Mining Monitor (July 2017) · Jan-May’17. As stimulus fades and exports remain closed off by anti-dumping measures, weaker steel output is expected to dampen China’s iron ore

Mining Monitor (July 2017)

Strategic Research Division,

Corporate Research Office

21 July 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 | 21 July 2017 2

5. Aluminum 17

6. Nickel 21

7. Zinc 25

8. Gold 29

1. Overview


Takuya Eto

Strategic Research Division,

Corporate Research Office

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.


Mined Commodity Price Trends

In 2Q’17, while the prices of iron ore, coking coal, and nickel fluctuated over 10%, the prices of other commodities

moved within 10%. As for outlook, the prices of some commodities will be influenced by Chinese supply and demand.

1. Overview

Mined Commodity Price Trends

In 2Q’17, the prices of coking coal,

aluminum, and gold increased QoQ

while the prices of other mined

commodities fell QoQ. The price of iron

ore which was the most fluctuating in

2Q’17 was weighed down by demand

concerns in China.

The prices of iron ore, coking coal, and

thermal coal will gradually decrease as

surplus will continue to increase toward

2019.

In regards to non-ferrous metals,

copper price is forecast to increase

moderately with outlook looking

relatively solid. About aluminum, supply

deficit will lead to a stronger price with

seasonal volatility in China.

Nickel and Zinc market will remain

increase by and large because of

supply deficit, however the supply

response of zinc will bring a cooling of

prices through 2019.

Lastly, with respect to gold, price

remain in tug-of-war. Gold supply is

expected to decline while investment

demand moderates.

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

Iron Ore ($/t) 58 86 63 62 59 57 55 54 52

YoY 5% 78% 13% 5% -16% -23% -8% -6% -6%

QoQ - 21% -26% -3% -4% - - - -

Coking Coal ($/t) 142 167 192 153 143 131 120 116 115

YoY 58% 112% 111% 15% -47% -27% -19% -12% -4%

QoQ - -37% 15% -20% -7% - - - -

Thermal Coal ($/t) 65 82 79 78 71 69 66 65 64

YoY 13% 62% 51% 15% -22% -15% -11% -5% -3%

QoQ - -10% -4% -1% -8% - - - -

Copper ($/t) 4,866 5,846 5,688 5,725 5,725 5,731 5,768 5,847 5,952

YoY -11% 25% 20% 20% 8% -1% 1% 2% 3%

QoQ - 11% -3% 1% 0% - - - -

Aluminum ($/t) 1,605 1,851 1,907 1,904 1,933 1,961 1,883 2,021 2,097

YoY -4% 22% 21% 18% 13% 4% -2% 3% 11%

QoQ - 8% 3% 0% 2% - - - -

Nickel ($/t) 9,605 10,281 9,232 9,112 9,388 9,868 10,370 10,870 11,200

YoY -19% 20% 4% -11% -13% 1% 12% 10% 8%

QoQ - -5% -10% -1% 3% - - - -

Zinc ($/t) 2,091 2,779 2,593 2,651 2,745 2,871 2,980 2,936 2,849

YoY 8% 65% 35% 18% 9% 7% 10% 2% -4%

QoQ - 11% -7% 2% 4% - - - -

Gold ($/oz) 1,250 1,220 1,258 1,250 1,250 1,257 1,273 1,276 1,274

YoY 8% 3% 0% -6% 3% 1% 2% 1% 0%

QoQ - 0% 3% -1% 0% - - - -Source: Bloomberg, The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division, MUFG Union Bank, Strategic Research

20192017 20182016

Chloe Lim

Strategic Research Division (Singapore)


2. Iron Ore


June has been a volatile month for

iron ore prices. Although daily prices

closed at $65/t, average price fell

-8% from the previous month to

$57/t.

Continued macro concerns on

China’s economic health and

mounting iron ore inventories saw

prices hovering between $53-58/t for

most part of June.

However, prices surged past $60/t in

the last few days of June as market

reacted to China’s optimism following

Chinese Premier Li Keqiang’s pledge

that its economy is on track to

achieve 6.5% growth in 2017.

On the whole in 2Q’17, iron ore

prices had corrected sharply (-26%

QoQ) to $63/t. This fall reflected the

unsustainable pricing seen in 1Q’17

($86/t) despite record high iron ore

stockpile.

6

Iron Ore Prices and Inventories

Despite closing at $65/t in June, average price in 2Q’17 was weighed down by demand concerns in China.

2. Iron Ore

1) Price Trends

Mining Monitor | 21 July 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, The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division

Steel output growth in China was

absorbed mainly by domestic demand

as its steel exports fell significantly in

Jan-May’17. As stimulus fades and

exports remain closed off by anti-

dumping measures, weaker steel output

is expected to dampen China’s iron ore

consumption in 2H’17.

Despite anticipation of slower global iron

ore output growth (due to lower growth

guidance of Australian majors), plentiful

supply is expected to impact the market

balance in 2017. Australia and Brazil’s

collective output will outpace marginal

growth in global consumption.

