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COMMODITY NEWSBRIEFS: 25 MAY 2016

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Natasha.Havenga@transnet.net

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AUTOMOTIVE TOYOTA RAMPS UP DURBAN CAPACITY (Business Day, 25/5/2016) Toyota’s R6.1bn investment at its Durban plant has made it the latest global vehicle manufacturer to ramp up spending on local production. But while celebrating the single biggest investment in the local motor industry, the company has also flagged the need for stable labour relations and better productivity, emphasising that SA produced less than 1% of the 90-million vehicles made worldwide every year. At an event to mark the conclusion of Toyota SA’s latest investment at its Prospecton, Durban vehicle assembly plant, company CEO Andrew Kirby said that Toyota SA had spent R6.1bn to produce the latest Hilux and Fortuner models. A further R1.7bn was spent by suppliers, while Toyota SA has spent more than R400m on training for new production processes. Toyota SA’s R6.1bn is the biggest single investment so far in the local motor industry, eclipsing the R6bn announced recently by BMW SA to replace its 3-Series with the X3 model. Toyota SA chairman Johan van Zyl said the investment was made possible by the 2013-2020 Automotive Production and Development Programme. The government says the programme has already attracted investments worth nearly R30bn. But with the addition of commitments yet to be spent, the figure is closer to R50bn. Black participation must be a priority of future government policy, Zuma said. It was not enough that the industry had created tens of thousands of jobs for blacks in vehicle and components manufacturing, he said. The creation and integration of black-owned companies into the components supply chain "must be the next phase of government intervention", he said. SA PLANS TO DEVELOP R11.5BN DURBAN AUTO-SUPPLY PARK IN 2018 (Moneyweb, 25/5/2016) South Africa plans to start developing a R11.5 billion ($735 million) automotive-supply park south of Durban, its third-largest city, in 2018 as part of its effort to increase investment in local-parts production. The eastern Kwa-Zulu Natal province last week bought 1,000 hectares (2,470 acres) of farmland for the project and it will target suppliers including ones already working with vehicle manufacturers in the country, Mike Mabuyakhulu, the provincial head of economic development, said Tuesday at an event at Toyota Motor Corp.’s plant, also south of Durban. The South African government’s auto-incentive program has attracted companies including Toyota, Ford Motor and BMW to set up factories and invest in creating jobs in an economy with an unemployment rate of more than 26%. Toyota spent R6.1 billion to facilitate production of its new Hilux and Fortuner vehicle models at the South African plant, Andrew Kirby, the chief executive officer of its local unit, said at the site on Tuesday. The facility is the second-largest producer of the models, after Toyota’s plant in Thailand, he said.

