INSIDE METALS Friday, January 11, 2013

CHART OF THE DAY FEATURE

Click on the chart for full-size image COLUMN- China's copper import boom; a problematic legacy China's imports of copper ended the 2012 boom year on a muted note, with the headline figure falling 6.6 percent on the month to 341,211 tonnes, which was the second lowest monthly level of last year. Andy Home is a Reuters columnist. The opinions expressed are his own Click here to read more..

COLUMN- Iron ore curve, technicals show rally nearing end It's no surprise that iron ore is the current commodity market darling, given record Chinese imports, a jump of 82 percent in prices in just four months and a huge storm about to hit a major mining region. Clyde Russell is a Reuters columnist. The opinions expressed are his own Click here to read more.. Click here for LME charts TODAY’S MARKETS TRADING PLACES BASE METALS: London copper inched down from a one-week high hit  Copper users ask SEC to reverse copper ETF ruling in the previous session after China's export demand improved in De- cember, while a slightly stronger dollar weighed. GENERAL NEWS "The market was rethinking whether the temporary resolution of the China December inflation accelerates on food prices fiscal cliff was going to help or just kick the can down the road. Having that extra shot (China trade data) in the arm was very helpful," said Turkey's gold output to rise to 36 T in 2013 -industry Barclays commodity analyst Sijin Cheng in Singapore. group

MARKET NEWS PRECIOUS METALS: Gold inched lower but was headed for its biggest weekly rise in more than a month, following a decision by the European ALUMINIUM: Central Bank to keep rates unchanged despite signs of stabilisation in  Goldman sees aluminium continuing to underperform in the battered economy. 2013 "The record-high gold prices in yen have triggered some liquidation COPPER: from Japanese customers, which is putting pressure on the market," Panoro CEO sees potential in Peru copper mine project said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong. Vedanta's Zambia unit suspends Chingola copper output

NICKEL/STEEL: FOREX: The euro extended gains to hit to a four-month high against  Australian cyclone cuts fifth of global iron ore trade the Swiss franc after the European Central Bank dampened rate cut Cold snap cuts China iron ore output, may extend price prospects and Swiss bank Zuercher Kantonal Bank said it may impose rally charges on savings accounts. TIN/MINORS: Weaker-than-expected Swiss inflation data on Friday added to Swiss franc selling pressure. 's Dec refined tin exports climb 9 percent on month INSIDE METALS January 11, 2013 FEATURE

COLUMN-China's copper import boom; a problematic leg- The answer to the first question is financiers, but it is a catch-all acy word that could, and probably does, mask a wide spectrum of players with differing implications for how liquid this inventory actually is. By Andy Home It's noticeable that when China's major copper smelters had to LONDON, Jan 10 (Reuters) - China's imports of copper ended deliver against short positions on the London Metal Exchange the 2012 boom year on a muted note, with the headline figure (LME) back in the second quarter of 2012, they did so from their falling 6.6 percent on the month to 341,211 tonnes, which was own production rather than trying to tap what was in the Shang- the second lowest monthly level of last year. hai bonded zone. The drop has been widely attributed to reduced end-of-year credit appetite from financiers, who use copper as collateral in the shadow banking sector. FALSE SENSE OF SECURITY (1) Most commentators have instead focused on last month's re- The short-term implications of this legacy from the 2012 import cord imports of iron ore as a sign of manufacturing recovery in boom are likely to be felt first and foremost in China itself. the world's largest buyer of industrial raw materials. This growing buffer stock in Shanghai has served both to Last year's 4.65 million tonnes of cumulative imports of copper dampen volatility in the London-Shanghai arbitrage, which re- still marked a 14 percent acceleration from 2011 and a new all- mains negative for profitable imports, and physical premiums in time record, eclipsing even the 4.29 million tonnes imported in China. As of mid-December these were quoted in a $40-65-per 2009, a year when imports soared on the back of post- tonne range over the cash LME copper price . meltdown, bargain-basement prices. Compare and contrast with the premium range of $98-105 per These preliminary figures aggregate imports of copper in vari- tonne being asked by Chilean producer Codelco for 2013 term ous forms but it is almost certain that imports of refined metal shipments to China. also notched up a new record of around 3.40 million tonnes in It seems highly likely that Chinese mainland buyers will accord- 2012, unless there was a drastic change in November's product ingly go light on this year's term commitments. "Must-have" ratio split. metal will still be booked, make no mistake, but why go for extra This Chinese import boom has, however, left an unwelcome, tonnage when there's nearly a million tonnes of metal sitting on destabilising legacy, one that will determine not only the level of your door-step? imports this year but, quite possibly, the structure of the entire Particularly when China's own production of the red metal is global copper market. likely to re-accelerate from this year's 8-percent growth rate thanks to better raw materials supply. LEGACY Imports of concentrates were up 18 percent in the first eleven months of 2012, hitting consecutive records of 716,000 tonnes The copper market is now collectively wise to the fact that what and 832,000 tonnes (bulk weight) in October and November China's customs department classifies as an import may only respectively. That may herald a step-change in availability as travel as far as Shanghai's bonded warehouse zone. global mine supply finally shows signs of emerging from years What was once little more than a statistical quirk has assumed of systemic under-performance. ever greater importance as accelerated "imports" over the Chinese buyers, however, risk being caught off-guard if con- course of 2012 coincided with a marked slowdown in the Chi- sumption growth this year turns out to be better than expected. nese growth story. Because another by-product of this Shanghai stocks mountain The result has been a massive build in Shanghai bonded appears to be the run-down of manufacturers' own copper in- stocks, something in the order of 500,000 tonnes over the last ventories to extremely low levels. 12 months. Again, why worry when there's so much metal sitting in the port At an estimated 800,000-900,000 tonnes they dwarf the 543,000 of Shanghai? Assuming, that is, that this metal is actually avail- tonnes held at the end of December in the warehouse systems able on a spot basis. of the world's three foremost copper trading exchanges, namely the London Metal Exchange (320,500 tonnes), the COMEX Even if it is, it will require sharp shifts in both arbitrage and pre- (64,150 tonnes) and the Shanghai Futures Exchange (158,200 mium levels to entice it onto the mainland, at which point value- tonnes of duty-paid metal). added-tax must be paid. This Shanghai mountain is "dark" inventory. Not just because The scale of those shifts will be magnified if it turns out that there is no official monitoring of its size, leaving the market reli- much of the metal is locked up in financing deals. ant on guess-timates, but also because it is unclear who exactly owns it and how mobile it is.