2018 and 2019 continue to look

challenging for the iron ore market, as

higher supply is expected from Vale’s

S11D, Anglo American’s Minas-Rio and

supply resumption from Samarco

operation in Brazil. Meanwhile, global

demand is anticipated to be weighed

down by flat consumption growth in

China.

Against this backdrop of rising

oversupply, progressive price drop is

expected from 2H’17 to 2019.

7

Outlook for Iron Ore Prices

Influence Factors on Iron Ore

Prices are expected to fall as surplus continues to increase between 2017 and 2019.

2. Iron Ore

2) Outlook

Mining Monitor | 21 July 2017

Source: The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division, MUFG Union Bank, Strategic Research


($/t)


Price 58 86 63 62 59 57 55 54 52

YoY 5% 78% 13% 5% -16% -23% -8% -6% -6%

QoQ - 21% -26% -3% -4% - - - -

2017 20192016 2018

2017 2018 2019

Price Trend Progressive price drop from April'17

Increase Increase Increase

・Low-cost supply addition in Australia

and Brazil.

Increase Slightly Increase Moderately Increase Moderately

・Steel demand growth in developing

countries (excluding China) from

infrastructure-related investments.

・Lacklustre China's import demand

due to slower iron ore domestic

consumption.

Decline

Supply・Higher low-cost supply, led by Australia and Brazil.

・Stronger production growth is expected to experience in Brazil due to ramp-up of

Vale's S11D and Anglo American's Minas-Rio as well as supply resumption from

Samarco operation.

Demand

・Steel demand growth in developing countries (excluding China) and the United

States from infrastructure-related investments.

・China's iron ore imports are expected to experience flat growth.

Fortescue Metals Group (FMG) to use more driverless trucks to cut costs – 27 June, 2017

FMG will convert another 12 of its trucks at its Solomon Hub operation and 100 at Chichester Hub to driverless operating system as it seeks to keep a

lid on costs. It already has 56 autonomous trucks at its Solomon Hub, which represents 75% of its fleet at the operating site. This existing fleet of

driverless trucks delivered 20% improvement in productivity.

BHP starts funding planned development for South Flank project – 26 June, 2017

BHP announced approval of US$184 million in initial funding for South Flank project to maintain production at its operations in central Pilbara, Western

Australia. This planned development is the company’s preferred option to replace production from Yandi mine (80 million ton per annum) when it

reaches the end of its life in early- to mid-2020. BHP said the South Flank project is expected to be submitted for board approval in about a year's time,

with a target of first ore extraction in 2021. The initial funding will cover mainly expansion of housing to support current and future workforce

requirements.

China shuns Indian iron ore in favour of Australia – 25 June, 2017

Chinese steel mills are turning their backs on India and embracing Australia as a source of higher grade iron ore for steelmaking. According to a report

from Macquarie Research, after a surge in iron ore exports from India in March (49 million tons), it slumped to 23 million tons in May. Lower iron ore

prices are making it cheaper for Chinese steel mills to buy higher grade (usually more than 57% in iron content) iron ore, which helps increase

productivity.


2. Iron Ore

3) News Flow

Source: Various sources, The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division

William Cheung

Strategic Research Division (Hong Kong)


3. Coal


Average global coking coal price

rose by 16% in 2Q’17 from the last

quarter.

The price increase was due to rail

network disruption in Australia’s

coking coal producing region caused

by Cyclone Debbie in April. The rail

network has resumed operation in

May, but it took two months for price

to back to pre-cyclone levels in June.

Average global thermal coal price

has seen a 3.9% decline in 2Q’17

from the previous quarter.

The price decrease was because

thermal power generation in China

slowed due to off-peak season for

electricity.


Coal Prices

Coking coal price rose in 2Q’17 due to rail network disruption in Australia’s coking coal producing region. Thermal

coal price fell because of slowing thermal power generation in China.

3. Coal

1) Price Trends

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


In 2017, global coal market will return

to production surplus. Coal supply will

go up, given no output control in China

and output rise outside China. Coal

demand will be flat, as a fall in China’s

steel demand will be offset by rise in

Southeast Asia’s power generation.

From 2018 to 2019, global coal market

will maintain production surplus, but

remain at a healthy level.

Average global coking coal price could

fall from $192/ton in 2Q’17 to $143/ton

in 4Q’17, due to startup of idled

capacity outside China and a fall in

China’s steel output. For 2018 and

2019, price will continue to fall due to

output expansion in Australia and

Mozambique as well as decrease in

China’s steel production.

Average global thermal coal price will

keep the same level from 2Q’17 to

3Q’17 backed by unusual high

temperature in China. But price could

fall afterward from 4Q’17 to 2019, due

to output expansion globally (such as

China, India, Indonesia and Colombia).


Outlook for Coal Prices

Influence Factors on Coal

Global coal market will maintain production surplus from 2018 to 2019, but remain at a healthy level.

Coal prices are likely to decrease from 2H’17 to 2019 due to global coal output expansion.