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FAST MOVING CONSUMER GOODS See article “CONSUMERS TO TIGHTEN BELTS AS TIGER BRANDS HIKES PRICES” under heading GRAIN IRON IRON ORE PRICE FALLS 5% – CHINA SCRAP ADDS TO OVERSUPPLY FEARS (Mining, 25/5/2016) On Tuesday the Northern China benchmark iron ore price plummeted 4.7% to $50.20 per dry metric tonne according to data supplied by The Steel Index. After two months of wild swings, the price now seems set to breach $50 a tonne level for the first time since February. Iron ore is down 27% from its April near $70 when the made-in-China speculative bubble in the steelmaking raw material reached its peak, but is still trading 17% higher than at the start of the year. The latest sell-off was sparked by stockpiling data showing inventories at major Chinese ports topping 100 million tonnes for the first time since February last year indicating the country's steel furnaces, despite ramping up production as the price improved, have ample supply of ore. The port data is just more evidence for what many analysts argue: the correction towards the $40s is the result of long-term supply and demand dynamics that are still stacked against the iron ore price at these levels. Even before the recent drop, the consensus forecast of analysts polled by FocusEconomics was a sub-$50 average during the second quarter. Of the 17 analysts polled the most bearish was JP Morgan at an average of just $38, while even the most optimistic, Oxford Analytics saw the price topping out at $55. The median forecast for 2017 is even more pessimistic at $44.80 over the course of the year according to FocusEconomics data. Slowing Chinese demand, the impact of a race to the left of the cost curve and oversupply – 180 million tonnes of additional supply between 2016-2020 – has been well-documented. But at the annual gathering of the industry in Singapore last week another risk factor for miners came to the fore. In a post-mortem organizers Singapore Exchange said scrap will play an increasing role in the Chinese market: [China's steel industry association] CISA noted that accumulated steel output will exceed 10 billion tonnes this year, providing a huge reserve of scrap. Significant growth in obsolete scrap over the next decade is expected to lead to greater substitution for pig iron in the steelmaking process. Over time, this should result in a gradual decoupling of pig iron and crude steel production growth rates, translating to relatively lower demand for iron ore. Scrap supply has not in the past played much of a role in the Chinese steel industry, especially when compared to places like Europe where steelmakers have been known to charge up to 18% scrap to furnaces. But in September last year the price to a Chinese coastal mill of producing one tonne of pig iron (including cost and freight of all iron ores, coking coals, sintering and pelletizing costs) fell for the first time below scrap – typically around 90% Fe – priced inside the country. STEEL MPS DEMAND TO SEE DAVIES OVER STEEL PRICE HIKES (Engineering News, 25/5/2016) Opposition MPs on Tuesday accused Trade and Industry Minister Dr Rob Davies of turning a blind eye to repeated steel price increases and demanded that he be called to explain government’s inaction. Democratic Alliance MP Dean McPherson said four steel price increases so far this year violated an agreement that the industry would, in exchange for tariff protection, refrain from price hikes to protect the local manufacturing industry. “Four price increases in five months means AMSA (ArcelorMittalSA) is giving government the middle finger,” he said after a briefing by the department on the Industrial Policy Action Plan, and the steel industry in particular, to Parliament’s portfolio committee on trade and industry. The briefing saw the department’s director general for industrial policy, Garth Strachan warn that the country needed a delicate balancing act to save its steel industry from collapse while imposing beneficial prices for local downstream manufacturers. Strachan said South Africa, the world’s third largest producer of iron ore, lagged far behind other steel producing nations in efforts to protect their industries, while history had shown that once a national steel industry collapsed, it was seldom revived. He added that countries, including those in the Organisation for Economic Development and Cooperation (OECD), had introduced significant protection measures “which make our ten tariffs look like a complete walk in the park”. MacPherson said the price hikes were guaranteed to cause job losses in labour intensive downstream manufacturing and, in a letter sent to Fubbs after the meeting, demanded that Davies, as well as ArcelorMittal South Africa (AMSA) be called to account before MPs during the parliamentary recess, which begins next week. Strachan said the department was trying to secure commitments from AMSA on maintenance investment, employment retention to technology upgrades and production volumes. At the same time, it was trying to persuade big users of steel, such as Transnet and mining companies, to increase demand. “It is not a quick fix. We are engaging with the downstream industries literally on a daily basis to work out a situation where we save our

