mining monitor (september 2016)...mining monitor (september 2016) strategic research division,...

Mining Monitor (September 2016)

Strategic Research Division,

Corporate Research Office

6 September 2016

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Table of Contents

1. Overview 3

2. Iron Ore 5

3. Coal 8

4. Copper 11

5. Aluminum 14

Mining Monitor | 6 September 2016 2

6. Nickel 17

7. Zinc 20

8. Gold 23

Appendix 26

1. Overview


Sota Kanda

Strategic Research Division,

Corporate Research Office

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.


Mined Commodities Price Trends

Although mined commodities prices were stable in August 2016, it will be necessary to monitor whether they remain

this trend.

1. Overview

Mined Commodity Price Trends

Mining commodities prices were

stable in August.

The price of iron ore rose against a

backdrop of hike of steel price.

Coking coal and thermal coal

increased mainly due to supply

disruption.

Non-ferrous metals prices by and

large rose in August. However,

except nickel, the concern of supply

increases arose and the spot prices

were dropped in late August.

Copper and Gold prices were more

affected by a strengthening of the

US dollar, and the average prices

decreased MoM.

In addition to speculative factors

affecting the prices, supply-demand

balances are various by each

commodity, thus the price movement

should continue to be monitored

closely.

2015

Yr Avg Jan Feb Mar Apr May Jun Jul Aug

Iron Ore ($/t) 56 42 47 56 60 55 52 57 61

MoM - 4% 12% 19% 7% -9% -5% 11% 6%

YoY -43% -38% -25% -2% 16% -10% -18% 10% 9%

Coking Coal ($/t) 90 77 76 83 92 91 90 96 114

MoM - -1% -1% 10% 11% -2% -1% 7% 19%

YoY -23% -32% -30% -21% -4% 6% 1% 11% 35%

Thermal Coal ($/t) 58 51 51 51 50 51 54 63 67

MoM - -3% 1% 0% -2% 2% 6% 16% 7%

YoY -18% -16% -26% -19% -13% -13% -9% 6% 15%

Copper ($/t) 5,510 4,472 4,599 4,954 4,873 4,695 4,642 4,865 4,752

MoM - -4% 3% 8% -2% -4% -1% 5% -2%

YoY -20% -23% -20% -17% -19% -25% -20% -11% -7%

Aluminum ($/t) 1,664 1,481 1,531 1,531 1,571 1,551 1,594 1,629 1,639

MoM - -1% 3% 0% 3% -1% 3% 2% 1%

YoY -11% -18% -16% -14% -14% -14% -6% -1% 6%

Nickel ($/t) 11,863 8,507 8,299 8,717 8,879 8,660 8,928 10,263 10,336

MoM - -2% -2% 5% 2% -2% 3% 15% 1%

YoY -30% -43% -43% -37% -31% -36% -30% -10% 0%

Zinc ($/t) 1,932 1,520 1,710 1,802 1,855 1,869 2,026 2,183 2,279

MoM - 0% 12% 5% 3% 1% 8% 8% 4%

YoY -11% -28% -18% -11% -16% -18% -3% 9% 26%

Gold ($/oz) 1,161 1,093 1,190 1,244 1,237 1,263 1,276 1,339 1,338

MoM - 2% 9% 5% -1% 2% 1% 5% 0%

YoY -8% -13% -3% 5% 3% 5% 8% 18% 20%

Source: Bloomberg, BTMU Strategic Research Division

2016

Chloe Lim

Strategic Research Division (Singapore)


2. Iron Ore


Following a brief rally in July, iron ore

price strengthened modestly in

August, averaged at US$61/ton

(July: US$57/ton).

This was mainly led by firm pricing

recorded earlier in the month

supported by continued expectation

of a firm Chinese steel price in

response to steel output reduction on

environmental grounds ahead of G20

summit meeting in China in

September.

However, iron ore price experienced

a slight correction in late-August due

to bearish demand sentiment after

property cooling measures were

implemented in two cities in China.

Furthermore, there was rising market

speculation that more cities will be

affected and consequently

dampening outlook for construction

activity and steel consumption.

Against these backdrops, iron ore

price is expected to remain volatile in

the meantime.

6

Iron Ore Prices and Inventories

Price movements during August were driven by China’s demand sentiment.