3. Coal

2) Outlook

($/t)

2016


Coking Coal 143 167 192 153 143 131 120 116 115

YoY 59% 112% 111% 15% -47% -27% -19% -12% -4%

QoQ - -37% 15% -20% -7% - - - -

Thermal Coal 65 82 79 78 71 69 66 65 64

YoY 13% 62% 51% 15% -22% -15% -11% -5% -3%

QoQ - -10% -4% -1% -8% - - - -

2017 2018 2019

Source: Bloomberg, Thomson, The Bank of Toky o-Mitsubishi UFJ, Strategic Research Div ision

2017 2018 2019

Price Trend Decrease from 2H'17 to 2019

Increase slightly Increase slightly

・Lack of output restriction in China

・Production ramp up in key

countries such as Indonesia and

US amid high coal prices

Flat Increase slightly

・Decline in steel demand in China

could be offset by rise in

Southeast Asia's power

generation

Supply

・New coal capacity will be launched in China, Mozambique,

Australia, India, Indonesia and Colombia

Demand

・Rise in steel consumption outside China (i.e. India and Brazil) could

be more than offset decline in China's steel demand

・Rise in power generation in India and other Southeast Asia

countries along with economic development

Source: The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division, MUFG Union Bank, Strategic Research

China to ban coal imports at small ports from 1 July 2017 – 29 June 2017

China will not allow coal imports at small ports starting from 1 July 2017. The ban will cover more than 150 second-tier ports, which were approved by

provincial governments in China. Meanwhile, China’s largest ports will not be affected as these ports were approved by the State Council. The duration

of the ban is unclear. The ban is the latest policy issued by the Chinese government to manage the country’s coal supply and coal price. According to

the head of Asia oil and gas equity research at Jefferies Group, the impact on China’s coal supply might be minimal given excess capacity in its coal

sector, but regional exporters such as Australia and Indonesia might be hit by the ban. That said, the ban may add upward pressure on coal prices in

the short term, but rise in output at domestic qualified coal mines will quickly fill the void. In 2016, coal imports to China accounted for 7.5% of China’s

total coal production.

Global Coking coal price trading around one-year low – 20 June 2017

Global coking coal price fell to a year low to $141/ton on 20 June 2017, after reaching its peak of $314/ton in mid-April 2017 caused by a major supply

disruption in Australia. The recent slump of coking coal price was mainly because global supply tightness eased after rail network in Australia has

resumed operation. Besides, the rise in coal production in China and the startup of idled coal capacity in Australia, US, Canada and Mozambique have

put pressure on coking coal price. Based on the forecast of Bank of America Merrill Lynch, global coking coal price is likely to fall in the short term as

there will be no additional demand to absorb extra output.

China’s drive to cut overcapacity advancing well – 16 June, 2017

China’s NDRC announced that overcapacity cut for the country was in progress. As of May 2017, 97 million tons of coal capacity has been removed,

accounting for 64.7% of China’s annual capacity cut target of 150 million tons this year. As excess capacity has a negative effect on economic

performance, China has put the removal of overcapacity in coal sector at the top of its agenda. In 2016, China has removed a total of 290 million tons of

coal capacity, far excess its target of 250 million tons.

China’s benchmark thermal coal price rebounds – 14 June, 2017

The Bohai-Rim Steam Coal Price Index, a benchmark thermal coal price in northern China’s major ports, increased by 0.4% from a week earlier to

$83/ton on 14 June 2017. The price increase has ended a downward trend over the past two months caused by slowing demand in downstream power

plants. The reason for recent price hike was due to rising demand from coal-fired power plants, as unusual temperature in northern China boosted the

consumption of electricity. Besides, insufficient hydropower generation in China due to low reservoir levels spurred the use of coal-fired power.

According to the Sublime China Information Group, a leading commodity consultant in China, thermal coal price might keep at current level in the

coming months as electricity consumption in China approaches for the seasonal peak.


3. Coal

3) News Flow


Katia Tavarez

Strategic Research (NY)

MUFG UNION BANK, N.A.

4. Copper


The price of copper recovered

some ground in June, reaching a

three-month high ($5,925/t) as it

gained 4.9% m-o-m.

Prices were supported by supply-

side concerns at Grasberg as

thousands of workers extended a

strike for another month and as the

risk of the instatement of the export

ban by the Indonesian later this

year looms. A late-month sell-off in

the US dollar also helped copper

prices.

LME and SHFE warehouses

experienced inventory draw-downs.

Still, with ample scrap supply and

the fading supply-shocks of 1Q’17,

inventories remain high.


Copper Prices and Inventories

Copper prices staged a recovery in June, rising to three-month highs on supply-side concerns and a USD sell-off.

4. Copper

1) Price Trends

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COMEX Inventories (RHS) SHFE Inventories (RHS)

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

Source: Bloomberg, MUFG Union Bank Strategic Research

Our supply-demand and price forecasts

for 2017 remains roughly unchanged

since our last update in April. A supply

deficit of around 130Kt is expected,

largely reflecting the shortage that

occurred in 1Q’17 as a result of

disruptions at major mines and the

reduction in demand as a result of

increased scrap availability.

