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Bu

siness

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38January 2011

Bullish USEconomic DataBoosts Prospectsfor MetalsDemandMetal prices rose after measures of US service industries

and payrolls in December rose more than analysts forecaboosting prospects for the economy and metal demandReports showed that US companies added almost threetimes more jobs in December than analysts forecast and

service industries rose at the fastest pace since May 2006The dollar rose for the third straight day against a

basket of major currencies.

ositive US economic data and expectationof higher Chinese imports have ticked thePbase metals and boosted the demandoutlook. Three-month copper on the London MetalExchange rose as much as 1.4 percent to an all-timehigh of $9,631.75 a tonne on December 31st 2010, up30 percent in 2010, and was heading for a secondannual increase. Copper rallied in 2010 onexpectations that usage will outpace supplies in2011 as the global economy extends a recovery andmining companies fail to keep up with demand as newreserves become harder to find and the quality of oredeclines. The potential for exchange-tradedproducts or ETPs has also increased investorinterest in the metal used in cars and householdappliances. ETF Securities Ltd introduced ETPs

thbacked by copper, tin and nickel on December 102010. BlackRock Inc and JPMorgan Chase & Co havesaid they plan to start funds backed by copper.Copper RisingthEarlier on December 24 2010, copper climbed0.6 percent a ton on the London Metal Exchange(LME), as an extended port closing in Chile, theworld's largest producer, may curb supplies of themetal. "The uptrend remains intact given favorabledata and news from the US," Peng Qiang, an analystat Cofco Futures Co said from Beijing. Householdpurchases in the US rose 0.4 percent after a 0.7percent increase in October that was almost twice aslarge as previously estimated, figures from theCommerce Department showed recently. First-timefilings for jobless insurance declined by 3,000 to

th420,000 in the week ended December 18 2010,accord ing toL a b o rD e p a r t m e n tfigures. In Chile,the port at AngloAmerican Plcand Xstrata Plc'sC o l l a h u a s iven tu re , t heworld's third-largest copperm i n e , m a yremain closedfor 'a couple ofmonths' aftermeeting with anaccident, saidMiguel AngelDuran, Anglo'shead of Chileano p e r a t i o n s .C o p p e r m a yrally to newrecords as China

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imports more of the metal in the first

quarter and the launch of exchange

traded products locks up physical

supplies, Yang Changhua, a senior

analyst at metal researcher Beijing

Antaike Information Development Co.

said.

copper would intensify its

deficit in 2010. The recent report from

International Copper Study Group

(ICSG) showed that the refined copper

market balance was in production

deficit of 80,000 tonne in September

2010. After making seasonal

adjustments the production deficit

stood at 60,000 tonne in September

2009. The apparent refined copper

market balance for January-September 2010 was 436,000 tonne.

This compared to a production deficit

of 55,000 tonne, in Jan-Sept 2009. The

world apparent usage grew by 8

percent in January-September 2010,

compared to the corresponding period

previous year. China apparent usage

was up by 4.5 percent during first 9

months. Production in Chile was up by

1.5 percent from its low level during

the same period of 2009, but output

from, Peru, the United States, Australia

and Indonesia decreased by an

aggregated 7.5 percent (2,45,000

tonne).During the first nine month of 2010,

world-refined production increased by

5 percent (70,000 tonne) compared

with production in the same period of

2009: primary production increased by

1.9 percent, while secondary

production (from scrap) increased by

The stronger than anticipated

demand for

24.5 percent. The

I n t e r n a t i o n a l

Copper Study Group

is expect ing a

4 3 5 , 0 0 0 - t o n n e

global deficit in therefined metal in

2011, prompting

analysts including

those at Goldman

Sachs Group Inc.

a n d S t a n d a r d

Chartered Plc to

forecast h igher

prices in 2011.

Jeremy Gray, Standard Chartered's

global head of equity research for

resources, forecast in an August report

that copper may rise to $12,000 a tonne

in the next two year. Copper stockpiles

in LME warehouses have shrunk 25percent this year, on course for the

first annual decline since 2004.