2. Iron Ore

1) Price Trends

Mining Monitor | 6 September 2016

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China Iron Ore Inventory (RHS) Iron Ore Fines 62%, CFR China Spot Price (LHS)

($/t) (Mt)


China steel mills’ rising preference for high-grade iron ore from Australia and Brazil to improve steel productivity – 31 August, 2016

In the latest sign of renewed optimism among China's steel producers as capacity cuts boost steel prices, producers are turning away from cheaper iron

ore with a lower iron content, contributing to growing stockpiles at domestic ports. The preference will help boost top miners such as Brazil's Vale and

Australia's Rio Tinto and BHP Billiton, whose premium quality ore has been taking market share from China's domestic producers. Chinese steel prices

have risen following mill closures and output curbs flowing owing to an environmental crackdown and Beijing's efforts to tackle a supply glut, buoying

mills' profitability. Higher quality ores produce more steel for each ton processed, helping to boost output and can reduce emissions as less coke is used

in the production process.

Vale: Current iron ore price is not sustainable – 25 August, 2016

Brazilian mining giant Vale believes current iron ore price of around US$60/ton is not sustainable for the remainder of the year and that price is

expected to fall because of weakening demand from its main consumer, China. It cited credit measures, seasonality and official state policies in China

as factors that could lead to lower iron ore prices in the short-term. Vale has based its budget calculations on iron ore price at US$40/ton. Currently,

2Q’16 cash cost reported was at US$29/ton.

China consortium and Vale in iron ore supply deal talks – 22 August, 2016

China Investment Corporation (“CIC”) is leading a Chinese investor group in talks for an iron ore streaming deal with Vale. The consortium is negotiating

the potential purchase of a portion of Vale’s future iron ore output for 30 years at around US$9 billion. The streaming transaction will allow CIC to profit

from a recovery in commodity prices without bearing all the operational risks associated with owning the mine. While, Vale will get cash upfront and stay

in charge of the valuable assets. The impact of this deal on the iron ore price can be negative as these deals are usually done at a deep discount to

ruling prices and the long-term nature of such agreement can also dampen the outlook for iron ore market.

New mining tax in Western Australia unlikely but issue is back – 10 August, 2016

Rio Tinto and BHP Billiton rejected a proposed A$7 billion (US$6 billion) tax increase on their Western Australian iron ore operations, stating it is likely

to put jobs and competitiveness at risk. Brendon Grylls announced the tax proposal after being appointed as the new leader of the state’s Nationals

party on Tuesday. The plan to raise the production rental cost on Rio Tinto Group and rival BHP Billiton Ltd. to A$5/ton from A$0.25/ton will be a pillar of

the Nationals campaign for the 2017 state election, according to a statement. The proposed hike will add A$7 billion to the state’s budget, bringing it

back into surplus. This proposal comes at the time when royalty income, Western Australia’s third largest source of revenue after taxes and federal

government grants, is forecast to decline 8% to about A$4 billion this fiscal year, mainly as a result of lower iron ore prices.


2. Iron Ore

2) News Flows

Source: Various sources, BTMU Strategic Research Division

William Cheung

Strategic Research Division (Hong Kong)

THE BANK OF TOKYO-MITSUBISHI UFJ, H.K.

3. Coal

Mining Monitor | 9 August 2016 8

Global coking coal price continued a

strong rally in August. The average

price for August 2016 was $114/ton,

up 19.3% from previous month.

The price increase was spurred by

closure of highway in Shanxi for

repairing as a result of heavy rain

last month, leading to a shortage of

coking coal supply. Also, the mine

maintenance in Queensland has

intensified the issue, bolstering the

price to go up.

The global thermal coal price rose

further in August, and the average

price for August 2016 was $67/ton.

The price upsurge was mainly driven

by production disruption in Inner

Mongolia caused by heavy rain.

Inventory restocking by power plants

because of seasonal demand for

electricity in summer helped pushing

the price to a lesser extent.


Coal Prices

Coking coal price continued a strong rally backed by tight supply worldwide, while thermal coal price rose further

attributable to production disruption in Inner Mongolia caused by heavy rain.