2 INSIDE METALS January 11, 2013 FEATURE

FALSE SENSE OF SECURITY (2) It's always tempting to dismiss technicals in the face of an op- The build in Shanghai bonded stocks carries risk for the market posing fundamental picture, but an analysis of the recent history outside of China as well by offering what may turn out to be an of iron ore prices shows they have been accurate in reflecting equally false sense of security. turning points. At the LME close yesterday the benchmark cash-to-three- Asian spot iron ore has retreated slightly from a 15-month high months spread was valued at $34.00 per tonne contango. This of $158.50 a tonne hit on Jan. 8 and closed on Thursday at is the widest it's been since May 2010. $158.20, having rebounded from a three-year low of $86.70 hit True, LME stocks have rebuilt over the last couple of months last September. and at 326,575 tonnes they are near their highest level since This has been driven by robust Chinese imports, which climbed January last year, a telling comparison given the seasonality of above 70 million tonnes for the first time in December, as steel the copper market, characterised as it is by end-year stocks mills restocked on the back of a brighter economic outlook for build. the world's largest commodity buyer. But by any historical yardstick this is still a low outright figure The solid demand outlook comes as Cyclone Narelle bears and it looks even lower if the 68,400 tonnes of cancelled LME down on , home to the bulk of mines operated stocks are stripped out. by world number two and three producers Rio Tinto and BHP Throw in the fact that significant tonnages are located at what Billiton . might be termed "problematic" locations, characterised by long While the category four storm, the second-strongest type, will load-out queues for other metals, such as New Orleans (65,900 help keep prices buoyant in the short term as the market frets tonnes of open warrants), Antwerp (30,400 tonnes) and Vlissin- about supply disruptions, this will only serve to make iron ore gen (10,150 tonnes) and it should be clear that real availability is appear more technically vulnerable. much diminished. Iron ore swaps in Singapore normally trade in a mild backwar- That wide contango is predicated on an assumption that if the dation and deviations from this generally herald a change in the world outside of China needs extra metal, it too can simply draw direction of prices. it out from those Shanghai bonded stocks. Currently the market is in steep backwardation, with the front- But that would require a significant shift in spreads, similar to the month contract commanding a substantial premium over those flip to sharp backwardation in Q2 2012 that occasioned those for later delivery. Chinese smelter exports. By 11:10 a.m. in Singapore, the front-month contract was at In other words both Chinese and non-Chinese copper markets $150.06 a tonne, 14 percent higher than the six-month contract are behaving as if the world is in comfortable surplus with a and 19.5 percent above the 12-month. comfort blanket of inventory. Which in statistical terms it is, cer- This is a steeper backwardation than was in place just prior to tainly as far as the stocks component is concerned. iron ore's two previous sharp declines in price. It's just that the biggest tranche of those stocks is the least http://link.reuters.com/duq25t known quantity, both literally and, more importantly, qualita- tively. On Sept. 7, 2011, the front-month contract was 6 percent above What will it take to move it? It may not be too long before we the six-month and 14 percent higher than the 12-month. In the find out following seven weeks iron ore tumbled 35 percent. A bigger decline of 42 percent was recorded in the five months (Andy Home is a Reuters columnist. The opinions expressed from April 13 last year, when the front-month contract was 5 are his own) percent higher than the six-month and 10 percent above the 12- month. COLUMN-Iron ore curve, technicals show rally nearing end The shape of the curve also helps point to rallies, showing this analysis is a good indicator of likely price movements. Just prior to the surge that started last September, the curve was in an By Clyde Russell extremely rare contango, where prices for future months were LAUNCESTON, Australia, Jan 11 (Reuters) - It's no surprise above those for immediate delivery. that iron ore is the current commodity market darling, given re- The Relative Strength Indicator is also pointing to iron ore hav- cord Chinese imports, a jump of 82 percent in prices in just four ing rallied too hard in recent months. months and a huge storm about to hit a major mining region. It was 94.189 on Jan. 10, with a level above 70 indicating over- But behind these strong fundamentals is a technical picture bought conditions and a reading below 30 showing oversold. showing the steel-making ingredient is heavily overbought and likely to decline in the next few months.