Tin best LME PerformerCopper is the second metal on the

LME after tin to set a record this year

as the global economy recovered from

the recession. Tin, the LME's best

performer this year, reached a recordth

$27,500 a tonne on November 9 2010,

as production was limited in Indonesia,

China and the Democratic Republic of

Congo. A La Nina weather event

brought heavier-than-usual rainfall to

parts of Australia and Asia in 2010,

curbing tin production in Indonesia, thebiggest exporter. Power cuts in China,

the world's largest producer, also

curbed output. In the Democratic

Republic Congo, Africa's largest

producer of the metal used in

soldering, a general ban on mining was

imposed in September in three eastern

provinces. Tin in London was trading atst$26,500 a tonne on December 31

2010, while aluminum to $2,449 a

tonne. Zinc was little changed at $2,410

a tonne and the stainless steel

ingredient nickel gained and was

traded at $24,420 a tonne. lead too

climbed at $2,537 a tonne. In Chile, theport at Anglo American Plc and Xstrata

Plc's Collahuasi venture, the world's

third-largest copper mine, may remain

closed for 'a couple of months' after

meeting with an accident, said Miguel

Angel Duran, Anglo's head of Chilean

operations . Copper may rally to new

records as China imports more of the

metal in the first quarter and the launch

of exchange traded products locks up

physical supplies, Yang Changhua, a

senior analyst at metal researcherBe i j i n g A n t a i ke I n f o rma t i o n

Development Co. said.

Aluminium FactorAmong the other base metals the

aluminum smelters in China may face a

"critical shortage" of power that

prevents them from ramping up output

in the first quarter of 2011, helping to

buoy prices as stockpiles decline

further, according to Macquarie GroupthLtd. On 24 December 2010, the three-

month aluminum in London climbed 1

per cent to $2,456 a tonne. The

galvanizing material zinc rose 0.3 per

cent to $2,305.75 a tonne, while thebattery material lead fell 0.4 per cent to

$2,440 a tonne. The stainless steel

ingredient nickel gained 1.5 per cent to

$23,960 a tonne. The metal has

advanced 26 per cent so far in 2010.

Tin dropped 0.7 per cent to $26,700. It

had hit an all-time record high of

$27,500 per tonne in October, and has

soared a massive 53 per cent since

January 2010.

The aluminium markets were in

surplus during January to October 2010

although the same declined from 2009.

The total primary aluminium surplus

was 318,000 tonne in January toOctober 2010 as against 1458,000 ton

in January to October 2009. For the

whole year the surplus for 2009 was

1835,000 ton. The report from World

Bureau of Metal Statistics showed that

the demand for primary aluminium was

33.6 million tonne in January to

October 2010. This was higher by

4,650 tonne from Jan-Oct 2009. The

production during January to October

2010 was up by 35,10,000 tonne.

Overall, global production rose in

January to October by 11 .5

percentYoY. As per report, in October,

the primary aluminium production was33,20,100 tonne and consumption was

32,54,000 tonne. Chinese output was

13,741,000 tonne and this currently

accounts for just fewer than 41 percent

of the world production total. China is

now a net exporter of unwrought

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40January 2011

aluminium with exports exceedingimports by 295,000 tonne.The Russia-based world's topaluminium maker, Rusal said that in2011 aluminium prices at $2,400-

$2,500 per tonne and global demand forthe lightweight metal to rise 8 per cent.The company said the spot marketprice for alumina, which is used in theproduction of aluminium, may reach$400 per tonne in 2011 on strongdemand from China and other regions,it said in a statement. Referring to aguidance of $2,400-$2,500 per tonnefor the fourth quarter, Rusal's DeputyChief Executive Oleg Mukhamedshinsaid, "Aluminium prices in 2011 wouldbe roughly be at current levels orh igher . " S imul taneous ly , TheAluminium Corporation of China wonapp rova l f rom the Pe ruv i angovernment to start work on theToromocho copper mine in Peru. Theinvestment on the mine will total $2billion to $2.5 billion. Chalco acquiredToromocho copper mine in 2007 for$800 million. The mine has total copperreserves of 13 million tonne amountingto 19% of Chinese domestic copperreserves. The mine annual output ofcopper totals 2,50,000 tonneequivalent to one fourth of China's totalannual copper output. The mine'sreserves are sufficient for at least 36years of exploitation.