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primary steel production, we don’t pass higher steel costs on simply to the downstream manufacturers, and pass the pain onto them and make them less competitive, and at the same we have got to do this in keeping with our commitments at the WTO (World Trade Organisation),” he said. SCRAP See article “IRON ORE PRICE FALLS 5% – CHINA SCRAP ADDS TO OVERSUPPLY FEARS” under heading IRON CONSTRUCTION, BUILDING MATERIALS & CEMENT ECDC UNVEILS NEW QUARRY VENTURE (Engineering News, 25/5/2016) The Eastern Cape Development Corporation (ECDC) on Tuesday unveiled its latest mining investment play – a R200-million aggregate mine in Indwe, in the Eastern Cape, with two offtake agreements already inked. The development financier, which injected R736 000 to prepare the privately-owned farm site for the operations of the Blue Crane mine, called for more investment and additional offtake agreements for the operation, which has a 30-year mine life. Initially approached by Blue Crane Resources and Minerals directors Sydney Stina and Mcebisi Limba, the ECDC undertook geotechnical surveys, drilling and laboratory testing, completed the environmental-impact assessments and secured authorisation, and developed a mining works programme, the site layout plan, business planning and financial modelling. It also successfully negotiated two offtake agreements, with one agreement to produce 400 000 t of crush stone initially, reaching 800 000 t by the end of May. “Subsequent offtake agreements and contracts will be financed through the ECDC,” ECDC CEO Buhle Dlulane said in a statement. While Blue Crane’s primary focus was supplying standard concrete stone products, crusher sand, specialised road stone and base course products, nonstandard rock and crush products, the group was mulling the opportunities presented by other products, such as sand, ready-mix concrete, bricks and blocks. COAL RBCT CEO TO STAND DOWN (Mining Weekly, 25/5/2016) Richards Bay Coal Terminal (RBCT) CEO Nosipho Siwisa-Damasane will be stepping down after four years at the helm. RBCT said on Tuesday that finance GM Alan Waller would be taking over as CEO from July 1, when strategy and compliance GM Casper Mbuyazi would assume the finance role. Under Siwisa-Damasane, RBCT last year exported 75.4-million tonnes of coal to set a new record and exceed its target. She would leave the private-sector-owned coal-exporting operation on June 30 to pursue private business interests. Strategy and compliance responsibilities would be absorbed within the general management structure, RBCT said in a release. GRAIN CONSUMERS TO TIGHTEN BELTS AS TIGER BRANDS HIKES PRICES (Business Report, 25/5/2016) The going will get tougher for cash-strapped consumers as consumer goods giant Tiger Brands said yesterday that it would have to offset the rising costs of wheat and maize and hike its prices. Soft commodity prices, particularly in maize and sorghum, had been impacted by rand weakness and the drought’s effects in the reporting period. The Agricultural Business Chamber said this week that wheat imports had to rise to 50 000 tons a week from 34 000 tons to fill a 2 million gap this year. It also said imports of yellow maize needed to rise 25 percent to 51 000 tons a week. Chief operating officer Noel Doyle said yesterday that industry players had been in talks with the government and Transnet over the past six months about building “flexibility” in the infrastructure pipeline to meet demand. Doyle said he believed South Africa was well placed to deal with the level of import requirements. “We will be in a position to supply the market. The question is: will the consumer be willing to pay the price?” Bread prices have ballooned by 17 percent this year, compared with last year. Tiger said the outlook for the rest of the year remained challenging, with “downside risk to the macroeconomic environment, in South Africa and in a number of African markets, likely to add further pressure on consumers”.

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TRANSNET DTI MOVING TO IRON OUT LOCAL-CONTENT FRUSTRATIONS AROUND TRANSNET CONTRACTS (Engineering News, 25/5/2016) The Department of Trade and Industry (DTI) has confirmed that it is “concerned” about whether all four of the original equipment manufacturers (OEMs) that have been awarded parts of a R50-billion contract to supply 1 064 electricity and diesel locomotives to Transnet will meet the minimum thresholds set out in local-content designations for the rail rolling stock sector. The stipulated thresholds for local production and content are 60% for electric locomotives and 55% for diesel locomotives, with various components, such as car body shells and bogie frames, to be fully localised from the start of the programme. Other components, such as traction motors and braking systems, are expected to be localised progressively over a six-year period. General Electric South Africa Technologies and China’s CNR Rolling Stock South Africa have been awarded contracts to supply 233 and 232 diesel locomotives respectively, while CSR Zhuzhou Electric Locomotive and Bombardier Transportation South Africa will supply 359 and 240 electric locomotives respectively. Subsequent to the orders being placed in 2014, the two Chinese companies merged to form the China Railway Rolling Stock Corporation, but the contracts will still be monitored separately. Deputy director-general for industrial policy Garth Strachan says the DTI is concerned that the thresholds are not being met evenly across all four OEMs. It has, therefore, initiated an “intensive process” with Transnet, the OEMs and some domestic suppliers to deal with inconsistencies and to ensure that local content is verified, monitored and delivered. Strachan stresses that the Transnet ‘1064 programme’ is the first large fleet procurement being conducted under the designations and that government is “learning by doing”. Nevertheless, procurement is perceived by the DTI as being government’s “strongest industrialisation lever” and it is determined, therefore, to ensure obligations are met. A failure to do so would translate into volumes that are too low for domestic component manufacturers to obtain the economies of scale required to evolve into business that could compete in global rail supply chains – government’s ultimate goal in creating domestic demand security. But achieving that objective is “complex”, as it relies not only on the adherence to designations, but also on goodwill and the development of solid relationships with the OEMs. “It’s not a destination, but a journey,” Strachan avers, adding that government is hoping that its conversations with the industry will result in more even localisation outcomes. Transnet chief advanced manufacturing officer Thamsanqa Jiyane concurs, saying the local-content thresholds under the rolling stock designation is distinct (and should not be confused with) the supplier development previously pursued by the utility under the CSDP and administered by the Department of Public Enterprises. Jiyane acknowledges particular unhappiness with the localisation performance associated with the purchase of 95 electric locomotives supplied from CSR – an urgent contract that preceded the 1064 programme. However, he stresses it was Transnet Engineering, rather than CSR, that failed to gear up in time to supply the car body shells locally, as envisaged. He also accepts that Transnet, the OEMs, domestic suppliers and government are all still adjusting to the designations, which has led to some confusion and frustration. Nevertheless, Jiyane is adamant that there is “no crisis” and argues that it is premature to suggest that the programmes are failing. See article “CONSUMERS TO TIGHTEN BELTS AS TIGER BRANDS HIKES PRICES” under heading GRAIN GENERAL POWER CRUNCH TO CURB SA GROWTH – AFDB (News24, 25/5/2016) Electricity shortages, low commodity prices and low consumer and business confidence will continue to restrain South Africa’s economic growth, the African Development Bank (AfDB) said. In its economic outlook report released on Monday, the AfDB said South Africa’s gross domestic product growth rate is expected to weaken to 0.7% in 2016. “Persistent shortages in electricity have had a knock-on-effect on the economy,” said the AfDB, adding that “limited electricity supply has also weighed down manufacturing, mining and service-sector activity”. AfDB also said the worst drought in two decades has continued to devastate agriculture, whose real proportion of GDP has been reduced by 16.2%. Grain production is expected to decline by more than 50%. The report said “slow progress in delivering economic and social services in townships and rural areas remains one of the major challenges to government”, adding that “South African cities are dynamic poles of socio-economic activity facing inequality and environmental risks". “South African cities are the continent’s most unequal, with a Gini coefficient of 0.76 in urban areas,” it said, adding that 22% of households in towns and cities are poor, with a monthly per capita income of less than R620. Rapid implementation of the National Development Plan is, however, projected to yield real GDP growth of 1.7% in 2016, rising to 2.6% in 2017 and 2.8% in 2018.