Beyond 2017, the fundamental outlook

is virtually unchanged but still looks

relatively solid, with a market surplus of

around 100Kt expected in 2018 and a

balanced market in 2019. Our forecast

reflects both expectations for further

deceleration in Chinese macro growth

and a limited pipeline of new greenfield

projects and brownfield expansions.

A market re-valuation of future pricing

remains evident in the latest copper

price leg up. In this context, we have

adjusted our price forecast upwards

and now expect prices to remain above

$5,700/t through 2018 and to move

higher towards $6,000/t in 2019 as a

tighter supply situation supports prices.


Outlook for Copper Prices

Influence Factors on Copper

A market deficit is expected this year, with outlook in subsequent years looking relatively solid.

Prices are expected to remain above $5,700/t through 2018 and to move higher towards $6,000/t in 2019.

4. Copper

2) Outlook

2017 2018 2019

Price Trend

Increase Moderately Increase Increase Moderately

・Supply increases by low-

cost players are partially

offset by supply disruptions

at major mines

・Higher supply growth

from major producing

countries such as Chile

and Peru

・Restart of Glencore's

African operation

・Lower supply growth from

major producing countries

such as Chile and Peru

Source: M UFG Union Bank Strategic Research

Somewhat stable through 2H'17 and early 2018, increasing thereafter

Supply

Demand

Increase Moderately

・Lower, albeit stable, demand growth in the absence of meaningful re-acceleration

factors

($/t)


Price 4,866 5,846 5,688 5,725 5,725 5,731 5,768 5,847 5,952

YoY -11% 25% 20% 20% 8% -1% 1% 2% 3%

QoQ - 11% -3% 1% 0% - - - -

Source: Bloomberg, M UFG Union Bank Strategic Research

2017 20192016 2018

More early-stage mining projects in Chile – 28 June, 2017

Chile is witnessing a rise in the number of requests for engineers and other positions at early-stage mining projects for feasibility, design and

environmental approval. According to a consultant at Michael Page Chile, available job vacancies in the mining engineering sector rose between 20 and

30 percent since last year. Some of the projects hiring are Codelco’s expansion of its Chuquicamata mine, a pre-feasibility study by Goldcorp and Teck

Resources to combine two mines into one called NuevaUnion, and Teck’s Quebrada Blanca phase II. Even so, miners appear to be taking a gradual

approach to new projects given some perceived political uncertainty in the country among miners.

Grasberg workers strike for a third month – 22 June, 2017

Workers at Freeport-McMoRan’s Grasberg mine in Indonesia announced that they would extend an ongoing strike for a third month to 30 July. Around

5,000 workers (15% of the workforce) are on strike and Freeport is looking to replace them soon as production at the mine is not at an ‘optimum’ level

due to the high degree of absences. In fact, according to the union, IndustriALL, a total of 4,220 workers were fired by Freeport for taking part in the

strike. They were deemed by the company as having ‘resigned’.

Chinese copper concentrate and ore imports fall sharply in May – 9 June, 2017

In May, China imported 1.15Mt (-15% m-o-m, -20% y-o-y) of copper concentrate and ore, which are processed in China. This is the lowest level since

October 2015. Refined and semi-finished copper imports were 390Kt (+30% m-o-m, -9% y-o-y). According to Reuters, the decline in concentrate

imports reflects limited concentrate supply globally due to supply shortages at key mines, notably Escondida and Grasberg. The increase on a monthly

basis in refined imports may be explained by a low comparison base in April 2017.


4. Copper

3) News Flow

Source: Various sources, MUFG Union Bank Strategic Research

Tom Haddon

Strategic Research Division (London)


5. Aluminum


Aluminium prices were under pressure

for most of the last month, declining

consistently until 26 June, bottoming

out around 4% lower than the opening

price. However a late rally and 4

consecutive days of gains left prices at

month end very close to flat at $1,914

per ton.

Prices were initially under pressure as

little progress has yet to be seen in

removing illegal (in terms of

environmental impact) smelters from

the Chinese market, despite strong

government rhetoric on the subject.

With traders at first buying into the idea

of supply side reform but now seeing

little to no impact on Chinese exports,

the bull case was somewhat

undermined.

However the ongoing standoff between

Qatar and its neighbouring countries

acted to bolster prices late on in the

month. Buyers had to fill gaps in supply

due to the blocked exports of the

Qatalum smelter (Norsk Hydro and

Qatar Petroleum joint venture) which

usually produces 644kt per annum. Mining Monitor | 21 July 2017 18

Aluminum Prices and Inventories

Month on month changes to prices are driven by short term events rather than long term fundamentals and as such

Qatari exports being blocked has helped support pricing.

