LME Week: Focus on Demand, Economy and Prices

LME Week: Focus On Demand, Economy And

Prices

SPECIAL PDF REPORT OCTOBER 2011

An employee works inside a steel rerolling mill at Chitra industrial area, on the outskirts of Bhavnagar town, in the western Indian state of Gujarat. REUTERS/Amit Dave

• Global growth a worry, China to the rescue

• Iron ore, coal to move to shorter index-based pricing-ENRC

• Johnson Controls sees steady lead mkt in 2012

• Chinese copper smelters seek higher TC/RCs for 2012

• Codelco sees stable premiums for copper consumers

• Fair value copper price forecasts jump

• Softs to outperform metals in 2012-Bache

COMMODITIESLME WEEK: FOCUS SHIVER ON DEMAND,AFTER U.S. ECONOMY CREDIT DOWNGRADE AND PRICES OCTOBER AUGUST 20112011 Global growth a worry, China to the rescue By Susan Thomas LONDON, Oct 7 (Reuters) - emand for base metals has softened only slightly, propped up by tight supplies and strong Chinese appetite, even while prices have dropped as investors have retreated from markets in fear of a global economic downturn and Europe's debt crisis. D This is the message that echoed through London Metal Exchange Week, the main fixture in the global metals industry calendar, which drew thousands of professionals this week. "There has been some softening in copper demand, but not to the extent seen in the copper price," Richard Adkerson, chief executive of Freeport McMoRan Copper & Gold Inc , the world's largest publicly traded copper miner, said this week. Metals prices have dropped, particularly copper which is down 28 percent from a record high of $10,190 hit in February. "There is a disconnect right now, and that's because investors are concerned about the future. There are huge macroeconomic uncertainties, and it's driven by that," Adkerson said. Despite the global economic slowdown, producers are still selling their products, mostly to China which accounts for some 40 percent of demand for copper for use in construction, electrical wiring and power cables. "We haven't seen any of the early signs of push-back that you tend to get in tough markets, when people try to delay pay- ment," said Clive Newall, president of miner First Quantum , this week. "We haven't seen any of that, and talking to other copper producers, I am not sure anyone is really seeing it," he said. A Chinese return to the market to replenish its metals stocks also is inevitable, he added. The high price of the metal earlier this year prompted China to run down its stocks, and the industry has been anticipating its return to the international market for a top-up, especially with the price of copper at lower levels. "They (Chinese buyers) are opportunistic, and the copper price now is good," Antofagasta Chief Executive Marcelo Awad said. The country's thirst for other metals also remains unquenched. "The wheels are not falling off yet in terms of (aluminium) demand," Gordon Hamilton, vice president, metal management sales and marketing at Rio Tinto Alcan , said. "We're seeing a slowdown, but it is somewhat regional."

Labourers arrange steel structures at the construction site of a new residential apartment in Hanoi September 20, 2011. VIETNAM-PROPERTY/ REUTERS/Kham 2

Iron ore, coal to move to shorter index-based pricing-ENRC By Silvia Antonioli and Clara Ferreira-Marques LONDON, Oct 7 (Reuters) - ricing for steel ingredients iron ore and coking coal is likely to move to shorter-term index-based mechanisms, Jim Cochrane, chief commercial officer of Kazakh miner ENRC , said. The top three iron ore miners Vale , Rio Tinto and BHP Billiton dumped a decades-old annual scheme last year in P favour of quarterly pricing. Although most steelmakers still hope for a return to the annual benchmark, which allowed them to better control their costs, shorter-term deals look inevitable to many in the industry.

A boy collects scrap metal to recycle from a sewage drain in Quetta on September 16, 2011. REUTERS/Naseer Ahmed 3

Johnson Controls sees steady lead mkt in 2012 By Karen Norton LONDON, Oct 6 (Reuters) - .S. auto supplier Johnson Controls said it expects the market for battery material lead to be relatively stable next year and its customers as yet seem unperturbed by worries over recession in western nations. "I think the outlook for the lead market next year is relatively stable," the company's Vice President and General U Manager for Lead Americas Mike Carr told Reuters in a phone interview. "I don't know that we've heard much in the way of customer concerns about the global economy. Our business is good globally year on year, I would say our battery sales are pretty good." On Thursday, the London Metal Exchange (LME) three-months lead price was indicated at $1,925.25 a tonne, above last week's 14-month lows of $1,800, as investors take heart from efforts by Europe to help its financial sector. But prices are still about $1,000 a tonne below levels seen in April. Johnson Controls produced 120 million lead-acid batteries last year, making it the world leader. Lead-acid batteries, used mainly in cars, account for around 80 percent of world lead demand. As part of its battery business, Johnson Controls recycles old batteries to produce secondary lead, which is then used to make more batteries. It is in the process of expanding its lead output. The company is building a new battery recycling plant in Florence, South Carolina with a capital investment of $150 million. The facility, which is due to start up around next summer, will have the capacity to produce just over 130,000 tonnes per year (tpy) of refined lead, Carr said. Johnson Controls has also applied for a permit to double capacity at its Krautscheid plant in Germany to 120,000 tpy. Mean- while, the company's Garcia smelter in Mexico, which came on stream last November, was very close to full capacity of 130,000 tpy, according to Carr. "We don't have any plans on the board currently to add any other new (recycling) facilities. However we do continually evaluate the market. If conditions dictate we have proven we can add capacity pretty quickly," Carr said. All the refined secondary lead Johnson Controls produces is used to make its batteries, but its output does not satisfy all its needs. "We're still buying lead, depending on the region of the world. In North America our stated objective is to be about 50 percent vertically-integrated, so we're still buying quite a bit of lead." START-STOP Carr said new start-stop batteries were making advances and would result in more lead being used because of the heavier demands.

Laborers are silhouetted at daybreak as they unload steel rods at the site of a bridge construction in Lahore. REUTERS/Mohsin Raza

The technology allows an engine to automatically switch off, when the car stops at traffic lights for example, and spring back to life when the driver presses the accelerator. "Start-stop batteries have really done quite well in Europe and we now believe that's moving to the U.S. and even to China" Carr said. Johnson Controls had made significant investments in start-stop batteries in Europe to get capacity to over 11.0 million units and was also investing in the United States to have the capacity to produce 6.8 million, he said. "For the lead part of the business we do believe it will translate to the start-stop batteries that we produce having more lead in them versus standard batteries." The original equipment market for start-stop batteries was expected to reach 35 million by 2015, he said.

Chinese copper smelters seek higher TC/RCs for 2012 By Polly Yam LONDON, Oct 6 (Reuters) - hinese copper smelters are seeking higher yearly treatment and refining charges for term copper concentrate imports for the full year of 2012 as they expect supply to rise, while trading sources say some global miners may switch to quarterly charges. C For 2012, smelters now want treatment and refining charges (TC/RCs) they receive for converting term concentrate imports into metal of $60-$80 per tonne and 6-8 U.S. cents per pound for the full year delivery, smelter sources told Reuters at a gathering late on Wednesday in London. If set, those charges will be the second straight year smelters win higher TC/RCs from global miners. TC/RCs were set at $56.5 and 5.65 cents for full year of 2011 for standard, clean concentrates, up from $46.5 and 4.65 cents in 2010. In 2011, Chinese smelters for the first time set half-year TC/RCs for term concentrate deliveries with global miner BHP Billiton Ltd and agreed the charges at $72 and 7.2 cents for the first half and $90 and 9 cents for the second half. "Next year's TC/RCs definitely would rise from this year. There would have to be some new and expanded production to come on the stream," a senior executive at a large Chinese copper smelter said.

