INSIDE METALS Friday, March 1, 2013

CHART OF THE DAY FEATURE

Click on the chart for full-size image COLUMN– Indonesian minerals policy, a long and winding road: Home Whatever happened to that Indonesian clampdown on unprocessed mineral exports? The government imposed a raft of new regulations on exporters in June last year. Andy Home is a columnist. The opinions expressed are his own Click here to read more.. TODAY’S MARKETS BASE METALS: copper fell to its lowest in more than two months following a more than 4-percent drop in February, with the out- look for demand dampened by disappointing Chinese economic data and worries over U.S. spending cuts. China, the most closely watched of Asia's big manufacturing economies, saw factory growth slow to multi GENERAL NEWS -month lows as sluggish domestic demand added to the effect from China February factory growth cools to 5-month low already depressed foreign sales, two separate Purchasing Managers' Index (PMI) surveys showed. PDAC-Finland ranked as top mining locale as Canada "The PMIs were pretty nasty. We got the poor flash HSBC PMI earlier in slips the week and the real ones are no better. Clearly the situation in China Brazilian court to rule soon on taxes on Vale's foreign is not as good as people had hoped," said analyst Nic Brown at Natixis profits in London. Mali gold output surges in 2012 despite turmoil PRECIOUS METALS: Gold hovered around $1,580 an ounce, sup- MARKET NEWS ported by physical buying in China, but a strong dollar and waning in- vestor interest threatened to further weaken the metal that just suffered COPPER: its biggest monthly decline in nine months. The dollar index traded Rio Tinto, Mongolia wrangle on Oyu Tolgoi costs but close to a six-month high hit in the previous session as risk appetite keep mine on track was hurt by political uncertainty in Italy and U.S. government spending Chile Jan copper output jumps on ore grades, higher cuts due to kick in later in the day. The U.S. dollar attracted safe-haven capacity inflows, but that weighed on dollar-priced commodities. Miner Kazakhmys hit by worries over rising costs "There is physical buying interest, but we don't see much buying from funds and other investors, who are attracted to the stock market right Aurubis sees offshore wind farms generating copper now, as they are generally more confident in the economy," said Peter demand Fung, head of dealing at Wing Fung Precious Metals in Hong Kong. NICKEL/STEEL: ArcelorMittal to co-operate in German probe of steel sec- FOREX: The steadied in Asian trade, a day after its biggest tor monthly fall against the dollar in nine months, as investors took slightly  mulls Plan B for steel mill after deadline expires disappointing Chinese factory data in stride. Vale says higher iron price, gold output to lift results "The Chinese data wasn't as good as some had expected, and while usually risk-off sentiment doesn't help the euro, it didn't prove to be a Nickel output at Vale Indonesia rose 5.7 percent in 2012  major factor in Asia," said Ayako Sera, market economist at Sumitomo TIN/MINORS: Mitsui Trust Bank in . Germanium prices seen climbing to $2,000/kg this year - 5N Plus CLICK HERE FOR LME CHARTS INSIDE METALS March 1, 2013 FEATURE

COLUMN-Indonesian minerals policy, a long and winding January's imports came in at 3.0 million tonnes, exactly match- road: Home ing the average flow rate over the course of 2011. LEGAL CONFUSION By Andy Home This apparent return to normality masks some very real LONDON, Feb 28 (Reuters) - Whatever happened to that Indo- changes. nesian clampdown on unprocessed mineral exports? It shows that a large number of Indonesian miners have passed The government imposed a raft of new regulations on exporters the government's new threshold for export qualification. in June last year. Exports of bauxite and nickel ore plummeted, To do so they needed to pass a "clean and clear" test, proving threatening two of China's most strategically important raw ma- full compliance with royalty, tax and environmental regulations. terial flows. They also needed to demonstrate a viable plan to move into Seven months on, however, and not very much seems to have downstream processing, a core part of the Indonesian govern- changed. Mineral trade flows between the two countries have ment's goal of adding value to its $93 billion mining sector. returned to the boom levels seen just before the new measures But many of the country's smaller miners have failed to get ex- were announced. port qualification, which local unions say has led to some Such a speedy resumption of "normal service" suggests that the 200,000 layoffs in the mining sector. promised total blanket ban on exports starting next year may From a central government perspective, however, this may well prove to be less of a shock to raw material markets than widely be a price worth paying for exerting greater authority over a feared. previously poorly regulated industry. However, the Indonesian government has shown no signs of It has also successfully implemented a 20 percent tax on min- losing any of its zeal for resource nationalism. eral exports, another plank of last year's new regulatory regime, The goals remain unchanged. The road-map to achieve those and wrestled control of mineral policy away from its mineral-rich goals, though, remains as confused and confusing as ever. provinces. "NORMAL SERVICE" RESUMED Well, partly at any rate. China accounts for the bulk of Indonesia's exports of nickel ore They fought back with an appeal to Indonesia's supreme court, and bauxite. in essence arguing that the Ministry of Energy and Mineral Re- Nickel ore is the key metallic input for China's nickel pig iron sources had overstepped its authority in implementing last (NPI) sector, which in turn supplies the country's stainless sec- year's rule changes. tor. Graphic on China's nickel ore imports: Parts of the appeal were successful. http://link.reuters.com/zyj36t Graphic on China's bauxite im- Cue one of those typically Indonesian legal stalemates, which ports: has every side claiming victory and no side knowing quite what http://link.reuters.com/cak36t happens next. The rapid growth in its NPI output in the last few years has been It's precisely this sort of multiple collision of competing interests mirrored by a boom in imports of Indonesian ore. that has bedeviled Indonesian minerals policy in the past. From just 161,000 tonnes in 2006, imports mushroomed to 25.6 It makes forecasting what happens next year, when the full ban million tonnes in 2011, by which stage they were averaging over on minerals exports is supposed to come into force, nigh impos- 2 million tonnes a month. sible for Indonesian players as much as outside observers. There was a mini surge in the early part of last year as buyers The only certainty is a period of continued uncertainty. took preemptive action ahead of the June clampdown. Ship- TIN SECTOR TARGETED ments in July duly slid to 1.4 million tonnes and stayed low in None of which should detract from the Indonesian government's August before rebounding. ambition of shifting its mining industry into value-added process- In December imports hit an all-time high of 5.3 million tonnes. ing. January's figure was 4.0 million tonnes, twice the rate of aver- Witness, for example, the current policy focus on Indonesia's tin age 2011 imports. sector, which has long been at the forefront of its mineral policy Rather than fretting about the lack of Indonesian ore supply, battles. China's NPI sector is now wallowing in excess stock. Flows of Exports of unprocessed tin were banned 10 years ago, leading bauxite between Indonesia to China's alumina refineries have to the creation of a new smelting hub on the tin-rich islands of followed the same pattern. Bangka and Belitung. After a precipitous drop in the middle of last year, flows have Now is planning to enforce purity standards on these since fully recovered. smelters' output, requiring that any exports contain a minimum

