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COMMODITY NEWSBRIEFS: 15 JULY 2015 Please note that these articles are available in electronic format and can be requested and delivered via e-Mail.

(http://intra.spoornet.co.za) Natasha.Havenga@transnet.net

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INDUSTRIAL LOAD SHEDDING IS SQUEEZING THE LIFE OUT OF SA’S FACTORIES (Business Day, 15/7/2015) Increasing numbers of industrial companies in SA are falling foul of Eskom’s load shedding, with major manufacturers reporting the central effect that electricity outages are having on their operations. In 1984-85 SA had 40% surplus power generation capacity. Today the economy is estimated to be 100% larger — with manufacturing 70% bigger — but potential generation capacity has remained the same at about 44,000MW, he says. Seifsa says this has caused serious production disruptions that affect growth. It has also led to underutilisation of production capacity, the substitution of domestically manufactured inputs with imported components, as well as disruptions in fixed investment. Hulamin, SA’s primary aluminium products manufacturer, says Eskom has been unable to provide advance notice of “load curtailment”. Hulamin posted record results in the year to December, declaring a first dividend since financial 2008. In April, it warned that earnings for the six months ending June would fall by more than 20% as “the frequency of curtailments has increased significantly in the last 30 days”. “Manufacturing output in the first quarter was severely impacted by electricity supply curtailments and quality issues on two product lines,” the company said. “It is not possible to forecast with any certainty the extent of electricity curtailment that will take place over the remainder of the year. However, it is already clear that both earnings per share and headline earnings per share for the (period) will be more than 20% lower than those of the previous corresponding reporting period. “Hulamin operates a complex serial manufacturing process that runs on a continuous basis, and as a result lost production cannot subsequently be recovered. “Product temperatures must be carefully maintained within certain parameters throughout the manufacturing process, and power shortages impact exponentially on the quantum of production lost,” it said. Hulamin now says the worsening of the outlook means that earnings per share for the period are likely to fall about 40% across the board when it reports its interim results later this month. Many of SA’s manufacturers are struggling to stay afloat. The country’s second-largest steel maker, Evraz Highveld Steel & Vanadium, entered into business rescue in April because it could no longer continue as a going concern. That process is meeting some significant deadlines this week, with liquidation a very real possibility. Meanwhile, SA’s largest steel producer, ArcelorMittal SA, says rising energy costs and erratic electricity supply are making it difficult for it to compete with an increasing flood of steel imports from China. As one of Eskom’s biggest customers, it has been sent demands at short notice for load shedding, and since Easter has been facing load shedding almost every day.

