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COMMODITY NEWSBRIEFS: 14 MARCH 2016

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Natasha.Havenga@transnet.net

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FAST MOVING CONSUMER GOODS DROUGHT EXPECTED TO HIT CITRUS EXPORTS (FTW, 14/3/2016) South Africa’s drought is expected to hit the citrus industry this year, reducing the citrus harvest and resulting in smaller-sized oranges that will be harder to sell to the country’s main export markets, according to the Citrus Growers’ Association (CGA). “The big concern now is we have small amounts of small fruit and a lot of markets don’t like small fruit. They like big fruit,” Justin Chadwick, chief executive officer of the CGA was quoted by Bloomberg news agency as saying. Subsequently, Chadwick anticipates a reduction in export volumes. One ray of hope however has been the rainfall in the Eastern Cape province, the country’s biggest producer of lemons, accounting for 50% of total output. Chadwick said that the region had had good rains toward the end of last year, filling dams sufficiently for irrigation farming. As a result, fruit coming from that area has helped supplement other regions that were harder hit. Chadwick could not say by how much the export volumes would be reduced this season. South Africa exported 1.77 million metric tons of citrus fruit last year. WIDER CONSUMER PRICE INFLATION COMING – ECONOMIST (News24, 14/3/2016) A sharp move higher in average purchasing price and selling price inflation indicators in the latest Business Confidence Index (BCI) of the Bureau of Economic Research (BER) suggests a wider increase in consumer price inflation in upcoming months, MMI economist Sanisha Packirisamy warned on Sunday. She pointed out that the underlying survey detail showed a sharp increase in average selling prices in the retail sector - finally following trends observed in the wholesale sector - but measures of profitability deteriorated further. "Over the past three quarters there has been a distinct disconnect between muted retailer sentiment and relatively firm retail sales growth as captured by Stats SA, leaving us cautious on growth in household consumption expenditure," explained Packirisamy. "Lower-income earners are increasingly facing higher food costs and the threat of further job losses, well upper-income earners are more exposed to rising interest rates and a slowdown in growth in net wealth creation on the back of recent movements in equity and home prices." According to the BER, domestic indicators of sales and order volumes dipped further in the first quarter of 2016, with wholesalers and retailers reporting a further deceleration in the growth of orders placed. "Meanwhile, underlying survey indicators gauging the export industry surprised negatively and point to further downward pressure on nominal manufactured goods exports as captured in the Sars Trade Statistics data," she said. She added that, in general, although SA is already quite far in the downturn of the current economic cycle, data implies that economic conditions could get worse before they get better. "We do not expect the economy to expand by more than a 1% this year and close to 1.5% in 2017 with risks remaining to the downside as headwinds to domestic demand escalate. Moreover, a disappointing survey result on manufactured export orders suggests