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FEATURE (Continued) of 99.9 percent tin rather than the 99.85 percent that is now the "The decision is consistent with the Indonesian government's norm, as well as stipulating lower lead content. objective of maximizing added value from the project locally," Rules governing the export of tin solder have already been tight- the company pointedly noted. ened from the start of this year, closing a previous loophole in More problematic from Eramet's point of view is another part of the export code. Indonesian mineral policy that requires foreign operators to re- If the rule changes are fully implemented, Indonesia's independ- duce their stakes to 49 percent or less within 10 years of the ent tin smelters will produce some of the highest-quality tin in start of production. the world. Whether the world needs so much high-quality metal, "I will never commit to a project without having the certainty of primarily used by the tin-plating sector, is questionable. controlling the whole of the chain," Eramet Chairman and Chief And anyway, that's a big "if". Executive Patrick Buffet said at a presentation of the group's full Inevitably, there's now a concerted lobbying campaign for Ja- -year results. karta to relent on its proposed rule changes. Talks are continuing. Expect some blurring of policy lines. "They haven't clearly said 'no', but they haven't clearly said FUTURE BATTLES 'yes'," he said of the Indonesian authorities' response to Eramet's proposed control of the project. Where the tin sector is now, other parts of Indonesia's mining industry will follow. Which is as good a description as any of the confusion around Indonesian mineral policy. French nickel and alloys producer Eramet has long been con- sidering a major nickel mine project in Indonesia. Weda Bay, Buffett pronounced himself optimistic Eramet can get its way on which could produce as much as 65,000 tonnes per year of Weda Bay. nickel, is at the final evaluation stage. Such optimism is probably well founded. The project scope has been expanded to "incorporate a down- Indonesian resource nationalism is a long and winding road, stream processing stage to produce nickel metal instead of an with each twist and turn negotiable and open to often messy intermediate product", Eramet said in its 2012 results release. compromise. (Andy Home is a Reuters columnist. The opinions expressed are his own) GENERAL NEWS

China February factory growth cools to 5-month low New orders and new export orders both fell in February from the previous month, the data showed, indicating soft domestic de- mand was a source of additional headwinds last month for Chi- , March 1 (Reuters) - Growth in Chinese factories nese factories already battered by lethargic foreign sales. cooled in February to a five-month low after domestic and for- eign demand slackened, an official government survey showed New orders fell to 50.1 from January's 51.6, while new export on Friday, missing market forecasts and underscoring China's orders retreated to 47.3 from 48.5 the month before. patchy economic recovery. But some economists attributed the pull-back in data to distor- The official Purchasing Managers' Index (PMI) eased to 50.1 tions arising from the Lunar New Year holiday which fell in Feb- after seasonal adjustments, the National Bureau of Statistics ruary, even though the statistics agency says the PMI has been said, down from January's 50.4 and the weakest since Septem- seasonally adjusted. ber 2012. "There is a lot of noise in the January to February data," said The index nevertheless signals that a mild economic recovery is Tim Condon, head of Asian economic research at ING in Singa- still taking hold in China. The 50-point level separates expand- pore. "When it settles down we expect the data will reveal that ing activity from contraction versus the previous month in industrial production is growing around 10 percent." China's vast factory sector. Condon, who has a more upbeat view than the market consen- "February's PMI continued to tread lower, indicating economic sus of the world's second-largest economy in 2013, predicts it growth is set to shift from a rebounding trend to that of stabilisa- would grow 9 percent this year. Economists polled by Reuters in tion," said Zhang Liqun, an analyst at Development Research January expect a median growth rate of 8.1 percent. Center, a state think-tank. Economists polled by Reuters had forecast an outcome of 50.2 for February's PMI on the back of tepid overseas demand for Chinese goods.

