Mining Monitor (April 2017) · in Jan-Feb’17, iron ore price remained buoyant in 1Q’17, up 21% QoQ to average US$86/t. 6 Iron Ore Prices and Inventories March price ended lower

Mining Monitor (April 2017)

Strategic Research Division,

Corporate Research Office

24 April 2017

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

MUFG Union Bank, N.A.

Table of Contents

1. Overview 3

2. Iron Ore 5

3. Coal 9

4. Copper 13

Mining Monitor | 24 April 2017 2

5. Aluminum 17

6. Nickel 21

7. Zinc 25

8. Gold 29

1. Overview


Takuya Eto

Strategic Research Division,

Corporate Research Office

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.


Mined Commodity Price Trends

The prices of mined commodities increased in 1Q’17 due in part to temporary factors. In regards to the outlook, the

prices of some commodities will decrease toward 2019 due in part to supply increases that exceed demand.

1. Overview

Mined Commodity Price Trends

In 1Q’17, the price of most mined

commodities increased while the price

of coking coal and thermal coal fell.

The price of iron ore will gradually

decrease toward 2019 in view of

growing supply. Also, coking coal and

thermal coal prices will resume the

declining trend after 1Q’17 as supply

disruptions are settled amid

expectation of supply increase.

In regards to non-ferrous metals,

copper and aluminum prices are

forecast to continue to decline. Copper

prices will bottom out in 1H’18, turning

around with the expected increase in

demand growth. For aluminum, prices

will fluctuate with the seasons, affected

by regulation in China. The supply

deficit of nickel and zinc will cause

prices to trend upwards, but zinc prices

will fall after peaking in 4Q’17 as mine

production picks up.

Meanwhile, the price of gold seeds to

have bottomed out and is forecast to

trend upward toward 2019, supported

by speculative demand.

Yr Avg 1Q 2Q (f) 3Q (f) 4Q (f) 1H (f) 2H (f) 1H (f) 2H (f)

Iron Ore ($/t) 58 86 67 60 57 55 53 51 50

YoY 5% 78% 20% 2% -19% -28% -9% -7% -6%

QoQ - 21% -22% -11% -5% - - - -

Coking Coal ($/t) 142 168 199 127 124 122 120 119 118

YoY 58% 112% 119% -5% -53% -33% -4% -3% -1%

QoQ - -37% 19% -36% -3% - - - -

Thermal Coal ($/t) 65 82 90 81 77 70 63 61 60

YoY 13% 62% 72% 20% -16% -18% -20% -13% -4%

QoQ - -10% 9% -9% -6% - - - -

Copper ($/t) 4,866 5,846 5,610 5,443 5,383 5,383 5,511 5,718 5,983

YoY -11% 25% 19% 14% 2% -6% 2% 6% 9%

QoQ - 11% -4% -3% -1% - - - -

Aluminum ($/t) 1,605 1,850 1,843 1,788 1,851 1,893 1,757 1,851 1,907

YoY -4% 22% 16% 11% 8% 3% -3% -2% 9%

QoQ - 8% 0% -3% 4% - - - -

Nickel ($/t) 9,605 10,285 10,421 10,737 11,062 11,629 12,219 12,809 13,198

YoY -19% 20% 18% 5% 3% 12% 12% 10% 8%

QoQ - -5% 1% 3% 3% - - - -

Zinc ($/t) 2,091 2,779 2,834 2,920 3,008 2,971 2,904 2,797 2,714

YoY 8% 65% 47% 30% 20% 6% -2% -6% -7%

QoQ - 11% 2% 3% 3% - - - -

Gold ($/oz) 1,250 1,220 1,236 1,246 1,260 1,285 1,305 1,321 1,332

YoY 8% 3% -2% -7% 4% 5% 4% 3% 2%

QoQ - 0% 1% 1% 1% - - - -Source: Bloomberg, The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division, MUFG Union Bank, Strategic Research

20192017 20182016

Chloe Lim

Strategic Research Division (Singapore)


2. Iron Ore


Iron ore prices softened in March as

traders’ waning optimism on Chinese

demand and concern over mounting

Chinese port inventories resulted in

price fall from US$91/t to US$80/t by

month-end.

While Chinese port inventories

posted another record high in March,

its 2% MoM growth pace was slower

than 8% in February, suggesting

inventory level might be approaching

a peak.

Despite this, average price in March

(US$87/t) was only down -1% MoM.

Thanks to bullish speculative pricing

in Jan-Feb’17, iron ore price

remained buoyant in 1Q’17, up 21%

QoQ to average US$86/t.

6

Iron Ore Prices and Inventories

March price ended lower at US$80/t due to Chinese demand concerns.

2. Iron Ore

1) Price Trends

Mining Monitor | 24 April 2017

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China Iron Ore Port Inventory (RHS) Iron Ore Fines 62%, CFR China Import Spot Price (LHS)

($/t) (Mt)

Source: Bloomberg, The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division

The global iron ore market is expected

to return to surplus (+16 million tons)

in 2017, as Australia and Brazil’s

collective output will outpace marginal

growth in global consumption.

Despite weaker Chinese consumption,

continued fall in domestic output is

expected to result in a slight increase

in imports by China in 2017.

This should provide some support to

benchmark iron ore prices in the near-

term. However, as more supply enters

the market, progressive price

softening is expected in 2017.

Looking further, given more low-cost

production from Australia and Brazil

as well as lacklustre growth in China's

import demand potentially in the next

two years, rising market surplus is

expected. As such, iron ore prices are

likely to continue falling from 2018.

7

Outlook for Iron Ore Prices

Influence Factors on Iron Ore

Despite progressive price softening in 2017, prices may see some support from China’s demand for seaborne supply.

