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COMMODITY NEWSBRIEFS: 22 FEBRUARY 2016

Please note that these articles are available in electronic format and can be requested and delivered via e-Mail. (http://intra.spoornet.co.za)

Natasha.Havenga@transnet.net

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AUTOMOTIVE COEGA IN TALKS WITH VEHICLE MAKERS (Business Report, 22/2/2016) Three motor manufacturers are in discussions with the Coega Development Corporation about the possibility of establishing completely knocked-down (CKD) manufacturing facilities in the industrial development zone (IDZ). Gustav Meyer, the senior manager of international markets for transport industry at the corporation, on Friday confirmed this and identified the companies as one Chinese and two European motor manufacturers. One of the European motor manufacturers was a heavy truck manufacturer, he said. Meyer declined to identify the motor manufacturers with whom discussions were taking place. But the Chinese motor manufacturer is believed to be Beijing Automotive International Corporation (BAIC), which last year confirmed that it would be investing R11 billion in a new vehicle manufacturing plant in South Africa. Meyer said there were different timelines for a decision on the possible investment by the three motor manufacturers, with the first around midyear and the others a bit further away. He confirmed some of the changes last year to the Automotive Development and Production Programme (APDP) had stimulated increased interest in the Coega IDZ. This included the reduction from this year in the annual volume threshold for vehicle production from 50 000 units to 10 000 units to qualify for APDP incentives to allow new entrants into the local industry. INTERMODAL HOLISTIC PATH TO LIGHTEN LOAD ON MAIN TRADE ROAD (Business Day, 22/2/2016) Nowhere is Africa more developed than along its trade and industrial corridors; yet they also provide graphic lessons on how dreams die in the crossfire of economic development. Much money and muscle is being pumped into converting to an industrial corridor the N3 from Johannesburg to Durban via the Free State to grow the regions and decongest SA’s busiest land transport link. It is called the Durban-Free State-Johannesburg Logistics and Industrial Corridor. The N3 groans with traffic, much of it growing fleets of very heavy cargo leviathans. It is SA’s most important transport artery. Along it pumps the lifeblood of Gauteng, providing sustenance to its 12-million people, coursing along 600km from the Durban port to Johannesburg. Most of it is delivered to the City Deep inland port south of Johannesburg’s city centre. The gargantuan freight receiving and dispatching operation is a world beater. Inevitably, such a huge and ecologically aggressive economic upgrading will exact an environmental toll. Corridors generally directly affect an area 50km wide along their entire length. The N3 corridor will, therefore, have an effect on about 30,000km². Researchers say the huge trade corridors planned to crisscross Africa could cause irreparable harm to the natural wellbeing of millions of square kilometres without meeting much of their intended benefits. Researchers from James Cook University in Australia found only five candidates likely to