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GENERAL NEWS (Continued)

PDAC-Finland ranked as top mining locale as Canada slips Exactly what that means is in dispute. On Monday, the govern- ment of the Canada's Yukon territory said it would ask the top , Feb 28 (Reuters) - The Nordic countries of Finland court to hear a related case. But for now, in practice, land and Sweden have topped an annual ranking of the world's best claims could emerge as a factor in nearly any new mining pro- jurisdictions for miners to operate, beating out all of Canada's ject. provinces for the first time in six years. The birth of "Idle No More," a new Canadian protest movement The uncertainty that comes with dealing with disputes over abo- focused on aboriginal rights, could also rachet up pressure on riginal land claims is a rising concern for miners looking to oper- miners looking to launch new projects. ate in Canada, said a report released on Thursday by the Fraser Helped by social media, Idle No More has spread across the Institute, in explaining why Canadian jurisdictions fell short. country and abroad, drawing comparisons to "Occupy Wall The report, based on a survey of 742 mining and exploration Street." It has staged protests in dozens of shopping malls companies, looks at whether mining policies in 96 jurisdictions across North America, and there have also been rallies, around the world encourage investment. The Canadian Atlantic marches and highway and rail blockades. province of New Brunswick, which placed first last year, fell to Residents of the remote northern community of Attawapiskat, fourth. Ontario, unhappy with the terms of their 2005 deal with De "In the opinion of mining executives who guide investment deci- Beers, a subsidiary of Anglo American PLC , have twice this sions, things are changing in Canada's policy context that make year set up blockades on an ice road leading to the company's it look less appealing," said Kenneth Green, the institute's senior Victor diamond mine. director for energy and natural resources studies. "Comments from miners suggest that while Canadian jurisdic- That said, Canadian jurisdictions still did well, relative to the rest tions remain competitive globally, uncertainties with aboriginal of the world. Alberta placed third, and Yukon Territory also consultation and disputed land claims are growing concerns for made the top 10. some," the Fraser Institute report said. For graphic on mining jurisdictions: http://link.reuters.com/vab46t Brazilian court to rule soon on taxes on Vale's foreign prof- its Other top jurisdictions included the western U.S. states of Wyo- ming, Nevada and Utah, as well as the Republic of Ireland. Indonesia ranked as the least attractive location for investment, BRASILIA, Feb 28 (Reuters) - Brazil's Supreme Court will rule in according to the survey. the first half of this year on whether iron ore miner Vale SA must pay an estimated $15.2 billion in taxes on earnings from The Fraser Institute, a think tank that typically advocates lighter its operations abroad, the president of the court said on Thurs- government regulation, releases its rankings each year on the day. eve of the Prospectors and Developers Association of Canada convention. This year's PDAC convention, the industry's largest Vale and other companies represented by national industrial gathering, kicks off on Sunday in Toronto. association, the CNI, are disputing back charges the govern- ment is seeking which they say would be tantamount to double TOP OF THE WORLD taxation. Finland got points for its tax system, political stability, and labor Other companies affected include state-controlled oil producer supply, and because there is little of the uncertainty around dis- Petrobras and privately held engineering company Odebrecht. puted land claims seen in other jurisdictions. Vale has avoided having to make any payment so far because "The Nordic countries seem to have very stable policy regimes," of a court injunction, which says it would only have to pay the said Green. "They have ranked well for many, many years." taxes if it lost the case. Vale says having to pay the taxes would One respondent quoted anonymously in the report said Finland disrupt its investment plans. has "no unnecessary regulations and a government that sup- "This case, that is already being judged, will conclude this se- ports mining and clears away obstructions." mester," Joaquim Barbosa, president of Brazil's highest court, Utah and Ireland got top billing for infrastructure, and Sweden told a gathering of foreign correspondents. was found to suffer from less redundant or inconsistent regula- He said the case was not specifically related to Vale but applied tion than most jurisdictions. to it and other companies with earnings from foreign operations. DUTY TO CONSULT Barbosa said the case had been with the Supreme Court for The Supreme Court of Canada has said that governments must about six years and some judges who had already voted on it consult with aboriginal groups before taking any action that had since left the court, making it more difficult to achieve a might affect their treaty rights, including "credible but unproven" "coherent" judgment. Most of those judges, whose vote remains land claims.

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GENERAL NEWS (Continued) valid after their departure, voted that the taxes on foreign earn- nical advisor in charge of production at the West African nation's ings should be paid. Mines Ministry. Vale's chief executive, Murilo Ferreira, told investors on a con- "Despite the crisis, we exceeded our forecasts in 2012. The ference call on Thursday that the government was discussing industrial mines produced 46.272 tonnes and the artisanal min- proposed legislation to determine future taxation rules for Brazil- ers produced four tonnes, bringing total output to 50.272 ton- ian companies with foreign operations. nes," he told Reuters. "We're expecting a resolution in the coming weeks or months," "In 2013, we expect industrial production of 53 tonnes and ar- Ferreira said of the court case. tisanal production of four tonnes. So the forecast for 2013 is Vale posted its first loss in a decade on Wednesday, taking around 57 tonnes," he said. $5.66 billion in writedowns on money-losing mines. The increase comes despite turmoil in the country - Africa's No. Ferreira said in Thursday's conference call that higher iron ore 3 gold producer behind South Africa and Ghana - which suf- prices and a rise in Vale's gold output would bolster profits in fered a coup in March and where French and regional troops forthcoming quarters. are helping the army combat Islamist rebels in the north. All of the country's gold production is in the south. Mali gold output surges in 2012 despite turmoil Gold companies with mines in Mali - including Randgold Re- sources , AngloGold Ashanti and Avion Gold - have been pub- licly playing down the risks of the crisis to production and ship- By Tiemoko Diallo ping. BAMAKO, Feb 28 (Reuters) - Gold ore production in Mali Togola said the construction of a new mine by Canadian miner jumped 15 percent in 2012 to 50.272 tonnes, from 43.5 in 2011, Robex Resources , expected to produce two tonnes per year as miners followed through with expansion plans despite a politi- over 10 years, had further brightened the outlook. cal crisis and a war, the government said on Thursday. Malian officials have said the chaos has also left its second eco- Output from Mali's southern gold mines is expected to expand nomic pillar, cotton, largely untouched. further to 57 tonnes this year, said Djibouroula Togola, the tech-