Further price decline is projected in 2018 and 2019 in view of growing low-cost supply.

2. Iron Ore

2) Outlook

Mining Monitor | 24 April 2017

2017 2018 2019

Price Trend Progressive price softening Decline

Increase Increase

・Low-cost supply addition in

Australia and Brazil, underpinned

by ramp-up of Roy Hill operation

and commissioning of Vale's

S11D project

Increase Moderately

・Steel demand growth in

developing countries (excluding

China) from infrastructure-related

investments

・Lacklustre growth in China's

import demand

Source: The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division, MUFG Union Bank, Strategic Research

Increase

Supply

・Higher low-cost supply, led by Australia and Brazil

Demand

・Steel demand growth in developing countries (excluding China)

and the United States from infrastructure-related investments

・China's imports are expected to increase slightly to offset on-going

decline in domestic production to meet demand

($/t)


Price 58 86 67 60 57 55 53 51 50

YoY 5% 78% 20% 2% -19% -28% -9% -7% -6%

QoQ - 21% -22% -11% -5% - - - -

Source: Bloomberg, The Bank of Tokyo-M itsubishi UFJ, Strategic Research Division

2017 20192016 2018


2. Iron Ore

3) News Flow

Source: Various sources, The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division

Global iron ore oversupply to pressure iron ore prices: China Iron and Steel Association (“CISA”) – 30 March, 2017

CISA represents China's biggest state-owned steel mills and generates forecasts used by the Chinese government to help formulate its five-year plan.

Speaking at an iron ore conference in Perth on 29th March, CISA’s vice president Li Xinchuang said China's steel industry has transitioned from a period

of expansion to an "era of reduction" which will see the country's steel production declining -1.9% in 2017. Despite this, Mr. Li said the Chinese market

will still require large volume of iron ore which will be served mainly by imports.

He noted the global iron ore market is expected to remain oversupply as major producers ramped up output and higher iron ore prices felt in recent

months are likely to lure domestic iron ore producers in China back to the market. He viewed iron ore prices to be volatile, ranging between US$55-

90/ton and averaging US$65/ton in 2017.

Most Australian iron ore producers preparing to invest in new developments – 28 March, 2017

Most Australian iron ore producers are expected to invest in new developments this year, driven by higher prices as well as the need to replace

dwindling reserves. Rio Tinto took the first step in developing the final stage of its Silvergrass mine valued at US$338 million, while BHP Billiton will be

studying the potential of its South Flank project to replace its Yandi operation. Fortescue Metals Group is also currently deciding on a replacement

option for its Firetail mine. Meanwhile, the country’s smaller iron ore players such as Atlas Iron, BC Iron and Mount Gibson are plotting expansions in

new mines and/or restart idle operations.

China’s state-owned infrastructure company to spend US$4.6 billion to develop port and railway in Pilbara region – 24 March, 2017

Australian Prime Minister Malcolm Turnbull and Chinese Premier Li Keqiang signed a deal in Canberra on 30th March which will see China’s state-

owned infrastructure company spending US$4.6 billion to build a port and a 160km railway to a new iron ore mine in Pilbara region of Western Australia.

The project, which already has environmental approval and is being advanced by Flinders Mines (controlled by New Zealand conglomerate Todd

Corporation), is expected to start construction as early as next year.

The iron ore mine boasts resources of over 1 billion tons and potential output of 6-10 million tons per year. This new port development located between

Hedland and Cape Lambert export terminals can eventually add 50 million tons to the seaborne market trade by reaching out to other untapped iron ore

mines located further inland.

New iron ore mine to be developed in Canada – 3 March, 2017

The Iron Ore Company of Canada (“IOC”) will proceed with the US$60 million Wabush 3 project to improve the company’s productivity gains, including

boosting output and extending the mine operating life. IOC’s CEO and president Clayton Walker said the development is the company's best option to

access to low-cost quality iron ore with the added attraction of reducing operating costs to cope with iron ore price volatility.

The project is expected to start construction in 2Q’17 and first production to commence in the second half of next year. This will help IOC to ramp up its

annual capacity from 18 million tons to 23 million tons. IOC's main shareholder is Rio Tinto.

William Cheung

Strategic Research Division (Hong Kong)


3. Coal


Average global coking coal price fell

by 37% in 1Q’17 from the last

quarter.

The price decline was because

Chinese steelmakers deferred their

buying decisions on coking coal due

to macro-control policy on China’s

property market amid rising property

prices in major cities.

Average global thermal coal price

has seen a 10% decline in 1Q’17

from the previous quarter.

The price decreased was because

winter heating season in the

Northern Hemisphere came to an

end.

Besides, the impact of global supply

disruption on coal prices has been

eased this quarter (i.e. China

maintained 330 working days for coal

operation from 276 days since last

November and coal output recovered

in Australia), putting further

downstream pressure on coal prices.


Coal Prices

Coking coal price fell in 1Q’17 as steelmakers in China deferred coal procurement. Thermal coal price fell as heating

season in the North Hemisphere came to an end. Meanwhile, the impact of global supply disruption has been eased.

3. Coal

1) Price Trends

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Spot Price (Coking Coal) Spot Price (Thermal Coal)($/t)


In 2017, global coal supply will be flat,

as output fall in China will be offset by

output rise in Australia. Coal demand

will decrease due to decline in steel

and fuel resource demand in China.

From 2018 to 2019, global coal market

will return to production surplus, but

remain at a healthy level.

Average global coking coal price will

rise to $199/ton in 2Q’17, as rail

network in Queensland was damaged

by storm. But price is likely to fall in

May after the resuming operation. Price

will continue to decline in 2H’17, due to

a fall in China’s steel demand. For

2018 and 2019, the price fall could be

due to rise in new supply globally.

