mining monitor (august 2018) · china’s strict port restrictions disrupt berthing – 11 july...

Mining Monitor (August 2018)

Strategic Research Division

6 August 2018

MUFG Bank, Ltd.

MUFG Union Bank, N.A.

(ご参考) (文書チェック)

部長次長次長班長担当

(企画Gr.)

Table of Contents

1. Overview 3

2. Iron Ore 5

3. Coal 8

4. Copper 11

5. Aluminum 14

Mining Monitor | 6 August 2018 2

6. Nickel 17

7. Zinc 20

8. Gold 23

Appendix 26

1. Overview


Ryosuke Ohno

Strategic Research Division

MUFG BANK, LTD.


Mined Commodity Price Trends

Most mined commodities remains under downside pressure against a backdrop of global trade concerns.

1. Overview

Mined Commodity Price Trends

Average iron ore price fell due to global

trade concerns and production growth in

Australia in spite of solid demand.

Coking coal prices decreased due to falling

demand for seaborne coal in China caused

by import restrictions.

Thermal coal prices rose, driven by rise in

thermal power generation amid

unexpected hot weather in Asia.

Copper prices continued to fall against a

backdrop of global trade concerns, as well

as a weakening Chinese yuan.

Aluminum prices decreased due to

negative sentiment as trade dispute

rumbles on.

Nickel prices fell due to the continued trade

tension and weaker Chinese economic

data though the fundamentals remain tight.

Zinc prices decreased owing to the

continued uncertainties of the tariff dispute

and escalated trade tensions.

Gold prices remained under pressure on a

firmer US dollar.

2017

Yr Avr Jan Feb Mar Apr May Jun Jul

Iron Ore ($/t) 71 73 75 67 63 64 61 59

MoM - 6% 2% -10% -6% 2% -4% -3%

YoY 22% -9% -16% -24% -11% 3% 10% -9%

Coking Coal ($/t) 189 240 229 219 188 184 198 182

MoM - 0% -4% -5% -14% -2% 8% -8%

YoY 33% 30% 42% 40% -28% 6% 35% 10%

Thermal Coal ($/t) 88 105 103 95 93 104 112 114

MoM - 6% -3% -8% -2% 12% 7% 2%

YoY 34% 26% 26% 17% 12% 40% 41% 36%

Copper ($/t) 6,192 7,118 7,040 6,834 6,871 6,851 6,961 6,257

MoM - 4% -1% -3% 1% 0% 2% -10%

YoY 27% 24% 18% 17% 20% 22% 22% 4%

Aluminum ($/t) 1,968 2,210 2,182 2,069 2,255 2,300 2,238 2,082

MoM - 6% -1% -5% 9% 2% -3% -7%

YoY 23% 23% 17% 9% 17% 20% 19% 9%

Nickel ($/t) 10,410 12,865 13,596 13,393 13,938 14,366 15,106 13,794

MoM - 12% 6% -1% 4% 3% 5% -9%

YoY 8% 29% 28% 31% 45% 57% 69% 45%

Zinc ($/t) 2,891 3,442 3,533 3,269 3,188 3,060 3,089 2,656

MoM - 8% 3% -7% -2% -4% 1% -14%

YoY 38% 27% 24% 18% 22% 18% 20% -5%

Gold ($/oz) 1,259 1,332 1,331 1,327 1,335 1,304 1,280 1,237

MoM - 5% 0% 0% 1% -2% -2% -3%

YoY 1% 12% 8% 8% 5% 5% 2% 0%

Source: Bloomberg, MUFG Bank, Strategic Research Division

2018

Chern Woon Lam

Strategic Research Division (Singapore)

MUFG BANK, LTD.

2. Iron Ore


In July, iron ore prices ended the

month higher at $61/t compared to

$60/t at the end of June. However, the

average price of $59/t in July was -3%

lower than the average price of $61/t in

June. For the majority of July, iron ore

prices were trading just below $60/t.

Despite market turmoil over the U.S.-

China trade tensions, iron ore demand

has held up relatively well as Chinese

steel production is still going strong.

Robust supply added pressures on

pricing as Australian producers

continued to raise output.

While trade tensions persist, the

outlook for the second half of the year

should brighten slightly. The Chinese

government will be more pro-growth

and the extension of anti-pollution

controls will underpin demand for

higher-grade iron ore.

Port inventories fell to 156mn tons in

the last week of July, but remain at

elevated levels.

6

Iron Ore Prices and Inventories

Resilient iron ore demand led to prices trading just below $60/t in spite of market turmoil.

2H’18 outlook could brighten slightly due to more pro-growth stance by the Chinese government.