5. Aluminum

1) Price Trends

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

Source: Bloomberg, BTMU Strategic Research Division

Chinese demand surpassing

expectations is forecast to deepen the

supply deficit during 2017. This is in

line with World Metal Bureau (WMB)

data which estimates the market was in

a deficit of 683kt up to April.

However, the Chinese government is

likely to limit production during the

winter months (i.e. Oct-Feb) for the first

time to lower pollution. This is only

expected to moderately restrict

production (as smelters can maximise

output outside of this period) and

constrain 2017 production growth.

Beyond 2017, the stance of the

Chinese government will continue to

affect the supply/demand balance as

China accounts for over 50% of

production. Currently SRD assumes the

winter policy stays in place, keeping the

market in supply deficit through 2019.

Although the Chinese production

restrictions are likely to create seasonal

price volatility, the supply deficit will

generally lead to a stronger prices,

averaging over $2,000 per ton by 2019.


Outlook for Aluminum Prices

Influence Factors on Aluminum

The deficit in aluminum supply is forecast to persist as Chinese smelter output is restricted in the winter to prevent

pollution. This will strengthen the price environment but is likely to introduce seasonal supply and price volatility.

5. Aluminum

2) Outlook

($/t)

2016


Price 1,605 1,851 1,907 1,904 1,933 1,961 1,883 2,021 2,097

YoY -4% 22% 21% 18% 13% 4% -2% 3% 11%

QoQ 8% 3% 0% 2% - - - -

Source: Bloomberg, BTM U Strategic Research Division

2017 2018 2019

2017 2018 2019

Price Trend Moderate Increase

Increase

・Returning mothballed

Chinese smelters remain

in the market, following

record production in Jan'17

Source: The Bank of Tokyo-M itsubishi UFJ, Strategic Research Division, M UFG Union Bank, Strategic Research

Moderate Increase with Seasonal Volatility

Supply

Increase moderately

・Restriction of output on pollution grounds could affect

up to 17% of Chinese output in Q1 & Q4 each year,

limiting supply growth.

・Smelters maximising production output outside of

restrcitions will cause seasonal swings

DemandIncrease

・Solid demand growth from transport and consumer market

April US, Canadian aluminum demand up 1.4% year on year - 29 June, 2017

Preliminary estimates show US and Canadian aluminum demand -- shipments by domestic producers plus imports -- totaled around 2.257 billion lb in

April, a 1.4% increase compared with the same month in 2016, the Aluminum Association said. Apparent consumption -- demand less exports -- in the

US and Canada totaled 2.002 billion lb in April, up 1.6% year on year. At 8.142 billion lb, year-to-date apparent consumption is 4.1% higher than a year

earlier.

Aluminum Giants Stop Short of Backing Trump Import Crackdown - 22 June, 2017

As the calls for restrictions on cheap Chinese imports reach a fever pitch in Washington, some of the biggest North American aluminum producers are

advocating a softer touch. Alcoa Corp. urged the U.S. to directly engage with China to ensure overproduction no longer spills out to the rest of the world.

Rio Tinto Group also argued for a negotiated solution. Arconic Inc., one of the biggest American producers of aluminum automotive and jet parts,

warned that action on raw metal imports may disrupt the supply chain. China’s Ministry of Commerce, said unilateral trade restrictions aren’t conducive

to solving the problems of the global industry.

China's Biggest Aluminum Producer to Cut Outdated Capacity - 20 June, 2017

TextChina Hongqiao Group Ltd., the nation’s biggest aluminum smelter, is curtailing outdated capacity amid a broader crackdown by the government on

illegal production. The company, the main aluminum arm of Shandong Weiqiao Pioneering Group Co., declined to give the scale or timing of the

reduction in an emailed statement. Two people with knowledge of the situation said Weiqiao’s aluminum business started cutting 250,000 metric tons of

annual capacity. “We estimate that 3.1 million tons, or 8 percent of total operating capacity, is without proper approvals, hence we expect more

production cuts in the coming months,” Jack Shang, an analyst at Citigroup Global Markets Asia, said in an emailed note. “Winter production

suspensions in North China should help further tighten the aluminum market in China.”


5. Aluminum

3) News Flows


Tom Haddon



6. Nickel


Nickel Prices performed strongly

during June, especially towards the

latter stages of the month, to finish at

$9,347 per ton, an increase of almost

5% from May’s closing price.

The driver for the upwards move in

pricing during the last trading days of

the month are attributed by Metal

Bulletin to the news that Vale is

exploring the possibility of closing its

VNC Complex in New Caledonia. The

plant is forecast to produce 44kt in

2017 so would represent a closure of

around 2% of global production.

The Indonesian Smelter Association

also reported during the month that 13

of 25 producers had curtailed or

stopped production while prices were

below $9,000 per ton – which they

were until the news of Vale’s potential

plant closure broke.

The temporary reduction in nickel

output from Indonesia is likely to have

moderately tightened supply and

helped prices before the Vale news

was known.


Nickel Prices and Inventories

Nickel prices recovered a some ground during June as Indonesian smelters curtailed production due to the low price

environment and traders reacted to news that Vale may close a significant nickel operation.