Average global thermal coal price will

rise through 2Q’17, due to supply

disruption in Australia and Indonesia.

But price is likely to fall in May when

the disruption is settled. Price will

continue to fall in 2H’17, due to decline

in China’s building material demand.

For 2018 and 2019, the price decrease

could be due to modest supply

increase in China, India and Australia. Mining Monitor | 24 April 2017 11

Outlook for Coal Prices

Influence Factors on Coal

Global coal market will maintain production surplus from 2018 to 2019.

Coal prices are likely to increase in April due to supply disruption, but will resume the declining trend in late May.

3. Coal

2) Outlook

2017 2018 2019

Price TrendIncrease in April'17, but start to

decrease from May'17

Flat

・Production cut in China in 2H'17

・Production ramp up in Australia

・Flexibility in obsolete and

inefficient coal capacity cut

in China

Decrease slightly

・Decline in steel demand in China

・Switching to low carbon fuels in

in China

Source: The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division, MUB Strategic Research

Increase slightly

・New coal capacity will be launched in China, Mozambique

and Australia

・Flexibility in obsolete and inefficient coal capacity cut in China

Increase slightly

・Rise in steel consumption outside China

・Increasing industrialization in Southeast Asia

Decrease

Supply

Demand

($/t)

2016


Coking Coal 142 168 199 127 124 122 120 119 118

YoY 58% 112% 119% -5% -53% -33% -4% -3% -1%

QoQ - -37% 19% -36% -3% - - - -

Thermal Coal 65 82 90 81 77 70 63 61 60

YoY 13% 62% 72% 20% -16% -18% -20% -13% -4%

QoQ - -10% 9% -9% -6% - - - -

2017 2018 2019

Source: Bloomberg, Thomson, The Bank of Toky o-Mitsubishi UFJ, Strategic Research Div ision

With Australian coal supply disrupted, coking coal buyers race to secure needs – 6 April, 2017

Cyclone Debbie, a large scale storm, hit the northeastern state of Queensland in Australia on 28 March 2017. It did not hit directly on most of the coal

mines, but disrupted the rail infrastructure connecting the region, which produces about 50% of the world’s supply of seaborne coking coal and about

6% of global supply of seaborne thermal coal. The supply disruption caused coking price to go up from $152/ton on 31 March to $211/ton on 6 Apr, and

forced global steelmakers (i.e. China, Japan and India) to seek alternative coking coal supply for their production. According to the Australian rail

operator Aurizon, the Goonyella rail line, which covers major coking coal mines in Queensland, is expected to resume operation in 5 weeks. Meanwhile,

other rail lines (i.e. Blackwater, Moura and Newlands), which serve major thermal coal mines in the region, are expected to re-start operation next week.

Asia’s thermal coal market tightens on Indonesian port inspection – 29 March, 2017

Thermal coal supply in Asia has tightened after port disruption in Indonesia. The Indonesian government is cracking down on corruption (i.e. illegal fees

for loading coal cargo) at major ports in East Kalimantan province, which is one of major thermal coal export hubs in the world. The investigation has

disrupted coal exports around the Port of Samarinda. To date, about 38 large dry-bulk vessels are unable to berth at the port and are forced to take on

coal through some smaller loading vessels. As a result, the thermal coal supply has become tight and this caused the thermal coal price to increase by

11% from 10 March 2017, partly reversing a steep decline since last November.

China will maintain coal production policy at 330 working days in April if prices are fluctuated within a reasonable range – 7 March, 2017

China’s NDRC (National Development and Reform Commission) announced that it is not likely to lower coal output on a large scale, although the

Chinese government will continue to remove coal capacity (For details, please refer to Article 4). The announcement comes in response to market

speculation whether NDRC will tighten coal production to 276-day operation again in mid-March, after it temporarily loosened the policy to 330 days of

operation in November last year to curb coal prices. NDRC commented that it will not adjust the existing coal production policy if coal prices are

fluctuated within a reasonable range, which is up or down by 6% on base price of $77.6/ton for 5,500 kilocalories/kg NAR (Net as Received) thermal

coal. But if the price is fluctuated more than 12% from based price (i.e. below $68.1/ton or above $87.0/ton) (Note), supply adjustment will be implemented

accordingly.

China promises further cut coal capacity – 5 March, 2017

China is planning to reduce 150 million tons of coal production this year, according to the Chinese government’s draft plan for national economic and

social development released on 5 March 2017. This is the first time that coal capacity cut target has been set in the draft plan for the country. China is

the largest producer of coal; however, excess coal capacity for the country has brought negative impacts to the industry such as decline in product

price, profit reduction and rise in non-performing loans, etc. Against this backdrop, capacity cuts are necessary and have long-term benefits for the

country, according to the draft plan. In 2016, China reduced coal capacity by 290 million tons. Backed by part of this effort, coal price and industry profit

in China have seen significant improvement.


3. Coal

3) News Flow

Note: Thermal coal price in China includes VAT (Valued-added tax) and ignores freight cost from North China to South China. After deducting VAT and adding freight cost, the adjusted thermal coal price in China minus freight cost from Australia to China

will become FOB thermal coal price in Australia. For example, thermal coal price of $68.1/ton in China is equaled to FOB thermal coal price of $56.5/ton in Australia, after adjustment of VAT (17%), freight cost from North China to South China ($7.3)

and freight cost from Australia to China ($9.0).


Katia Tavarez

Strategic Research (NY)

MUFG UNION BANK, N.A.

4. Copper


After being mostly dormant in 2016,

copper prices picked up steam in

November and rallied to a high of

$6,156/t in mid-February, a 21-

month high. This upswing in prices

was driven by various factors,

including expectations of an

infrastructure rebuild program in

the US, a strike at Escondida in

Chile, issues at Grasberg in

Indonesia, and labor disputes at

Las Bambas in Peru.

