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Page 1
Base metals outlook
Demand thrust into supply headwinds
November 2013
Macquarie Commodities Research
Jim Lennon
Macquarie Capital (Europe) Limited
Ropemaker Place 28 Ropemaker St
London, UK EC2Y 9HD
In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader. Before making an investment decision on the basis
of this research, the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment needs, objectives and
financial circumstances. Please see disclaimer.
Page 2
Our commodity price forecasts…in pictures!
Page 3
Impact of China on global markets….
Page 4
Commodity prices – iron ore still the stand-out
performer
Index of monthly average commodity prices (Jan 2000 = 100)
0
200
400
600
800
1000
1200
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Ind
ex
Alumina Steel Stainless Steel Iron ore fob WTI oil
Thermal coal Coking coal Base metals Precious metals
Page 5
Base metal prices – not all the same
Lead, copper and tin outperform nickel, aluminium and zinc
All metals except aluminium rose strongly in the boom period for Chinese demand growth and supply shortages up to mid-2008
Supply-side performance made the big difference in the recovery after 2008 financial crisis.
Chinese over-supply in zinc, nickel and aluminium combined with weak non-Chinese demand led to weakness.
Nickel has suffered since the advent of Chinese nickel pig iron; aluminium from soaring domestic production
Source: LME, Macquarie Research, November 2013
Index of monthly average commodity prices (Jan 2000 = 100)
0
100
200
300
400
500
600
700
800
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Ind
ex
Aluminium Copper Nickel Zinc Lead Tin
Page 6
Base metal relative price performance in line
with surplus/deficits recorded
Source: Macquarie Research, November 2013
Accumulated market balance as a percent of global consumption
4%
-11%-13%
-8%-7%
-3%
21% 21% 22%
2%
-5%-3%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Al Ni Zn Cu Pb Sn
% o
f avera
ge c
on
su
mp
tio
n
2003-07 2008-2012
Page 6
Page 7
Year-by-year performance of base metal
surplus/deficit
Global market surplses/deficits for base metals (expressed
as % of demand
-20%
-10%
0%
10%
20%
30%
40%
50%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013F
Cu
mu
lati
ve
su
rplu
s(+
)/d
efi
cit
(-)
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Av
era
ge
fo
r a
ll m
eta
ls
Aluminium Copper Nickel Zinc Lead Tin Average
Source: Macquarie Research, November 2013
Page 8
Nickel and aluminium have the largest
inventory overhang of any base metals…
Estimated total stocks for base metals at end-August 2013
(weeks of annual consumption)
25.3 25.4
14.7
9.48.7
6.0
0
5
10
15
20
25
30
Al Ni Zn Cu Sn Pb
wks
0
5
10
15
20
25
30
Non-China in raw materials
China other
China SRB (e)
China- SHFE
Reported Producer
Japanese ports
Non-LME Ex-China
Comex
LME
In China raw materials
Source: LME, SHFE, Comex, IAI, ICSG, ILZSG, INSG, CRU, Macquarie Research,
November 2013
Page 8
Page 9
Better growth in prospect in 2014 Global GDP growth since 2010 has been on a downward trend and become more lop-
sided with China accounting for an ever larger share.
2Q 2013 could have been the start of a new dynamic, as developed economies’ growth
accelerates and that of many emerging markets declines. For now it remains a second
derivative argument – in absolute terms growth is still higher in the emerging economies –
but the trend seems clear. China so far is an exception, with growth accelerating in recent
months.
As growth strengthens in developed economies the normalisation of US monetary policy
will have a far-reaching impact. How countries, and their capital, financial and commodity
markets cope will be one of the key themes of 2014.
Although global growth will be better balanced, for base metals, China’s huge share of
demand means it plays a larger role than its economic size would suggest. Chinese
growth could still surprise on the upside, and even if it slows, the absolute growth rate will
remain high. And faster growth in the rest of the world should mean global growth is more
robust and market confidence higher.
Page 10
Backdrop of last 3 years is slowing world GDP growth
Source: Bloomberg, Macquarie Research, November 2013
Before the crisis world GDP growth was rising by 4-5% a year (in PPP terms) but after
2010 recovery has slowed sequentially to just over 2% a year.
Slowdown most pronounced in developed economies, with very little growth in
Europe/Japan. China has held up well but other emerging markets have also weakened.
World GDP growth, quarterly, year-on-year, %
(4%)
(2%)
0%
2%
4%
6%
2006 2007 2008 2009 2010 2011 2012 2013
Other developed US China Other emerging World Recovery
?
Page 11
Developed market recovery – fragile but unmistakable
Source: Bloomberg, Macquarie Research, November 2013
In 2Q 2013 the four main developed economies saw GDP growth for first time since 1Q 2011 with the
pace of expansion accelerating in the US and UK and the Eurozone returning to growth. 3Q has seen
further acceleration in US, UK, and continued growth, although slower, in Eurozone & Japan.
Manufacturing (and service) PMIs show growing optimism across all key regions.
