bloomberg quoted sources saying Zhuzhou Smelter Group is going to reduce
output by 5,000 metric tons of zinc in January though the company did not give the reason for the cutdown. Throughout 2016 the closure of major mines
-such as Century and Lisheen in 2015 and production cuts from other mines including Glencore and Nyrstar-have allowed zinc concentrate prices to
surge. If further output cuts, either strategic or ‘black swan events’ occur, the price rally will be further entrenched.
Total US steel mill output up in November, galvanized steel output declines, AISI – 3 January, 2017
According to latest statistics released by the American Iron and Steel Institute (AISI), the US steel mill shipments during November last year totaled
6,724,277 net tons, up marginally down by 1.6% when matched with 6,832,801 net tons shipped during October 2016. Year-on-year, the steel
shipments registered increase of 4.1%. However when matched with the prior month, shipments of hot dipped galvanized sheets and strips were down
by 6%.
European galvanized steel production capacity is on the way to replace Chinese imports blocked by EU duties – 22 December, 2016
Traders argue the demand for higher margin auto grades has left a gap in the spot market for importers to plug, primarily with Chinese material. They
say the initiation of an anti-dumping investigation has already closed that option. Lengthy lead-times and the potential for retroactive duties make deals
a gamble while, more fundamentally, Chinese offer prices are not currently attractive. Anti-dumping duties imposed on Chinese and Russian cold-rolled
coil have resulted in y-o-y declines in imports from the two countries of 94.5% and 77.6% respectively, while total non-EU CRC supply fell 21.9% y-o-y
in the January-September period. In response to this, ArcelorMittal plans to restart a 400,000 mt/y galvanizing line in Krakow, Poland having moved the
idled plant from Estonia, while ThyssenKrupp is reopening its 400,000 mt/y line in Sagunto, Spain.
Mining Monitor | 27 January 2017 28
7. Zinc
4) News Flows
Source: BTMU Strategic Research Division
Satoshi Kondo
Strategic Research (NY)
MUFG UNION BANK, N.A
8. Gold
Mining Monitor | 27 January 2017 29
Mining Monitor | 27 January 2017 30
Gold Prices, ETF Holdings, and 10Yr US TIPS Yield
Gold price continued lower in December followed by the sell-off related to Mr. Trump election in November;
A combination of factors such as USD strength and a rate hike contributed.
8. Gold
1) Price Trends
After the sell-off due to concern of
higher US inflation and stronger
USD, all which related to the
unexpected Mr. Trump election in
November, gold prices continued
in December, down 2.2% in the
month.
The downtrend in the month owed
to a combination of factors,
notably USD strength, solid US
economic data, and a rate hike in
the US.
Money manager net length at the
COMEX dropped sharply again in
December, reaching 10-month
lows. Gold ETF holdings were also
lower, down 9.0% from the recent
peak in October.
-2.0
-1.0
0.0
1.0
2.0
3.0
4.010Yr US TIPS Yield (%)
600
900
1,200
1,500
1,800
2,100
2,400
2,700
600
800
1,000
1,200
1,400
1,600
1,800
2,000
De
c-0
8M
ar-
09
Jun-0
9
Sep-0
9
De
c-0
9M
ar-
10
Jun-1
0
Sep-1
0
De
c-1
0M
ar-
11
Jun-1
1
Sep-1
1
De
c-1
1
Ma
r-1
2
Jun-1
2
Sep-1
2
De
c-1
2M
ar-
13
Jun-1
3
Sep-1
3
De
c-1
3M
ar-
14
Jun-1
4
Sep-1
4
De
c-1
4M
ar-
15
Jun-1
5
Sep-1
5
De
c-1
5
Ma
r-1
6
Jun-1
6
Sep-1
6
De
c-1
6
(t) ETF Holdings (RHS) Gold Price (LHS)($/oz)
Source: World Gold Council, GFMS, Bloomberg, MUB Strategic Research
Mining Monitor | 27 January 2017 31
Influence Factors on Gold
Outlook for Gold Prices
Mine supply is expected to decline, but medium- to long-term investment demand is expected to remain elevated.
Prices are expected to bottom out soon, thereafter gradually trending upward.
8. Gold
2) Outlook
Gold demand in 2017 is expected
to remain relatively flat y-o-y as
declines in inflows to ETFs could
be offset by jewellery demand.
Demand is expected to remain flat
thereafter, as relatively low prices
support jewellery demand while
investment demand remains
elevated.
Meanwhile, we continue to
anticipate a decline in mine supply
through 2019 as new projects are
unlikely to make up for falling ore
grades.
As for prices, signs that prices
could be bottoming out have been
appearing since the beginning of
2017. Prices are expected to
gradually trend upward against the
backdrop of expectations of
negative interest rates in major
economies like the EU and Japan
and uncertainty surrounding the
US politics.