6. Nickel

1) Price Trends

0

100

200

300

400

500

0

10,000

20,000

30,000

40,000

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

6M

ar-

17

Jun-1

7



Due in part to decreasing production in

China as smelters stopped their

operations, the nickel market fell into

deficit in 2016.

The Indonesian Smelter Association

reported during June 13 of 25

producers had curtailed or stopped

production due to low prices, restricting

production growth for 2017 although

the ramping of Indonesian projects will

allow some growth.

Beyond 2017, the environmental

crackdown in the Philippines which now

includes over 50% of nickel ore

production in the country will limit

available ore supplies to smelters

(especially in China) and prevent the

market immediately returning to

surplus.

Therefore the price trajectory is

unchanged from the previous forecast

albeit from a lower base given the Q2

price performance. However with the

presence of critically high inventories,

prices will only marginally increase to

break though $11,000 per tonne by

2019. Mining Monitor | 21 July 2017 23

Outlook for Nickel Prices

Influence Factors on Nickel

The pricing floor appears to have been found as Indonesian smelters curtail production with prices below $9,000,

therefore SRD forecasts prices to moderately increase through to 2019.

6. Nickel

2) Outlook

($/t)

2016


Price 9,605 10,281 9,337 9,433 9,719 10,216 10,735 11,253 11,595

YoY -19% 20% 5% -8% -10% 4% 12% 10% 8%

QoQ -5% -9% 1% 3% - - - -


2017 2018 2019

2017 2018 2019

Price Trend

Increase Moderately

・Nickel pig iron projects

ramp up in Indonesia and

Chinese smelters remain

well supplied by partial

lifting of Indonesian ore

export ban.


Moderately increase due to high inventories

Supply

Increase Moderately

・Some production in Philippines gains renewed

environmental approval after being shuttered in 2016/17.

・Higher cost mines and smelters are forced from

market as abundant Indonesian and Chinese

production keeps the market well supplied

Demand

Increase

・Chinese stainless steel output growth remains albeit the rate slows through to

2019 as government enforced production capacity cuts hamper output

As Indonesian nickel ore flows again to China, famine turns to feast - 4 July, 2017

The flow of Indonesian nickel ore to China has resumed after a three-and-a-half year break. May's 264,000 tonnes is substantial. Not only was it the

largest monthly total in three years but it tallies with plans by Indonesia's Aneka Tambang (Antam) to make its first 150,000-tonne shipment at the start

of the month. Indonesia is not going to be supplying the same volumes of nickel ore to China as it did in 2012 or 2013, when imports reached 34 million

and 41 million tonnes respectively. The government is granting only a limited number of exemptions with limited tonnage quotas.

Stainless Steel: Asia falling stocks due more to production restraint than demand revival - 4 July, 2017

Asian stainless steel prices fell sharply early in June before reviving towards the end of the month. The export market has been supporting Chinese

local fundamentals and prices for some week and there is yet to be any revival in demand. In a sign of how depressed, at least by Chinese standards,

local demand is, production has unusually been falling steadily through the quarter. However the export market is still strong for Chinese producers and

volumes were up 4% year on year from January to April and May was a record month, showing why there is no concrete desire to eliminate over

capacity yet.

China's stainless steel glut a new headwind for nickel - 21 June, 2017

Although the main drivers of the nickel market during the past year have been events in big supplier countries, China is emerging as a key demand-side

factor driving down the market. China's demand for stainless steel, used in kitchen equipment and construction materials, recently began slowing,

affecting nickel demand. Nickel is a key ingredient in stainless steel. Manufacturers began increasing stainless steel output last year in response to brisk

demand for infrastructure, but supply appears to have grown while demand weakened, according to the Tokyo trading house insider. According to

China's state-run research company, Custeel.com, the country's crude stainless steel output in May totaled 1.78 million tons, down 5.69% from the

previous month.


6. Nickel

3) News Flows


7. Zinc


Tom Haddon



Zinc prices took a sharp upwards

swing in late June, increasing by 8%

in 8 trading days from 21 to 30 June.

This left prices 6% higher than May’s

closing price at $2,753 per ton.

The upside momentum was present

from mid-month as prices marginally

crept up driven by tightness of supply.

LME inventories steadily decreased

through June finishing over 12% lower

than the end of May.

However the reason for the significant

lift in prices towards the end of June is

harder to pin point. Chinese smelter

maintenance is a strong candidate for

this as around 10% of Chinese output

was curtailed due to coordinated

maintenance programmes at some of

the largest producers. This may have

left some buyers short and willing to

pay a premium to secure delivery.

Whatever the exact reason for the

sharp movement in price, tight

fundamentals are likely as the market

remains in supply deficit.


Zinc Prices and Inventories

Zinc prices moved sharply upwards in late June as it reflected a tight market which is still in supply deficit.