2. Iron Ore

1) Price Trends

Mining Monitor | 6 August 2018

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

($/t) (Mt)

Source: Bloomberg, MUFG Bank, Strategic Research Division

Chinese steel industry could weaken after strong first half in 2018 – 16 July, 2018

China produced a record volume of steel in the first half of 2018. 451mn tons of steel was produced, 6% higher than a year ago. However, Citibank

expects that Chinese growth will likely moderate amid a trade war with the U.S. Growth of steel demand will likely slow to 3% for the full year, compared

to 5% for the first half. Citibank did note that margins of steelmakers are still quite healthy.

Iron ore’s top grade could hit $100/t as China chases blue skies – 16 July, 2018

Wood Mackenzie, an energy and mining consulting firm, said that the price of high-grade iron ore may spike to $100/t as China intensifies anti-pollution

controls. Top grade iron ore has hit $91/t in mid-July even amid mounting trade tensions. On the other hand, the 62% benchmark iron ore has traded in

a flattish manner, resulting in the widening premium spread between the 65% and 62% grades. While short-term spikes to $100/t are possible, Wood

Mackenzie views that prices will likely not be sustained at this level.

Australia saw record iron ore production in June 2018 – 10 July, 2018

Iron ore exports from Port Hedland, Australia surged to record levels of 47.3mn tons in June 2018. Shipments out of Port Hedland totalled 256.5mn tons

in the first half of 2018, compared to 497.0mn tons for the whole of 2017. Australian miners are raising iron ore output in response to buoyant demand

from Chinese steelmakers against a backdrop of intense anti-pollution campaign. Steel production in China is still going strong and demand for higher

grade iron ore is rising.

7

2. Iron Ore

2) News Flow

Source: Various sources, MUFG Bank, Strategic Research Division

Mining Monitor | 6 August 2018

William Cheung

Strategic Research Division (Hong Kong)

MUFG BANK, LTD.

3. Coal


Global coking coal price decreased

by 8.2% from previous month to

$182/ton in July.

The price decline was due to falling

demand for seaborne coking coal

caused by tight import regulations at

ports in South China. Also, the

weakening Chinese Yuan against US

dollar discouraged Chinese steel

mills and traders from buying coal

overseas.

Global thermal coal price continued

to rise and reached $114/ton in July,

the highest level since February

2012.

The price increase was due to rise in

thermal power generation amid

unexpected hot weather in China

and other Asian countries. Also,

weak hydropower output and limited

growth in thermal coal supply in

China pushed up the price further.


Coal Prices

Coking coal price decreased in July, due to falling demand for seaborne coal in China caused by import restrictions.

Thermal coal price rose in July, driven by rise in thermal power generation amid unexpected hot weather in Asia.

3. Coal

1) Price Trends

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

Source: Bloomberg, MUFG Bank, Ltd, Strategic Research Division

CRU: tight coal supply in China to continue this year – 22 July 2018

China is unable to meet its rising national power demand this year, as its environmental policies restrict thermal coal output growth. According to CRU

after visits of major coal producing regions in China, stricter environmental standards are negatively affected the ability for Chinese coal producers to lift

thermal coal supply during spells of higher thermal coal demand. This year, China’s National Energy Administration has set a raw coal production target

of 3.7 billion tons. But CRU believes that this production target might not be able to achieve and could fall short of 70 million tons by end of 2018, largely

to on-going safety and environmental restrictions.

Thermal coal is bucking trade war fears as China’s demand surges – 12 July 2018

The commodities sector has been hit by rising trade tension between China and the US. However, thermal coal market is bucking as China’s coal

demand remains high. Benchmark Australian thermal coal price has risen about 40% this year, breaking through $120/ton for the first time since 2012.

According to chief commodities economist at Capital Economics, a US research consultancy, the jump in thermal coal price has been a response to

unusually hot summer in China, leading to an increase of thermal power generation for growing air-conditioning demand. On the supply side, the

heatwave also dried up water reservoirs, hitting hydroelectricity power output in China. Other than China, demand from Japan and emerging regions in

Southeast Asia has also supported thermal coal price.

China’s strict port restrictions disrupt berthing – 11 July 2018

A wave of stricter port restrictions in South China disrupted steel producers and traders to import coking coal cargoes. Some ports including Fangcheng

port in Guangxi province and Wenzhou port in Zhejiang province have prohibited to berth vessels carrying imported coking coal cargoes. These

measures are aimed at indirectly discouraging steel producers and traders from importing coking coal from overseas, as well as give ways to import

more thermal coal to accommodate rising thermal power generation. The restriction has added to woes of Chinese steel producers, which have already

hit by higher import costs as a result of a depreciating Chinese Yuan against US dollar after continuing trade tension between China and the US.