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that suppressed global economic conditions and low commodity prices may partly offset the benefit of a weaker currency," she said. IRON IRON ORE’S ‘INSANE’ ADVANCE GETS ROLLED BACK AS WILD WEEK ENDS (Mineweb, 14/3/2016) Iron ore sank, adding to signs the record leap at the start of the week wasn’t justified given the global market’s poor fundamentals, with banks and even miners lining up to say the spurt was destined to fade. Ore with 62% content delivered to Qingdao retreated 1.4% to $57.09 a dry metric ton, according to Metal Bulletin. The price has declined every day after Monday’s 19% rally to $63.74, the biggest gain in daily data going back to 2009. Friday’s drop was foreshadowed by losses in futures in Singapore, which fell near $50. “The insane rise at the start of the weak was irrational and is unlikely to continue,” said Huang Huiwen, an analyst at Shanghai Cifco Futures Co. “Usually after a period of abrupt gains, prices tend to drop back quite sharply. I think we’ll see that in iron ore.” Iron ore has advanced in 2016, surprising many forecasters who’d expected a fourth year of losses driven by a global glut of seaborne ore and slowing demand for steel in China, the largest user. Prices had surged on Monday after bullish comments on economic growth from China’s senior leadership, spurring speculation that some investors had been forced to rush to reverse bets on losses. After the jump, both Goldman Sachs Group and Citigroup reiterated bearish forecasts for iron ore. “There’s not going to be a huge increase in steel demand, I think most people get that,” said Huang. “A reasonable price range for iron ore should be between $45 and $55.” MINERAL MINING COMMODITIES SLUMP MIGHT GIVE SOUTH AFRICA 'BREATHING SPACE' TO PREPARE FOR NEXT UPTICK (Mining Weekly, 14/3/2016) It has generally been acknowledged among industry insiders that, compared with its global counterparts, Africa’s mining industry has significantly underperformed in recent years, despite market challenges and the continued commodity slump impacting on the global mining industry. Moreover, South Africa – once considered the darling of mining in Africa and a gateway to the continent by investors – has been scapegoated as one of Africa’s primary underachievers. It was also acknowledged by – among others – Mineral Resources Minister Mosebenzi Zwane at this year’s Investing in African Mining Indaba that, owing to a lack of reliable infrastructure and ongoing regulatory uncertainty, South Africa missed the boat on the last commodity supercycle. The cycle, which soared because of rising demand from emerging economies, especially China, in the early 2000s, is unlikely to reoccur in this lifetime, according to industry commentators. “South Africa missed the commodities boom, which spanned from 2004 to 2011, and, thus, a unique opportunity to develop infrastructure, as well as properly stimulate the upstream and downstream mining sector,” says law firm Herbert Smith Freehills partner and Africa co-chairperson Peter Leon, who attributes the country’s failure to take advantage of the upcycle to regulatory inefficiency and inadequate infrastructure, which inhibited both mineral production and exports. South Africa also failed to prepare for the subsequent downturn, which started to stoop in 2008 and 2009, midway between the supercycle, and continued to slump into 2013, sparked by the credit and sovereign debt crises, says EY mining and metals sector leader Wickus Botha. This inaction, in particular, has since birthed understandable doubt about whether South Africa’s mining industry will be able to recover from the current slump to prepare for the next uptick. Botha points out, however, that the previous supercycle was primarily driven by demand for iron-ore, coal, copper and other base metals. “South Africa’s basket of commodities, however, is more exposed to precious metals and less to these commodities,” he says. South Africa, for example, contributed 78-million tonnes of iron-ore in 2014 – less than 5% of iron-ore produced globally. Other mining-intensive countries, like Australia and Brazil, contributed 660-million tonnes and 320-million tonnes in 2014 respectively, while China produced 1.5-billion tonnes that year. With this in mind, Botha notes that the current slowdown is providing countries like South Africa with some “breathing space” and, if used wisely, it could help South Africa position itself for the next growth cycle. Reflecting on the current state of the mining industry, Randgold Resources CEO Dr Mark Bristow reminded Mining Indaba delegates last month that, despite facing similar economic headwinds in the mid-1990s, Africa’s mining sector managed to keep its head above water. Taking the most recent supercycle into account, Bristow accused many African host governments of being shortsighted in trying to harvest as much as they could as fast as possible and, in some cases, delaying the advancement of mines. However, mining companies were a lot more cash flush at the time and were thus able to continue operating, while the latest low-price environment has “bitten deeper and lasted longer” than expected, comments Beech. Nevertheless, Botha maintains that the limited availability of reliable infrastructure, logistics and energy are still the biggest challenges that mining

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companies with operations in Africa are facing. “For this reason, juniors and midtier miners are doing better than the majors, which rely on sufficient infrastructure, bulk transportation and efficient logistics, with the large companies having turned their focus towards the key bulk commodities in areas where the infrastructure allows for large-scale mining operations.” Botha adds, however, that there have been continued improvements in terms of infrastructure projects across Africa, which is providing opportunities for new mining operations of a larger scale on the rest of the continent, but not necessarily in South Africa. GENERAL SOUTH AFRICA'S DEBT ALREADY PRICED FOR JUNK AS GROWTH SLOWS (Engineering News, 14/3/2016) An expected cut in South Africa's credit ratings to "junk" grade is already being priced in by investors who are increasingly shunning the country's financial assets. Africa's most industrialised economy is seen at risk of losing its investment-grade status because of persistently weak growth and large deficits. Many investors are also unhappy with President Jacob Zuma's handling of the economy. A change in ratings to speculative grade, known as "junk", typically leads to a sharp rise in borrowing costs. That would be bad news for South Africa, whose debt servicing needs are already projected by the Treasury to rise to nearly R180-billion ($12-billion) in 2018/19. But South African dollar debt trading in JP Morgan's Emerging Markets Bond Index is already yielding more than that of countries with similar credit ratings, such as Romania or India, and even some lower-rated peers like Russia and Turkey. "A lot of things that people say would happen if we are downgraded, have already happened," NKC African Economics analyst Francois Conradie said. "A lot of capital left the country in the second half of last year, especially in December." "Even at investment-grade we are already paying as much as other countries that are sub-investment grade -- it's like we have already been downgraded." South African bonds in the EMBI Global index were trading at a premium of 410 basis points over US Treasuries on Friday, while Russian bonds traded at just 274 basis points. Yields on the benchmark domestic government bond have jumped as much as 62 basis points since early December, when Zuma alarmed investors by changing finance ministers twice in a week, while the rand has fallen nearly 5 percent against the dollar. The economy is forecast to expand just 0.9 percent in 2016 while the country has large budget and current account deficits which it has relied on foreign investors to finance. But sentiment towards South Africa has deteriorated since Zuma's sudden switch of finance ministers in December. That same week, foreign investors sold a net R5.6-billion of South African shares, according to data from the Johannesburg Stock Exchange. JSE data also shows foreign investors sold a net R965-million of stocks last year after buying a net R13-billion in 2014. While they were net buyers of the country's bonds to the tune of R778.5-million, that was much less than the R2.9-billion they bought in the previous year. Business confidence among local investors has meanwhile fallen to a five-year low. Markets have calmed since Pravin Gordhan, respected for a previous stint at the ministry, was appointed as finance minister but any rating cut is still likely to trigger a further sell-off in South African assets. "Even if markets expected (the downgrade), some forced selling from funds and investment managers would ensure some degree of volatility," IGM analyst Christopher Shiells said. CURRENCIES AND PRICES