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IRON See article “TRANSNET EARNINGS UP ON COAL, IRON-ORE VOLUMES” under heading TRANSNET See article “TRANSNET SAYS TAKE-OR-PAY CONTRACTS OFFER VOLUME ‘COVER’ IN WEAK COMMODITY CLIMATE” under heading COAL STEEL See article “LOAD SHEDDING IS SQUEEZING THE LIFE OUT OF SA’S FACTORIES” under heading INDUSTRIAL COAL TRANSNET SAYS TAKE-OR-PAY CONTRACTS OFFER VOLUME ‘COVER’ IN WEAK COMMODITY CLIMATE (Engineering News, 15/7/2015) State-owned freight logistics group Transnet is budgeting for continued growth in coal and iron-ore export volumes in 2015/16, despite weak commodity market conditions. The group railed 76.3-million tons of export coal last year, a material 12% increase on the 68.2-million tons achieved in 2013/14. It also reported a 10% rise in iron-ore export volumes to 54.3-million tons. Acting CEO Siyabonga Gama said it was officially budgeting for an increase in export coal volumes to 77-million tons this year and to raise iron-ore volumes to 62-million tons. But he also stressed that budgets did not always reflect reality and acknowledged that the fall off in commodity demand and prices could affect eventual performance. The price of export coal had fallen to around $60/t, while iron-ore prices had dropped sharply in recent months to around $50/t. Gama was drawing some solace, however, from the fact that Transnet Freight Rail had recently concluded take-or-pay contracts with its mining clients, including all coal exporters. “We have signed very good take-or-pay agreements with all the coal exporting parties. So we have an expectation that 95% of what is planned will be railed and that it will be made available . . . if it doesn’t become available then at least we will be compensated as Transnet. So at least in as far as that is concerned we got a little bit of that cover.” Gama confirmed, however, that the investment decision on the Swazilink project had been delayed, owing to “geotechnical” difficulties associated with the initial route. The project would divert general freight through Swaziland in a bid to raise the Richards Bay-line’s yearly capacity to close to 100-million tons. The business plan had been completed and new routes verified, but Gama indicated that the initial completion date of 2018 would be shifted to either late 2019 or 2020. It was pushing ahead, however, with studies to open up a coal-export line from the Waterberg. “There are a number of companies that are starting up in the Waterberg and they’ve got fixed dates . . . and we must serve them.” Gama was aware of the pressure on Transnet to realign its tariffs – which currently favoured commodity exporters over the exporters of value-added products – with government industrialisation strategy. However, this “rebalancing” could not be pursued in a way that resulted in “shocks” and would be introduced gradually over an eight to 10 year horizon. In the interim, the group would support industrial exporters by linking general-freight tariff increases with a formula that took account of producer price inflation and other manufacturing indicators. “I think Transnet has already done quite a bit in terms of even negative tariff growth. Two years ago we also extended R1-billion to the automotive industry in rebates.” UNIVERSAL COAL POSTS RECORD Q4 OUTPUT, SALES (Mining Weekly, 15/7/2015) South African coal miner Universal Coal has set its sights on doubling its projected half-yearly earnings before interest, taxes, depreciation and amortisation (Ebitda), as well as doubling coal output by the end of next year, as its flagship Mpumalanga-based coal asset achieved record first-quarter production and sales and its second operation was on track for commissioning at year-end. The ASX-listed group on Tuesday reported that, at an estimated A$28-million annualised, the company’s Ebitda was projected to be nearly double its original forecast for the second half of the 2015 financial year. Domestic sales increased by 17% quarter-on-quarter to 503 547 t for the fourth quarter, while Universal’s first operation, Kangala mine, produced 1.7-million tonnes of saleable coal for the 2015 financial year. Quarter-on-quarter, Universal increased its unrestricted cash reserves from A$2.5-million to A$6.7-million. “We are entering a new and exciting growth phase. Not only are we on track to double production by the end of next year, but having secured corporate debt financing on more favourable terms than project financing means that the company’s net value will be significantly enhanced, demonstrating its ability to bring long-life, multiproduct coal operations to full production,” said Universal CEO Tony Weber. This emerged as the company secured Section 11 Ministerial approvals for its second operation, the New Clydesdale colliery (NCC), providing