3. Coal

1) Price Trends

0

50

100

150

200

250

300

Aug-1

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No

v-1

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Feb

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y-1

1

Aug-1

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v-1

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Feb

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2

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Feb

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b-1

4

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Aug-1

5

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Feb

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y-1

6

Aug-1

6

Spot Price (Coking Coal) Spot Price (Thermal Coal)($/t)


Heavy rain boosts Inner Mongolia thermal coal prices – 23 August, 2016

Heavy rain last week hit the coal mining operation in Inner Mongolia’s Erdos, which is China’s key coal producing region. The rain has forced all open-

cut mines in Erdos to close temporary, and most of the underground mines have to shut to avoid flooding or mine collapses. Erdos has 153 operating

open-cut mines and 174 underground mines with a combined capacity of 742 million tons per year, which is about 13% of the existing coal capacity in

China. But the government official has not disclosed the capacity of the mines being affected. Nevertheless, the coal supply in the region is tightened

due to heavy rain. This pushed up the thermal coal price in the region by around 4% from a week earlier to RMB224-230/ton on 19 August 2016.

Looking ahead, heavy rain is set to be ease from the fourth week of August, but coal price may be supported by inventory restocking when coal mines

resume normal operation.

Coking coal prices made their biggest rise in 5 years – 23 August, 2016

Coking coal prices are heating up by the supply disruption worldwide. In China, several highways in Shanxi, a major coal producing province, have been

closed for repairs following heavy rainfall at the end of July. Coking coal producers have to compete with thermal coal producers for railway freight

space, leading to a shortage of coking coal in the market. Outside China, supply has come under pressure, as several coking coal mines at Australia’s

Queensland are under regular maintenance or having production problems. Also, Vale has stopped rail transport at its operation in Africa’s Mozambique

due to militant attacks. As a result, the global coking prices enjoyed the biggest increase last week and hit USD116/ton on 19 August 2016.

China official calls for speeding up capacity cut – 19 August, 2016

The NDRC (National Development and Reform Commission) of China announced that the country had only achieved about 38% of the coal capacity

reduction target of 250 million tons in 2016. NDRC did not mention which regions were lagging behind; however, it criticized Inner Mongolia, Fujian,

Guangxi, Ningxia and Xinjiang’s disappointing efforts in an earlier meeting. To speed up the process, NDRC will implement a nationwide inspection of

local efforts starting from end of August.

China Shenhua Energy profit plunge in 1H’16 – 11 August, 2016

China Shenhua Energy, the largest coal producer in China, posted the net profit of RMB9.8 billion, down 18.6% from a year earlier. Its sales revenue

was also down by 12.5% YoY to RMB78.7 billion. The low coal price earlier this year was the major reason for the decrease. Its average coal price in

the first half of the year decreased by 14% YoY to RMB271/ton. Looking ahead, the company expects that the full-year profit will improve as Beijing’s

capacity cut program has sent coal prices higher in recent months.


3. Coal

2) News Flows

Source: Various sources, BTMU Strategic Research Division

Katia Tavarez

Strategic Research (NY)

MUFG UNION BANK, N.A.

4. Copper


Copper prices fell to a two-month

low in August after struggling to

break above the $5,000/t price

level. Prices continued the steady

decline that began in mid-July and

closed the month 5.2% lower at

$4,603/t.

The price drop was driven by the

loss of momentum in Chinese

imports in July, as well as a

strengthening of the US dollar amid

speculation of a more hawkish US

Fed. Also contributing to market

sentiment were bearish outlooks

from some prominent banks, which

ruled out any quick rebound in the

price of the metal.

Inventories at the LME surged to

10-month highs, rising by around

40% during August, while those at

the Shanghai Futures Exchange

(SHFE) remained relatively

unchanged. The surge at LME

warehouses has broadly

corresponded to export flows out of

China, and a replenishment of a

depleted LME system.


Copper Prices and Inventories

Copper suffers under the weight of soft Chinese demand and the rally in the USD.

4. Copper

1) Price Trends

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4

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No

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4

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y-1

5

Aug-1

5

No

v-1

5

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-16

Ma

y-1

6

Aug-1

6

LME Inventory (RHS) LME Spot Price (LHS) SHFE Inventory (RHS)

($/t) (Kt)

Source: Bloomberg, MUB Strategic Research


4. Copper

2) News Flows

Source: Various sources, MUB Strategic Research

Codelco reports financial loss in first half of 2016 – 26 August, 2016

The world’s largest copper producer, Codelco, produced 843,000 tons of copper in 1H’16, up 1.4% y-o-y, but reported a pre-tax loss of US$97mn.

Although C1 cash costs fell 9% y-o-y to US$1.275/lb ($2,811/t), owing to the company’s cost control program, lower energy prices and favorable FX

dynamics (e.g. weaker CLP vs. USD), the 21% decrease in the average LME copper price heavily impacted Codelco, which also suffered an 8% y-o-y

drop in revenues despite a 21% annual increase in the volume of copper sold. Despite the loss in 1H, the company did manage to report a US$54mn

profit in 2Q, with management expressing hope that prices had at least stabilized.