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CURRENCIES AND PRICES

JSE AS AT 17:00PM 24 MAY 2016

All Share Index

24/05 53,051 + 0.80%

Industrials Index

24/05 40,971 - 0.67%

Financials Index

24/05 41,308 + 1.24%

Top 40 Index

24/05 47,034 + 1.07%

Industrial 25 Index

24/05 72,098 + 0.85%

Financial 15 Index

24/05 15,038 + 1.63%

Resources 10 Index

24/05 31,218 + 0.66%

Alt-X Index

24/05 1,487 - 0.12%

WORLD INDICATORS

FOREX

Rand/Dollar 06:29 15.6324 - 0.53%

Rand/Pound 06:45 22.8022

+ 0.31%

Rand/Euro 06:45 17.4271 - 1.19%

COMMODITIES

Gold (usd/oz) 06:48 1,226.80 - 1.79%

Platinum (usd/oz) 06:45 1,000.00

- 0.55%

Brent (usd/barrel) 06:26 49.14 + 1.63%

WORLD MARKETS

Wall St (DJIA) 24/05 17,706 + 1.22%

Germany (DAX) 24/05 10,057

+ 1.42%

Japan (Nikkei) 06:26 16,769 + 1.64%

3month

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(Business Report, 25/5/2016)

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(TFR Commercial Management: Business Performance Dept)

Petrol/ Diesel Price

YR2016 06-Jan-16

03-Feb-16

02-Mar-16

06-Apr-16

04-May-16

01-Jun-16

06-Jul-16

03-Aug-16

07-Sep-16

05-Oct-16

02-Nov-16

07-Dec-16

COASTAL

95 LRP (c/l) 1194.00 1200.00 1131.00 1214.00 1226.00

95 ULP (c/l) 1194.00 1200.00 1131.00 1214.00 1226.00

Diesel 0.05% (c/l) 972.47 910.47 925.47 1015.47 1014.47

Diesel 0.005% (c/l) 977.87 914.87 928.87 1020.87 1018.87

Illuminating Paraffin (c/l) 594.028 535.028 552.028 608.028 601.028

Liquefied Petroleum Gas (c/kg)

1892.00 1893.00 1773.00 1883.00 1877.00

GAUTENG

93 LRP (c/l) 1209.00 1215.00 1146.00 1232.00 1244.00

93 ULP (c/l) 1209.00 1215.00 1146.00 1232.00 1244.00

95 ULP (c/l) 1237.00 1243.00 1174.00 1262.00 1274.00

Diesel 0.05% (c/l) 1005.17 943.17 958.17 1053.87 1052.87

Diesel 0.005% (c/l) 1010.57 947.57 961.57 1059.27 1057.27

Illuminating Paraffin (c/l) 647.028 588.028 605.028 662.628 655.628

Liquefied Petroleum Gas (c/kg)