A worker winds aluminium and iron wires used to making electrical power lines at a factory on the outskirts of Jammu September 12, 2011. REUTERS/Mukesh Gupta

COLUMN-Aluminium-The dangers of comparative analysis (The opinions expressed in this article represent the views of the author.) By Paul Adkins, Managing Director, AZ China Limited, Beijing. LONDON, Oct 6 (Reuters)- luminium has been traded on the London Metal Exchange (LME) for more than 30 years, and analysts have been charting, monitoring and trying to predict the course of the metal since then. Over those years, a rich history has developed, both within the rises and falls of the metal's price, and within the of- A fices and corridors of those who seek to understand and comment on aluminium. It has helped that often the same commentators have been able to draw on their knowledge of other base metals. Copper and tin for instance, have been traded on the LME even longer. China, on the other hand, is a relatively new market for most analysts. It is fair to say that until China entered the WTO in 2001, most Western analysts simply did not include China in their view of the market. It is natural, therefore, for analysts to turn to their trusty tools when trying to chart, understand and extrapolate the Chinese market. But it is a dangerous assumption to expect that China's primary aluminium industry and the market will follow the patterns that have been evident outside China. For one thing, there is only 10 years of history to draw on, and of that, most years are exceptional rather than typical.

An Iraqi worker inspects iron that has been melted in the oven before pouring it in a frame at a workshop in Baghdad September 13, 2011. REUTERS/Saad Shalash

Men look for metals and other valuables in the waste waters of the city dump in Guatemala City September 7, 2011. REUTERS/Jorge Dan Lopez 8

A blacksmith hammers hot iron to make a sickle at his shop in Kolkata August 18, 2011. REUTERS/Rupak De Chowdhuri 9

A man rides his bike through a gap in a row of metal rods that delineates the line along which the Berlin Wall used to run at the Berlin Wall memorial site in Bernauer Strasse in Berlin, August 9, 2011. REUTERS/Thomas Peter 10

Tight copper concentrate a feature for some years By Pratima Desai and Susan Thomas LONDON, Oct 6 (Reuters) - ight copper concentrate supplies and excess smelting capacity for the industrial metal will remain a feature of the market for some years to come, Javier Targhetta, president of Spanish smelter company Atlantic Copper said. But Targhetta refused to be drawn on whether that would translate into lower treatment and refining charges (TC/ T RCs) for the metal used widely in power and construction. "There is copper concentrate tightness and our view is that the tightness will remain for a number of years," Targhetta said. "There is also new smelting capacity, especially in China and India ... Some smelters may not be at full capacity." Benchmark TC/RCs were agreed at $56 a tonne and $5.65 a lb for this year from $46.5 and 4.65 cents respectively in 2010. Annual negotiations for TC/RCs between smelters and miners began this week as the industry gathered for London Metal Exchange week. Chinese copper smelters are seeking higher TC/RCs for copper concentrate imports for the full year of 2012 as they expect supply to rise and trading sources say some global miners may switch to quarterly charges. Smelters are looking for $60-$80 per tonne and 6-8 cents per pound for next year, sources told Reuters. If agreed, those charges will be the second straight year of higher TC/RCs. Global mine production is expected to see a bigger rise next year than 2011 and 2010 and Mongolia's Oyu Tolgoi, the world's largest undeveloped copper and gold project located 80 kilometers (47 miles) north of the Mongolia-China border may poten- tially have supply of spot concentrates in late 2012. Targhetta said the fundamentals of the copper market were strong and that prospects for the metal were good. "Copper's usage is increasing both in terms of growth and in terms of intensity. New applications such as electric vehicles bear twice as much copper as traditional vehicles," he said. "And in turn the traditional vehicle caries twice as much copper as it did 25 years ago." Copper's surge to a record high of $10,190 a tonne on February 15 this year has accelerated the search for substitutes. Bench- mark prices on the London Metal Exchange were trading at around $7,120 a tonne. "But you have heard of copper's antimicrobial properties, how it has been proven that it reduces hospital infections by 40 percent. That is very promising." Targhetta agreed that demand for copper for use in hospitals was small, but he said the amounts for this application could be significant in the future. Atlantic Copper is a subsidiary of U.S.-based Freeport-McMoRan Copper & Gold.

Iron ore is loaded into a pile at Fortescue Metals Cloudbreak iron ore mine, about 250km (155 miles) southeast of Port Hedland in Western Australia state, July 25, 2011. , REUTERS/Morag MacKinnon 12

Prysmian does not see drastic 2012 copper demand slowdown By Karen Norton LONDON, Oct 6 (Reuters) - lobal copper demand in the second half of this year may ease, but a drastic slowdown next year is unlikely, Italy- based copper product maker Prysmian said on Thursday. "We have the feeling copper demand is slowing down globally in the second semester; it's not what it was in the first G semester," Tayfun Anik, the company's chief procurement officer, told Reuters. "It's too early to say for demand next year, but we don't have the feeling there will be a drastic slowdown." To illustrate current uncertainty, Anik said order level visibility had fallen to 80 percent from 100 percent. China, which accounts for around 40 percent of global copper usage of almost 20.0 million tonnes, would be key to copper consumption growth next year, he said. "Don't forget a big chunk that goes into China is for getting out again. If the U.S. and Europe have problems that will definitely have an effect on Chinese consumption." Prysmian, the world's largest cable maker, consumes about 500,000 tonnes a year of copper, 90 percent in the form of copper rods. The fact that the company has 100 factories in over 30 countries helps it to ride out economic downturns, Anik said. "It's a kind of hedge. We don't feel so strongly the ups and downs of the cycle," Anik said. He said Prysmian was fully hedged in terms of its pricing activity and worked with low inventory levels. "We're very working capital conscious, we try to keep our stocks as low as possible, especially on raw materials. We run more or less just-in-time on the physical part." DEFICIT AGAIN Anik said the global copper market would probably be in a slight deficit again next year, due to persistent supply disruptions including potential strike action and falling ore grades at some major mines. On Tuesday, the Lisbon-based International Copper Study Group (ICSG) forecast demand would outstrip supply by 250,000 tonnes next year, following a 200,000-tonne shortfall this year. Against a backdrop of continued tight supply, copper prices could average $8,500 a tonne next year as a broad guess, Anik said. "But $6,000 would be a satisfactory price for everyone in the industry, for miners and for consumers. It would be a price at which miners could still invest," Anik said. Benchmark prices for the metal, used in power and construction, were last indicated at $7,225.15 a tonne and are still high historically despite a recent sell-off which took them to 14-month lows of $6,635 a tonne. Prysmian's Anik said substitution in the cable industry due to the high price of copper compared with aluminium had more or less finished. The company uses around 180,000 tonnes a year of aluminium. The LME three-month aluminium price was last indicated at $2,225 a tonne.

A labourer loads coils of steel wire at a steel market in Shenyang, Liaoning province, August 1, 2011. REUTERS/Sheng Li 14

Antofagasta sees Chinese restocking move soon By Clara Ferreira-Marques LONDON, Oct 5 (Reuters) - hinese buyers are close to coming back into the market for copper re-stocking if prices stay at or below current levels, Antofagasta Chief Executive Marcelo Awad said. "I think we are getting close. They (Chinese buyers) are opportunistic and the copper price now is good ... if you com- C pare with all the forecasting for the coming months, years," Awad said, adding he expected the price to rise in the short term as a result, up from current levels of around $6,900. "I think we will see $8,000 in coming weeks. (Next year) will really depend on the overall economy." Awad, speaking at the Chilean miner's London headquarters, said the company had seen no order cancellations and no requests for delayed shipments. "I can't say yet what will happen with the annual contracts for copper cathode, because we are just starting (negotiations)... but the good news is that we haven't received any requests for cancellations for the remaining months of the year," he told Reuters in an interview.