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the green light for first-phase production to start by the end of this year. In April, the company secured a A$55-million senior debt finance facility to fund the final phase of capital development at NCC, which, at full capacity, would produce two-million tonnes of coal a year for high-end domestic markets. A second-phase development to add an additional 800 000 t/y run-of-mine from underground sources would be considered once the first phase was in full production. “From being an explorer with a resource base of less than 300-million tonnes of coal in 2010, Universal has grown to become a cash flow positive producer with a two-billion-tonne total resource inventory poised to double production by the end of 2016,” Weber stated. See article “TRANSNET EARNINGS UP ON COAL, IRON-ORE VOLUMES” under heading TRANSNET TIMBER, PAPER, PUBLISHING SAPPI SELLS ANOTHER RECYCLED PACKAGING PAPER MILL (Engineering News, 15/7/2015) Pulp and paper manufacturer Sappi has sold its Cape Kraft recycled packaging paper mill, in Cape Town, to the Golden Era group for an undisclosed amount. This sale, in addition to the recently announced sale of its 200 000 t/y Enstra mill and recycled packaging business, in Springs, to Corruseal, would net Sappi around R600-million. In March this year, Sappi initiated a closed tender process after receiving many expressions of interest to buy the Cape Kraft mill, which used around 67 000 t/y of waste paper to produce 60 000 t/y of 100% recycled paper. The disposal, expected to close in September, would enable Sappi to strengthen its balance sheet and allow focus on high-growth opportunities, Sappi Southern Africa CEO Alex Thiel said in a statement. The company also operated the Tugela mill, near Durban, the Stanger mill, in KwaZulu-Natal, the fully integrated Ngodwana mill, in Mpumalanga, as well as the Saiccor mill, in KwaZulu-Natal, which produced dissolving wood pulp. TRANSNET TRANSNET EARNINGS UP ON COAL, IRON-ORE VOLUMES (News24, 14/7/2015) State-owned rail and ports operator Transnet said full-year profit gained 8.2% as the company transported higher volumes of coal, iron ore and manganese. Earnings before interest, tax, depreciation and amortisation increased to R25.6bn in the 12 months to March, acting chief executive officer Siyabonga Gama said in Johannesburg on Tuesday. Revenue advanced 8% to R61.2bn. “The increase in revenue of Transnet is largely driven by volume growth,” Gama told reporters. Transnet is in the third year of a seven-year, R336bn plan to upgrade South Africa’s rail and port capacity. The company last year placed orders for 1 064 new diesel and electric locomotives, and unveiled agreements for R13bn of financing towards the purchases in March. The company’s coal volumes rose 9% in the fiscal year, while iron ore and manganese volumes increased 11%, Gama said. The executive took over in April from CEO Brian Molefe, who was moved to power utility Eskom to help tackle supply shortages and a cash flow gap. See article “TRANSNET SAYS TAKE-OR-PAY CONTRACTS OFFER VOLUME ‘COVER’ IN WEAK COMMODITY CLIMATE” under heading COAL GENERAL ECONOMIST SAYS OUTLOOK FOR S AFRICAN ECONOMY GRIM (Engineering News, 15/7/2015) South Africa could be headed for a recession in the next year, economist Chris Hart has warned. Speaking at a Collaborative Stakeholder Movement (CSM) Jobs Pledge launch event to challenge organisations to grow an inclusive economy through the expansion, enhancement and preservation of jobs, on Tuesday, he said industries across the board were suffering because of various self-inflicted problems. “South Africa’s economic backdrop is looking ugly. The South African economy has entered a ‘stagflation’ phase, where growth is low and inflation is high. “The bad news is that if we continue the way we are, we will get the outcomes we expect; however, if we change course, South Africa could be a haven for investors,” he stated. Hart said the country urgently needed to adopt policies to encourage people to save more and to increase investment. Hart further noted that interest rates were too low and were not compensating the saver, adding that South Africa had a debt-led consumption growth model, which was becoming an “exhausted, painful adjustment” to the country’s economy. “We are seeing huge cost pushers though the public sector at the moment, with State-owned entity Eskom at the forefront of this. “Our debt levels have shot up and are back to where