7. Zinc

1) Price Trends

0

500

1,000

1,500

2,000

0

1,000

2,000

3,000

4,000

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

6M

ar-

17

Jun-1

7



Reduced mine capacity as well as mine

closures, allied to robust Chinese

galvanized steel production plunged the

market into a deep deficit during 2016.

The growth of the Chinese galvanized

steel output, despite closures to reduce

over capacity, has meant a deeper

deficit than previously forecast in 2017.

However the general fundamental trend

remains unchanged with a supply

response triggered by the strong price

rally. The mined supply response has

already started with the International

Lead and Zinc Study Group (ILZSG)

reporting mine production up over 7%

to April this year, however there will be

a lag as smelters wait to access looser

concentrate supply and ramp up refined

production.

Therefore as the market is forecast to

remain in deficit in 2018, albeit a

smaller amount, prices will continue to

hold onto gains from 2017. However

the supply response will bring a cooling

of prices through 2019.


Outlook for Zinc Prices

Influence Factors on Zinc

Although losing some ground in Q2, zinc prices remain elevated as smelters are still confronted with a tight supply

of concentrates. A mined supply response will gradually loosen this.

7. Zinc

2) Outlook

($/t)

2016


Price 2,091 2,779 2,593 2,651 2,745 2,871 2,980 2,936 2,849

YoY 8% 65% 35% 18% 9% 7% 10% 2% -4%

QoQ 11% -7% 2% 4% - - - -


2017 2018 2019

2017 2018 2019

Price Trend Increase Moderately Increase Moderately Decrease

Increase Moderately

・A response from

Chinese mined supply is

filling some of the gap for

smelters after several

mines closes in 2016

Increase Moderately


Supply

Increase

・Glencore currently has around 500kt of mine capacity

mothballed which is assumed to come online through

2018 and 2019

・Smelters will be able to access a greater supply of

concentrates due to mined supply response

Demand ・Chinese and US infrastructure stimulus plans provide demand growth for

galvanized steel, offsets sluggish European consumption. Global automotive

production will continue to grow.

Krakatau Nippon Steel Sumikin to operate in September - 20 June, 2017

The Industry Ministry has said PT Krakatau Nippon Steel Sumikin (KNSS) will start operating its galvanized steel (the major use of refined zinc) plant in

Cilegon, Banten, in September. The ministry’s director general for metal, machinery, transportation equipment and electronics industries, I Gusti Putu

Suryawirawan, said that the plant would have an annual production capacity of around 500,000 tons. Putu said Indonesia, which recorded sales of

approximately 1 million cars a year, had until now imported galvanized steel sheets for car manufacturing owing to limitations in domestic supply.

Nyrstar sells mothballed zinc mine in Mexico for $20 million - 15 June, 2017

Global metals business Nyrstar has sold its Campo Morado zinc mine in Mexico to Telson Resources and Reynas Minas in a deal worth $20 million.

Nyrstar will receive the funds in instalments over the next 12 months in an agreement that also includes a purchase agreement linked to production.

According to Nyrstar’s website, production at the mine, which is located 160km southwest of Mexico City, ‘has been suspended since Q1 2015 due to

ongoing issues associated with security in the region’. The polymetallic mine produces zinc, copper, gold and silver concentrates. The sale is part of

Nyrstar’s move away from mining that began in 2016 when it sold a multimetallic mine in Peru. Global metals business Nyrstar has sold its Campo

Morado zinc mine in Mexico to Telson Resources and Reynas Minas in a deal worth $20 million. Nyrstar will receive the funds in instalments over the

next 12 months in an agreement that also includes a purchase agreement linked to production. According to Nyrstar’s website, production at the mine,

which is located 160km southwest of Mexico City, ‘has been suspended since Q1 2015 due to ongoing issues associated with security in the region’.

The polymetallic mine produces zinc, copper, gold and silver concentrates. The sale is part of Nyrstar’s move away from mining that began in 2016

when it sold a multimetallic mine in Peru.

Trafigura increases its focus on metals trading - 7 June, 2017

Trafigura said it was increasing its focus on coal and metals trading, in the latest sign that a near three-year boom for commodity houses in buying and

selling oil is at an end. Unlike oil, where prices have been relatively flat, tight supplies for commodities such as coal and zinc and rising demand for

metals such as aluminium were more conducive for trading in Trafigura’s latest reporting period. Growth of Trafigura’s metals and minerals business is

also being helped by its near 25 per cent stake in Nyrstar, Europe’s largest zinc producer, as well the expansion of its mining operations in Spain and

Peru.


7. Zinc

3) News Flows

Source: Various sources , The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division

Katia Tavarez

Strategic Research (NY)

MUFG UNION BANK, N.A.

8. Gold



Gold Prices, ETF Holdings, and 10Yr US TIPS Yield

Gold prices fall in June for the first time in 2017, but are up year-to-date.

8. Gold

1) Price Trends

Gold prices recorded their first

monthly drop in June (-2.2% m-o-m),

pressured by the hawkish tone

among key central banks, rising bond

yields, and the strength in global

equity markets.