A metal vendor sits in his shop in Old Dhaka July 24, 2011. REUTERS/Andrew Biraj 15

A man prepares metal sheets to make storage boxes at a workshop in Lahore July 22, 2011. REUTERS/Mohsin Raza 16

Royal Nickel has enough cash for Canada mine By Karen Norton and Pratima Desai LONDON, Oct 5 (Reuters) - oronto-listed Royal Nickel Corp is hopeful the global economy will pick up pace again next year, but said it has raised enough cash anyway to keep it on track during 2012 with its large nickel project in Canada. Benchmark nickel prices were last at $18,500 a tonne. In September they fell below $17,000, their lowest since De- T cember 2009 and down over 40 percent from levels close to $29,500 in February, as demand worries pummeled industrial metals. "There is concern generally about how long it (economic uncertainty) will last and the impact on financing costs going forward, but we have a bit of a cushion to get us through 2012 if we have to," said Tyler Mitchelson, president and CEO of Royal Nickel. "We don't need to go the market right now." The company completed its initial public offering (IPO) last December, raising $45 million in capital. Royal Nickel's Dumont nickel mine in northwestern Quebec is due on-stream towards the end of 2015, with a pre-feasibility study due out in November. The original cost estimate for the mine was $2.3 billion. However, the company is taking a staged approach and is aiming to start the project at about half its production capacity. "We expect that to be somewhere between $1.2-$1.4 billion," said Mark Selby, Royal Nickel's senior vice president, business development, adding that about 50-60 percent of that will come from project finance lenders such as banks and export credit agencies. The company would look to bring in a partner to take a 30-40 percent interest in the project, adding that that partner could be a stainless steel producer seeking to move up stream. "We need someone who's got a good balance sheet, who has a long term strategic view, who will invest in a mine with a 25- year life," Mitchelson said. Royal Nickel is confident of the project's timing because of its location in a politically stable region, with a history of mining, and where the permitting process does not encounter delays. At full capacity it is expected to produce 64,000 tonnes a year of nickel in concentrate, making it the fourth largest nickel sulphide mine behind those owned by some of the world's biggest producers of the metal, including Russia's Norilsk Nickel . CUPBOARD BARE Royal Nickel is looking beyond the string of nickel projects coming on stream in the next three to five years, which has drawn predictions of a prolonged period of over-supply. "After 2015/16 the (projects) cupboard starts to look pretty bare," Selby said. Large, new nickel sulphide projects are a rarity and Mitchelson said ore grades were falling at many existing sulphide mines, adding to pressure on supply further ahead. Most new nickel projects contain laterite ore which is deeper down and harder to treat than sulphide ore. A number use, or will use high pressure acid leach (HPAL) technology, which has had its share of problems in earlier, and in some cases more recent incarnations. On Monday, Royal Nickel said it had successfully produced a high-grade ferro-nickel product directly from concentrate at Dumont. The process, by avoiding the need to refine, significantly reduces production costs. Aside from Dumont, Royal Nickel may also seek potential deposits in North America, parts of Europe, Australia and possibly Africa. The company would also look at producing copper and platinum group metals. (PGMs). "We are looking to become a mid-tier base metals miner," Mitchelson said.

Metals volatile near term, medium term bright-CRU LONDON, Oct 4 (Reuters) - ndustrial metals markets could become more volatile in the next year or so, as continued global economic uncertainty buf- fets prices, but medium term prospects remain strong, consultancy CRU Group said on Tuesday. "Our expectation is that metals prices, if anything, will be more volatile, not less volatile in the next 12 months," said Paul I Scott, manager of CRU's steel team at an LME Week briefing. The positive outlook for metals on a medium term view made it likely that investor participation -- a factor contributing to price volatility -- would grow in the coming year, he added. Bellwether copper prices fell to a 14-month low of $6,635 a tonne on Monday, down around 30 percent from the end of last year and 35 percent from February's all-time high of $10,190. They were last indicated above those lows at $6,818 a tonne, but continue to be undermined by persistent concerns about the euro zone debt crisis, the threat of global recession and the implications for metal demand.

A blacksmith welds iron in his workshop in Rome July 13, 2011. REUTERS/Tony Gentile 19

S.Korea's PPS sees lower metals prices in 2012 By Polly Yam LONDON, Oct 4 (Reuters) - outh Korea's state-run Public Procurement Service (PPS) plans to hold more buy tenders for base metals in 2012 than this year as it expects base metals prices on average to be 20 to 30 percent lower, it said on Tuesday. It sees South Korea's copper buying demand at around 1 million tonnes next year, up from 900,000 tonnes this year, S Im Byeong Cheol, PPS director of commodity stockpile division, said. "This year we focused on releasing metals stock to small and medium firms," Im told Reuters in an interview in London. "Next year, due to our lower price forecasts, we plan to focus on buying of metals." The number of tenders the PPS will hold to buy base metals would increase in 2012, Im said, adding that in 2011 the agency so far had bought about 30,000 tonnes of metals. For 2012, Im said the real consumption of base metals in South Korea would be lower than this year but overall buying could rise as lower prices prompted firms to build stocks. Im said the agency planned to hold an international metals conference in South Korea next year to provide more information to small- and medium domestic firms, the buyers of the service's stocks. STOCK-BUILDING PLANS PPS plans to expand South Korea's stocks of base metals for emergency needs such as earthquakes and wars, Im said. Previously, PPS kept stocks for 60 days of the country's import demand for base metals. Now, it separates stock levels for each metal, with copper being set at 80 days of import demand and aluminium at 40 days, Im said. PPS is conducting a programme to encourage private companies to build up their inventories, Im said. As part of this process, a physical-metal backed exchange-traded-fund (ETF) is expected to be launched in the country in the fourth quarter of this year or the first quarter of 2012. PPS did not set a target amount of stocks for private firms to hold but Im said it hoped storage space of 15,000 square metres at a bonded warehouse in Busan port would be filled up within two years. The space is enough for 100,000 tonnes of copper or 70,000 tonnes of primary aluminium. Bonded warehouses typically are located near ports and store imports before the imported goods are assessed for the local tariffs.

Porters transport metal pipes on a wooden handcart at an industrial area in Mumbai July 12, 2011. REUTERS/Danish Siddiqui 21

Copper producers face premium pressures By Pratima Desai LONDON, Oct 4 (Reuters) - inancial and economic turmoil are likely to undermine attempts by producers to charge more for their copper next year but expectations of a supply deficit will help buttress premiums for the metal, a Reuters survey showed. The straw poll of analysts was carried out over the last few weeks ahead of a gathering this week of the metals indus- F try for London Metal Exchange (LME) Week. The average of eight forecasts showed Chinese consumers could pay a premium of $113 a tonne over the LME cash price in 2012, little changed from $115 a tonne this year. With the European economy most likely to see a recession, premiums for consumers in the region could see the deepest cuts, analysts said. Forecasts were for around $88 a tonne in 2012, down from $98 this year. Europe's sovereign debt crisis, rising chances of default, frozen money markets, economic slowdown in the region and the con- sequences for world growth are the subject of a heated debate. Analysts agreed a slowdown was inevitable, but opinion varied on whether that would turn into a recession. "There are uncertainties about the big picture, the global economy, euro zone debt and questions about recession in the euro zone, how will it affect the United States and Asia," said Robin Bhar, analyst at Credit Agricole. "On the other side of the coin isn't copper tight? In a supply deficit? That should help to support the market." Premiums for Japanese consumers are forecast at $96 a tonne for 2012 from $98 a tonne this year. Benchmark copper on the London Metal Exchange was trading at around $6,800 a tonne on Tuesday, off the lowest levels since July 2010. The metal, used widely in power and construction, was down some 30 percent from the record high of $10,190 a tonne on Feb. 15.