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they were in 1994 and our government budget is going down an unsustainable path. We have been downgraded from a credit rating point of view a number of times now since 2008,” Hart pointed out. He outlined an economic crisis that could potentially push South Africa to the brink of insolvency but stressed that there were ways to negate negative outcomes. Hart highlighted that expenditure threats, including the public sector wage bill, national health spending, parastatal funding and nuclear energy costs were contributing to South Africa’s looming solvency crisis, which he believed could take place within three to four years. “South Africa’s public sector wage bill is higher than Greece’s. That alone can [push] the country to a solvency crisis. National health has become a tax burden and parastatal funding needs to come out of the tax base, which is in deficit,” he stated. Hart noted that South Africa’s proposed nuclear energy roll-out was a threat to the financial tax base. “Government is dead set on going nuclear, but does not have the money to buy nuclear plants. Therefore, Russia is going to build, own and operate nuclear plants in the country and we will have to buy the electricity from them at the price that is set to pay for the plant, in dollars, which means we will be importing electricity,” he commented. SA IS ‘FACING A JOBS HOLOCAUST’ (Citizen, 15/7/2015) A civil initiative is under way to kick job creation and the economy into a higher gear to head off an unemployment and societal disaster. Private sector businesspeople and NGOs have joined forces to spur employment to offset a looming “jobs holocaust” and kick the economy into a higher gear. Investment Solutions’ chief strategist Chris Hart says unemployment needs to be the top concern for every sphere of society to offset an inevitable recession; job creation needs to become the first and foremost concern for business, labour, government, political parties, NGOs and all supporting bodies and institutions. “The economy is barely growing at this stage. Consumer demand is 70% of GDP and so far we haven’t lost jobs, but there is a jobs holocaust in the pipeline … jobs creation over the next year is going to be extremely difficult.” Hart said unemployment was a national emergency, with 48% of people between ages 24 and 35 unemployed – and this figure only includes those actively looking for work. “It is in this age group where people are building careers. They [are] building families. And there you’ve got about half of the population not participating in the economy. A normal figure would be closer to 18% or 19%,” said Hart. Hart says South Africa is making three mistakes. One is the high incidence of labour unrest, which invariably leads to job losses. He suggests secret strike ballots will allow workers to vote on whether to go on strike without fear of intimidation. Over-regulation is the second mistake, stifling job creation. Regulations were crafted to suit big business and were shoving small and medium-sized businesses out of the economy, he says. The third concern is high taxation, which makes it difficult for households to save. “There is no other way to bring economic activity into existence other than by investment – and there’s no way of funding investment other than through saving.” CURRENCIES AND PRICES

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ALSI: 3 mnth to 14 Jul 15

(Mail & Guardian, 15/7/2015)

JSE AS AT 17:14PM 14 JULY 2015

All Share Index 14/07 52,110

- 365.30 - 0.70%

Industrials Index 14/07 44,382

- 434.98 - 0.97%

Financials Index 14/07 44,984

- 592.38 - 1.30%

Top 40 Index 14/07 46,571

- 336.60 - 0.72%

Industrial 25 Index 14/07 67,160

- 366.09 - 0.54%

Financial 15 Index 14/07 17,132

- 227.60 - 1.31%

Resources 10 Index 14/07 37,957

- 212.33 - 0.56%

Alt-X Index 14/07 1,331

+ 4.63 + 0.35%

WORLD INDICATORS

FOREX

Rand/Dollar 07:42 12.3597

- 0.08 - 0.65%

Rand/Pound

07:45 19.3091

+ 0.06 + 0.32%

Rand/Euro 07:45 13.5928

- 0.10 - 0.74%

COMMODITIES

Gold (usd/oz) 07:45 1,154.99

- 3.51 - 0.30%

Platinum (usd/oz)

07:45 1,030.00

- 2.00 - 0.19%

Brent (usd/barrel) 07:36 58.72

+ 0.87 + 1.50%

WORLD MARKETS

Wall St (DJIA) 14/07 18,054

+ 75.90 + 0.42%

Germany (DAX)

14/07 11,517

+ 201.27 + 1.78%

Japan (Nikkei) 07:45 20,463

+ 77.28 + 0.38%

(Business Report, 15/7/2015)

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(TFR Commercial Management: Business Performance Dept)

Petrol/ Diesel Price

YR2015

07-Jan-

15

04-Feb-

15

04-Mar-

15

01-Apr-

15

06-May-

15

03-Jun-

15

01-Jul-

15

05-Aug-

15

02-Sep-

15

07-Oct-

15

04-Nov-

15

02-Dec-

15

COASTAL

95 LRP (c/l) 1083.00 990.00 1086.00 1246.00 1246.00 1293.00 1334.00

95 ULP (c/l) 1083.00 990.00 1086.00 1246.00 1246.00 1293.00 1334.00

Diesel 0.05% (c/l) 997.49 895.49 969.49 1090.09 1085.09 1134.09 1138.09

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Diesel 0.005% (c/l) 1001.89 899.89 973.89 1096.49 1091.49 1137.49 1141.49