3 INSIDE METALS January 11, 2013 FEATURE

In September 2011, the RSI peaked at 81.38 and in April last What the forward curve and the RSI are showing is that the year it reached 84.3. risks of a fall in iron ore prices is mounting, and while positive Both times it plunged to well below 30 after reaching the peaks, fundamentals may be able to stave this off for a while, the track bottoming at just 1 in October 2011 and 3.95 in September last record suggests technicals will win the day eventually. year. The RSI has been above 90 on four occasions prior to the cur- --Clyde Russell is a Reuters market analyst. The views ex- rent occurrence since iron ore swaps started trading in 2008, pressed are his own.-- and three of the four times has been followed by a drop to levels below 30, with an accompanying fall in prices.

GENERAL NEWS

China December inflation accelerates on food prices FACTORY GATE DEFLATION EASING In a sign that things may be looking up for China's corporate BEIJING, Jan 11 (Reuters) - China's annual consumer inflation sector, which has been battling falling profits, Friday's data rate accelerated to a seven-month high of 2.5 percent in De- pointed to easing producer deflation. cember on rising food prices, ahead of expectations and narrow- The producer price index fell 1.9 percent in December from a ing the scope for the central bank to boost the economy by eas- year ago in the 10th consecutive month of decline, but improv- ing monetary policy. ing from November's 2.2 percent annual fall. Economists had But analysts say that although price pressures will quicken in forecast a 1.8 percent decline. coming months, due to low year-ago comparison figures, they Data on Thursday showed China's export growth rebounding will stay benign overall this year - meaning the central bank surprisingly sharply to a seven-month high in December in a could still afford to loosen policy if economic growth crumbles. strong finish to the year after seven straight quarters of slow- "The CPI data is mainly driven by rising food prices due to sea- down, even though subdued foreign demand means the revival sonal factors and the recent cold weather," said Li Huiyong, an may not be sustained. economist at Shenyin & Wanguo Securities in Shanghai. "We The risk that China's tentative economic rebound could falter if expect consumer inflation would not be a big concern for the growth swoons in Europe and the United States - its two biggest government in 2013, with an annual increase of 3 percent." export markets - means Beijing would be ready to loosen policy For the year, China's consumer inflation accelerated 2.6 percent in the face of a sharp slowdown, analysts say. to stand comfortably below the central bank's 4 percent target. Any easing, however, would be done by reducing banks' re- serve requirements rather than interest rates to avoid further fanning already-rebounding property prices, they predict. GRAPHIC-China inflation: http://r.reuters.com/waf95s After cutting interest rates twice between June and July last GRAPHIC-imports/exports: http://r.reuters.com/ked55s year, China has abstained from further cuts despite widespread TV-Beware December data: http://r.reuters.com/xaf25t market calls for looser policy.

It has also refrained from lowering banks' reserve requirements Food, estimated to account for around 30 percent of China's (RRR) since May 2012, when it cut the ratio of cash it requires consumer price index, was a key driver of inflation last month as lenders to hold as reserves by 50 basis points to 20 percent for cold weather and holiday demand raised prices. The National China's biggest banks. Bureau of Statistics said the food CPI rose 4.2 percent year-on- year in December. The non-food component rose 1.7 percent. Turkey's gold output to rise to 36 T in 2013 -industry group Accelerating inflation underlines hopes that the world's second- biggest economy is emerging from its worst downturn in more than three years in a gradual recovery led by strengthening do- ISTANBUL, Jan 10 (Reuters) - Turkey's gold production is ex- mestic demand. pected to rise to 36 tonnes this year from 29.5 tonnes in 2012 as new mines ramp up output, the head of the Gold Miners' The China Securities Journal quoted Zhang Xiaoqiang, vice Association of Turkey said in an interview on Thursday. head of the National Development and Reform Commission, China's top planning agency, as saying last week that China's Umit Akdur said Turkey, which started producing gold in 2001, consumer inflation would run at 3.5 percent in 2013. was expected to increase output further to 50 tonnes in 2015, making it among the world's top 15 producers.