MARKET NEWS

Rio Tinto, Mongolia wrangle on Oyu Tolgoi costs but keep Progress had been made on disputes surrounding Oyu Tolgoi mine on track development and costs, the operating budget, project financing, and management fees, Turquoise Hill said in a statement, reiter- ating that production would not go ahead until they were re- MELBOURNE, March 1 (Reuters) - Rio Tinto said on Friday it solved. had failed to resolve cost disputes with Mongolia over the $6.2 billion Oyu Tolgoi copper and gold mine in talks this week but Mongolia's representatives on the Oyu Tolgoi board refused to the two sides agreed on a temporary budget to keep the mine approve the mine's budget for this year in January, pressing Rio on track to start producing in June. Tinto to explain why capital spending on the project had blown out by more than $2 billion. Rio Tinto's subsidiary Turquoise Hill Resources , which owns 66 percent of the project, said the two sides will continue talks Rio Tinto has said that figure is incorrect and the project re- through March. The Mongolian government owns the remaining mains on budget of $6.2 billion. stake in the project. Mongolia is wary that it is not benefiting from an investment Oyu Tolgoi is crucial to both sides. At full tilt, it will account for agreement struck with Turquoise Hill in 2009, a view that has nearly a third of Mongolia's economy, while Rio Tinto is depend- twice led parliament members to attempt to raise the country's ent on the mine to drive growth outside of its massive iron ore stake in the project to 51 percent. business. It is concerned it will not receive royalties for many years as The battle has flared up ahead of a presidential election slated operating and project costs have increased. Royalties are not for June and just as Turquoise Hill tries to line up $4 billion in due to be paid until Turquoise Hill recoups its investment. project finance for the next stage of the Oyu Tolgoi development "Some of the issues are complex, so it's natural that resolution to build an underground mine. is taking some time," Oyu Tolgoi President Cameron McRae Political risk is a key factor for lenders considering making pro- said in a separate statement released in Ulan Bator. ject finance commitments due on March 8, Reuters Basis Point reported on Thursday.

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MARKET NEWS (Continued)

Chile Jan copper output jumps on ore grades, higher ca- large negative free cash flow for 2013 and new production is not pacity coming on until 2015." Cost pressures are expected to ease after Kazakhmys in- SANTIAGO, Feb 28 (Reuters) - Chile produced 474,496 tonnes creases the proportion of copper mined from cheaper, open pit of copper in January, an 8.6 percent expansion from a year ear- mines, and brings in new operations like the $1.9 billion Bozsha- lier, on higher ore grades and improved productive capacity at kol, on track to start producing in 2015. some deposits, the government said on Thursday. Shares were down 5.8 percent at 1130 GMT, underperforming a But compared with December, output slipped 7.6 percent. The an 0.8 percent drop in the broader mining sector. INE statistics agency did not give an explanation for the drop. ENRC HIT, TALKS CONTINUE ON EKIBASTUZ World No. 1 copper producer Chile is seeking to propel output in Kazakhmys said core profit, or earnings before interest, tax, many of the its tired, ageing mines. But analysts warn accidents, depreciation and amortisation (EBITDA) - excluding its stake in extreme weather and energy woes threaten to curb forecast ENRC - came in at $1.36 billion, down 30 percent. production jumps. But the miner also warned it would write down the value of its The Sonami mining association sees Chile attracting $100 bil- holding in ENRC, making Kazakhmys the latest miner to take a lion in mining investment in the next 10 to 12 years, a slightly hit from acquisitions attempted or completed during the boom longer time frame than previously forecast, as regulatory uncer- years. ENRC itself said yesterday it would be forced to write tainty and energy woes loom as key risks. down the value of assets in Kazakhstan and Africa. The Andean country's output of the red metal jumped by 3 per- The value of the 26 percent ENRC stake dropped to $1.55 bil- cent to 5.455 million tonnes during all of 2012, boosted by better lion at the end of 2012 from $3.29 billion at the end of 2011. grades, new mines and a low base of comparison. Shares have recovered since the start of this year, but Ka- Chile's molybdenum output grew 7.1 percent year-on-year to zakhmys - the single largest investor in ENRC - said it would 2,447 tonnes in January, the INE added. write down the value of the holding to close to the market value, implying an impairment of at least $1.5 billion.