Chinese copper imports fall to 17 month low in July – 24 August, 2016

China, the world’s largest producer and user of refined copper, reduced its imports of the metal to its lowest level in 17 months due to a combination of

lower demand in summer months and growing domestic production after increases in margins, which also prompted a surge in exports. Refined copper

imports fell for a fourth straight month in July to 251,235 Mt, an annual drop of 3.3%. Exports, meanwhile, rose 4-fold y-o-y to 75,007 Mt. Despite the

retreat in imports in July, shipments from overseas in the first seven months of 2016 are still 20% higher than one year ago due to record imports in

1H’16 on the back of seasonality and a credit boom.

Freeport faces more uncertainty in Indonesia – 3 August, 2016

Indonesia’s newly appointed Coordinating Maritime Affairs Minister, Luhut Pandjaitan, asked Freeport not to push for an early extension on its contract

to operate the Grasberg mine, adding more uncertainty to the company’s operations in the country. Pandjaitan is quoted by Reuters saying: “Freeport

shouldn't push us. We are a sovereign state and we know what we are doing“. Freeport and Rio Tinto, Freeport’s partner in the Grasberg mine, are

spending around US$1bn/year over 2016-2020 to convert the mine to underground operations, and want to end uncertainty over a contract extension

beyond 2021. "We will also look carefully at what we can do without breaking the law," said Pandjaitan. Indonesia's existing 2009 mining law is expected

to be revised by parliament this year.

Chilean copper production cost deflation continues – 2 August, 2016

According to Cochilco, the Chilean Copper Commission, C1 cash costs at Chile’s largest mines fell by around 13% y-o-y in 1Q’16 to $1.28/lb ($2,833/t).

This improvement reflects better mine management and lower energy and services costs. Out of the 19 mines included in the study, 14 mines

(equivalent to 84% of copper production) managed to reduce C1 costs while costs at the remaining five rose. Cost reductions were greatest at the

highest cost operation mines in the sample, where costs fell from over $3.50/lb ($7,716/t) to around $2.20/lb ($4,850/t). Mines with production costs in

the first quartile on the cost curve brought costs well below $1/lb ($2,205/t). Cost cuts could weigh further on copper prices as it may delay needed

production cutbacks to balance the global copper market.

Tom Haddon

Strategic Research Division (London)


5. Aluminum


The aluminum price during August

recorded a 4% gain in the first half of

the month before slipping down to

$1,595 per tonne, 3% lower than the

end of July.

A key factor that spurred the change in

sentiment mid way through the month

was a mild spike in inventory that went

against the longer term trend. Added

to the inventory build, the fact that the

stock was recorded in Asian LME

warehouses caused slight concern.

Asian, especially Chinese, production

is so key to global aluminium markets

that it is watched very closely.

Overall, inventories still finished the

month 2.6% lower but a one day build

of 1.1% on the 24th August showed

that Asian production can still supply

the market, and possibly oversupply

the market, causing prices to fall 1.4%

that same day.

15

Aluminum Prices and Inventories

A surprise one off build in inventory spooked the markets that are still wary of oversupply. Worries persist Asian

smelters may be restarted after several months of price gains.

5. Aluminum

1) Price Trends


0

2,000

4,000

6,000

8,000

0

1,000

2,000

3,000

4,000

Aug-0

8

No

v-0

8

Feb

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Ma

y-0

9

Aug-0

9

No

v-0

9

Feb

-10

Ma

y-1

0

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No

v-1

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Feb

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y-1

1

Aug-1

1

No

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y-1

2

Aug-1

2

No

v-1

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Feb

-13

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y-1

3

Aug-1

3

No

v-1

3

Feb

-14

Ma

y-1

4

Aug-1

4

No

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5

Aug-1

5

No

v-1

5

Feb

-16

Ma

y-1

6

Aug-1

6

LME Inventory (RHS) LME Spot Price (LHS)($/t) (Kt)


Japanese 4Q auto aluminum demand outlook turns bleak ahead of tenders – 1 September, 2016

Japanese aluminum alloy suppliers are taking a cautious approach for the fourth quarter, after Toyota Motor announced plans to cut its 4Q passenger

car output at Japanese plants by roughly 10% from 3Q. Although some suppliers said Toyota, even with a 10% 4Q output cut, was still on target to

achieve its public goal to produce 3.2 million vehicles in Japan in 2016, others said this 4Q announcement suggests bleak aluminum demand ahead.