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substantially increase agricultural production without serious side effects out of 33 planned or existing sub-Saharan corridors. Industrial corridors serve their purpose best when strung with development zones or nodes that promote regional industrial opportunities such as agriculture and mining ventures with more efficient and affordable access to bigger markets. Half a century ago the road routes from Johannesburg to Durban carried mainly passenger cars and buses. Today economics and rail freight shortcomings have dynamically reengineered the route by funnelling cargoes onto the highway. Road maintenance, repair and development can now hardly cope with the growth in tonnage. There are plans to widen parts of the N3. The railways, meanwhile, lay largely idle along these busy freight corridors. State-owned railways authorities across the continent have been slow in finding answers. To move the freight from the road back to the rail, there is a plan to spend R22bn on an integrated freight and logistics system to serve Durban and Johannesburg. The City Deep dry port has a container rail terminal. For Transnet acting Group CE Siyabonga Gama the upgraded terminal is rail freight’s Trafalgar and road traffic’s Waterloo in the battle for Durban-Johannesburg freight. He says that “over the last couple of years, we have been growing the rail freight business at levels several times higher than economic growth rates. As a result, we can now offer our customers a vastly improved service — thanks to our reliable and efficient new equipment,” he says. The upgrade has replaced the container-handling equipment with new state-of-the-art equipment, rail-mounted gantries, reach stackers, container handlers and installation of a Navis terminal operating system, with the same platform as marine ports. Transnet has invested R119bn in its rail, ports and pipelines infrastructure. The parastatal plans an infrastructure spend of R380bn over the next 10 years. IRON IRON ORE PRICE CLOSING IN ON $50 (Mining, 22/2/2016) Iron ore gained for the fourth week in five, as the embattled steelmaking commodity made a push for $50 a tonne, the highest level it's been since mid-November. Iron ore has been firmly in the grip of the bears for months, and on December 11 it sunk to a record low of $38.30 a tonne. A flood of cheap new supply from the top producers has put pressure on prices since late 2013. However the commodity has been on something of a rebound of late, last Tuesday climbing to its highest level in three months amid seasonal restocking by China’s steel mills following the lunar New Year holiday and signs of decreased supply. Iron ore with 62% iron content for delivery to China at the port of Qinqdao on Tuesday rose to $46.78 a ton, putting it firmly back in a bull market, generally defined as a more than 20% move from a low. According to Business Insider Australia, the price surged 11.2 percent for the week, its largest five-day rally since last July. Metal Bulletin had the spot price for benchmark 62% fines rising by 2.93%, or $1.38, to $48.52 a tonne on Friday – the highest level seen since November 11. BI Australia notes that iron ore is now up 26.7 percent since its December 11 low and has gained 11.5 percent year to date. FUEL See article “PUBLIC WILL DIG DEEP AS COST OF TRANSNET PIPELINE SURGES” under heading TRANSNET GRAIN GRAIN MILLERS OPPOSE CORN-IMPORT TARIFF REVIEW (Moneyweb, 22/2/2016) South Africa’s grain-milling body is opposing a request by the nation’s biggest corn-farmers’ lobby to review a tariff on imports of the nation’s staple food as this will lead to higher prices that will burden consumers. Grain SA asked the country’s International Trade Administration Commission, or ITAC, in August to revise the current formula for the duty that gives local farmers protection, Chief Executive Officer Jannie de Villiers said. With the current calculation, the tariff would be applied to each ton imported should the benchmark corn price in Chicago fall below $110 (R1,700) a ton, which last happened in October 2006. If a new duty comes in, it would raise local milling and production costs, National Chamber of Milling Executive Director Boikanyo Mokgatle said. The price of corn in the US, the biggest producer, has more than halved from records in 2012 because of a glut in supply to a current price that’s equivalent to $145 a ton. In South Africa, it has more than doubled since the start of last year to an all-time high equal to $348 last month as the worst drought since records began damages the harvest, driving the cost of food higher and prompting the need for imports by the country that is traditionally a net exporter. The ITAC received Grain SA’s application in December, it said in an e-mailed response to questions. “Almost all the big maize-exporting countries’ governments are subsidizing their farmers, it is common knowledge,” Grain SA’s De

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Villiers said in an e-mailed response to questions, using a local term for corn. “South African farmers get almost no assistance from government and we have requested that we get protection against these governments.” The nation will probably reap the smallest harvest since 2007 this year the global El Nino weather pattern curbed rains. Local prices for white corn rose to a record Jan. 21. South Africa will probably need to import about 970,000 tons of corn in the year to April and a further 3.8 million tons in the following 12 months, Wandile Sihlobo, an economist Grain SA, said Jan. 28. CHROME & MANGANESE OVERSUPPLY, LOW PRICES DENT ASSORE’S H1 EARNINGS (Mining Weekly, 22/2/2016) Oversupply and low prices in the commodities in which it trades have contributed to a 25.4% decline in JSE-listed Assore’s headline earnings a share to 715c for the six months ended December 31, compared with 959c in the six months to December 2014. This translated into a decrease in headline earnings to R738-million, mainly as a result of the 28.2% year-on-year decrease in its Assmang’s subsidiary’s headline earnings to R1.2-billion. Chairperson Des Sacco said that, while the market weakness was expected to continue in the immediate future, prevailing conditions had driven some higher-cost capacity to exit the market, while exchange rates and freight rates were at all-time lows, which provided some relief. Meanwhile, Assmang’s manganese ore sales had increased 3% to 1.4-billion tons in the period under review, as a result of the group’s efforts to secure sales in new markets and increase production at Dwarsrivier, which had resulted in a 14% year-on-year rise in chrome ore sales to 545-million tons. Manganese alloy volumes fell 29%, from 112-million tons to 80-million tons, following the closure of a furnace at Assmang’s Cato Ridge Works. Cost reduction initiatives were being undertaken at all operations, with significant savings having already been achieved. Further, iron-ore prices had stabilised at about $40/t, marginally above the lowest prices at which it traded in December 2015, while the premium for lumpy grade material had also improved slightly. The manganese ore market also appeared to have stabilised, owing to a reduction in production by other South African producers. However, prices for this commodity were expected to remain under pressure in the short to medium term. TRANSNET PUBLIC WILL DIG DEEP AS COST OF TRANSNET PIPELINE SURGES (Business Day, 22/2/2016) The near tripling of the cost of Transnet’s new multiproduct pipeline, which transports liquid fuel from Durban to Gauteng, will burden the public with additional increases in the price of fuel in Gauteng, analysts say. The cost of the new pipeline, which has started operating, jumped to R29.5bn from an initial estimate of R11bn. The National Energy Regulator of SA (Nersa), which regulates pipeline tariffs, has said it would claw back from future tariffs any assets imprudently acquired in the project. Transnet applied for a 25.8% increase in allowable revenue for the 2016-17 financial year, which would result in a 21.3% tariff increase on the petroleum pipeline, a cost payable by all the major oil companies in SA. This would add 6.18c per litre to the fuel price in Gauteng as the oil companies pass through the effect of the higher tariff. In 2013-14, Nersa granted Transnet a 6.4% tariff increase, which led to a 1.4c/litre rise in the fuel price. Last year, Nersa approved a 6.9% increase in Transnet’s petroleum pipeline tariffs. Transnet said its latest request for a hike was necessitated by the expected completion of construction work on significant aspects of the new multi-products pipeline by November this year. Last year, Nersa approved a 6.9% increase in Transnet’s petroleum pipeline tariffs for the 2015-16 financial year. Nersa is continuing to investigate the project’s cost escalations. This “prudency review” was launched in 2013, when costs for the multiproduct pipeline project had escalated to R23.4bn and it was three years behind schedule. Transnet has previously admitted to underestimating the complexity of the project. It said negotiating rights of passage with about 900 landowners was time consuming. The pipeline traversed about 500 wetlands. University of Johannesburg department of transport and supply chain management head Jackie Walters said large projects had a tendency to “overshoot” their original budgets. The weaker exchange rate could also have affected the cost of equipment and material. However, Prof Walters said cost escalations on the project appeared to be “abnormal” and an investigation into the reasons for this needed to be completed soon. He said an escalation in the price of fuel would lead to an increase in logistics costs as the cost of fuel was one of the highest individual items in the total cost of operations of freight and passenger vehicles.