JSE AS AT 17:00PM 11 MARCH 2016

All Share Index

11/03 51,740 + 0.40%

Industrials Index

11/03 42,205 - 0.83%

Financials Index

11/03 40,788 - 0.15%

Top 40 Index

11/03 45,761 + 0.47%

Industrial 25 Index

11/03 70,283 + 0.53%

Financial 15 Index

11/03 14,932 - 0.49%

Resources 10 Index

11/03 29,870 + 1.03%

Alt-X Index

11/03 1,501 + 0.31%

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WORLD INDICATORS

FOREX

Rand/Dollar 06:31 15.2295 - 1.05%

Rand/Pound 06:45 21.8710

- 0.37%

Rand/Euro 06:45 16.9941 - 1.15%

COMMODITIES

Gold (usd/oz) 06:48 1,254.70 - 1.45%

Platinum (usd/oz) 06:46 967.00

+ 0.01%

Brent (usd/barrel) 06:27 40.42 + 0.92%

WORLD MARKETS

Wall St (DJIA) 11/03 17,213 + 1.28%

Germany (DAX) 11/03 9,831

+ 1.11%

Japan (Nikkei) 06:47 17,225 + 1.69%

3 month

(Business Report, 14/3/2016)

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(TFR Commercial Management: Business Performance Dept) Daily prices for 11 March 2016

LME Official Prices, US$ per tonne

Contract Aluminium Alloy Aluminium Copper Lead Nickel Tin Zinc NASAAC

Cash Buyer 1570.00 1548.00 4940.00 1839.00 8765.00 17070.00 1791.00 1675.00

Cash Seller & Settlement 1580.00 1548.50 4941.00 1840.00 8770.00 17075.00 1792.00 1675.50

3-months Buyer 1590.00 1559.00 4930.00 1835.00 8805.00 16900.00 1792.50 1685.00

3-months Seller 1600.00 1559.50 4932.00 1835.50 8810.00 16925.00 1793.00 1690.00

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Contract Aluminium Alloy Aluminium Copper Lead Nickel Tin Zinc NASAAC

15-months Buyer 16485.00

15-months Seller 16535.00

Dec 1 Buyer 1660.00 1623.00 4890.00 1840.00 8925.00 1785.00 1735.00

Dec 1 Seller 1670.00 1628.00 4900.00 1845.00 9025.00 1790.00 1745.00

Dec 2 Buyer 1668.00 4885.00 1845.00 9025.00 1755.00

Dec 2 Seller 1673.00 4895.00 1850.00 9125.00 1760.00

Dec 3 Buyer 1728.00 4885.00 1875.00 9110.00 1743.00

Dec 3 Seller 1733.00 4895.00 1880.00 9210.00 1748.00

(London Metal Exchange, 14/3/2016)

Petrol/ Diesel Price

YR2016 06-Jan-16

03-Feb-16

02-Mar-16

06-Apr-16

04-May-16

01-Jun-16

06-Jul-16

03-Aug-16

07-Sep-16

05-Oct-16

02-Nov-16

07-Dec-16

COASTAL

95 LRP (c/l) 1194.00 1200.00 1131.00

95 ULP (c/l) 1194.00 1200.00 1131.00

Diesel 0.05% (c/l) 972.47 910.47 925.47

Diesel 0.005% (c/l) 977.87 914.87 928.87

Illuminating Paraffin (c/l) 594.028 535.028 552.028

Liquefied Petroleum Gas (c/kg)

1892.00 1893.00 1773.00

GAUTENG

93 LRP (c/l) 1209.00 1215.00 1146.00

93 ULP (c/l) 1209.00 1215.00 1146.00

95 ULP (c/l) 1237.00 1243.00 1174.00

Diesel 0.05% (c/l) 1005.17 943.17 958.17

Diesel 0.005% (c/l) 1010.57 947.57 961.57

Illuminating Paraffin (c/l) 647.028 588.028 605.028

Liquefied Petroleum Gas (c/kg)

2074.00 2075.00 1955.00

YR2015

07-Jan-

15

04-Feb-

15

04-Mar-

15

01-Apr-

15

06-May-

15

03-Jun-

15

01-Jul-

15

05-Aug-

15

02-Sep-

15

07-Oct-

15

04-Nov-

15

02-Dec-

15

COASTAL

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

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

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

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

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

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Liquefied Petroleum Gas

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

GAUTENG

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

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

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

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

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

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

Liquefied Petroleum Gas

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

(SAPIA online)

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