The auto market is not all gloom and there is positive sales data too, said suppliers of Nissan Motor. Nissan and other automakers are expected to seek

supplies for October, 4Q or October-March this month.

Chinese-owned Zhongwang USA enters U.S. aluminum market with Aleris buy – 30 August, 2016

Zhongwang USA LLC, said it would buy U.S. aluminum company Aleris Corp in a bet that the nascent U.S. automotive aluminum sector will be the

industry's next big growth market. It marks the biggest entry by a Chinese company into the U.S. aluminum industry since trade tensions began ramping

up in recent years. Zhongwang International is parent of China Zhongwang Holdings Ltd, the world's second-largest producer of aluminum extrusions.

The acquisition has strategic importance because Aleris is in the midst of a $350 million expansion of its Lewisport, Kentucky rolling mill to produce

automotive body sheet for U.S. auto manufacturers. It hopes to produce 200,000 tonnes per year and begin shipping in 2017. Auto manufacturers like

Ford Motor Co have been moving toward aluminum, which is lighter than steel, to reduce body weight of autos in order to improve gasoline mileage,

which will reduce emissions.

Global aluminum production is falling, but for how long? – 25 August, 2016

Global aluminum production fell by 1.2 percent to 33.12 million tonnes in the first seven months of this year, according to the International Aluminium

Institute (IAI). This is the first year that output has consistently fallen since 2009, a year when financial crisis was rapidly morphing into manufacturing

crisis with devastating consequences for aluminum producers. However, Chinese smelters have historically proven themselves very sensitive to price

and after falling below production costs late last year, the concern is that the current Shanghai price above 12,500 yuan will simply encourage restarts

or the implementation of expansions that had been deferred.

Indian aluminum producers seek further import duty increases – 24 August, 2016

India's aluminum producers are appealing for further increases in import duties and other measures to counter cheap imports from China and other

countries, Nalco and Vedanta officials said this week. The government raised the import duty on primary aluminum by 2.5 percentage points in May to

7.5%, but this has not been enough to protect the domestic aluminum industry, as 55% of India's aluminum demand is being met by cheap imports,

sources said. According to a Nalco executive, producers are seeking another 2.5-percentage point hike in import duty on primary aluminum to 10%, and

for imports of aluminum scrap to be taxed higher than the current 2.5%.

16

5. Aluminum

2) News Flows

Source: BTMU Strategic Research Division


Tom Haddon



6. Nickel


Nickel prices retreated during August

to finish 9% lower. Supply worries

over government action in the

Philippines abated due to Indonesian

exports of refined nickel somewhat

filling the gap.

While nickel ore exports from the

Philippines have certainly decreased

as 8 mines have now been shuttered

by the government on environmental

grounds, Chinese buyers have

turned to refined nickel from

Indonesia. Exports of unprocessed

nickel ore is currently prohibited from

Indonesia.

The change in buying patterns from

Chinese stainless steel producers

stalled the rally in ore prices during

August as it has shown the market is

not as threatened as previously

thought from lower Philippines ore

supply.

18

Nickel Prices and Inventories

Indonesian refined nickel exports have helped the Chinese stainless steel industry stay supplied despite falling ore

supply from the Philippines.

6. Nickel

1) Price Trends


0

100

200

300

400

500

0

10,000

20,000

30,000

40,000

Aug-0

8

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v-0

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Feb

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Ma

y-0

9

Aug-0

9

No

v-0

9

Feb

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Ma

y-1

0

Aug-1

0

No

v-1

0

Feb

-11

Ma

y-1

1

Aug-1

1

No

v-1

1

Feb

-12

Ma

y-1

2

Aug-1

2

No

v-1

2

Feb

-13

Ma

y-1

3

Aug-1

3

No

v-1

3

Fe

b-1

4M

ay-1

4

Aug-1

4

No

v-1

4

Feb

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Ma

y-1

5

Aug-1

5

No

v-1

5

Feb

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Ma

y-1

6

Aug-1

6



Mining firm reportedly discovers ‘world class’ nickel in Nigeria – 29 August, 2016

A potentially “world class and highly unusual” mineral resource, Nickel, with potential for early cash flow has been discovered by a private mining

syndicate headed by Hugh Morgan, in an area close to Abuja. The discovery is unusual because the nickel is found in small balls up to 3mm in diameter

of a high purity in shallow soils in what could be the surface expression of a much bigger hard-rock nickel field. The nickel balls, rumoured to grade

better than 90 per cent nickel and thought to be a world first given their widespread distribution.