That is likely to revive questions over the future of Kazakhmys' Miner Kazakhmys hit by worries over rising costs ENRC holding - a major stake in a rival at which it does not have

a board seat. By Clara Ferreira-Marques "We are open to all possible options," Kazakhmys Chief Execu- LONDON, Feb 28 (Reuters) - The prospect of sharply higher tive Oleg Novachuk said. "As soon as we see an opportunity, costs and spending at copper miner Kazakhmys battered its we will use it, but currently it is difficult to see what will be the shares on Thursday, after the company reported a drop in an- next step." nual profit and warned it would take a hit on its stake in Kazakh Kazakhmys' decision on the future of its ENRC stake could be rival ENRC . critical for its Kazakh rival, which is seeking to increase its The stubbornly high cost of labour, transport and materials has freefloat to comply with London regulations. been a bane for the mining industry, with Kazakhstan a flash Kazakhmys also announced changes at the top, including a new point where miners compete with the oil industry for a small pool chairman, former London Metal Exchange boss Simon Heale, to of qualified workers. replace the outgoing Vladimir Kim, the company's biggest London-listed Kazakhmys has also had to process more ore to shareholder with just under 30 percent according to Reuters compensate for lower grades from ageing mines. data. Kazakhmys's 2012 net cash costs were at the top end of a tar- Chief Financial Officer Matthew Hird will step down in May, and geted range. Gross cash costs, which exclude the benefit of will be replaced by his deputy, Andrew Southam. metals produced as by-products, rose almost 29 percent.

The miner, which has frozen hiring, forecast a further gross cost Aurubis sees offshore wind farms generating copper de- rise of 8 to 12 percent in 2013 and said by-product output, which mand helps keep costs down, would be lower - leading some analysts to forecast that net costs could rise by more than a quarter. By Michael Hogan "The cost outlook is worse than expected and should lead to earnings downgrades for this year," analyst Nik Stanojevic at , Feb 28 (Reuters) - Aurubis, Europe's biggest cop- stockbroker Brewin Dolphin in London said. per smelter, reiterated its forecast of satisfactory 2012/13 re- sults, despite problems faced elsewhere in the European metals "The real issue is capital expenditure, which is going up to (as industry, anticipating offshore wind farm developments will much as) $2.3 billion, almost doubling. With higher costs and flat boost copper demand. production and $2 billion of capex, you are talking about a very

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MARKET NEWS (Continued)

"We see a good business development in this year," CEO Peter Aurubis will close its main Hamburg copper smelter between Willbrandt told the company's annual meeting of shareholders September and October 2013 for an extensive modernisation on Thursday. "We will enter the coming months with confidence programme with investment of about 50 million , he said. and expect a satisfactory result for the full financial year." This will mean the loss of about 150,000 tonnes of concentrate Aurubis on Feb. 4 posted earnings before taxes of 140 million processing, he said. This will also mean a loss of earnings of euros in the first quarter of its 2012/13 financial year starting on about 20 million euros but this loss will be spread over two fi- Oct. 1, up from 86 million euros in the first quarter of the previ- nancial years, he said. ous year but partly because of extraordinary effects. Aurubis' confidence contrasts with the depressed picture in ArcelorMittal to co-operate in German probe of steel sector some other metals producers. German steelmaker Salzgitter , a leading shareholder in Aurubis, on Wednesday forecast lower- By Silvia Antonioli than-expected pretax earnings this year amid weak steel de- LONDON, Feb 28 (Reuters) - ArcelorMittal , the world's largest mand and intense competition. steel producer, is co-operating with authorities on an ongoing Aurubis had on Dec. 13 reported a 4 percent rise in full-year cartel investigation on steel supplies to the automotive industry 2011/12 earnings before taxes, buoyed by higher sales and in Germany, a spokesman for the producer said on Thursday. processing fees from mines despite a poor economic climate. Germany's Federal Cartel Office searched the offices of steel Aurubis expects continued strong copper demand in 2013 and producer ThyssenKrupp's Steel Europe unit in Duisburg on there are signs of improvements in copper product markets, Thursday, with regards to alleged anticompetitive agreements Willbrandt told shareholders. between market participants relating to specific steel supplies to "We saw positive signals in the recently-completed negotiating the automotive industry in Germany. season for annual contracts for product sales," he said. ArcelorMittal refused to comment on whether any of its offices Aurubis is a major producer of rolled and cast copper products. had been raided too. Programmes in Germany and elsewhere to expand renewable "We have no comment at this point other than that we are co- energy generation would also be positive for copper demand as operating with the relevant authorities," an ArcelorMittal spokes- large new offshore wind farms will need extensive cable connec- man said. tions containing large volumes of copper, he said.

Japanese group Mitsubishi alone plans investment in four North Serbia mulls Plan B for steel mill after deadline expires Sea cable projects totalling 776 million euros, he said.