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GENERAL NEWS (Continued)

"This year gold production will near 36 tonnes, and this would The country is one of the world's top four in terms of gold de- narrow the current account deficit by $1.9 billion," he said. mand. Its gold imports were 120.8 tonnes in 2012, and total Turkey's current account deficit is its main economic weakness, demand was 102.4 tonnes, according to World Gold Council amounting to $41.1 billion in the first 10 months of last year. data. Its gold production in 2011 was 25 tonnes, up from 1.4 tonnes in 2001, according to data from the association.

TRADING PLACES

Copper users ask SEC to reverse copper ETF ruling 'DISTURBING' The U.S. bank has much riding on the launch as the big banks Jan 10 (Reuters) - U.S. copper users criticized U.S. regulators that swept into trading commodities over the past decade look as "arbitrary and capricious" and requested they reverse their for new ways to make money in the wake of the world financial ruling in favor of JPMorgan Chase & Co's controversial plan for crisis and amid tighter regulations. a copper exchange-traded fund. With frantic work going on behind the scenes, the bank's com- The letter, filed with the U.S. Securities and Exchange Commis- modities chief Blythe Masters met with outgoing SEC chairman sion by a group representing half the U.S. demand for copper, Mary Schapiro and her successor Elisse Walter on Dec. 6, a could delay the ETF launch further and be the last step before a week before receiving the green light, according to an SEC court challenge of the SEC's ruling. memorandum. The fabricators in their Jan. 9 letter said the SEC had not pre- Masters has built the bank's commodities business from scratch sented enough evidence to show the fund would not distort sup- in just five years. Under her watch, the bank bought Sempra ply and prices of the metal used widely in plumbing and cooling which gave it a preeminent franchise in oil and metals trading, systems. as well as one of the world's biggest metals warehousing com- panies, UK-based Henry Bath. The company's facilities in the "It appears the commission categorically rejected all of the sub- United States and Asia would be used for storing the metal stantial evidence presented as to the catastrophic damage that used to back the first ETF of its kind. the proposed (fund) could have for industrial users of copper," Robert Bernstein, an attorney with the law firm Eaton & Van Bernstein said on Thursday he found news of the meeting "very Winkle LLP, who is representing the consortium of fabricators, disturbing." said in the letter. While the SEC is not obligated to respond to the consortium's HARD FIGHT latest filing, the issues are the same as those to be considered The consortium - SouthWire Co, Encore Wire Corp , Luvata and by the SEC in its ruling on BlackRock Inc's similar fund due on AmRod - as well as Red Kite, a large hedge fund and physical Feb. 22. trader, have fought hard to get the SEC to block the JPMorgan If the commission doesn't reconsider, Bernstein has until Feb. and BlackRock funds. 18 - 60 days after the ruling's publication in the Federal Register Industrial users fear it would have a "devastating" affect on the on Dec. 20 - to take his case to federal appeals court. market by disrupting supplies and inflating prices since it will "We haven't made up our mind yet, but we certainly laid the use physical copper cathode as collateral against shares of the groundwork to do that," Bernstein said in an interview on Thurs- fund, effectively removing a chunk of metal from the market. day. In its defense, JPMorgan and BlackRock say such fears are Legal action could further frustrate JPMorgan's efforts to launch unfounded because the funds, which would effectively allow the fund, more than two years after it first filed for approval. U.S. retail investors to trade physical copper easily for the first The filing came on the deadline set by the SEC for interested time, would be miniscule compared with the 20-million-tonne parties to respond to its Dec. 14 ruling giving the go-ahead for global market. Up to 183,000 tonnes of copper would be taken the JPM XF Physical Copper Trust. off the market, according to filings by both companies. JPMorgan declined to comment, but in giving the green light, the The BlackRock iShares Copper Trust and JPMorgan products SEC said it did not believe the fund would affect supplies of are very similar, although BlackRock's is twice as large. metal for immediate delivery. JPMorgan's fund would store LME brand-approved copper val- ued at up to $499,761,150 - equivalent to about 62,000 tonnes based on a copper price of $8,000 per tonne. BlackRock's trust

would use up to 121,200 tonnes of copper as guarantee against

shares in its fund.