More foreign investors express interest in nickel mining in Philippines – 29 August, 2016

Global Ferronickel Holdings Inc., the second largest nickel producer in the country and the largest single lateritic mine exporter in the world, said more

foreign investors have expressed interest in the nickel mining sector in the Philippines. Rising demand from the stainless steel industry in China and the

tightening of supply due to the closure of several nickel mines in the Philippines are factors which are expected to push the price of nickel higher. FNI,

however, said that potential investors, in one of their meetings, have raised concern over the seemingly aggressive stance of the Department of

Environment and Natural Resources (DENR) against mining companies in the country. But the company explained it supports the policies of the new

administration which reassured investors that the DENR’s recent actions were taken against illegal and non-compliant miners. Miners who are

compliant have nothing to fear.

Indonesia ferronickel replacing Philippine ore: Russell – 26 August, 2016

A price rally has come in the past three months as new Philippine President Rodrigo Duterte and his hard-line environment secretary Regina Lopez

cracked down on alleged environmental abuses by the mining industry. At least eight nickel mines have been shut down in the Philippines this year,

cutting around 10 percent of the country's capacity. This means that if there is a sustained drop in supply from the Philippines it will be hard for Chinese

nickel pig iron producers to source replacement material. This is especially true as nickel ore cargoes from Indonesia, which used to be China's top

supplier, remain unavailable as part of that country's ban on the export of certain unprocessed minerals, such as nickel and bauxite. However, China's

imports of ferronickel from Indonesia were 74,493 tonnes in July, more than five times the amount taken in the same month a year earlier.

19

6. Nickel

2) News Flows



7. Zinc


Tom Haddon



Zinc prices posted further gains in

August recording 3.4% growth and

breaking through the $2,300 per

tonne barrier.

Bullish sentiment continued through

August on the back of consistant

tightness in the market and

expectations it will not recede until at

least mid-2017.

The expectation came from

Glencore’s 1H results conference

call where Chief Executive Ivan

Glasenberg refrained from pin

pointing a time when its idled zinc

mines, with a capacity of 500kt, will

be back online. With the time lag

involved to restart mines, it’s highly

likely it will not be this year.

During the month Chinese data also

showed refined metal imports were

up 33% January-July (y-o-y). This

further highlighted the perceived

market tightness and helped push

prices higher.

21

Zinc Prices and Inventories

The supply and demand balance remains tight and the market expects it to continue, helping to push prices higher

during August.

7. Zinc

1) Price Trends


0

500

1,000

1,500

2,000

0

1,000

2,000

3,000

4,000

Aug-0

8

No

v-0

8

Feb

-09

Ma

y-0

9

Aug-0

9

No

v-0

9

Feb

-10

Ma

y-1

0

Aug-1

0

No

v-1

0

Feb

-11

Ma

y-1

1

Aug-1

1

No

v-1

1

Feb

-12

Ma

y-1

2

Aug-1

2

No

v-1

2

Feb

-13

Ma

y-1

3

Aug-1

3

No

v-1

3

Feb

-14

Ma

y-1

4

Aug-1

4

No

v-1

4

Feb

-15

Ma

y-1

5

Aug-1

5

No

v-1

5

Feb

-16

Ma

y-1

6

Aug-1

6



Zinc price too good for Nyrstar to risk – 31 August, 2016

One of the world’s largest zinc producers has moved to lock in the recent rally in prices, hedging part of its metal output as it completes a restructuring

plan. Brussels-listed Nyrstar, which has put its zinc mines up for sale to focus on its larger role as a metals processor, said that it was using options

contracts to hedge 8,000 tonnes a month of output. Earlier in August, the company said the mine sales that are central to Nyrstar’s restructuring may

take until 2017 to complete because rising prices are tempting more prospective buyers, though it remains committed to the process.

For how long will Glencore hold its zinc capacity cuts? – 30 August, 2016

It's been nearly a year since Glencore announced it was mothballing half a million tonnes of mined zinc capacity. Several analysts tried to pin Glencore

Chief Executive Ivan Glasenberg down on the company's 1H’16 conference call but no-one got anywhere other than various iterations of his opening

statement that the capacity will return when "we believe supply and demand justifies bringing it back". Glencore itself probably has the best overview of

the wheels that are turning in the zinc supply machine. The company has a lot of skin in the game from mining through smelting to trading the stuff.