REUTERS INSIDER (Click on the headlines to view the show)

• LME courts multiple suitors; CEO says no conflict of interest on warehousing

Vapour pours from a steel mill chimney in the industrial town of Port Kembla, about 80 km (50 miles) south of Sydney July 7, 2011. REUTERS/Tim Wimborne 23

COMMODITIESGOLDGOLD:—————DEMAND,LME WEEK: REBOUNDS WILL ECONOMY, FOCUS RISK SHIVERBATTERED AVERSION ON ON PRICES JAPAN DEMAND, AFTER BY BANISH DEBT INSHARPEST U.S. FOCUS ECONOMY CREDIT DOWNGRADE CORRECTION AT LOSS DOWNGRADELME AND SINCE WEEK PRICESDESPITE FEARS? MAY CORRECTION FEARS OCTOBER AUGUSTAUGUST 2011201201120111 Anglo American says copper fundamentals still strong By Clara Ferreira-Marques LONDON, Oct 4 (Reuters) - alling copper prices may already have over-reacted to macroeconomic worries, given robust underlying demand from China and constrained supply, a top Anglo American executive said, adding the miner had not seen any customers cancel orders. F Copper prices have dropped by more than a quarter since the end of June, with benchmark prices on the London Metal Exchange falling to 14-month lows of $6,635 on Monday, as the threat of Greece's debt default increased. "We are seeing a lot of volatility in the copper price for other reasons... but it comes back to the fundamentals, and the fundamentals look strong. China has been the driving force behind demand for the last five or 10 years, and that remains strong," Anglo American's head of copper, John MacKenzie, said. "The amount the copper price has fallen has very little to do with the fundamentals of supply and demand... probably if we were looking at only the fundamentals, it should not have come down as far as it has," he said in an interview. MacKenzie, who took the reins of Anglo American's second-largest division in 2009, echoed comments made on Monday by rival Freeport McMoRan , the world's largest listed copper miner, and said Anglo continued to see good demand despite market volatility and falling prices. "We haven't seen any cancellations in any orders. We are not seeing at this point any impact on our sales. In fact, what we are seeing in China right now is the concentrate market becoming fairly tight," he said, adding that was due to Freeport mine strikes but also due to the fact less scrap was available. MacKenzie said demand in China had been partially masked this year by destocking activity after the stockbuilding that followed the last market crash. "There is no reason to think that, with prices having dropped as they have, the Chinese will not be getting in again and restocking. There is evidence they are already doing this," he said. "They are opportunistic." On the supply side, copper has also been underpinned by constrained supply, as miners face challenging new operations, lower grades, higher costs and tougher permitting conditions. Lower prices, MacKenzie said, would make it even tougher. "With a lower price environment, and a lot of the projects in the industry pipeline being far more marginal than existing operations, it places them in a very precarious position," he told Reuters at Anglo's central London headquarters. Anglo is forecasting a deficit in the copper market in both 2011 and, though to a lesser extent, in 2012. BETTING ON COPPER MacKenzie -- speaking at the start of London Metal Exchange week, a key event in the metals industry calendar -- said Anglo's flagship $2.8 billion Los Bronces expansion was all but complete and ready for first production this quarter. Los Bronces, where output will jump to 490,000 tonnes per year over the first three years, is expected at peak production to be one of the world's largest and lowest-cost copper mines. Los Bronces will help the miner hit its production target of more than 900,000 tonnes of copper by 2012. Beyond Los Bronces, Anglo is eyeing medium-term growth from expansion at Chile's giant Collahuasi mine, owned jointly with Xstrata , after increasing reserves and resources there, and from its Quellaveco project in southern Peru. Chile's state copper company Codelco has an option that would allow it the right to purchase up to a 49 percent stake in An- glo American Sur properties -- Anglo's south Chilean properties, which include Los Bronces and El Soldado mines and the Chagres smelter -- up to 2027. Codelco passed up the option in 2009, but has said it would reexamine the option at the next window, in January 2012. "This is something we will discuss with Codelco," MacKenzie said, declining to comment further. Miners operating in Chile have been dogged by power worries, after a devastating earthquake last year and years of under- investment have left the energy grid creaking. MacKenzie said Anglo had extensive talks with the government on its power plan, but was increasing its energy efficiency and had also held discussions with private power producers. "Ultimately, for the large projects, you need large chunks of power, but we are confident the government's plan is robust." Copper has been the prime vehicle for Anglo's attempts to diversify away from South Africa, but MacKenzie said the copper division could return to Africa, providing the asset is right. Anglo is exploring in areas beyond Latin America, including the Democratic Republic of Congo and Indonesia, but would also consider acquisitions, especially given current prices. "We have been through a phase where it was far more expensive to buy than to build, but as asset valuations come down, one would certainly expect to see some buying opportunities," he said. "But there are not a huge number of highly attractive tar- gets out there."

Afghans work at a blacksmith shop in the old part of Kabul June 15, 2011. REUTERS/Omar Sobhani 25

REUTERS POLL-Fair value copper price forecasts jump By Marie-Louise Gumuchian LONDON, Oct 4 (Reuters) - ncentive price forecasts for copper have jumped by a fifth compared with last year, with analysts citing strong demand from emerging markets and rising production costs in a world of tight supply pushing prices higher in the years ahead, a Reuters survey showed. I The poll carried out over the last four weeks ahead of a gathering of the metals industry for London Metal Exchange (LME) Week, found that forecasts for incentive or fair value prices for all six base metals have increased. A survey of 16 analysts showed the average price forecast for copper rose 19.9 percent from last year's Reuters poll figure to $6,200 a tonne. A survey of 11 analysts showed tin forecasts jumping 22.2 percent to $17,725 a tonne, also supported by a fi- nite supply outlook. Long-term or incentive price forecasts are used to evaluate the feasibility and potential profitability of future projects. Forecasts for battery material lead rose 11.8 percent to $1,900 a tonne while nickel prices forecasts increased by 10 percent to $18,711 a tonne. "We believe that long-run copper prices will have to trade at a much higher level than in the past in order to incentivise producers to invest huge amounts of capital to bring on enough production to meet the growth in demand," Bar- clays Capital analyst Gayle Berry said. Falling ore grades, increased resource nationalism and reduced investment are also adding to cost pressures -- all while demand from the developing world charges ahead. Analysts expect that as top copper consumer China, and other key developing countries like India and Brazil, industrialise over the next decade, demand for metals will expand at a faster pace than supply. China is estimated to consume about 40 percent of global demand, which is forecast at around 19 million tonnes this year. "With that, you've also got India on the rise over the next 20 years, you've got other emerging markets - Asian markets on the rise and elsewhere in Latin America, and I think that's going to put a lot more demand for raw materials and that's going to transmit to higher prices," VM Group analyst Carl Firman said. Strikes could keep the heat under copper prices next year as workers, seeing mining companies reap fat profits from the expected high prices and tight market, try to rewrite expiring contracts.