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CURRENCIES AND PRICES

JSE AS AT 17:00PM 19 FEBRUARY 2016

All Share Index

19/02 48,940 - 1.84%

Industrials Index

19/02 40,754 - 2.10%

Financials Index

19/02 39,698 - 2.63%

Top 40 Index

19/02 43,474 - 2.22%

Industrial 25 Index

19/02 66,934 - 2.18%

Financial 15 Index

19/02 14,651 - 3.22%

Resources 10 Index

19/02 26,974 - 0.22%

Alt-X Index

19/02 1,525 + 1.23%

WORLD INDICATORS

FOREX

Rand/Dollar 06:05 15.4033 - 0.08%

Rand/Pound 06:30 21.9500

- 0.58%

Rand/Euro 06:30 17.0893 - 0.29%

COMMODITIES

Gold (usd/oz) 06:27 1,217.00 - 1.19%

Platinum (usd/oz) 06:27 932.00

- 1.42%

Brent (usd/barrel) 06:01 33.48 - 2.33%

WORLD MARKETS

Wall St (DJIA) 19/02 16,392 - 0.13%

Germany (DAX) 19/02 9,388

+ 0.12%

Japan (Nikkei) 06:30 16,146 + 1.12%

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3month

(Business Report, 22/2/2016)

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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)

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Daily prices for 19 February 2016

LME Official Prices, US$ per tonne

Contract Aluminium Alloy Aluminium Copper Lead Nickel Tin Zinc NASAAC

Cash Buyer 1560.00 1550.00 4589.00 1732.00 8335.00 15925.00 1732.00 1660.00

Cash Seller & Settlement 1570.00 1552.00 4590.00 1733.00 8340.00 15950.00 1734.00 1660.50

3-months Buyer 1585.00 1536.50 4590.00 1739.00 8350.00 15750.00 1725.00 1670.00

3-months Seller 1595.00 1537.00 4590.50 1740.00 8355.00 15775.00 1726.00 1675.00

15-months Buyer 15495.00

15-months Seller 15545.00

Dec 1 Buyer 1660.00 1598.00 4580.00 1758.00 8480.00 1740.00 1735.00

Dec 1 Seller 1670.00 1603.00 4590.00 1763.00 8580.00 1745.00 1745.00

Dec 2 Buyer 1650.00 4585.00 1775.00 8580.00 1740.00

Dec 2 Seller 1655.00 4595.00 1780.00 8680.00 1745.00

Dec 3 Buyer 1710.00 4595.00 1805.00 8665.00 1740.00

Dec 3 Seller 1715.00 4605.00 1810.00 8765.00 1745.00

(London Metal Exchange, 22/2/2016)

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