5 INSIDE METALS January 11, 2013 MARKET NEWS

Goldman sees aluminium continuing to underperform in The high-grade section of the Cotabambas deposit, around 200 2013 million tonnes, has a copper grade of 0.85 percent when gold and silver byproducts are included. Jan 10 (Reuters) - Investment bank Goldman Sachs expects More drilling will lead to another resource estimate in the middle aluminium to remain in contango and continue underperforming of this year, which will be followed by a scoping study, the first in 2013, despite tightness in the Indonesian bauxite market, as step of feasibility work, Shaheen said. some recent developments, particularly in China, suggest dimin- Nearby Cotabambas are Xstrata's $4.2 billion Las Bambas pro- ishing risks. ject, First Quantum's Haquira copper project, and Hudbay's The Wall Street bank said its bearish view on aluminium was $1.5 billion Constancia mine in the world's No. 2 copper pro- based on expectations that supply growth, driven by low-cost ducer. capacity expansions in northern and western China, would out- "If you take 404 million tonnes for Cotabambas as the bench- pace demand growth in 2013. mark, it could be the same size of the Constancia mine of Hud- Bauxite is the primary raw material used to produce alumina and bay, around $1.5 billion," he said. aluminium and Indonesia is one of the largest global suppliers of bauxite. FINANCING OPTIONS The bank said Indonesia's implementation of a strict embargo Shaheen said Panoro is leaving all options open for financing its last May had led to the tightening of the bauxite market. How- projects and that it has yet to decide if it will become a producer, ever, Indonesian bauxite exports to China increased strongly in look for partners, or sell its assets. late 2012 and almost reached 2011 export levels. One option, he said, would be to develop the company's smaller Also, China has stepped up bauxite imports from other sources Antilla project first, and use funds from that to help finance work like India and Chinese alumina producers plan to add significant on Cotabambas. The Antilla resource is around 150 million ton- new capacity in 2013 specifically designed to run on domestic nes. bauxite, reducing China's reliance on Indonesia, Goldman said. "We do see on our horizon the potential to develop the Antilla "While the potential for bauxite tightness remains and we will project, and leverage that project into a larger project like Cota- continue to track the situation in Indonesia closely, the risks are bambas." clearly lower than they were 3 to 6 months ago," Goldman ana- Another alternative might be to start with the high-grade section lyst Max Layton said in a note to clients. of the Cotabambas project first for its silver and gold deposits. "We are evaluating a number of options and we will leave those Panoro CEO sees potential in Peru copper mine project options open to us as we move along the road to feasibility," he said. LIMA, Jan 10 (Reuters) - Panoro Minerals, the Peru-focused The Antilla project might cost $300 million to $400 million to junior miner from Canada, says its main Cotabambas project develop, which would be more manageable if the company, has grown in size and that it could turn out to be a world-class which Shaheen said has a market capitalization of around $100 copper deposit. million, tries to go it alone at that site. Cotabambas, which is near copper sites owned by global miners "We do anticipate this year starting and completing scoping in southern Peru, started with 90 million tonnes of resources. In studies on the Antilla project as well," he said. September 2012, the inferred mineral resource estimate was The exploration company has $10 million in its treasury and in raised to 404 million tonnes, with another 520 million tonnes of September expiring warrants will likely generate another $10 potential resources. million. Investments this year are projected at $10 million. "The project has grown from a 90 million tonne resource to one "We will at some point this year probably raise more money on with total potential of over 900 million tonnes, which on a pure the markets," Shaheen said. size basis is getting pretty close to a world-class project now," The last financing round was in March 2012 for $13.8 million. Panoro Chief Executive Luquman Shaheen told Reuters. One of its shareholders is Hudbay, which owns 7.5 percent of "We have a large and growing resource with a good grade and Panoro. a significant precious metals component." "(Hudbay) has invested, over the last two financings, money into At least one investor consulted by Reuters said he likes the the company with the intention that Panoro should put the company's projects but has waited to buy its stock until it shows money to work in Cotabambas and hopefully grow the project to it has a really big project. The company's shares are trading a scale that they'd be interested to participate in," he said. around 63 cents each. In addition to Cotabambas and Antilla, the company has several other earlier stage projects in Peru.

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MARKET NEWS (Continued)