Which is why of course it's playing its hand close to its chest, when it comes to discussing restarts. The last thing the company wants to do, to quote

Glasenberg, is to "hurt our own existing production and push down the price". The zinc market may be moving in the right bullish direction but it's not

there yet and analysts may well get another chance to duel with Glasenberg about the timing of any restarts before Glencore decides the time is right to

reactivate half a million tonnes of capacity.

China shuts all lead, zinc mines in Hunan's Huayuan in effort to clean up mining sector – 16 August, 2016

China has shut all lead and zinc mines in Xiangxi Tujia and Miao Autonomous prefecture, located in Hunan province's Huayuan county, as part of the

government's overall efforts to clean up the lead and zinc mining sector, the prefecture government said in a report on its website Tuesday. Hunan is

main lead and zinc mining zone in China. The mining reform, which will last until June 2017, aims to prevent mining accidents and ensure safety in

mining, the prefecture government said.

22

7. Zinc

2) News Flows



Katia Tavarez

Strategic Research (NY)

MUFG UNION BANK, N.A.

8. Gold



Gold Prices and ETF Holdings

Gold prices retreated slightly in August amid increased speculation of a potential US rate hike in September.

8. Gold

1) Price Trends

After rising for two straight months,

gold prices retreated slightly in

August, closing the month 3.1%

lower. Prices climbed to $1,364/oz

early in the month before moving

back to the $1,300 - $1,350 price

zone.

The drop in gold prices is largely

tied to the pricing-in of a more

hawkish US Fed after the July

policy meeting minutes were

released and comments by Fed

Chairwoman Janet Yellen at the

Jackson Hole meeting. The higher

odds of a September rate hike

strengthened the US dollar and

pushed gold prices lower.

Even so, combined gold ETF

holdings continued to rise, albeit

only slightly, in August, up 0.7%.

This points to the lack of certainty

in the market about when the Fed

will ultimately raise rates.

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

Aug-0

8

No

v-0

8

Feb

-09

Ma

y-0

9

Aug-0

9

No

v-0

9

Feb

-10

Ma

y-1

0

Aug-1

0

No

v-1

0

Feb

-11

Ma

y-1

1

Aug-1

1

No

v-1

1

Feb

-12

Ma

y-1

2

Aug-1

2

No

v-1

2

Feb

-13

Ma

y-1

3

Aug-1

3

No

v-1

3

Feb

-14

Ma

y-1

4

Aug-1

4

No

v-1

4

Feb

-15

Ma

y-1

5

Aug-1

5

No

v-1

5

Feb

-16

Ma

y-1

6

Aug-1

6

(t)

ETF Holdings (RHS) Gold Price (LHS)

($/oz)

Source: World Gold Council, Bloomberg, MUB Strategic Research

Note: ETF Holdings are expressed in aggregate tons.


8. Gold

2) News Flows

Another 10mn annual ounces will be added by 2020, says BMI Research – 26 August, 2016

According to BMI Research, a division of Fitch, gold miners will add 10mn ounces (280 tons) of gold to global production, with average annual growth of

2.7% for a total of 110mn ounces (3,118 tons) annual production by 2020. This forecast implies a slight deceleration in the growth rate compared to the

previous five-year period of 3.2%. BMI notes that gold prices bottomed out in 2015 and will increase gradually over the coming quarters, forecasting an

average of $1,300/oz in 2016 and $1,500/oz in 2020. Gold averaged $1,161/oz in 2015.

Barrick joins Venezuela’s gold push – 26 August, 2016

Barrick Gold Corp., the world’s largest producer of gold, agreed to form a joint-venture in Venezuela, according to local state media. Barrick was among

several companies that signed commitment letters for gold mining ventures. According to President Nicolas Maduro, the Venezuelan government would

take a 55% stake in the proposed Barrick venture. Maduro noted that Venezuela signed over US$5.5bn in mining deals, but did not provide further

details. He also noted that he expected US$20bn in mining investment contracts in the days ahead, but it is unclear if the US$5.5bn is part of the larger

US$20bn investment pool. Venezuela’s push into gold is Maduro’s way to boost is quickly-shrinking economy that has suffered the perils of plunging oil

prices.