"Copper will face increasing supply issues from industrial action and changes in government policy in the developing world," Shayne Heffernan of Heffernan Capital Management said. "Metal prices, particularly gold and copper are seeing increasing costs, from labour to government taxes, as markets recover in late 2011 and early 2012. We do expect to see increased supply disruptions and shortages driving prices higher." Graphic on poll results: http://r.reuters.com/her24s 'FAIR VALUE' Benchmark copper on the London Metal Exchange traded at around $6,800 a tonne on Tuesday, off the lowest levels since July 2010. The metal, used widely in power and construction, is down some 30 percent from the record high of $10,190 a tonne on Feb. 15. The survey's incentive forecasts -- based on future cost expectations plus profit needs -- tend to be conservative, given investors will not commit to a project that only makes money if prices are high. "We have raised our assessment for long-term pricing and that reflects the assessment of the capital and operating costs at the margin," Macquarie analyst Jim Lennon said. "When we look at the projects and what they're costing, there has been a huge inflation rate in capital and operating costs and we're updating our numbers to reflect the likelihood that these trends will continue for a number of years and you are not going to get a massive correction downwards in energy prices over the medium-term." Tin , which has fallen from a record high of $33,600 a tonne hit in April, is seen supported by an expected rise in demand from China's manufacturing and electronics sectors as well as a tight supply outlook. Indonesia's plan to halt tin exports will offer long-term price support only if smelters stick to the ban, which is not certain. Smelters in the main producing region of Indonesia, the world top refined tin exporter, agreed to impose a ban on tin ingot shipments from Oct. 1 until global prices recover to above $25,000 a tonne. While lead stocks at LME warehouses have hovered around record highs, rising battery demand is supportive to prices. Price risks remain, however, despite the expected pull on new supply and investment. Forecasts for aluminium and zinc were little changed, rising 2.2 percent to $2,425 a tonne and 1.6 percent to $1,949 a tonne respectively. The aluminium market is structurally over-supplied and expected to remain so for years to come.

A labourer attaches iron rods to a column at the construction site of a flyover in Lahore May 26, 2011. REUTERS/Mohsin Raza 28

China growth not enough to alone boost metals -CRU LONDON, Oct 3 (Reuters) - hinese growth prospects remain healthy but at lower rates and the world's top copper consumer cannot boost commodity markets on its own the way it did some three years ago, metals consultancy CRU said on Monday. Paul Robinson, Group Manager Non Ferrous Metals at CRU, told a London Metal Exchange (LME) Week seminar that C China would not build up stockpiles of the red metal as it did then. The metals market had been anticipating China's return after running down inventories of base metals, particularly copper, but a slowdown in the auto and housing sectors is seen capping demand. Beijing's monetary tightening measures were also impacting the short term outlook, Robinson said. "China funded our recovery in the commodity world ... China has been the commodity story," he said. "We don't believe it can step in and give the commodity markets the recovery it saw in 2008 ... (China is) overall positive but not fantastically positive ...Chinese growth rates remain healthy but at lower rates." Aluminium will post the best consumption growth rate out of all non-ferrous metals, CRU's Paul Robinson tells Reuters In- sider TV: http://link.reuters.com/jyj24s China is estimated to consume about 40 percent of global copper demand, which is forecast at around 19 million tonnes this year. "We don't see China building stockpiles of copper like they did in 2008 and 2009," he said, citing the reason as being that Chinese stockpiling boosted copper prices and ultimately Chinese buyers ended up paying more for their materials. Ranking base metals in terms of consumption growth prospects, Robinson put aluminium first, followed by nickel, zinc, copper, lead and lastly tin. "Aluminium is both a nation-building metal and emerging middle class metal," he said, adding said that the beverage sector, for which aluminium is used in packaging, and the transport sector were strong. Robinson said growth in copper consumption was capped by three elements -- a lower growth rate in Chinese consumption, a substitution into aluminium and mine constraints. He also said no significant impact on copper was seen from this year's unrest in the Middle East and North Africa.

A worker operates an electrolysis furnace, which produces aluminium from raw materials, at the Rusal Krasnoyarsk aluminium smelter in the Siberian city of Krasnoyarsk, May 18, 2011. REUTERS/Ilya Naymushin Insights into uncertain metals market Oct 3 (Reuters) - he metals industry gathers in London for the annual LME Week, with many participants hoping for an insight into commodity markets after a torrid few weeks due to global economic uncertainty. T Here are some analysts' views of what could lie ahead: MACQUARIE "The price crash has been driven by fears of a double-dip economic slowdown over concerns of a financially driven crash in Europe and weaker U.S. and Chinese growth prospects. "The most extreme fears are a repeat of the situation at the end of 2008 and 2009, when demand collapsed amid a freezing in credit markets. This seems unlikely, but so long as uncertainties over the European debt and banking bailout remain, concerns about a repeat of 2008 will remain. "For China, the persistence of the credit tightening throughout 2010 (many including ourselves had thought it would have ended by now) is leading to growing concerns of a deeper and more prolonged China slowdown. We think that this is unlikely since inflationary pressures are likely to abate rapidly in China as the rest of the world slows and growth eases in the coming months. "On the supply side, the appalling performance of supply growth (especially in nickel and copper) will come under the micro- scope, and debate about how quickly new projects will ramp up will be to the forefront." MORGAN STANLEY "Global financial and commodity markets have become even more risk averse since the publication of our Global Metals Play- book: 3Q11 on July 26. "Driving this are increased risk of a renewed recession in the U.S. and Europe, greater global financial uncertainty because of a worsening debt crisis in Europe with attendant pressure on banks, and concerns about a hard landing in China. "Although adverse outcomes to all such risks is not our base or even our bear case, the risks of a developed market (DM) recession have risen sufficiently in 3Q11 for us to adopt a bear-case price scenario to reflect a DM recession, with a probability weighting raised to 40 percent for base metals prices.

A worker walks amidst high purity aluminium ingots at the Rusal Krasnoyarsk aluminium smelter in the Siberian city of Krasnoyarsk. REUTERS/Ilya Naymushin

TABLE-Copper demand growth forecasts for 2011 LONDON, Oct 4 (Reuters) - Following are forecasts for copper demand growth for this year.

Demand Growth F' Cast for 2011 in pct Total Demand In 2011 Millions tonnes Demand Growth F' cast for 2011 in pct from Jan Mean 3.8 19.9 4.5 Median 4 19.9 4.4 Highest 5.4 20.3 5.8 Lowest 2 18.9 3.5 No of Forecasts 15 15 15 Barclays Capital 3.5 19.86 4.2 CPM Group 4 20.09 5.3 Credit Agricole 3 20 3.5 Deutsche Bank 2.9 19.93 4.1 EIU 4 19.9 3.7 Fairfax 4 20.247 4.7 GFMS 5.4 20.321 5.8 Harbor Intelligence 2 19.72 5 Heffernan Capital Mgt 4 19.8 5 Macquarie 4.2 19.85 4.5 National Securities 4.9 20.3 4.4 Raw Materials Group 4 20.08 4 Standard Chartered 2.1 18.9 4 UBS 4.3 20.064 4.3 VM Group 4 19.93 4.8 The survey of 15 analysts was carried out over the last few weeks ahead of a gathering of the metals industry for London Metal Exchange (LME) Week.