"Three other cables are under construction and tenders for three By Aleksandar Vasovic others have been issued," Willbrandt said. "Ocean cables gen- erally contain a very high volume of copper and windmills also , Feb 28 (Reuters) - Serbia's finance minister will contain a large amount of our metals. This is good for us." announce a "Plan B" for the country's sole steel mill, he was quoted saying on Thursday after the latest deadline for its sale Positive signs were also visible in markets for copper concen- passed with no offers. trate, he said. The Serbian state bought the loss-making Zelezara Smederevo Aurubis and other copper smelters earn a large part of their mill back 45 km east of Belgrade from U.S. Steel in late 2011 revenues from fees paid to mines and traders to refine concen- for $1 to avert its closure and the loss of 5,500 jobs. trate into copper metal called copper treatment and refining charges (TC/RCs). The government had extended the sale deadline three times since October last year, hoping to lure an offer from Russian A ten percent increase in benchmark 2013 copper ore TC/RCs tank and railcar manufacturer Uralvagonzavod (UVZ). The final to $70 a tonne and 7 cents a pound was agreed in January but deadline expired at 5 p.m. (1600 GMT) on Thursday. only for six months. Finance Minister Mladjan Dinkic said he would announce a Plan "The recent deals on the copper concentrate market have con- B for the mill on Friday but gave no details. "The goal is to re- firmed that we will have an over supply," he said. "That means solve the problems of Zelezara and to secure the survival of TC/RCs are likely to rise." Smederevo," the Beta quoted Dinkic as saying, When supplies of copper concentrate on world markets are ris- referring to the town where it is based. ing, smelters have to compete to get smelter capacity. He said he would discuss the plan with Prime Minister Ivica "The background factors for the rise are new mining projects Dacic and President Tomislav Nikolic before going to the mill's and plans for extensive concentrate smelter shutdowns includ- unions and management. ing at Aurubis, he said. U.S. Steel paid $33 million for the plant in 2003 in Serbia's first major privatisation deal following the fall of late strongman

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MARKET NEWS (Continued) leader Slobodan Milosevic in 2000. But the plant ran well below In trading Thursday, Vale shares erased early losses and were annual capacity of 2.4 million tonnes for years. up 2 percent at 36.17 reais. Still, the stock is down 14 percent The state halted production last July and sent most of the work- so far in 2013. force home on reduced pay. One of two unions representing Executives at the world's second-largest diversified mining com- workers has announced a protest for Friday. pany said Vale's New Caledonia nickel project would reach 50 The government wants to offload the mill, and a number of other percent of its output capacity later in 2013. The so-called Goro loss-making assets, to reduce the burden on the state budget, nickel project has become the poster child for problems associ- which ran a shortfall of some 6 percent of national output last ated with a concentration technology known as HPAL that Vale year. It is targeting a budget deficit of 3.6 percent in 2013. and its partners Sumitomo and Mitsui have adopted. Last week, Russia's news agency quoted UVZ chief "Fixed costs will be diluted with ramp-ups of new projects that Oleg Siyenko as saying his company had no immediate solution will create a large swing in revenue," Ferreira said. to Smederevo but a decision could be taken in March. The company's Onca Puma nickel project in the Amazon would also restart its furnaces in the third quarter, after an error forced Vale says higher iron price, gold output to lift results the plant to shut down in early 2012. Vale is also the second- largest producer of nickel.

Roger Downey, director of fertilizers and coal, said the company By Reese Ewing and Sabrina Lorenzi would continue with its policy of seeking buyers for its non-core SAO PAULO, Feb 28 (Reuters) - Brazil's Vale , which reported a or underperforming assets, such as its thermal coal mines in massive fourth-quarter loss a day earlier, expects higher iron Australia. ore prices and gold output to bolster profit this year, executives The company has taken no definitive position on whether to go said on Thursday. ahead with its Rio Colorado potash project in the Argentine As more of the company's projects start up in 2013, Vale's costs Pampas, but Ferreira said that issue would be discussed on would be diluted over a greater stream of revenue, which will March 11 when management presents the board with the main improve earnings, Murilo Ferreira, chief executive of the world's outstanding problems of the project. biggest iron ore miner, said on a conference call with analysts. "The project needs to retain an attractive and foreseeable cash "The metals and minerals scenario is turning positive," Ferreira flow," Ferreira said, adding that the company was still in open said. talks with the Argentine government over the terms of the pro- Gold prices have slumped 19 percent over the past year and a ject. half to $1,554 an ounce, but Chinese landed iron ore prices have jumped 75 percent since early September to $151 a tonne. Nickel output at Vale Indonesia rose 5.7 percent in 2012 Iron ore accounts for nearly 90 percent of Vale's revenue stream and the company is starting production from the southern pro- ject of its massive Carajas mine in the Amazon, which will help JAKARTA, Feb 28 (Reuters) - Nickel output at PT Vale Indone- offset declining ore qualities from the company's other ageing sia , rose 5.7 percent to 70,717 tonnes last year, the largest mines. The company also said it saw improved results at its nickel producer in the archipelago said in a statement on Thurs- pellet furnaces due to cheaper coal prices. day. On Wednesday, Vale reported a $2.65 billion fourth-quarter net That was in line with a 2012 production forecast of 70,000- loss, the company's first in more than ten years, and more than 71,000 tonnes. double the $1.27-billion average loss forecast by analysts in a "In 4Q12, PT Vale achieved an all�time high quarterly produc- Reuters survey. tion record of 21,306 metric tons (t) of nickel in matte," it said. The loss came in the wake of heavy one-off write-downs of The company, which owns mines in South Sulawesi, Southeast some of Vale's mines and plants in the quarter. Sulawesi and Central Sulawesi, announced a five-year, $2 bil- Despite the write-downs, Chief Financial Officer Luciano Siani lion investment in October 2011 with a production target of said Vale's working capital position remained strong due to 120,000 tonnes. higher ore prices, which make up the bulk of its revenue. The firm was formerly known as PT International Nickel Indone- Vale's fourth-quarter charges follow similar actions by the com- sia (Inco) and is 60 percent owned by Brazil's Vale SA . pany's peers such as Rio Tinto and Anglo American , as the mining sector braces for a volatile year and slower growth from China, a key driver of demand for metals.