2074.00 2075.00 1955.00 2065.00 2060.00

YR2015

07-Jan-

15

04-Feb-

15

04-Mar-

15

01-Apr-

15

06-May-

15

03-Jun-

15

01-Jul-

15

05-Aug-

15

02-Sep-

15

07-Oct-

15

04-Nov-

15

02-Dec-

15

COASTAL

95 LRP (c/l) 1083.00 990.00 1086.00 1246.00 1246.00 1293.00 1334.00 1283.00 1214.00 1218.00 1196.00 1197,00

95 ULP (c/l) 1083.00 990.00 1086.00 1246.00 1246.00 1293.00 1334.00 1283.00 1214.00 1218.00 1196.00 1197,00

Diesel 0.05% (c/l) 997.49 895.49 969.49 1090.09 1085.09 1134.09 1138.09 1062.27 1008.27 1061.27 1052.27 1048,47

Diesel 0.005% (c/l) 1001.89 899.89 973.89 1096.49 1091.49 1137.49 1141.49 1067.67 1016.67 1067.67 1057.67 1055,87

Illuminating Paraffin (c/l) 697.728 595.728 668.728 690.828 685.828 727.828 733.828 663.828 608.828 658.828 656.828 657,028

Liquefied Petroleum Gas

(c/kg) 1829.00 1679.00 1833.00 1918.00 1935.00 2035.00 2091.00 2002.00 1887.00 1898.00 1851.00 1847,00

GAUTENG

93 LRP (c/l) 1102.00 1009.00 1105.00 1261.00 1261.00 1308.00 1352.00 1301.00 1232.00 1230.00 1208.00 1209,00

93 ULP (c/l) 1102.00 1009.00 1105.00 1261.00 1261.00 1308.00 1352.00 1301.00 1232.00 1230.00 1208.00 1209,00

95 ULP (c/l) 1124.00 1031.00 1127.00 1289.00 1289.00 1336.00 1377.00 1326.00 1257.00 1261.00 1239.00 1240,00

Diesel 0.05% (c/l) 1028.09 926.09 1000.09 1122.79 1117.79 1166.79 1170.79 1094.97 1040.97 1093.97 1084.97 1081,17

Diesel 0.005% (c/l) 1032.49 930.49 1004.49 1129.19 1124.19 1170.19 1174.19 1100.37 1049.37 1100.37 1090.37 1088,57

Illuminating Paraffin (c/l) 747.928 645.928 718.928 743.828 738.828 780.828 786.828 716.828 661.828 711.828 709.828 710,028

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Liquefied Petroleum Gas

(c/kg) 2011.00 1861.00 2015.00 2100.00 2117.00 2217.00 2273.00 2184.00 2069.00 2080.00 2033.00 2029,00

(SAPIA online)

Daily prices for 24 May 2016

LME Official Prices, US$ per tonne

Contract Aluminium Alloy Aluminium Copper Lead Nickel Tin Zinc NASAAC

Cash Buyer 1530.00 1552.00 4636.00 1651.00 8335.00 15765.00 1826.00 1665.00

Cash Seller & Settlement 1540.00 1553.00 4637.00 1651.50 8340.00 15770.00 1827.00 1666.00

3-months Buyer 1555.00 1561.00 4609.00 1652.00 8385.00 15700.00 1833.00 1700.00

3-months Seller 1565.00 1562.00 4610.00 1654.00 8390.00 15705.00 1835.00 1710.00

15-months Buyer 15445.00

15-months Seller 15495.00

Dec 1 Buyer 1615.00 1610.00 4610.00 1670.00 8500.00 1828.00 1815.00

Dec 1 Seller 1625.00 1615.00 4620.00 1675.00 8600.00 1833.00 1825.00

Dec 2 Buyer 1655.00 4625.00 1682.00 8605.00 1798.00

Dec 2 Seller 1660.00 4635.00 1687.00 8705.00 1803.00

Dec 3 Buyer 1698.00 4630.00 1712.00 8700.00 1773.00

Dec 3 Seller 1703.00 4640.00 1717.00 8800.00 1778.00

(London Metal Exchange, 25/5/2016)

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