Fueled by Chinese demand, Chile'smining chamber is expecting the pricesfor copper to remain high for the nexttwo to three years. Miguel Angel Duranhead of the chamber said that a monthlong strike at Chile's giant Collahuasicoppers mine could hit the deposit'sannual output target. Mr. Duran said,"China continues to be the motor. Ithink in general we are optimistic thatthis will continue - though not at $4.20per lb - for the next 2 to 3 years. Hesees a risk that sustained high pricescould prompt manufacturers tosubstitute other materials for the redmetal like aluminium.Future Outlook

The state-owned aluminium majorNalco announced that it has selectedUAE-based RAK Minerals as JVpartner for its Rs.18000 crorealuminium-cum-power project in

Indonesia and is looking at commencing

work on it by June 2011. The company

is planning to set up 0.5 million tonne

per annum (mtpa) aluminium smelter

and 1,250 MW captive thermal power

plant in East Kalimantan, Indonesia,part of its ongoing Rs. 58,000 crore

capacity expansion plans. "We have

selected Ras-al Khaimah Minerals as

one of the JV partners for the project,

while others would be finalised soon.

NALCO will have majority stake in the

JV," Nalco's Director (Finance) B L

Bagra said. JV agreements are likely to

be finalised in six months and the

company hopes to start work on the

projects by June 2011, he added. He

also said that an Indonesian state-

owned mining firm too has evinced

interest in the project, which will have

debt equity ratio of 70:30. Thecompany's investment would be 15 per

cent of the total project cost, while the

JV partners would fund 15 per cent and

the remaining 70 per cent would come

through loans. Nalco, which is Asia's

largest integrated aluminium complex,

encompassing bauxite mining, alumina

refining and aluminium smelting had

inked a pact with Government of South

Sumatra, Indonesia for the projects in

January 2008. However, the project

remained stuck following delays in

development of port at Tanjung Api-

api and railway line in South Sumatra.

Later , Indones ian InvestmentCoordination Board gave approval for

alternative location.

The state-owned copper miner

Hindustan Copper Ltd (HCL) is

planning to develop a new mine with

about 50 million tonne of ore reserves

in Jharkhand as part of its strategy to

ramp up capacity to 12.5 MT, from 3.5

MT, by 2017. The development comes

ahead of the copper major's about Rs

4,000 crore share sale programme

next year, mainly to fund its expansion.

"HCL proposes to engage reputed

contractors for developing new

underground mine at Chapri-Sideshwar, Indian Copper Complex,

Jharkhand," the company said recently.

The Chapri-Sideshwar block in

Singhbhum district of Jharkhand

comprises Chapri and Sideshwar

blocks and has ore reserves of 49.28

million tonne. The company is also set

to reopen another closed copper mine

(Rakha mine) in Jharkhand, with

estimated coal reserves of about 34

million tonne. Post-opening, HCL plans

to mine 1.5 million tonne of copper ore

per annum from this mine. Mining

operations in Rakha were suspended in

July 2001 after it was waterlogged. The

company has a similar plan of

reopening its closed Kendadih coppermine in the state. Also, under the

expansion plans, the company will

increase the capacity of Malanjkhand

mine in Balaghat district of Madhya

Pradesh from 2 mtpa to 5 mtpa and

Khetri copper complex in Rajasthan

from 1 mtpa to 3 mtpa. The company is

also eyeing copper assets in countries

like Namibia, Chile, and Afghanistan,

besides forging alliance with another

mining PSU Nalco. HCL's 20 per cent

share sale programme, aimed at

garnering about Rs 4,000 crore, which

was scheduled for this month has now

been deferred to next year. TheCabinet, in June, had approved the

disinvestment of 10 per cent paid up

equity capital of HCL out of

government's shareholding along with

issue of fresh equity of equal size by