8 INSIDE METALS March 1, 2013

MARKET NEWS (Continued)

Germanium prices seen climbing to $2,000/kg this year -5N China's State Reserves Bureau said last September it plans to Plus buy germanium from domestic producers to build a stockpile, a trading platform for minor and precious metals reported. By Harpreet Bhal "If China continues to buy some minor metals, it could really LONDON, Feb 28 (Reuters) - Prices for germanium, a minor support these markets in pricing and demand," Maroni said. metal used in fibre optics and semiconductors, are likely to rise China's output of germanium was around 90 tonnes last year, to $2,000 per kilogram this year on stockpiling in China and firm compared to global production of 130 tonnes, Maroni said. demand, an executive at speciality metals producer 5N Plus On the outlook for demand, he expects stable consumption from said. high technology industries such as fibre optics, where there is a Stockpiling by top producer China has limited availability of the lack of substitutes for germanium. metal globally and could help lift prices from the current range of BISMUTH CONSOLIDATION around $1,720/kg , said Stephane Maroni, managing director of Regarding the outlook for bismuth, Maroni expects prices to be 5N Plus SAS. weighed down by large inventories in China for the metal, which Prices last hit $2,000 a kg in 1996, data from the U.S. Geologi- is used in pharmaceuticals. cal Survey showed. "China has (inventories of) around 3,000-4,000 tonnes com- Germanium is one of the only minor metals that rose in value in pared to 12,000-14,000 tonnes globally. It is going to take a 2012, gaining around 15 percent. while to remove this inventory. It is one of the reasons why we "There is no shortage of germanium but these are only available believe prices will remain flat for next year or even longer." in small quantities. At the moment it is very difficult to find sus- Maroni also expects China's smaller bismuth smelters to con- tainable quantities outside China," he said at a Metal Bulletin solidate. conference on minor metals. "Small bismuth smelters will struggle more and more in the fu- "We believe the price could slightly increase in 2013. We don't ture due to tight regulation on environmental controls in China believe it will go far beyond $2,000 but we expect that a stabili- and there is likely to be consolidation in the bismuth smelting sation at around $2,000 could be real." business."

9 INSIDE METALS March 1, 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

10 INSIDE METALS March 1, 2013

MARKET REVIEW

METALS-London copper hits 2-month low, China factory She added that the risk of headline-related sentiment swings data drags would climb next week as China's government ministries start their first meetings of the new year. By Melanie Burton "Urbanisation is undoubtedly going to be top of the agenda be- SINGAPORE, March 1 (Reuters) - London copper fell to its low- cause it is something the new leadership have been pushing," est in more than two months on Friday following a more than 4- she said. But she noted that investment may not be as com- percent drop in February, with the outlook for demand damp- modity-intensive as in the past as social aspects of urbanisation ened by disappointing Chinese economic data and worries over such as healthcare may be prioritised. U.S. spending cuts. China plans major bond market reform to raise the money the China, the most closely watched of Asia's big manufacturing ruling Communist Party needs for a 40 trillion yuan urbanisation economies, saw factory growth slow to multi-month lows as programme to buoy economic growth and close a chasm be- sluggish domestic demand added to the effect from already de- tween the country's urban rich and rural poor. pressed foreign sales, two separate Purchasing Managers' In- dex (PMI) surveys showed. PMI reports from Europe and the PRECIOUS-Gold hovers around $1,580; physical buying United States due later should offer more insight into the state of supports the world economy and commodities demand. "The PMIs were pretty nasty. We got the poor flash HSBC PMI By Rujun Shen earlier in the week and the real ones are no better. Clearly the SINGAPORE, March 1 (Reuters) - Gold hovered around $1,580 situation in China is not as good as people had hoped," said an ounce on Friday, supported by physical buying in China, but analyst Nic Brown at Natixis in London. a strong dollar and waning investor interest threatened to further "The picture that we had been looking at was stronger growth in weaken the metal that just suffered its biggest monthly decline the delveoping world, particularly in China, and that simply isn't in nine months. materialising yet." Three-month copper on the London Metal The dollar index traded close to a six-month high hit in the previ- Exchange had dropped 0.65 percent to $7,764.50 a tonne by ous session as risk appetite was hurt by political uncertainty in 0729 GMT, having earlier slid to the lowest since Dec 20 at Italy and U.S. government spending cuts due to kick in later in $7,747 a tonne. Prices lost more than 4 percent in February, the day. The U.S. dollar attracted safe-haven inflows, but that posting their biggest monthly drop in four. weighed on dollar-priced commodities. The most-traded June copper contract on the Shanghai Futures Buying from China helped support prices, as the popular gold Exchange fell 1.68 percent to close at 56,730 yuan ($9,100) a forward contract traded on the Shanghai Gold Exchange was tonne, having declined to its lowest in three months at 56,610 running about $20 an ounce higher than the global spot price. yuan a tonne. European stock index futures pointed to a lower "There is physical buying interest, but we don't see much buying open on Friday as lacklustre Chinese economic data and loom- from funds and other investors, who are attracted to the stock ing spending cuts in the U.S. sapped appetite for shares, while market right now, as they are generally more confident in the the euro steadied a day after notching its biggest monthly fall economy," said Peter Fung, head of dealing at Wing Fung Pre- against the dollar in nine months. cious Metals in Hong Kong. Markets were also looking to the U.S. where a day before Even a weaker-than-expected revised U.S. growth number for sweeping budget cuts begin, the White House and Republicans the fourth quarter failed to rekindle the passion for gold, and blamed each other on Thursday for failure to prevent a fiscal investors continued to liquidate their shares in the exchange- crisis which the International Monetary Fund warned could slow traded gold funds. Holdings of the SPDR Gold Trust , the the U.S. and world economies. "While the recent improvement world's top gold ETF, dropped to a nearly seven-month low of in economic conditions has been clearly helpful for commodity 1,254.49 tonnes on Feb. 28 in its eighth straight session of de- prices, fresh economic impetus is needed," Credit Suisse said in cline, finishing February with a record monthly outflow of 73.606 a note to clients. tonnes. Spot gold inched up 0.1 percent to $1,581.39 an ounce Copper's close below its 200-day moving average on the final by 0636 GMT, after finishing February down 5 percent in a fifth day of February could ignite fresh chart-based liquidation next consecutive month of declines, its longest stretch of monthly week, traders said. "With the month ending on this weaker level losses in 16 years. It was the biggest monthly decline since last there should be more selling likely next week," broker Triland May. U.S. gold was up 0.2 percent, to $1,581.20. said in a note. Technical analysis suggested spot gold could fall to $1,554.49 CHINA URBANISATION an ounce, said Reuters market analyst Wang Tao. Physical trade in top consumer China remains quiet after the Investors are focusing on $85 billion of spending cuts due to Lunar New Year but should start improving this month, said ana- kick in on Friday in the United States, absent a highly unlikely lyst Sijin Cheng at Barclays Capital in Singapore. last-minute deal among lawmakers.