China to cut coal use in 2018-2020 pollution plan – 3 July 2018

China will cut coal consumption in the coming three years, according to the 2018 to 2020 pollution action plan announced by the State Council on 3

July. The action plan will expand the anti-pollution fight to 82 cities across China, and confirmed that the major coal producing provinces of Shanxi and

Shaanxi provinces have been added to the list of key pollution control regions. The plan requires Beijing, Tianjin, Hebei, Shandong and Henan to cut

coal consumption by 10% over the period between 2016 and 2020, while the Yangtze detail region are required to reduce coal use by 5% over the same

period.


3. Coal

2) News Flow

Source: Various sources, MUFG Bank, Ltd, Strategic Research Division

Katia Tavarez

Strategic Research (NY)

MUFG UNION BANK, N.A.

4. Copper


Copper accelerated its decline in

July (-6.1% m-o-m), breaking

below the $6,500/t to 7,300/t

range that had been in place for

nine months.

Copper continued to feel the

pressure of global growth worries

(amid rising trade tensions), as

well as of a weakening Chinese

yuan. The selloff in copper

happened even as inventories at

warehouses fell further and the

risk of a strike at Chile’s

Escondida increased.

Late-in-the-month, copper

recovered some ground on

China’s decision to stimulate its

economy with more fiscal spend

and more liquidity.


Copper Prices and Inventories

Copper prices continue to fall against a backdrop of global trade concerns.

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

Escondida workers vote to strike – 2 August, 2018

Workers at BHP’s Escondida mine in Chile, the world’s largest copper mine, voted in favor of strike action after rejecting a salary increase proposed by

BHP. The union said that 84 percent of its members voted in favor of striking, adding that 2,330 of its 2,500 members voted. In a statement, the union

said: “We hope that this overwhelming desire to reject the company's offer... will convince the company of the need to show a willingness to build a

accord that recognizes our rights.” The union is asking for a one-time bonus of around $34,000 per worker and a 5 percent increase in salaries. BHP’s

last offer included a $27,000 bonus per worker and a 1.5 percent salary increase.

Workers at Codelco’s Chuquicamata mine strike – 30 July, 2018

Workers at the Chuquicamata mine in Chile, Codelco’s second largest copper mine by output, walked off the job on July 30th. According to documents

obtained by Reuters, Chuquicamata Union No. 1, 2, and 3, as well as Antofagasta Union No. 1 are protesting the “unjustified layoff” of two workers.

Codelco called the move ‘illegal’ and said that it is ‘imperative that [Codelco] continue production at the mine’. Workers at Chuqui have in the past

protested over Codelco’s plan to transform the open pit mine into an underground mine. The switch at Chuqui is part of Codelco’s $39Bn, decade-long

program to modernize its operations.

Caserones union rejects Lumina Copper’s final wage offer – 31 July, 2018

Members of the main union at Chile’s Caserones copper mine voted to reject the final wage offer by Minera Lumina Copper Mine. If no agreement is

reached during a four day mediation period, a strike will begin on August 7th. The mine has an annual production target of 150Kt of copper concentrate

and 30Kt of copper cathodes. The Caserones mine is majority owned by the Japanese conglomerate JXTG.


4. Copper

2) News Flow

Source: Various sources, MUFG Union Bank Strategic Research

Bas Percival

Strategic Research Division (London)

MUFG BANK, LTD.

5. Aluminum



Aluminum Prices and Inventories

Aluminum prices down in July due to negative sentiment as trade dispute rumbles on.

5. Aluminum

1) Price Trends

Aluminum prices trended down 4.3% in

July, compared to the end of June. For

the first 6 months of 2018, prices have

settled nearly 9% lower.

Despite stocks drifting lower for most of

the year, negative sentiment has

weighed substantially on aluminum prices

in July. Downward pressure on prices

from the ongoing US-China trade dispute

caused aluminum prices to settle lower

than at the start of the year.

Negative sentiment in the market related

to US sanctions on Rusal, the Russian

aluminum producer, remains. The US

treasury confirmed it was open to lifting

sanctions on Rusal, which ended an

impressive rally in prices as traders and

smelters scrambled to secure supplies,

and weighed on prices as uncertainty

around a major supplier seemed to end.

China remained quiet in the aluminum

market, with downstream demand weak,

supporting the lower prices observed this

month. China’s environmental “make

skies blue again” policy has impacted

seasonal demand to the downside.