However, since the recent high

prices have started to descend due

to the resumption of production at

Escondida and Grasberg,

catapulting copper inventories at

LME and SHFE warehouses and

the paring of bullish net positions in

the copper futures market.

In March, prices settled in the

$5,600/t to $6,000/t range, and

closed 1Q +6.3% compared to the

previous quarter.


Copper Prices and Inventories

After a strong rally, copper prices started to descend; still, the metal closed 1Q’17 with a gain.

4. Copper

1) Price Trends

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LME Inventory (RHS) SHFE Inventory (RHS) LME Spot Price (LHS)

($/t) (Kt)

Source: Bloomberg, MUFG Union Bank, Strategic Research

In 2016, copper output continued to

grow strongly, with very low disruption

rates. Copper demand also grew due to

infrastructure investment in China as

well as stronger production of

automobile and air conditioner in China.

In 2017, because of supply disruptions

at major copper mines, notably

Escondida and Grasberg, a small

supply deficit is now anticipated.

Beyond 2017, the fundamental outlook

is slightly changed, but still looks

relatively solid, with a market surplus of

around 100Kt expected in 2018 and a

balanced market expected in 2019, as

limited supply growth is met with

subdued, albeit steady, demand growth.

A market re-valuation of future pricing

is evident in the latest copper price leg

up. In this context, we have adjusted

our price forecast upwards, and now

expect prices to bottom out closer to

$5,300/t in 1H’18 and to reach $6,000/t

in 2H’19 as the copper market balances

out in 2019.


Outlook for Copper Prices

Influence Factors on Copper

A market deficit is expected this year, with outlook in subsequent years looking relatively solid.

Prices are expected to bottom out in 1H’18 and to reach the $6,000/t level in 2019.

4. Copper

2) Outlook

($/t)


Price 4,866 5,846 5,610 5,443 5,383 5,383 5,511 5,718 5,983

YoY -11% 25% 19% 14% 2% -6% 2% 6% 9%

QoQ - 11% -4% -3% -1% - - - -

Source: Bloomberg, M UFG Union Bank, Strategic Research

2017 20192016 2018

2017 2018 2019

Price Trend Decrease modeartely

Supply Increase Moderately Increase Increase Moderately

・Continuous supply increases by

low-cost players are partially

offset by supply disruptions at

major mines

・Higher supply growth from major

producing countries such as

Chile and Peru

・Restart of Glencore's African

operation

・Lower supply growth from major

producing countries such as

Chile and Peru

Demand


Increase

Increase Moderately

・Lower, albeit stable, demand growth in the absence of meaningful re-acceleration factors

Workers strike comes to an end at Cerro Verde – 31 March, 2017

Approximately 1,300 union employees at Freeport-McMoRan’s Cerro Verde copper mine in Peru returned to work, ending an 18-day strike. The

worker’s union accepted Freeport’s offer to improve family healthcare benefits and pay workers their share of the mine's profits earlier than normal.

Even though Freeport asserts that the strike had no meaningful impact on production, the union said that the strike interrupted Cerro Verde’s production

of around 40,000 tons of copper per month. Cerro Verde is Peru’s largest copper mine.

Cochilco raises 2017 copper price forecast – 29 March, 2017

Chile’s Cochilco, the state copper commission, made upward revisions to its copper price forecast for 2017 following the supply shocks at some of the

world’s largest copper mines. Cochilco estimates that world demand for copper will grow by 2-3% in 2017 and that there will be a deficit of around

200,000 to 250,000 tons of copper after the supply reductions at Chile’s Escondida mine and Indonesia’s Grasberg mine. Average copper prices will be

at $2.50-2.55/lb (or $5,508.4-$5,618.6/t) in 2017, up from a forecast of $2.40/lb (or $5,288.1) in January.

Escondida workers put an end to strike – 24 March, 2017

The worker’s strike at Chile’s Escondida was put to an end after workers decided to use an infrequently used legal provision that allows them to extend

their old contract for 18 more months. The strike, carried out by the union’s 2,500 workers, started on February 9 and lasted 43 days after a failure to

reach an agreement on new wages and benefits contracts. Talks will resume again in 18 months when the current contract expires. Escondida, which is

operated by BHP Billiton, is the world’s largest copper mine.

Production at Grasberg resumes – 20 March, 2017

Freeport-McMoRan has resumed the production of copper concentrate at its Grasberg mine in Indonesia, ending a 38-day stoppage. Freeport

readjusted its operations to 40% of its regular capacity and ended a stoppage that began on February 11th after the government of Indonesia prevented

the company from exporting copper concentrates. Talks between Freeport and Indonesia are ongoing. Grasberg is the world’s second largest copper

mine.


4. Copper

3) News Flow

Source: Various sources, MUFG Union Bank, Strategic Research

Tom Haddon

Strategic Research Division (London)


5. Aluminum


In the first half of March prices steadily

declined losing 5% to hit $1,845 per

tonne. Prices then recovered to finish

the month at $1,962, just 2% up

compared to end of February price.

Prices at the beginning of March were

under pressure by returning Chinese

exports which traditionally dip during

February due to the Lantern Festival

disrupting production operations.

However come mid-March, expectations

rose that efforts to curb pollution during

winter in China will be carried out. LME

inventories also decreased suggesting

production cuts could lead to a tighter

global market, pulling pricing higher.

In fact the Chinese government seems

to have already begun a environmental

clampdown with several smelters

reporting surprise inspections and at

least one (Linfeng Aluminum & Power)

closing some capacity as a result.

Therefore the market is wary of some

approaching uncertainty and prices

have been supported as a result.