($/oz)
Yr Avg 1Q (f) 2Q (f) 3Q (f) 4Q (f) 1H (f) 2H (f) 1H (f) 2H (f)
Price 1,250 1,153 1,159 1,168 1,181 1,205 1,223 1,238 1,249
YoY 8% -3% -8% -12% -3% 4% 4% 3% 2%
QoQ - -5% 1% 1% 1% - - - -
Source: Bloomberg, M UB Strategic Research
2017 20192016 2018
2017 2018 2019
Price Trend
Decrease Slightly
・Continuous supply decreases
but at a slower pace
Decrease Slightly Flat Growth Increase Slightly
・Sharp declines in inflows
to ETFs
・Increase in Jewellery demand
・Moderate decrease in investment
demand
・Lower but positive jewellery
demand growth
・Relatively flat investment
demand
・Stable jewellery demand growth
Supply
Demand
Bottoming out in 2017 and moderate increase in 2018 and 2019
・Falling ore grades to drag down mine supply despite new projects
Decrease Moderately
Mining Monitor | 27 January 2017 32
8. Gold
3) News Flow
Goldcorp announces sale of Mexico’s Los Filos mine to Leagold – 12 January, 2017
Canada’s Goldcorp, the 3rd largest gold miner in the world by market value, announced that it has agreed to sell Mexico’s Los Filos mine to Leogold
Mining, as part of its plan to focus on core mines which are more profitable. The President and CEO of Goldcorp commented that “the divestiture of Los
Filos is consistent with our strategy of focusing on our core camps to drive increasing net asset value per share.” According to the terms of the
agreement, Goldcorp will receive $438 million ($279 million in cash, $71 million in common shares of Leogold, and tax receivables of approximately $88
million). Upon closing the transaction, the company expects to reverse impairment in mining interests at Los Filos posted in 2015 of about $30 to $60
million on a pre-tax basis.
Shanghai Gold Exchange to limit transaction size – 28 December, 2016
Shanghai Gold Exchange, the world’s largest physical bullion exchange, announced that it will cut the amount gold investors can trade per transaction
by half to 500 kg on some spot gold contracts beginning January 1, 2017. According to gold analysts, the move seems to target institutional investors
(i.e., banks and hedge funds), limiting such investors’ influence on prices, and “will prevent a big amount of capital flowing out of the market at one time,
and therefore prevent the gold price going down sharply in a short period of time.” Appetite of Chinese retail investors for gold as a safe-haven
investment has increased, and the trade volume reached 3.4 million kg in November, the highest monthly total YTD in 2016. International prices have
weakened to their lowest for 2016 as institutional investors have sold gold in anticipation of US interest rate hikes in 2017, as higher interest rates
discourage purchase of bullion, which is non-interest-paying and priced in dollars.
Newmont faces over $1 billion impairment charges in 4Q’16 – 13 December, 2016
Newmont Mining Corp, the largest US gold company, said it expects to record a non-cash impairment charge of between $1 billion and $1.2 billion in
4Q’16 due to higher estimated cost of closing its Yanacocha gold mine in Peru. Yanacocha, the largest gold mine in South America, is jointly owned by
Newmont (51.35%), Peruvian miner Minas Buenaventura (43.65%), and International Finance Corporation (5%). After reviewing the mine’s closure
plan, the asset retirement obligation increased between $400 million and $500 million in 4Q’16, due mostly to higher estimated future water treatment,
earthworks and demolition costs, which required the company to reassess the mine’s assets for impairment.
Gold mining companies cut capex while corporate costs increase – 6 December, 2016
Gold mining companies have cut capital expenditures to “historic lows” in 2016, while overall cost has increased as corporate costs jumped by 25% y-o-
y. According to Metals Focus, a specialist consultancy, 3Q’16 cash cost of mining and processing gold decreased 2% y-o-y with average gold prices at
their highest in 3+ years. On the other hand, ‘all in sustaining costs (or AISC)’ including all ‘life cycle’ costs such as exploration, infrastructure and
closure, and corporate costs such as head office and hiring increased for the second consecutive quarter, up 3% from 3Q’15. Metals Focus commented
that considering the huge cost cuts during 2013-2015, the contrast between cash costs and AISC “highlights that mining companies seem to have now
loosened their collective belts in regard to spending on non-mine site items and sustaining capital expenditure.” Moreover, the consultancy’s analysts
indicated that corporate costs seems to have increased 25% y-o-y on average, while “project capital expenditure remains at historic lows” among 12 of
the world’s largest producers. Metals Focus estimates that solid gold prices in 3Q’16 have led the miners to enjoy the strongest net operating cash flow
since at least 2008.
Source: Various sources, MUB Strategic Research
Disclaimer
Mining Monitor | 27 January 2017 33
This report is intended only for information purposes and is not intended to constitute an offer or solicitation to buy or sell securities or any
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