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

Source: Bloomberg, MUFG Strategic Research Division

Coca-Cola Says Trump Aluminium Tariffs Force Price Increase – 31 July, 2018

Citing the recent tariffs imposed upon aluminium and steel imports by the Trump administration, The Coca-Cola Company’s CEO James Quincey told

shareholders last week that his company had no choice but to increase product prices.

Aluminium bounces on short-covering after Rusal news – 23 July, 2018

Aluminium rebounded on Monday as investors bought back bearish positions after a U.S. official raised the prospect of lifting sanctions on Russia's

Rusal. Cancelling sanctions on Rusal, the world's biggest aluminium producer outside of China, would ease fears of a supply shortage.

Copper clocks fifth weekly loss, aluminium falls ahead of Trump-Putin summit – 13 July, 2018

Copper clocked up a fifth weekly loss on Friday as trade tensions between the United States and China rumbled on, while aluminium hit a three-month

low ahead of a summit between U.S. President Donald Trump and Russian President Vladimir Putin.


5. Aluminum

2) News Flow

Source: Various sources, MUFG Bank Strategic Research Division

Bas Percival


MUFG BANK, LTD.

6. Nickel


Nickel prices are down 6% in July,

compared to the end of June. Yet,

prices remain up 11% for the first 6

months of 2018.

Inventories are down nearly 30% from

the start of the year and continued

their decline in July by 6.1%

compared to June. This highlights that

global demand growth for nickel

remains bullish and that the

fundamentals for nickel remain tight.

However, the broader risk-off

sentiment and negative sentiment

observed lately in the market is due to

the continued trade tensions and

weaker Chinese economic data.

Demand for stainless steel in China

remains a key driver for nickel. It is

up nearly 25% year on year and an

important component driving global

demand. The China Stainless Steel

Council released data on crude

stainless steel output in the country,

up 13% compared to the first 6

months of 2017, but a majority of it

was for lower grades of stainless.


Nickel Prices and Inventories

Nickel prices down from June as negative sentiment outweighs fundamentals.

6. Nickel

1) Price Trends

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


Rising nickel price prompts owners to restart Avebury mine after nine-year halt to operations – 9 July, 2018

The Avebury nickel mine near Zeehan is expected to restart as early as January next year, with hopes it will create more than 200 jobs on Tasmania's

west coast. The Avebury mine has been in care and maintenance since 2009 after a fall in nickel prices, but was bought from MMG Limited by Dundas

Mining for $25 million in mid-2017.

Electric vehicle demand will double nickel price – as soon as 2022 – 9 July, 2018

After a gravity-defying run, nickel has now also succumbed to weakness in the industrial metals complex as global trade fears mount, declining to

$14,125 per tonne on Monday.

Tin, nickel and brass prices slipped at the non-ferrous metals market here today on stockists selling amid subdued demand from alloy

industries. – 1 August, 2018

Tin, nickel and brass prices slipped at the non-ferrous metals market here today on stockists selling amid subdued demand from alloy industries.


6. Nickel

2) News Flow


7. Zinc


Bas Percival


MUFG BANK, LTD.

Continuing last month’s fall, zinc prices

were down over 7.9% from the end of

June. For the first 6 months of 2018,

zinc has decreased in price by 20.7%.

Although LME zinc stocks were down

3.7% from the end of June, stock levels

are up 32.7% from January. This

remains an impressive stock build and

illustrates the weaker demand for zinc

compared to the other base metals. The

continued uncertainties of the tariff

dispute and escalating trade tensions

between the US and the EU and China

are weighing on prices. For example,

demand from the galvanized steel

sector remains muted.

According to the International Lead and

Zinc Study Group, the 880,000 tonnes

of additional zinc mine capacity due on

stream this year continues the loosening

of the market balance. With relatively

low growth in China consumption

currently, informed by tightening of

environmental policies, a surplus of zinc

might weigh even more on prices in the

near future.


Zinc Prices and Inventories

Zinc prices down significantly in 1H’18, while inventories continue to build.

7. Zinc

1) Price Trends

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


Zinc hits 1-year low, narrower deficit on the horizon – 10 July, 2018

Zinc prices fell to their lowest in more than a year on Tuesday as expectations of rising supplies and a narrowing deficit sparked a sell-off that

accelerated after prices fell below key technical support levels.

Zinc set for worst month since 2011 as China data disappoints – July 31, 2018

London Metal Exchange zinc prices fell for a second session on Tuesday, weighed down by a stronger dollar making metals more expensive for holders

of other currencies, and after growth in China's manufacturing sector cooled for a second month.

Restart of Century zinc mine ‘imminent’ – 1 August, 2018

New Century Resources is on the verge of restarting the Century zinc mine in Queensland after making strong progress in July. At the height of

operations the mine was producing an average of 475,000t of zinc and 50,000t of lead a year. New Century has plans for the mine to become one of the

world’s top 10 zinc mines when up and running.