INVESTMENT DESTINATION International prices paid for iron ore, which is needed to make Despite frequent tensions in Peru over the spoils of natural re- steel, have been climbing ahead of the start of the Australian sources, Shaheen said he thinks mining investment will continue cyclone season, which typically runs from November to April, in to pour into Peru, which has a $50 billion pipeline of projects. part over concerns shipments could face delays. At least 200 communities have protested against oil or mining Narelle is the first cyclone of the 2012-13 season. projects, over concerns they will soak up water supplies, cause Most the iron ore is contracted by Chinese steel mills, with pollution, or fail to bring enough direct local economic benefits. Japanese and South Korean mills also big buyers. Protests against the $4.8 billion Conga mine in northern Peru, Almost all of Australia's iron ore is mined in the nation's far the largest project in the history of the country, have already west, a sparsely-populated expanse four times the size of delayed U.S.-based Newmont Mining Corp's timetable for its Texas and serviced by only a handful of ports. mine. Rio Tinto , the world's second-largest iron ore producer with 20 Many projects in Peru are in deserts, but Cotabambas has three percent of the world market, on Thursday suspended ship load- drainages running through it and is adjacent to the Apurimac ing at the ports of Dampier and . Mining of the River, he said. ore, which occurs hundreds of kilometres (miles) in from the "Community issues in Peru will remain very important for the coast, was unaffected, according to the company. mining sector and the government. But I think, for the last dec- About 200 kms (124 miles) north from the storm's path, the Port ade or two, Peru has shown that, despite those issues, mining Hedland marine shipping terminals remained in operation. Port investment has progressed quite steadily," Shaheen said. Hedland is used by BHP Billiton, Fortescue and Atlas Iron to supply a further 20 percent of the world market. Vedanta's Zambia unit suspends Chingola copper output Narelle is unlikely to make landfall and disrupt mining, but au- thorities warned residents in coastal towns that conditions will still be extremely dangerous. LUSAKA, Jan 10 (Reuters) - Zambia's Konkola Copper Mines has suspended production at its Chingola open-pit mine after Iron ore prices and shanghai rebar: the expiry of the contract with its Brazilian mining partner, the http://link.reuters.com/guh32t company said on Thursday. APACHE CLOSURES Konkola, owned by London-listed Vedanta Resources , con- At 0200 GMT, Narelle was some 500 km (320 miles) off the tracted Brazil's U&M Mining in 2009 to help it to mine two areas coastal town of Karratha, an oil and mining services hub used of the Chingola mine for both waste and copper ore over a pe- by Woodside Petroleum , Apache Corp , CITIC Pacific , Rio riod of three years. Tinto , Shell and others. "The contractor U&M's contract expired on Dec. 31, 2012, and Woodside, Apache and BHP Billiton are disconnecting oil pro- terms have not been agreed for the renewal of the contract," duction vessels from offshore fields that contribute about a third Konkola said in a statement. of Australia's oil production of 390,000 barrels per day. Konkola added that management will explore options for the Apache said it had stopped production from its Stag and Van operation of the pit and that former U&M employees would be Gogh fields until the cyclone passes. given priority for engagement when mining resumes. Gas production was uninterrupted at its Varanus Island and Konkola also operates the Nchanga open pit as well as Konkola Devil Creek hubs, although Apache said it will continue to copper mine and is developing the Konkola Deep Copper Pro- closely monitor facilities during the passage of the cyclone. ject (KMDP) under plans to raise copper output to 400,000 ton- Chevron Energy , which uses Karratha as a base for the $27 nes, from 200,000 tonnes in 2012, over the next few years. billion North West Shelf LNG project, are preparing to evacuate staff if the cyclone suddenly changes direction and speed, Australian cyclone cuts fifth of global iron ore trade which is a common occurrence with such erratic storms in the iron belt. SYDNEY, Jan 11 (Reuters) - A severe off Aus- Qantas Airways has scheduled extra flights to evacuate work- tralia's northwest coast that has shut ports handling a fifth of the ers from drilling platforms and mining sites if necessary. world's globally traded iron ore and cut supplies of natural gas There are on average around seven cyclones a year in Western and oil intensified on Friday. Australia between December and April. Cyclone Narelle strengthened into a category 4 storm, one short Last March, Cyclone Lua halted output of about a quarter of of the most severe category 5 cyclone, meaning wind gusts Australia's daily oil production of 390,000 barrels as companies could reach 250 kmph (155 mph) by Saturday as it veers closer were forced to suspend offshore drilling and evacuate staff. to land, according to the Australian .

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MARKET NEWS (Continued)

Cold snap cuts China iron ore output, may extend price Output traditionally falls in December-February. In January last rally year, it tumbled to around 72 million tonnes. Utilisation rates of all surveyed mines in northeast China were SINGAPORE/SHANGHAI, Jan 11 (Reuters) - China's harshest at just 61 percent at end-December, according to Mysteel, lower winter in nearly three decades has hit iron ore output and driven than the national average of 68 percent. up prices just as demand from steel mills revives in a resurgent economy. Imports are at record levels. SEEKING CHEAPER ORE Tighter domestic supply in the world's top steel producer could The benchmark price for iron ore delivered to China has mean global iron ore prices will continue to rise - they are al- climbed 37 percent from early last month to $158.50 a tonne ready up more than 80 percent since September - a boon to this week, and is up 83 percent since September. mining giants such as Rio Tinto and BHP Billiton after a The rise in iron ore prices from suppliers Australia and Brazil slump in prices last year forced them to re-think their expansion has prompted some Chinese steelmakers to buy cargoes from plans. smaller exporters such as Malaysia and Indonesia to trim their Temperatures in China have plunged to their lowest in 28 years, costs, said one physical ore trader in Shanghai. with frozen coastal waters, cancelled flights and closed high- "For the same grade, cargoes from Malaysia and Indonesia are ways. Once a thaw arrives, however, prices will likely come un- probably $10-$15 cheaper than those from Australia and Brazil, der pressure as Chinese miners return to full production. although the quality is not always reliable," he said. Up to 15 percent of China's iron ore mines, especially those Iran is another source of cheaper iron ore for China, although located in the northern region where it has been coldest, remain prices there have also surged given the brisk demand, said a shut, said Henry Liu, head of commodity research at Mirae As- Chinese trader who sells Iranian iron ore. set Securities in Hong Kong. Many small mines and processing "Steel mills are always looking for cheaper non-mainstream iron plants closed last year after iron ore prices slid to 3-year lows ore sources, but the problem is there are no large quantities and made China's more costly producers unprofitable. available and they're high on impurities, so may not really help When prices rallied last month, it was already too cold for them mills lower their production costs," said an official who buys iron to resume production. ore for a small steelmaker in eastern China. "They would want to return to production, but they can't because "The only way out is for steel prices to rise, to transfer the soar- of the weather," Liu said. "We estimate 10-15 percent of these ing costs, but this isn't happening due to the weak winter con- local mines are still closed because of the cold weather." sumption season." The harsh weather conditions have halved utilisation rates at China's steel prices, based on Shanghai rebar futures , have private mines and processing plants in some areas, according to risen by around a quarter from September's lows - a much a survey by consultancy Mysteel published on Dec. 28. smaller increase than in the price of iron ore. China, the world's biggest iron ore producer, imported a record 70.94 million tonnes in December, nearly 2 million tonnes above Indonesia's Dec refined tin exports climb 9 percent on the previous record. Imports will again be high this month if the month weather remains cold, analysts said.