Norilsk sees debt crisis cutting world nickel output By Polina Devitt MOSCOW, Oct 3 (Reuters) - bout 10 percent of world nickel producers are losing money at current prices and could cut output by as much as 30,000 tonnes in the fourth quarter of this year, Norilsk Nickel's head of marketing, Viktor Sprogis, said in an interview. A The Arctic miner, the world's largest producer of nickel and palladium, remains profitable, Sprogis added. "The level of $18,000-$18,500 per tonne is loss-making for a string of companies," Sprogis said. Last month, the London Metal Exchange (LME) three-month nickel price fell to $16,800 a tonne, its lowest since December 2009 as global economic worries grew. On Monday, it was trading around $18,049 a tonne compared with February levels close to $30,000 a tonne. It has been the hardest hit of the LME base metals, falling over 28 percent year to date on concerns that weakening demand for nickel could tip the supply balance, which has been teetering on the brink of surplus due to slow intake by key consumers such as stainless steel producers. Norilsk, controlled by mining tycoon Vladimir Potanin's Interros consortium, controls 20 percent of world nickel output and about 2 percent of copper, but is hoping to increase its share of the copper market. UC RUSAL, the world's largest aluminium producer is also a major shareholder and has clashed with Potanin and Norilsk's chief executive over strategy and management, in part over its preference for long-term contracts. Norilsk defends that practice over spot sales, saying it gives the company stability of revenue that allows it to plan investments and yields a healthy premium over LME prices. PROJECTS

TABLE-Forecasts of copper premiums for consumers LONDON, Oct 4 (Reuters) - Chile's Codelco, the world's top copper producer, normally starts premium negotiations with Euro- pean customers around the time of London Metal Exchange week, which started on Sunday. Negotiations with Chinese and Japanese consumers typically take place in November. Premiums agreed with Codelco serve as regional benchmarks in Europe and China, which is the world's top copper consumer accounting for 40 percent of demand estimated at around 20 million tonnes this year.

Workers walk near some of the copper stills in the Roseisle distillery in Moray, northern Scotland March 1, 2011. REUTERS/David 33

A kangaroo looks on while standing on iron ore rocks close to the Dampier port at the Pilbarra region in Western Australia April 19, 2011.REUTERS/Daniel Munoz 34

Copper could hit $5,000/T if economy worsens-INTL FCStone By Harpreet Bhal LONDON, Oct 3 (Reuters) - opper prices could dip to as low as $5,000 a tonne if the global economy goes through further shocks, with high volatility likely to be a lingering feature in markets, commodity brokerage firm INTL FCStone said. Benchmark copper on the London Metal Exchange (LME) lost more than 25 percent in September as global reces- C sion fears and demand worries prompted investors to dump the metal used in power and construction. As panic gripped stock markets on fears of a possible Greek default and economic slump, investors liquidated positions in commodities to cover margin calls resulting in copper prices plunging as much as $600 a tonne intra-day in late-September. "If we get one more piece of disruption for the market, a genuine Greek default or another country saying they can't pay, that would send a second set of shock waves off," said Malcolm Freeman, Europe sales director at INTL FCStone "I don't think it's impossible for copper to go down to$5,000 or $5,500 a tonne were the bad news to line up and result in a black swan event." Copper fell to its lowest level since July 2010 on Monday, after Greece admitted it would miss its deficit target. It traded as low as $6,635 a tonne, off more than 30 percent from a record high of $10,190 a tonne hit in February. Freeman said the slowdown in western economies was also likely to crimp China's demand for raw material. Some analysts had expected demand from China to help cushion an economic deterioration in the west, but the country has been slow to dip back into the market in the first half of the year. China accounts for about 40 percent of global consumption of copper, estimated at around 19 million tonnes this year. VOLATILITY TO STAY Freeman said investors will need to get accustomed to volatility as a feature in metal markets as more managed money and algorithmic trading activities take place. "If you are a physical client trying to price metal it's a pretty hard one to do a budget for. It is a major problem," he said. "I would suggest that if we have a continued run of this volatility they (the clearing house) will raise margins again." London clearing house LCH.Clearnet raised the margin for copper and tin contracts traded on the LME to $750 and $3,200 a tonne respectively, effective Sept. 29. 35

Freeport sees good demand for copper By Karen Norton LONDON, Oct 3 (Reuters) - reeport McMoRan Copper & Gold Inc said on Monday the recent sharp fall in copper prices does not reflect the market's fundamentals, and it continues to see good demand for the metal. "The drop in the copper price doesn't reflect the fundamental situation... We still maintain a positive view of copper F markets," Chief Executive Richard Adkerson told Reuters in an interview, adding "We anticipate being able to sell all of our products." Benchmark copper prices on the London Metal Exchange (LME) fell to 14-month lows of $6,635 a tonne on Monday, knocked by Greece's admission that it would miss its deficit target and improving but still disappointing economic data from China. Copper was last indicated at $6,796.25 a tonne. Adkerson expected China, which accounts for some 40 percent of global copper demand, to remain the engine of growth for the metal used in power and construction. "China has the financial resources, it has committed to invest infrastructure, the internal economy is getting larger. That's all very supportive for copper demand," Adkerson said.

People sell scrap metal at a yard in Detroit, Michigan April 5, 2011. REUTERS/Eric Thaye 36

A labourer works at an iron factory on the eve of International Labour Day, or May Day, in Lahore April 30, 2011. REUTERS/Mohsin Raza 37

An employee works in a ferronickel smelter owned by state miner Aneka Tambang Tbk at Pomala district in Indonesia's southeast Sulawesi province March 30, 2011. REUTERS/Yusuf Ahmad 38

Mine capex to rise in 2012 despite economic wobbles By Karen Norton LONDON, Oct 3 (Reuters) - iners will splash out more on building new mines in 2012, despite recent falls in industrial metals prices, in the belief that new projects are needed in coming years to satisfy China's voracious appetite. Metals markets have plummeted on worries that weak economic growth may hurt demand. Benchmark copper M fell to a 14-month low of $6,635 a tonne on Monday, down nearly 35 percent from February's peak of $10,190. But for now, the expectation is that beyond near-term uncertainty, top metals consumer China and other emerging economies will still take increasing amounts of metal and raw materials for their infrastructure needs.