Aluminum Prices and Inventories

While the market remains fundamentally oversupplied by Chinese capacity, prices are reflecting approaching

uncertainty around supply disruptions from a Chinese environmental clampdown.

5. Aluminum

1) Price Trends

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LME Inventory (RHS) LME Price (LHS)($/t) (Kt)


Due to the very likely policy change in

key Chinese producing regions, where

production will be curtailed during the

winter to prevent pollution, the forecast

model has been reworked to include the

seasonal volatility this will bring.

The return of Chinese smelters in Q1’17

in an improving price environment is

expected to continue from record

January output. However, the halting of

production from smelters in winter which

are estimated to produce 17% of output

will limit the extent of the surplus.

However a likely clampdown on

environment standards will see

inefficient Chinese units forced from the

market, pushing it into deficit by 2018.

For pricing, this will mean a higher

range than previously forecast with

seasonal trends of decreases in

summer months as smelters try to

maximize production, with a tighter

market in the winter months. Therefore

Q1 & Q4 prices in each year will see

stronger performance.


Outlook for Aluminum Prices

Influence Factors on Aluminum

The likely Chinese government policy to limit production in the winter months has led to revising up the forecast

price range with price performing most strongly in Q1 & Q4 of each year.

5. Aluminum

2) Outlook

($/t)

2016


Price 1,605 1,850 1,843 1,788 1,851 1,893 1,757 1,851 1,907

YoY -4% 22% 16% 11% 8% 3% -3% -2% 9%

QoQ - 8% 0% -3% 4% - - - -


2017 2018 2019

2017 2018 2019

Price Trend Increase in Q4

Increase

・Returning mothballed

Chinese smelters remain

in the market, following

record production in Jan'17


Supply

Demand

Overall flat but Q1 & Q4 will see increases

Increase

・Solid demand growth from transport and consumer market

Increase moderately

・Restriction of output on pollution grounds could affect

up to 17% of Chinese output in Q1 & Q4 each year,

limiting supply growth.

・Lack of sustained price rises will force inefficient

smelters from the market.

Rio Tinto cuts output further at Australian aluminium smelter - 27 March, 2017

Rio Tinto and its partners are cutting output and jobs at the Boyne aluminium smelter in Australia, adding to cuts announced in January, it said on

Friday, blaming a jump in power prices. Rio said output would be cut by 14 percent and that "a significant number of jobs lost". The latest production cut

follows plans in January to cut output this year by about eight percent, or 45,000 tonnes, because of rising costs of power, 85 percent of which is

provided by Gladstone Power Station. Boyne said in January power prices had doubled since October 2014 and it could not secure an internationally

competitive price for the 15 percent of power it needed to supplement its long-term contract. Electricity is a major cost for aluminium smelters who have

struggled with poor margins. Aluminium prices have risen this year but oversupply remains an issue. Rio sold its aluminium business in Britain last

year, while Russia has put forward the idea of an OPEC-like body to boost aluminium prices.

Russian aluminium producer Rusal swings to profit - 27 March, 2017

Rusal, the world’s second largest aluminium producer, swung back into profit in the final quarter of 2016, as a one-off windfall added shine to a recovery

in aluminium prices. The company sold 6 per cent more aluminium in the quarter and average selling prices rose 4 per cent, while at the same time a

fall in domestic production costs buoyed its profit margin. Russian metals and mining companies have all posted strong results for the end of 2016 as a

weak rouble cut their input costs and a rally in commodity prices boosted dollar-denominated incomes. The company expects aluminium demand to

increase by 5 per cent in 2017, and for the metal’s global market deficit to widen to 1.1m tonnes, Mr Soloviev added.

China’s pollution plan gives aluminium rally fresh legs - 02 March, 2017

China’s latest effort to curb air pollution is raising hopes for the global aluminium industry, adding further momentum to a rally that has left the base

metal as the best performer this year. Almost 30 northern cities should cut aluminium capacity by more than 30 per cent to reduce air pollution during

the winter season, according to an order issued by China’s environment industry and six local governments and seen by the Financial Times. While the

document did not specify when the cuts are likely to come, November is most likely, say analysts, who add that how effectively the cuts are carried out

will determine whether aluminium’s rally can be sustained. China’s aluminium production has risen about 2 per cent a month for the past six months,

according to Grant Sporre, an analyst at Deutsche Bank. Inventory of the metal in China has also jumped 120 per cent since Chinese new year, he said.


5. Aluminum

3) News Flows


Tom Haddon



6. Nickel


Nickel prices took a short sharp hit in

early March, decreasing 11% in four

days before stabilizing at $9,800 per

tonne for the remainder of the month.

Although a strong rise in LME

inventory undoubtedly caused

concern in a market swamped by

stocks it only told half the story.

The latest data released during the

month from the International Nickel

Study Group (INSG) contributed to

the bearish sentiment. From a small

base, it showed Indonesian mined

output soar by 100% in January y-o-y

as producers reacted to the lifting of

the total ban on ore exports.

Philippines production also surged by

13% in January y-o-y despite

environmentally driven mine closures

as producers maximised output during

the appeal process.

This showed the market still has some

way to go before a structural supply

deficit is found and inventories

decrease with prices reacting

accordingly.


Nickel Prices and Inventories

INSG data showed that nickel ore supply is returning strongly in Indonesia and expanding in the short term in the

Philippines while soon to be shuttered mines go through the appeal process.