Year-to-date though, gold has been

among the top performers in our

coverage (+8.2% in 1H’17). This

suggests that geopolitical risks,

macro uncertainty and the ensuing

safe-haven trade are (so far)

outweighing headwinds stemming

from the prospects of monetary

tightening.

The generally positive trend in gold

prices has been supported by further

inflows into gold-backed ETFs and

COMEX non-commercial net-longs. It

is worth noting, however, that ETF

holdings and COMEX positioning are

now well below their all-time highs.

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

Jun-0

9

Sep-0

9D

ec-0

9M

ar-

10

Jun-1

0

Sep-1

0D

ec-1

0M

ar-

11

Jun-1

1

Sep-1

1D

ec-1

1M

ar-

12

Jun-1

2

Sep-1

2D

ec-1

2M

ar-

13

Jun-1

3

Sep-1

3D

ec-1

3M

ar-

14

Jun-1

4

Sep-1

4D

ec-1

4M

ar-

15

Jun-1

5

Sep-1

5D

ec-1

5M

ar-

16

Jun-1

6

Sep-1

6D

ec-1

6M

ar-

17

Jun-1

7

(t) ETF Holdings (RHS) Gold Price (LHS)($/oz)

Source: World Gold Council, GFMS, Bloomberg, MUFG Union Bank Strategic Research

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

10Yr US TIPS Yield (%)


Outlook for Gold Price

Influence Factors on Gold

Mine supply is expected to decline while investment demand moderates.

Prices remain in tug-of-war but, ultimately, positive catalysts are expected to win.

8. Gold

2) Outlook

We continue to anticipate a decline in

mine supply through 2019 as new

projects are unlikely to make up for

falling ore grades.

Gold demand, meanwhile, is expected

to remain relatively flat over the

forecast period amid lackluster

jewellery demand growth and more

moderate investment demand.

As for prices, signs of bottoming have

been appearing since the beginning of

2017. Against a backdrop of macro

uncertainty and geopolitical tensions,

we expect gold to continue to trend

upward over the medium-term.

However, upside appears limited as an

increasing number of central banks are

adopting a more hawkish monetary

policy stance. That said, we made

modest downward adjustments to our

forecasts since our April update, and

now expect prices to remain in the

$1,250/oz to $1,300/oz range through

2019.

($/oz)


Price 1,250 1,220 1,258 1,250 1,250 1,257 1,273 1,276 1,274

YoY 8% 3% 0% -6% 3% 1% 2% 1% 0%

QoQ - 0% 3% -1% 0% - - - -

Source: Bloomberg, M UFG Union Bank Strategic Research

2017 20192016 2018

2017 2018 2019

Price Trend

Source: M UFG Union Bank Strategic Research

Demand

Flat

・A modest downward adjustment in investment demand is anticipated following the

sharp uptick in 2016

・Rebound in jewellery demand from 2016 lows; still, demand levels will remain

lackluster

Increase Slightly

SupplyDecrease Moderately

・Falling ore grades to drag down mine supply despite new projects


8. Gold

3) News Flow

Kinross launches US$500 million unsecured debt offer – 29 June, 2017

Kinross announced a US$500 million debt offering of 4.5 percent unsecured notes due 2027. It will use the net proceeds, and available cash on hand, to

repay its US$500 million term loan due in 2020. In 1Q’17, Kinross has total debt of US$1.73 billion, made up of US$1.24 billion of senior notes and

US$497.6 million drawn on the term loan facility.

GoldCorp to sell stake in Camino Rojo project to Orla Mining – 21 June, 2017

Canada’s GoldCorp is selling its Camino Rojo gold-silver project in Mexico to Orla Mining. As part of the deal, GoldCorp will receive around CAD 35

million Orla equity, a 2% net-smelter-return royalty on revenues from all metal production from the project (excluding metals produced under a joint-

venture with the junior miner), the option to acquire 70% stake in future sulfide projects, and the right to nominate a Director to Orla’s Board. The deal is

expected to close in the second half of 2017. The Camino Rojo sale is part of the list of operations that GoldCorp has been unloading in recent months

to focus on more profitable core assets.

India raises gold tax rate to 3 percent – 4 June, 2017

As part of a nationwide sales tax regime that began on July 1, the Good and Services Tax (GST) Council in India raised the gold tax rate to 3 percent

from 1.2 percent previously. The increase is below the expected 5 percent. Although short-term setbacks and challenges may happen, the long-term

benefits include improved gold quality, a more transparent and efficient gold supply chain, and, as a result of the tax reform, a boost to economic

growth. According to the World Gold Council, gold demand will reach 850-950 tons by 2020, compared to 650-750 tons in 2017.

Source: Various sources, MUFG Union Bank Strategic Research

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

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

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Contact details for inquiries : Kouichi Akimoto

(TEL：03-3240-5386、e-mail：[email protected])

Documents

Mining Monitor (July 2017) · Jan-May’17. As stimulus fades and exports remain closed off by anti-dumping measures, weaker steel output is expected to dampen China’s iron ore