A worker melts bronze in one of the few factories that still produces hand-made bronzeware in Bangkok March 4, 2011 REUTERS/Sukree Sukplang 39

COMMODITIESGOLDGOLD:—————DEMAND,LME WEEK: REBOUNDS WILL ECONOMY, FOCUS RISK SHIVERBATTERED AVERSION ON ON PRICES JAPAN DEMAND, AFTER BY BANISH DEBT INSHARPEST U.S. FOCUS ECONOMY CREDIT DOWNGRADE CORRECTION AT LOSS DOWNGRADELME AND SINCE WEEK PRICESDESPITE FEARS? MAY CORRECTION FEARS OCTOBER AUGUSTAUGUST 2011201201120111 "The signs for China remain strong ... and while we continue to have belief in emerging nations and the mid-term story for China, then we think we will see the investments continue," said Paul Robinson, group manager for non-ferrous metals at consultancy CRU Group. "The indications from miners are that none of them are letting up in terms of their investment portfolio. None is saying they're not going to invest in their projects going forwards on the basis of the economic outlook," he added. Stockholm-based industry consultants Raw Materials Group predicts that capital spending by miners will rise almost 11 percent to $155 billion next year, matching the 2008 peak. This year, RMG puts expenditure at $140 billion, up from $126 billion in 2010. Most money is being poured into iron ore, copper, gold, coal and potash. There is some concern that mid-tier and smaller companies might run into difficulties if the financial situation deteriorates much further. But most planned spending is by the big miners. "The major capex projects stem from larger companies, and they're committed to these projects ... They're relying on their belief that the economy will be able to rectify itself," said Damian Brett, a project manager at RMG. RMG estimates 80 percent of capital spending is by large mining firms. A lot of companies also learned from the last financial crisis in 2008/2009 and the speed with which demand recovered and will try to avoid shelving projects for fear of losing out. "Putting projects on hold put them in a worse position. So if they can, and most have strong balance sheets, they should be able to maintain their funding and development of these projects," Brett said. NO LUXURY FOR SMALL MINERS Smaller companies do not have the luxury of strong balance sheets and have much shorter time horizons. "I'm more concerned about exploration and the mid-tiers and juniors. If cash were to dry up in lower price scenarios, the play- ers more at risk are those living month to month," said CRU's Robinson. "They're probably more susceptible. Essentially they're in no different a position than they were in the last downturn. They're probably closer to the high quartile (of production costs) and need external investors who believe in the commodity story, and they need cash." The fact that the copper market is in supply deficit and likely to remain so until around the middle of the decade should mean spending on copper projects is not affected even in a recession. Supplies of the metal -- used widely in power and construction -- have been constrained for years by a combination of falling ore grades at some of the world's biggest mines, delayed projects and industrial disputes. Some analysts expect the global copper market to be in a deficit of around 300,000 tonnes this year, which will come on top of a shortfall of nearly half a million tonnes last year. "The projects that were put on hold or suspended last time were mostly other base metals, and the assumption is that would happen again. If things get worse you could see a couple of expansions in zinc put on hold in the short term," said Brett. For now, analysts broadly expect outlays on new mines and expansions to keep rising unless the global economy takes a dive. "If there's a recession, we will see a pull-back (in mine spending). But let's see where the markets are going before coming to any conclusions," said Carl Firman of Virtual Metals.

Metalloyd ready to step up as banks retreat By Pratima Desai LONDON, Oct 3 (Reuters) - K-based Metalloyd plans to expand its iron ore and coal trading and production businesses, aiming to fill a gap that may be left by banks under pressure to curb activities in physical commodities. Moves to limit banks' trading activities mean more opportunities for experienced management in well-financed U trading companies such as Metalloyd, which is majority-owned by entrepreneurs David and Simon Reuben. "Bank to bank lending has virtually ceased; their liquidity is heavily squeezed and subsequently their appetite for business that they consider as risk is more and more curtailed," Managing Director Mel Wilde told Reuters. "This along with pending legislation has forced some of the banks to start reducing their physical trading activities, we can see this with some heavy redundancies and cutbacks." Banks are shedding jobs worldwide as stricter regulations and a tough second quarter for trading income take their toll. Banks that have announced job cuts include UK-listed HSBC , U.S.-based Bank of America Merrill Lynch and Swiss-based Credit Suisse . Metalloyd's strategy echoes the likes of the world's largest commodity trader, Glencore and Trafigura "We have taken steps to become a producer/trader with the ultimate intention of having up to 50 percent of supply from our own in house sources," Wilde said. "As an example we have acquired a 50 percent stake in an iron ore mine in Morocco that was previously worked by the French and abandoned 40 years ago." 40

China 2012 base metals demand seen up, hinges on credit By Polly Yam HONG KONG, Sept 30 (Reuters) - hina's base metals consumption growth rate could slow further next year as exports fall, even if Beijing starts to loosen monetary policy after the first quarter. A possible debt crisis in developed countries and Beijing's credit tightening are the two major factors that could slow C demand in the world's top consumer and producer of most base metals. Still, with the country having run down stocks during a period of high prices, imports of refined copper may see an increase after falling sharply so far this year. The State Reserves Bureau, which manages state reserves, may take advantage of any fall in prices to add stocks that industry sources estimate stand between one million and 1.3 million tonnes and target to 2 million tonnes by 2015. "If this year's demand growth is 6 percent to 7 percent, the growth rate in 2012 could be about 5 percent," Jing Chuan, chief researcher at Hua Tai Great Wall Futures said, referring to consumption of all six base metals. He said the the debt crisis in the euro zone had been raising worries about a slowing of the global economy next year. Such worries could cut private investment in China and therefore domestic demand, while a slowdown would hit China's exports of metals. "We are not very optimistic about next year. Demand from small and medium-sized copper fabricators is weak and credit is very tight," an executive at a large copper smelter said.

Copper cooking pots still in use today, some dating back to King George IV, sit on racks in the kitchens at Buckingham Palace in London .REUTERS/Nick Ansell 41

COMMODITIESGOLDGOLD:—————DEMAND,LME WEEK: REBOUNDS WILL ECONOMY, FOCUS RISK SHIVERBATTERED AVERSION ON ON PRICES JAPAN DEMAND, AFTER BY BANISH DEBT INSHARPEST U.S. FOCUS ECONOMY CREDIT DOWNGRADE CORRECTION AT LOSS DOWNGRADELME AND SINCE WEEK PRICESDESPITE FEARS? MAY CORRECTION FEARS OCTOBER AUGUSTAUGUST 2011201201120111 The Chinese government would try to keep economic growth at 7-8 percent or above to keep unemployment in check, Jing said. He added that a stable social and economic situation in China would be particularly important next year when a new leadership is set to emerge. The International Monetary Fund forecasts China's GDP will rise 9.5 percent this year and 9 percent in 2012. COPPER, SRB China's copper consumption may rise to 7.8-7.9 million tonnes in 2012 from 7.38 million tonnes expected this year, with demand from the power sector set to remain strong, Yang Changhua, copper analyst at state-backed research firm Antaike, said. "We see a rise of 6-7 percent next year, compared to a gain of 8.5 percent this year," Yang predicted. He said China's need to build and reform its power networks would continue next year, even if tight monetary policy remains. Grace Qu, China-based copper consultant for U.K.-headquartered CRU, told Reuters on Tuesday that the firm may adjust down its copper demand growth forecast of 5 percent for next year due to the economic situation in the United States and the euro zone. A trading manager for a large copper tubes producer said the firm would produce about 400,000 tonnes this year from 375,000 tonnes last year, and hopes for a similar rise in 2012. Like many end-users in China, the manager said the firm would build copper inventory only when it sees a stable outlook in the market. The State Reserves Bureau however would pick low prices to build stocks, industry sources said. Hua Tai's Jing said he expected the SRB to import copper at about $6,000, a level not seen since October 2009. An industry source with links to the SRB also pointed to the $6,000 level, who said this had been the target level in late 2010. The last large orders for copper imports the SRB placed were in late 2008 to 2009 at about $3,000-$6,000 a tonne, with the bulk being purchased below $4,000, industry sources said. While still well above this level at $7,048 a tonne on Thursday, benchmark LME copper prices have lost nearly a quarter of their value this month. LEAD The worst performer next year may be refined lead after China closed hundreds of lead-acid battery factories this year. China started a crackdown on lead polluting operations after a lead-acid battery manufacturing plant in Zhejiang province was identified as the source of a local outbreak of lead poisoning. By the end of July, 583 lead-acid battery producers, processors and recyclers were phased out and another 1,015 plants were temporarily closed. Reduced production of lead-acid batteries, accounting for about 70 percent of the country's consumption of refined lead, have supported battery prices in the second half of the year, spurring large battery makers to boost production. But overall production remains lower than last year. Many small and medium battery makers that were closed would not be allowed to reopen next year due to environmental concerns and would trim lead demand, a sales manager at a large lead smelter said. "There is a low chance that lead demand will rise in 2012. Additional production from large battery makers cannot fully cover lost production from those smaller ones," the sales manager said. ALUMINIUM, NICKEL, ZINC, TIN Primary aluminium demand growth may slump to single digits in 2012 after rising some 12-13 percent to 18-19 million tonnes this year, industry sources said. "China's demand is there, it won't go anywhere. The issue would be whether end-users have money to buy aluminium," said a manager at an aluminium smelter in Guizhou province. For nickel, demand is expected to slow in 2012 from a rise of up to 20 percent expected this year due to smaller output growth in stainless steel production, the top nickel user in China, said Fan Runze, analyst at Antaike. He sees nickel demand at 580,000-600,000 tonnes this year, with stainless steel output at 14 million tonnes from 11-12 million tonnes in 2010. Antaike also sees tin consumption growth at less than 5 percent next year, after growing 2.5-3 percent to about 155,000 tonnes this year, analyst Ran Jun said. Consumption for refined zinc may rise 8-9 percent to 5.4 million tonnes in 2012, compared to a gain of 5-6 percent expected this year, Lei Xiaoli, zinc analyst at Shanghai-based information provider SMM said. She said power shortages and tight environmental checks to zinc alloy plants and zinc galvanizing plants had cut zinc demand this year and those conditions would improve next year. China's building of affordable houses also would boost demand for zinc galvanized steel, Lei said.