6. Nickel

1) Price Trends

0

100

200

300

400

500

0

10,000

20,000

30,000

40,000

Ma

r-0

9

Jun-0

9

Sep-0

9

De

c-0

9M

ar-

10

Jun-1

0

Sep-1

0

De

c-1

0M

ar-

11

Jun-1

1

Sep-1

1

De

c-1

1

Ma

r-1

2

Jun-1

2

Sep-1

2

De

c-1

2M

ar-

13

Jun-1

3

Sep-1

3

De

c-1

3M

ar-

14

Jun-1

4

Sep-1

4

De

c-1

4M

ar-

15

Jun-1

5

Sep-1

5

De

c-1

5

Ma

r-1

6

Jun-1

6

Sep-1

6

De

c-1

6M

ar-

17

LME Inventory (RHS) LME Spot Price (LHS)($/t) (Kt)


Due in part to decreasing production in

China as the mid-and-small smelters

chose to stop their operations, the

nickel market is estimated to have

moved into deficit in 2016.

However despite the Philippines’

government crackdown on mining, ore

supply remained robust as mines

continued to produce due to an appeals

process being underway so the deficit is

lower than previously forecast.

In early 2017 the crackdown was

extended to include over 50% of nickel

ore production in the country. Although

Indonesia has rolled back a ban of ore

exports meaning that Chinese smelters

especially will eventually be well

supplied, it won’t be enough to

immediately fill the gap left by output in

the Philippines, due to a time lag for

ramping up of mines.

Therefore the price trajectory is forecast

to be increasing to 2019. However with

the presence of critically high

inventories, prices will only marginally

increase to break though $13,000 per

tonne by 2019.


Outlook for Nickel Prices

Influence Factors on Nickel

The nickel market is forecast to be in deficit through to 2019 as the environmental crackdown on mining in the

Philippines has surpassed all expectations. However price rises will be limited by high inventories.

6. Nickel

2) Outlook

($/t)

2016


Price 9,605 10,285 10,421 10,737 11,062 11,629 12,219 12,809 13,198

YoY -19% 20% 18% 5% 3% 12% 12% 10% 8%

QoQ -5% 1% 3% 3% - - - -


2017 2018 2019

2017 2018 2019

Price Trend

Flat

・Partial lifting of Indonesian

ban on nickel ore replaces

lost smelter supply from

Philippines due to further

environmental crackdowns


Supply

Demand

Increase Moderately

・Some production in Philippines gains renewed

environmental approval after being shuttered in 2016/17.

・Higher cost mines are forced from market as abundant

Indonesian and Chinese production keeps the market

well supplied

Increase

・Chinese stainless steel output growth remains albeit the rate slows through to 2019

as government enforced production capacity cuts hamper output

Increase

Philippines allows suspended miners to ship out nickel ore after clampdown – 24 March, 2017

The Philippines' environment ministry has allowed eight suspended nickel ore miners to ship out stockpiles of mined ore, sources told Reuters,

temporarily boosting supply from the world's top exporter of the raw metal after a major crackdown. The volume of nickel ore stocks from the mines may

well exceed 1 million tonnes, or about a month's worth of consumption by top buyer China, said the official, who declined to be named because he is not

authorized to discuss the matter publicly. The total would likely be less than 5 million tonnes, he added. Lopez last month ordered 23 mines closed for

good, including six of the eight suspended nickel producers. Many of these mines have appealed to President Rodrigo Duterte and continue to operate

while waiting for Duterte's final ruling.

Electric vehicles won't depose stainless in nickel demand dynamics – 10 March, 2017

Investors hoping for explosive nickel demand growth, in tandem with the electric vehicle revolution, could well be disappointed as any increase is seen

as unlikely to change a market dominated by stainless steel producers. The amounts used in these batteries at between 7 and 18 kgs are small; by

2025 nickel usage in these batteries is likely to amount to less than 100,000 tonnes, a fraction of global demand. Notably, Glencore Chief Executive Ivan

Glasenberg said in December demand for nickel could reach 400,000 tonnes should electric vehicles reach 10 percent of the global fleet, enough to

cause a significant supply deficit.

Vale shutters Stobie mine, part of Sudbury basin – 10 March, 2017

Vale announced the shutdown citing low nickel prices and the non-profitability of Stobie’s low-grade ore as reasons behind the decision. No date or

timelines were given for the rollout. The company said the mine’s future has been under review for some time citing metal prices, “ongoing market

challenges, and recent seismic activity that restricted production below the 3,000-foot level. With more than 375,000,000 tonnes produced over the

years, more ore has been mined out of the Frood-Stobie complex than any other mine in the Sudbury Basin.


6. Nickel

3) News Flows


7. Zinc


Tom Haddon



Zinc prices remained elevated in

March vs historical trends although a

$2,850-2,900 ceiling appears to have

formed as during the month prices

touched and retreated from this level

several times.

Prices were kept close to the apparent

ceiling by news in March that 540kt per

annum of Chinese smelting capacity

will be taken offline for maintenance at

different points in 2017. Allied to the

supply deficit being felt in the mined

output part of the supply chain, this

helped sustain the bullish sentiment.

However a reason that zinc is failing to

break through the apparent ceiling

could be the latest International Lead

and Zinc Study Group (ILZSG) data

showing that a mined supply response

is underway following the closure of

mines in 2015/16. January output was

estimated to be up over 7% y-o-y.

Also traders are likely wary that

Glencore could choose to bring back

anywhere up to 500kt per annum of

mine capacity during the year.


Zinc Prices and Inventories

Prices are failing to break through the current range as lower refined zinc output is being balanced by data showing

increasing mined supply.

7. Zinc

1) Price Trends

0

500

1,000

1,500

2,000

0

1,000

2,000

3,000

4,000

Ma

r-0

9

Jun-0

9

Sep-0

9

De

c-0

9M

ar-

10

Jun-1

0

Sep-1

0

De

c-1

0M

ar-

11

Jun-1

1

Sep-1

1

De

c-1

1

Ma

r-1

2

Jun-1

2

Sep-1

2

De

c-1

2M

ar-

13

Jun-1

3

Sep-1

3

De

c-1

3M

ar-

14

Jun-1

4

Sep-1

4

De

c-1

4M

ar-

15

Jun-1

5

Sep-1

5

De

c-1

5

Ma

r-1

6

Jun-1

6

Se

p-1

6

De

c-1

6M

ar-

17

LME Inventory (RHS) LME Spot Price (LHS)($/t) (Kt)


Reduced mine capacity as well as mine

closures, allied to robust Chinese

galvanized steel production plunged the

market into a deep deficit during 2016.