11 INSIDE METALS March 1, 2013

MARKET REVIEW (Continued)

Although some analysts said a looming fiscal crisis in the its 2013 low of $1.2998. The euro lost about 4 percent against world's top economy would help gold regain some favour, as it its U.S. peers in February, its biggest monthly slide in nine would argue for prolonged monetary support that has been a months. key driver of gold's rally in recent years, others believed the Against the yen, the euro rose slightly to 120.92 yen . near-term support would be minimal. "The $85 billion in spend- The yen, usually bought in times of heightened market stress, ing cuts is simply too small to make much of a difference to the continued to underperform a day after Prime Minister Shinzo economy and although it could cause some problems, it will Abe nominated an advocate of aggressive policy action to head have no bearing on influencing investor allocations among dif- the Bank of Japan. Government data on Friday underscored ferent asset classes," Ed Meir, an analyst at INTL FCStone, said the challenge faced by the BOJ to vanquish deflation and in a note. achieve its new target of 2 percent inflation, with core consumer The aftermath of Italy's inconclusive elections remained a con- prices skidding for a third straight month in annual terms in cern to investors, as political instability in the euro zone's third- January. The dollar's gains against the yen slightly unravelled largest economy threatens to reignite the region's debt crisis. toward the end of the Asian session, with the greenback buying Euro zone finance ministers will discuss the situation next Mon- 92.51 yen , down 0.1 percent and heading away from its 33- day. month peak of 94.77 set on Monday. ECB RATE CUT? FOREX-Euro firms vs dollar, yen but gains seen limited Traders said benign inflation data on Thursday gave the Euro-

pean Central Bank room to cut interest rates, which further di- By Lisa Twaronite and Ian Chua minished the allure of the euro. TOKYO/, March 1 (Reuters) - The euro steadied in "Our economists have revised their view and now expect a 25 Asian trade on Friday, a day after its biggest monthly fall against basis point cut in the ECB's refi rate either next week or in the dollar in nine months, as investors took slightly disappointing April," said Vassili Serebriakov, a strategist at BNP Paribas. Chinese factory data in stride. Serebriakov said this suggested downside risks for the euro and The single currency's upside remained capped as political un- the bank's trade recommendation for a long position in euro/ certainty in Italy and impending U.S. government spending cuts dollar, established at $1.3180, with a stop-loss order placed at sapped some investors' appetite for risk. $1.2980. "However, we would argue that a refi rate cut would China's February official purchasing managers' index (PMI) probably be least damaging for the euro, as compared to other showed manufacturing activity at its slowest pace in four months potential forms of easing such as cutting the deposit rate to at 50.1, slightly below a 50.2 Reuters poll consensus and the negative." 50.4 posted in January. HSBC's final PMI for the same month The common currency had been given a slight reprieve in the showed activity fell to 50.4 after seasonal adjustments from middle of this week when a relatively smooth Italian government January's two-year high of 52.3, in line with a flash reading in bond auction helped offset unease about an inconclusive elec- late February. "The Chinese data wasn't as good as some had tion result. expected, and while usually risk-off sentiment doesn't help the euro, it didn't prove to be a major factor in Asia," said Ayako But comfort from Italy's successful bond sale faded on concerns Sera, market economist at Sumitomo Mitsui Trust Bank in To- that sweeping budget cuts worth $85 billion across U.S. federal kyo. "Sentiment toward the euro is calmer but the situation is government agencies will hit growth in the world's biggest econ- still unclear in Italy, and investors are waiting for fresh develop- omy. The International Monetary Fund has said it will likely cut ments there," she added. The euro was at $1.3065 , up about its U.S. and global growth forecasts if those automatic spending 0.1 percent and holding above a seven-week low of $1.3018 hit cuts take effect on Friday, and warned that the U.S.'s biggest earlier in the week. A break of that level would bring into focus trading partners would be hardest hit.

(Inside Metals is compiled by Pradip Kakoti 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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