7. Zinc

2) News Flow


Katia Tavarez

Strategic Research (NY)

MUFG UNION BANK, N.A.

8. Gold



Gold Prices and ETF Holdings

Gold prices remained under pressure in July on a firmer US dollar.

8. Gold

1) Price Trends

Gold prices fell again in July,

sliding to one-year lows. Gold has

been on a four-month downtrend,

weighed down by a firmer US

dollar.

Further precipitating the fall have

been outflows in ETFs and a

reversal to a net-short by

speculators recently. According to

CFTC data up to 24 July, money

managers increased their net-

short position. In fact, short

positions reached a record high.

This extreme positioning though

brings a high risk of short

covering and therefore a rebound

in prices.

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

Source: World Gold Council, GFMS, Bloomberg, MUFG Union Bank Strategic Research Note: ETF Holdings are expressed in aggregate tons.

Gold Prices and CFTC Speculative Positioning


8. Gold

2) News Flow

Kinross puts Tasiast mine expansion project on hold – 1 August, 2018

Canada’s Kinross Gold said it would put on pause expansion work at its Tasiast gold mine in Mauritania following a government request for discussions

about improving the country’s economic benefits from Kinross’s mining activities. In a letter from the government of Mauritania, Kinross was asked to

enter ‘mutually beneficial’ discussions. The letter also affirmed the government’s earlier rejection of a permit to advance a Kinross exploration project.

Kinross said it is looking into other ways to increase its capacity at its mill, as it continues to engage with the government to clarify the issue. Kinross

said it had completed the construction of the first phase expansion, increasing mill processing capacity to 12Kt per day (up from 8Kt). The second phase

expansion was supposed to add 30Kt per day of capacity.

Newmont invests $275 million on Galore Creek – 26 July, 2018

Newmont Mining acquired a 50 percent stake in the Galore Creek Partnership from NOVAGOLD Resources for $275 million. Teck Resources owns the

remaining stake. Galore Creek is located in British Columbia, Canada. A feasibility study from 2011 indicated resources of 9 billion pounds of copper, 8

million ounces of gold and 136 million ounces of silver, with grades of 0.5 percent copper, 0.3 grams per ton gold and 5.2 grams per ton silver.

Source: Various sources, MUFG Union Bank, Strategic Research


Appendix : Mined Commodities Price Forecasts by Strategic Research Division as of 11 July 2018

2017

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

Iron Ore ($/t) 71 71 62 62 61 61 60 59 58

YoY 23% -16% 2% -13% -5% -9% -2% -3% -3%

QoQ - 11% -13% -1% -2% - - - -

Coking Coal ($/t) 187 230 190 178 169 158 151 141 138

YoY 30% 38% -1% -6% -17% -25% -13% -11% -9%

QoQ - 15% -17% -6% -5% - - - -

Thermal Coal ($/t) 87 101 103 97 96 90 84 80 75

YoY 34% 23% 31% 6% -2% -11% -13% -11% -11%

QoQ - 4% 2% -5% -2% - - - -

Copper ($/t) 6,192 6,996 6,894 6,800 6,850 6,810 6,850 6,950 7,050

YoY 27% 20% 21% 7% 0% -2% 0% 1% 3%

QoQ - 2% -1% -1% 1% - - - -

Aluminum ($/t) 1,968 2,154 2,264 2,200 2,248 2,182 2,165 2,198 2,108

YoY 23% 16% 19% 9% 7% -1% -3% 1% -3%

QoQ - 2% 5% -3% 2% - - - -

Nickel ($/t) 10,412 13,284 14,470 14,915 15,177 15,522 15,755 15,324 15,750

YoY 8% 29% 57% 42% 31% 12% 5% -1% 0%

QoQ - 15% 9% 3% 2% - - - -

Zinc ($/t) 2,893 3,415 3,112 3,104 3,052 2,997 2,908 2,802 2,728

YoY 38% 23% 20% 5% -5% -8% -6% -7% -6%

QoQ - 6% -9% 0% -2% - - - -

Gold ($/oz) 1,259 1,330 1,306 1,275 1,265 1,285 1,315 1,300 1,300

YoY 1% 9% 4% 0% -1% -2% 4% 1% -1%

QoQ - 4% -2% -2% -1% - - - -Source: Bloomberg, MUFG Bank, Strategic Research Division, MUFG Union Bank, Strategic Research

2018 2019 2020

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.

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Publisher：MUFG Bank, Strategic Research Division

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Contact details for inquiries : Ryosuke Ohno

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