The strong Q4 performance of the

Chinese steel industry, despite closures

to reduce over capacity, has meant a

deeper deficit than previously forecast.

However the general forecast trend

remains unchanged with a supply

response triggered by the strong price

rally.

However the supply response has been

pushed back as Glencore’s 500kt of

mothballed capacity shows no signs of

being bought back online. Previous

forecasts assumed it to begin a staged

introduction through 2017 but this has

now been pushed back to 2018.

Therefore prices will continue to

perform strongly during 2017 as the

market remains in deficit. However the

supply response will bring a cooling of

prices through 2018 and 2019.


Outlook for Zinc Prices

Influence Factors on Zinc

The market exiting a supply deficit has been pushed back beyond 2019 as there is still no action from Glencore in

brining back its mothballed mines to the market.

7. Zinc

2) Outlook

($/t)

2016


Price 2,091 2,779 2,834 2,920 3,008 2,971 2,904 2,797 2,714

YoY 8% 65% 47% 30% 20% 6% -2% -6% -7%

QoQ 11% 2% 3% 3% - - - -


2017 2018 2019

2017 2018 2019

Price Trend Increase

Increase Moderately

・A response from Chinese mined

supply is filling some of the gap

for smelters after several mines

closes in 2016

Increase Moderately


Increase

・Glencore currently has around 500kt of mine capacity mothballed

which is assumed to come online through 2018 and 2019Supply

Demand・Chinese and US infrastructure stimulus plans provide demand growth for galvanized steel,

offsets sluggish European consumption. Global automotive production will continue to grow.

Decrease

New mine in Iran to add 800,000 tonnes of zinc concentrate every year – 26 March, 2017

Reuters reported that Iranian Mines and Mining Industries Development and Renovation Organisation (IMIDRO) signed a $1-billion deal with private

investors over the weekend to build the mine, which is expected to become operational in four years and produce an annual 800,000 tonnes of zinc

concentrate. Reuters notes the 800,000 tonnes of expected annual zinc concentrate compares to 13.2 million tonnes of zinc in concentrate produced

throughout the world last year. After several years of production decline, Iran's zinc mine output is set to return to positive growth, boosted by stronger

international prices and booming demand from domestic construction.

Glencore is facing zinc dilemma as price gains see customer pain – 22 March, 2017

Glencore’s decision to cut zinc production has done wonders for the price of the metal, but collapsing margins in the smelting industry suggest that it

may not be too long before the Swiss commodity trader switches supply back on. Less output means miners can squeeze smelters, paying them lower

fees to turn concentrate from mines into the refined zinc metal used in steel for construction and car-making. Smelters, facing deepening losses and a

shortfall in supply, are now starting to dial back production. Nine of the top smelters in China, the largest refined zinc producer, have suspended, or plan

to close production lines as the treatment charges they can collect from processing fail to cover costs, Antaike Information Development said.

Global zinc market deficit may continue in 2017 – 21 March, 2017

The zinc market was in deficit in 2016, even though demand was modest, while fundamentals remain positive and global zinc demand is expected to

grow 2.5% in 2017, CRU analyst Helen O'Cleary said Monday. Mine closures and cutbacks led the market into deficit last year, however "producers

may require some further restraint in order for the deficit to be repeated in 2017," O'Cleary told Metal Events Ltd.'s 9th International Zinc Conference in

London. The consultancy believes that new mines might be developed in China within 2016-2021, but that will depend significantly on environmental

standards imposed by the Chinese government, while mining growth in the West will be slower in the medium term. Global demand faces a couple of

challenges, mainly from the automotive industry due to the substitution of zinc metal with aluminum in body sheets in the shift to lighter vehicles.


7. Zinc

3) News Flows

Source: Various sources , The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division

Katia Tavarez

Strategic Research (NY)

MUFG UNION BANK, N.A.

8. Gold



Gold Prices, ETF Holdings, and 10Yr US TIPS Yield

Gold prices staged a rebound in 1Q’17 on safe-haven bids.

8. Gold

1) Price Trends

Following the sell-off in the

aftermath of the US presidential

elections, gold prices managed to

recover some ground in 1Q’17,

accumulating gains of +8.9%

during the quarter and settling

around the $1,250/oz level.

The recovery in prices is tied to

safe-haven buying, as uncertainty

over Trump’s policies and elections

in Germany and France led to an

uptick in global risk aversion.

Money manager net length at the

COMEX rose modestly in 1Q’17

from the recent low in 4Q’16. Gold

ETF holdings were flat during the

quarter.

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

10Yr US TIPS Yield (%)

600

900

1,200

1,500

1,800

2,100

2,400

2,700

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Ma

r-0

9

Jun-0

9

Sep-0

9

De

c-0

9M

ar-

10

Jun-1

0

Sep-1

0

De

c-1

0M

ar-

11

Jun-1

1

Sep-1

1

De

c-1

1

Ma

r-1

2

Jun-1

2

Sep-1

2

De

c-1

2M

ar-

13

Jun-1

3

Sep-1

3

De

c-1

3M

ar-

14

Jun-1

4

Sep-1

4

De

c-1

4M

ar-

15

Jun-1

5

Sep-1

5

De

c-1

5

Ma

r-1

6

Jun-1

6

Sep-1

6

De

c-1

6M

ar-

17

(t) ETF Holdings (RHS) Gold Price (LHS)($/oz)

Source: World Gold Council, GFMS, Bloomberg, MUFG Union Bank, Strategic Research

Note: ETF Holdings are expressed in aggregate tons.