An employee works in a ferronickel smelter owned by state miner Aneka Tambang Tbk at Pomala district in Indonesia's southeast Sulawesi province. REUTERS/Yusuf Ahmad 43

COLUMN-Recycling the key to a balanced lead market (The opinions expressed in this article represent the views of the author. They should not be seen as necessarily reflecting the view of Reuters.) By Huw Roberts, lead specialist at CHR Metals Limited LONDON, Oct 3 (Reuters) - he global lead industry can justifiably congratulate itself on the extent to which recycling satisfies demand for the metal. T Lead is recovered from scrap, principally batteries, and also from a range of other industrial residues and wastes. CHR Metals forecasts that global refined lead output in 2011 will exceed 11 million tonnes for the first time and that 65 percent of this production will be from secondary sources. Taking China out of the equation lifts the share of secondary production to 77 percent. With lead-acid batteries accounting for 85 percent of global lead demand, and with almost all these batteries likely to be recy- cled at the end of their useful lives, the proportion of secondary production will inevitably increase over time, reaching at least 70 percent worldwide by 2015.

Miners ride an elevator to the underground in a pit-shaft at Polkowice-Sieroszowice mine in Polkowice near Lubin, southern-western Poland. REUTERS/Kacper Pempel

COLUMN-The tarnished outlook for industrial metals (The opinions expressed in this article represent the views of the author) By Frances Hudson, global thematic strategist at Standard Life Investments LONDON, Oct 3 (Reuters)- here is broad agreement amongst analysts and mining companies on the market outlook for industrial commodities - weak demand in the short term but stronger medium and long-term prospects. Supply constraints are less discussed against such a background. T However, it is probably just as easy to make the counter argument that the short-term outlook is too negative but medium-term demand will be subdued as the debt and deficit deleveraging process plays out and the EU and the US attempt to put their economic houses in order.

Workers are seen through a steel tube at a steel products market in Hefei, Anhui province September 20, 2011. REUTERS/Stringer

Workers prepare for a blasting operation in a quarry at the Ariab mine. REUTERS/Mohamed Nureldin Abdallah 47

COLUMN-China's FDI in mining -threat or opportunity? (The opinions expressed in this article represent the views of the author.) By Magnus Ericsson, Professor of Mineral Economics at Lulea University of Technology in Stockholm, senior partner Raw Ma- terials Group LONDON, Oct 3 (Reuters) - he Chinese scramble for mineral resources in Australia, Africa and around the world is seen as one example of a Chi- nese strategy to take control of vital resources. T But how important is the Chinese influence over world mine production? China has become the world's largest mining nation, overtaking Australia and rapidly increasing its domestic production during the past 5-7 years in particular. In 2008 China accounted for 14.8 percent of the total value at the mine stage of metals produced in the world. Australia is in second place followed by Chile and Brazil. If coal were included, China's lead would increase as it is by far the most important coal producer. The total value of metal production controlled by Chinese-based companies outside China in 2009 is however considerably less than 1.0 percent of the total value measured in the same way as above. This is much less than that controlled by Canadian, Australian or UK-based mining companies, for example. Included in this figure are only mines which are already producing and in which Chinese owners have at least shared control. The overwhelming majority of Chinese investments in operating mines have been made in its neighbouring countries: Mongo- lia, Vietnam; Afghanistan for example, as well as in Australia, mostly in search for iron ore deposits. The Chinese influence over non-fuel mineral production in Africa, which has often been highlighted as the continent on which the Chinese focus in their scramble for resources, is only marginal, probably below 0.1 percent. But perhaps the present situation is changing rapidly and many more Chinese-controlled projects will come into operation in the near future? Even if we look at the projects, which at present have Chinese investors with controlling interests but which are not yet in production, the number and size of these future mines do not give support to any scary scenario. The Chinese are far from taking control over the mineral resources of Africa and definitely not the world. Given the present strong push for further investments into overseas mining operations, it is probable that the Chinese influence over world mining will increase but it will take years before Chinese companies and China become a powerful global player in the mining industry. From the viewpoint of African and other mineral-rich emerging economies, strong demand for metals from China and concerns in the industrialised countries that their future supply might be threatened open opportunities to create a competitive situation where they could get better deals than before. These emerging countries must, however, have the internal capacity, competence and resources to manage their mineral resources and the rents they generate. The lack of human resources is often the weakest link. 48

Workers prepare for a blasting operation in a quarry at the Ariab mine. REUTERS/Mohamed Nureldin Abdallah 49

SINGAPOREGOLDCOMMODITIESGOLD:—————DEMAND,LME WEEK: REBOUNDSHITSHOVERS WILL ECONOMY, RECORDFOCUS RISKINTERNATIONAL SHIVERBATTEREDNEAR AVERSION ON ON HIGH RECORDS PRICES JAPAN DEMAND, AFTER BYABOVE BANISH DEBT INSHARPESTENERGY U.S. ON FOCUS ECONOMY $1,622/OZ CREDIT DOWNGRADE U.S. CORRECTION WEEK—SPECIAL ATDEBT LOSS DOWNGRADELME AND WOES SINCE WEEK PRICESDESPITE FEARS? MAY PDF CORRECTION FEARS NOVEMBER OCTOBER AUGUSTAUGUST AUGUST JULY 20112010 20112011

REUTERS INSIDER (Click on the headlines to view the show) • Copper prices to rally sharply on China demand: Macquarie • Aluminium Growth Prospects to Outshine Peers: CRU • Asian appetite for copper stays firm, price to rise: Codelco CEO • Long-term copper prices to jump by 20 pct: Reuters Poll • Chile cuts mining deaths by 50 pct, mining minister says • Commodity warehousing: the new gold mines

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