Illuminating Paraffin (c/l) 697.728 595.728 668.728 690.828 685.828 727.828 733.828

Liquefied Petroleum Gas

(c/kg) 1829.00 1679.00 1833.00 1918.00 1935.00 2035.00 2091.00

GAUTENG

93 LRP (c/l) 1102.00 1009.00 1105.00 1261.00 1261.00 1308.00 1352.00

93 ULP (c/l) 1102.00 1009.00 1105.00 1261.00 1261.00 1308.00 1352.00

95 ULP (c/l) 1124.00 1031.00 1127.00 1289.00 1289.00 1336.00 1377.00

Diesel 0.05% (c/l) 1028.09 926.09 1000.09 1122.79 1117.79 1166.79 1170.79

Diesel 0.005% (c/l) 1032.49 930.49 1004.49 1129.19 1124.19 1170.19 1174.19

Illuminating Paraffin (c/l) 747.928 645.928 718.928 743.828 738.828 780.828 786.828

Liquefied Petroleum Gas

(c/kg) 2011.00 1861.00 2015.00 2100.00 2117.00 2217.00 2273.00

YR2014

01-Jan-

14

05-Feb-

14

05-Mar-

14

02-Apr-

14

07-May-

14

04-Jun-

14

02-Jul-

14

06-Aug-

14

03-Sep-

14

01-Oct-

14

05-Nov-

14

03-Dec-

14

COASTAL

95 LRP (c/l) 1320.00 1359.00 1395.00 1398.00 1383.00 1361.00 1392.00 1392.00 1325.00 1320.00 1275.00 1206.00

95 ULP (c/l) 1320.00 1359.00 1395.00 1398.00 1383.00 1361.00 1392.00 1392.00 1325.00 1320.00 1275.00 1206.00

Diesel 0.05% (c/l) 1260.55 1284.75 1311.95 1299.15 1269.37 1245.79 1259.79 1254.17 1228.79 1215.79 1154.79 1101.49

Diesel 0.005% (c/l) 1263.95 1288.15 1316.35 1304.55 1274.77 1249.19 1263.19 1258.57 1234.19 1221.19 1161.19 1106.89

Illuminating Paraffin (c/l) 963.828 975.828 991.828 953.028 934.028 924.028 947.028 940.028 921.028 907.028 855.028 805.728

Liquefied Petroleum Gas

(c/kg) 2260.00 2314.00 2372.00 2350.00 2346.00 2319.00 2377.00 2365.00 2257.00 2269.00 2164.00 2039.00

GAUTENG

93 LRP (c/l) 1336.00 1375.00 1411.00 1416.00 1401.00 1379.00 1408.00 1408.00 1341.00 1343.00 1298.00 1229.00

93 ULP (c/l) 1336.00 1375.00 1411.00 1416.00 1401.00 1379.00 1408.00 1408.00 1341.00 1343.00 1298.00 1229.00

95 ULP (c/l) 1357.00 1396.00 1432.00 1439.00 1424.00 1402.00 1433.00 1433.00 1366.00 1361.00 1316.00 1247.00

Diesel 0.05% (c/l) 1287.15 1311.35 1338.55 1329.75 1299.97 1276.39 1290.39 1284.77 1259.39 1246.39 1185.39 1132.09

Diesel 0.005% (c/l) 1290.55 1314.75 1342.95 1335.15 1305.37 1279.79 1293.79 1289.17 1264.79 1251.79 1191.79 1137.49

Illuminating Paraffin (c/l) 1009.728 1021.728 1037.728 1003.228 984.228 974.228 997.228 990.228 971.228 957.228 905.228 855.928

Liquefied Petroleum Gas

(c/kg) 2442.00 2496.00 2554.00 2532.00 2528.00 2501.00 2559.00 2547.00 2439.00 2451.00 2346.00 2221.00

(SAPIA online)

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