Outlook for Gold Price

Influence Factors on Gold

Mine supply is expected to decline, but medium- to long-term investment demand is expected to remain elevated.

Prices appear to have bottomed out and are forecast to trend upward through 2019.

8. Gold

2) Outlook

In 2016, gold supply increased mainly

due to rising recycled gold supply while

gold demand rose moderately as

jewelry demand weakness was offset

by the strength of investment demand.

Gold demand in 2017 is expected to

remain flat y-o-y as a drop in ETF

inflows is offset by a pick-up in

jewellery demand. Demand is expected

to remain flat thereafter, as relatively

low prices continue to support jewelry

and investment demand.

We forecast a decline in mine supply

through 2019 as new projects are

unlikely to make up for falling ore

grades.

As for prices, signs of bottoming have

been appearing since the beginning of

2017. Prices are expected to gradually

trend upward with negative interest

rates in major economies like the EU

and Japan, and uncertainty

surrounding elections in Europe .

Besides, US President Trump may not

be able to accomplish all of the

objectives he set forth during his

campaign.

($/oz)


Price 1,250 1,220 1,236 1,246 1,260 1,285 1,305 1,321 1,332

YoY 8% 3% -2% -7% 4% 5% 4% 3% 2%

QoQ - 0% 1% 1% 1% - - - -

Source: Bloomberg, M UFG Union Bank, Strategic Research

2017 20192016 2018

2017 2018 2019

Price Trend

Increase slightly

・Slightly lower investment

demand growth

・Slightly higher jewellery demand

growth


Increase slightly

Decrease moderately

・Falling ore grades to drag down mine supply despite new projects

・Following the sharp uptick in 2016, a modest downward adjustment

in investment demand is anticipated

・Relatively solid rebound in jewellery demand growth

Flat Growth

Supply

Demand


8. Gold

3) News Flow

Barrick in advanced talks to sell half of Argentina mine – 6 April, 2017

Canada’s Barrick Gold, the world’s largest gold miner, said it will sell a 50 percent stake in its Veladero gold mine in Argentina to China’s Shandong

Gold Mining, one of China’s biggest gold producers, for US$960 million. The deal is part of what Barrick calls a ‘strategic co-operation agreement’.

Veladero is one of Barrick’s core mines and was the subject of a pipeline decoupling in late March, the third such incident in 18 months. As part of the

deal, both companies will explore the joint development of Barrick’s Pascua-Lama deposit, which is around 10 kilometers from the Veladero site. Part of

the deal also involves looking into investment opportunities on the El Indio Gold Belt along the Argentinean-Chilean border. Barrick says that it expects

the deal to close at the end of 2Q’17, pending regulatory approval and other conditions.

Barrick and Goldcorp team up to develop large gold project – 28 March, 2017

Canada’s Barrick Gold and Goldcorp entered into an agreement to leverage potential synergies within the Maricunga Gold Belt, located in the Atacama

Region in Chile, through a 50/50 joint venture. The companies will invest US$520 million into one of the world’s largest undeveloped gold projects.

Through a series of transactions, Goldcorp agreed to purchase a 25 percent share in the Cerro Casale mine from Barrick and will also acquire another

stake from Kinross Gold. Goldcorp will also buy two other neighboring exploration projects, the Caspiche and Quebrada Seca projects. The deal comes

as gold miners start to spend on exploration again after years of cutting budgets due to low prices.

Eldorado to start production at Greek Olympias mine – 28 March, 2017

Eldorado Gold, a mid-cap Canadian gold miner, said that it obtained better concentrate sales terms at its Olympias project. Olympias is a pre-existing

gold-silver-lead-zinc mine located in the Halkidiki Peninsula in northern Greece. Eldorado noted that it received ‘multiple tenders for significantly better

concentrate sales terms beyond 2017’ for material from the Olympias project, where work at the Phase II expansion is on schedule. Under the new

sales terms, gold payability terms have risen from 58 percent to a maximum of 71 percent, which is anticipated to result in an increase of around 15,000

ounces of payable gold production per annum. As a result of the improved terms, the company now expects annual production from Phase II will be

around 85,000 ounces of gold (up from 72,000 ounces previously). The Olympias mine is scheduled to start production in 3Q’17.

Source: Various sources, MUFG Union Bank, Strategic Research

Disclaimer


This report is intended only for information purposes and is not intended to constitute an offer or solicitation to buy or sell securities or any

other products. Contents of the report are information as at publish date and are subject to change without notice. This report has not been

prepared to provide legal, taxational, financial, market-judgmental, or any other advises on propriety of any transactions. In taking any

action, each reader is requested to act on the basis of his or her own judgment upon consulting certified lawyers, accountants or other

professionals regarding the accuracy, validity and reliability of information appeared in this report.

Bank of Tokyo-Mitsubishi UFJ is regulated by the Financial Services Authority.

No part of this publication may be reproduced, stored in a retrieval system or transmitted without the prior written permission of The Bank

of Tokyo-Mitsubishi UFJ Limited.

Copyright© 2017 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved.

Publisher：The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division (Corporate Research Office)

2-7-1, Marunouchi, Chiyoda-ku, Tokyo 100-8388, Japan

Contact details for inquiries : Kouichi Akimoto

(TEL：03-3240-5386、e-mail：[email protected])

Documents

Mining Monitor (April 2017) · in Jan-Feb’17, iron ore price remained buoyant in 1Q’17, up 21% QoQ to average US$86/t. 6 Iron Ore Prices and Inventories March price ended lower