"If the domestic supply of iron ore in China remains constrained, , Jan 10 (Reuters) - Refined tin shipments from Indo- iron ore import prices will stay at high levels," said Zhang Yong, nesia, the world's top exporter, rose 9.4 percent in December to an analyst with Mysteel. 8,689.2 tonnes from 7,945.68 tonnes in the November, a trade The price rally could be further fuelled as a cyclone threatens ministry official said on Thursday. Australia's Pilbara producing region and its export facility at Port Indonesian refined tin exports for December were 42.5 percent Hedland. Australia is China's main iron ore supplier. On top of lower compared with 15,102.76 tonnes in the same period in the that, shipments from Brazil have been hit by rain. previous year, when smelters abandoned a self-imposed ship-

ping stoppage and released stocks. GRAPHIC: Cold hits China output http://r.reuters.com/fek25t Total exports of tin, mainly used in soldering for electronics, rose almost 3 percent to 98,817.13 tonnes in 2012 versus China typically produced 120-130 million tonnes of low-grade 96,019.76 tonnes in 2011. iron ore each month last year, and imported around 60 million tonnes of high-grade material.

8 INSIDE METALS January 11, 2013

ANALYTIC CHARTS (Click on the charts for full-size image)

Daily LME Aluminium 3-months Daily LME Copper 3-months

Daily LME Nickel 3-months Daily LME Zinc 3-months

Daily LME Lead 3-months Daily LME Tin 3-months

Daily LME Alloy 3-months Daily LME Nasaac 3-months

9 INSIDE METALS January 11, 2013

MARKET REVIEW

METALS-London copper inches down, China outlook un- Traders expected Chinese purchases of metals to stay quiet derpins over the next month. "I contacted some potential customers this week, all said they MELBOURNE, Jan 11 (Reuters) - London copper inched down were busy with the year-end paperwork. Nobody really wants to from a one-week high hit in the previous session after China's talk about business. They all said wait till Chinese New Year is export demand improved in December, while a slightly stronger over," said a Hong Kong-based trader. dollar weighed. Commodities markets, including metals, rallied early in the year BAUXITE SHORTAGE after U.S. lawmakers pushed back a potential fiscal cliff of expir- The potential for tightness in bauxite, a raw material for alumin- ing spending rises and tax cuts that threatened to derail its ium, remains but the risks have lessened over the past six economy, before losing momentum. months as top consumer China has developed new sources of However, markets got a fresh boost after China's export growth supply, Goldman Sachs said in a note. rebounded surprisingly sharply to a seven-month high in De- Bauxite is the primary raw material used to produce alumina cember, a strong finish to the year after seven straight quarters and aluminium and Indonesia is one of the largest global baux- of slowdown. But subdued global demand means the spike may ite suppliers, contributing around 15 percent to global supply in not herald an enduring recovery. 2011, it noted. "The market was rethinking whether the temporary resolution of Changes to Indonesian export regulations last year crimped the fiscal cliff was going to help or just kick the can down the supply from the world's top exporter of the ore. road. Having that extra shot (China trade data) in the arm was "Chinese alumina producers are planning to add significant new very helpful," said Barclays commodity analyst Sijin Cheng in capacity in 2013 (as much as 6 million tonnes of alumina) spe- Singapore. cifically designed to run on domestic bauxite, reducing China's "Base metals are still struggling against their own fundamentals reliance on Indonesia," it said. and for copper that is its stock overhang. Until that is worked "As a result we expect aluminium will remain in contango and down, you are going to have this weight over prices, especially continue underperforming in 2013." considering new mine supply coming on line -one month of data isn't going to change that," she added. PRECIOUS-Gold takes breather; Tokyo gold strikes record Copper stocks in China's bonded warehouses hit a record high high of over one million tonnes in November.