Monsoon season to boost Indian gold demand – 18 August, 2016

According to the World Gold Council, India’s gold demand may rise in 2H’16 after falling 30% y-o-y in the first half of the year to 247.4 tons, the lowest

level since 2009. WGC believes that gold demand in India will return to normal during the peak season, supported by ‘good monsoons that will positively

impact rural demand’. Demand for gold in India fluctuates year-to-year depending on the number of weddings held in 4Q and crop revenue generated as

a result of the summer monsoon season. Rural India accounts for more than half of the country’s gold demand. Even though the wedding season is still

months away, the June to September monsoon season is in full-swing and recent reports point to normal rainfall that may still allow farmers to reap

bumper crops. WGC estimates that demand will rise to between 503 and 603 tons in 2H’16. For 2016, it expects demand to be between 750 and 850

tons, down from previous projects of 850 and 950 tons, and compares to 2015 demand of 865.3 tons.

Gold futures come back to LME – 9 August, 2016

The London Metal Exchange (LME) and the World Gold Council are planning to launch a group of London futures contracts aimed at preparing the

market to deal with new regulations and higher price-setting scrutiny. The majority of spot gold trading takes place in London and most is still made over

the counter (OTC). A consortium that includes Goldman Sachs, Societe Generale, and China’s ICBC is supporting plans to bring the new futures

contracts on to an exchange that will launch in 1H’17 and have taken an equity stake in the new platform called LMEprecious. JPMorgan and HSBC,

two large bullion banks, oppose the project and are supporting a rival initiative by the London Bullion Market Association (LBMA) to improve

transparency.

Source: Various sources, MUB Strategic Research


Yr Avg 1Q 2Q 3Q (f) 4Q (f) 1H (f) 2H (f) 1H (f) 2H (f)

Iron Ore ($/t) 56 48 56 50 49 46 44 42 41

YoY -43% -23% -5% -9% 4% -13% -17% -10% -8%

QoQ - 4% 15% -10% -3% - - - -

Coking Coal ($/t) 90 79 91 86 82 79 77 76 75

YoY -37% -27% 1% 2% 6% -7% -8% -4% -3%

QoQ - 2% 16% -6% -4% - - - -

Thermal Coal ($/t) 58 51 52 53 52 51 49 48 47

YoY -18% -21% -11% -8% -1% -1% -7% -6% -4%

QoQ - -3% 2% 2% -2% - - - -

Copper ($/t) 5,510 4,675 4,736 4,590 4,520 4,410 4,280 4,230 4,290

YoY -20% -20% -22% -13% -8% -6% -6% -4% 0%

QoQ - -4% 1% -3% -2% - - - -

Aluminum ($/t) 1,665 1,514 1,572 1,550 1,500 1,510 1,560 1,620 1,670

YoY -11% -16% -11% -2% 1% -2% 2% 7% 7%

QoQ - 1% 4% -1% -3% - - - -

Nickel ($/t) 11,863 8,508 8,823 9,240 9,180 9,370 9,710 10,020 10,310

YoY -30% -41% -32% -13% -3% 8% 5% 7% 6%

QoQ - -10% 4% 5% -1% - - - -

Zinc ($/t) 1,932 1,677 1,917 1,950 1,890 1,910 1,980 2,050 2,110

YoY -11% -19% -13% 6% 17% 6% 3% 7% 7%

QoQ - 4% 14% 2% -3% - - - -

Gold ($/oz) 1,160 1,182 1,259 1,350 1,380 1,330 1,220 1,160 1,110

YoY -8% -3% 5% 20% 25% 9% -10% -13% -9%

QoQ - 7% 6% 7% 2% - - - -

Source: Bloomberg, MUB Strategic Research

2015 2016 2017 2018

Appendix : Mined Commodities Price Forecasts by Strategic Research Division as of 26 July 2016

Disclaimer


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

other products. Contents of the report are information as at publish date and are subject to change without notice. This report has not been

prepared to provide legal, taxational, financial, market-judgmental, or any other advises on propriety of any transactions. In taking any

action, each reader is requested to act on the basis of his or her own judgment upon consulting certified lawyers, accountants or other

professionals regarding the accuracy, validity and reliability of information appeared in this report.

Bank of Tokyo-Mitsubishi UFJ is regulated by the Financial Services Authority.

No part of this publication may be reproduced, stored in a retrieval system or transmitted without the prior written permission of The Bank

of Tokyo-Mitsubishi UFJ Limited.

Copyright© 2016 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved.

Publisher：The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division (Corporate Research Office)

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Contact details for inquiries : Kouichi Akimoto

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