Three-month copper on the London Metal Exchange had SINGAPORE, Jan 11 (Reuters) - Gold inched lower but was inched down 0.2 percent to $8,097 a tonne by 0702 GMT, hav- headed for its biggest weekly rise in more than a month, follow- ing earlier come within a few dollars of the previous session's ing a decision by the European Central Bank to keep rates un- one-week peak of $8,165 a tonne. changed despite signs of stabilisation in the battered economy. Copper prices hit 2-1/2-month highs of $8,256.50 on Jan. 3, and Japan's gold market jumped into the spotlight as benchmark have advanced more than 2 percent so far this year. Tokyo gold futures hit a record high of 4,820 yen a gram Asian shares rose on Friday amid an improving outlook for ($1,699.62 an ounce) after the yen dropped to a 2-1/2-year low global economies and reduced anxiety over the euro zone's against the dollar on expectations of more monetary easing by debt problems, while the yen slid on renewed expectations for the Bank of Japan. aggressive monetary easing in Japan. Spot gold eased 0.1 percent to $1,672.44 an ounce by 0725 The euro zone economy will recover later in 2013 and there are GMT, after rising 1 percent in the previous session when it already some signs of stabilisation, the European Central Bank tracked the euro rally after the ECB kept rates unchanged and said on Thursday after it unanimously held interest rates at a said the euro zone economy would recover later in 2013. record low. Bullion was on track for a 1-percent weekly rise, after falling for The euro extended its climb on Friday to a one-week high of five of the past six weeks. $1.3279 , before giving up gains. A weaker dollar makes com- U.S. gold inched down 0.3 percent to $1,672.80. modities, mostly priced in the greenback, cheaper for holders of other currencies. "The record-high gold prices in yen have triggered some liquida- tion from Japanese customers, which is putting pressure on the The most-traded April copper contract on the Shanghai Futures market," said Peter Fung, head of dealing at Wing Fung Pre- Exchange closed down 0.6 percent at 58,440 yuan a tonne, cious Metals in Hong Kong. after earlier reaching its highest since Oct. 19 at 58,980 a tonne, playing catch-up with overnight gains in LME copper.

10 INSIDE METALS January 11, 2013

MARKET REVIEW (Continued)

Gold is likely to test the $1,700 level, and will find solid support More Americans filed new claims for unemployment benefits at $1,660, around the 200-day moving average that it breached last week, but details of the report suggested the jobs market on Thursday. continued to grow at a moderate pace. Other data indicated the Buying of physical gold from China continued to underpin mar- economy remained on a steady growth path, with sales at ket sentiment, as purchases have picked up before the Lunar wholesalers rising by the most in more than 1-1/2 years in No- New Year, when sales of jewellery, bars and coins increase. vember. China, which is vying with India to be the world's top gold con- Spain's first debt auction of the year attracted strong bids, send- sumer, reported annual consumer inflation accelerated to a ing its benchmark bond yields to 10-month lows on Thursday, seven-month high in December. High inflation has driven gold as appetite for high-yielding assets improved. buying in the past. Spot platinum rose half a percent to $1,630.90, on course for a Technical analysis suggested that spot gold could retrace to 4.7-percent weekly rise in its second week of climbs, leading the $1,666 an ounce during the day before rising towards $1,691, weekly performance of precious metals. said Reuters market analyst Wang Tao. Spot palladium inched up 0.2 percent to $698, headed for a 1.7 percent weekly gain. Spot gold 24-hour technical outlook: http://graphics.thomsonreuters.com/WT1/20131101091250.jpg FOREX-Euro hits 4-month high versus Swiss franc The dollar index inched up, after dropping nearly 1 percent in the previous session after the ECB decision fuelled the euro's LONDON, Jan 11 (Reuters) - The euro extended gains to hit to 1.6-percent rally, its strongest one-day rise in more than five a four-month high against the Swiss franc after the European months. Central Bank dampened rate cut prospects and Swiss bank A stronger greenback puts pressure on dollar-priced commodi- Zuercher Kantonal Bank said it may impose charges on savings ties by making them more expensive for buyers holding other accounts. currencies. Weaker-than-expected Swiss inflation data on Friday added to Platinum and palladium held up better than gold and silver, even Swiss franc selling pressure. after posting impressive gains in the previous session, as ex- The euro rose 0.3 percent to 1.2175 francs, its highest since pectations of a recovering global economy continued to drive Sept. 17, 2012 when it hit 1.21849 francs. investors to metals with industrial applications.

(Inside Metals is compiled by Shruthi G in Bangalore) For more information: Learn more about our products and services for commodities For questions and comments on Inside Metals click here professionals, click here

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