Developed economies GDP growth, %
QoQ
Developed economies manufacturing PMI, > 50 =
expansion
Source: Bloomberg, Macquarie Research, November 2013
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2010 2011 2012 2013
USEurozoneUKJapan
40
45
50
55
60
65
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
US
UK
Japan
Eurozone
Ind
ex
Page 12
Recovery can be seen from recent data ex-
China
Changes in non-Chinese base metals' demand
and G3 PMIS
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
% c
han
ge y
oy
- 3
MM
A
30
35
40
45
50
55
60
65
70
US
/Eu
rop
e/J
ap
an
PM
I
(3m
ths f
wd
)
World Ex-China Base metals app. demand
US/Europe/Japan PMI
Changes in non-Chinese steel demand and G3
PMIs
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
% c
han
ge y
oy
- 3
MM
A
30
35
40
45
50
55
60
65
70
US
/Eu
rop
e/J
ap
an
PM
I (3
mth
s
fwd
)
World Ex-China steel app. demand
US/Europe/Japan PMI
Page 13
Emerging markets – China resilient, others…?
Sourc
e: B
loom
berg
, M
acquarie R
esearc
h, N
ovem
ber
2013
China’s economy has held up, despite a 2Q slowdown, with growth picking up in recent
months.
Some other emerging markets are under strain, with GDP growth falling & financial market
stresses rising. Equity indices have underperformed the developed economies.
GDP growth, China & other emerging markets, % YoY Equity Markets, start 2013 = 100
(4%)
(2%)
0%
2%
4%
6%
8%
10%
12%
14%
2007 2008 2009 2010 2011 2012 2013
China
Other emerging
80
85
90
95
100
105
110
115
120
125
130
Jan-13 Apr-13 Jul-13 Oct-13
Emerging markets
Japan
Eurozone
US
Page 14
China – rebounding strongly but debt concerns grow
Source: CEIC, Macquarie Research, November 2013
China’s economic growth weakened in 1H 2013 but commodity demand remained strong thanks to
sectoral composition of growth and sheer size of economy.
Growth has accelerated (both in IP and Macquarie’s LKQ index) and short-term outlook positive but
structural problems, including high debt levels, suggest cautious outlook for 2014.
LKQ index & industrial production, % YoY Local government investment increasingly to pay off
debts, %
1999 2001 2003 2005 2007 2009 2011 2013
25
20
15
10
5
0
2009 2010 2011 2012 2013
100
80
60
40
20
0
Source: NBS, Macquarie Research, November 2013
Page 15
Other emerging markets feel the strain
Source: Bloomberg, Macquarie Research, November 2013
Emerging markets face challenges both internal and external. Key economies have seen
growth slow dramatically in recent years as structural problems mount.
The prospect of Fed tapering has seen capital outflows, falling currencies and the need for
a policy response.
Key emerging markets, GDP growth, % YoY
(15)
(10)
(5)
0
5
10
15
2007 2008 2009 2010 2011 2012 2013
Brazil Mexico India Russia
Key emerging market FX v US dollar, start 2012=100
Source: Bloomberg, Macquarie Research, November 2013
70
75
80
85
90
95
100
105
110
115
Jan-12 Jul-12 Jan-13 Jul-13
India IndonesiaTurkey BrazilChina
Page 16
2012 demand structure…all about China 2012 share of global copper demand
18%
10%
5%
42%
25%
Europe USA Japan China Other
2012 share of global aluminium demand
13%
11%
5%
45%
26%
Europe USA Japan China Other
2012 share of global zinc demand
19%
9%
4%
43%
25%
Europe USA Japan China Other
2012 share of global nickel demand
20%
9%
8%
45%
18%
Europe USA Japan China Other
Source: CNIA, ILZSG, INSG, IAI, ICSG, Macquarie Research, November 2013
Page 17
Strength of Chinese demand this year is surprising…
Source: ICSG, INSG, ILZSG, IAI, Macquarie Research, November 2013
Year-on-year changes in demand, January-
October 2013 vs. 2012
11.4%
14.6%
12.0%
17.2%
9.0%
0.5% 0.9%2.2%
-2.5% -2.3%-5%
0%
5%
10%
15%
20%
Aluminium Copper Zinc Nickel Steel
% c
ha
ng
e Y
oY
China Ex-China World total
Page 18
China still leads the way in demand, but rest of
world starts to recover also…
Source: ICSG, INSG, ILZSG, IAI, Macquarie Research, November 2013
World base metals demand
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2007 2008 2009 2010 2011 2012 2013
% c
hg
e Y
oY
(3M
MA
)
World Ex-China base metals demand
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2007 2008 2009 2010 2011 2012 2013
% c
hg
e Y
oY
(3M
MA
)
Chinese base metals demand
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2007 2008 2009 2010 2011 2012 2013
% c
hg
e Y
oY
(3M
MA
)
Page 19
Non-China recovery evident in all the metals…
Non-Chinese base metals demand changes
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
% c
han
ge y
oy (
3M
MA
)
Zinc Copper Aluminium Nickel
Change in base metals apparent demand
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
% c
han
ge
yo
y -
3M
MA
China World Ex-China
Source: ICSG, INSG, ILZSG, IAI, Macquarie Research, November 2013
Page 20
The historical context – Chinese demand growth was
staggering and largely unexpected
Source: worldsteel, Macquarie Research, November 2013
World steel demand growth by decade
3212 23
46 49
157
257
128
51 66
563
-
100
200
300
400
500
6001
90
0-1
0
19
10
-20
19
20
-30
19
30
-40
19
40
-50
19
50
-60
19
60
-70
19
70
-80
19
80
-90
19
90
-00
20
00
-10
m t
on
ne
s c
ru
de
ste
el
-
100
200
300
400
500
600
China Rest of world
Page 21
Impact of China - enormous
China's share of global consumption
5%3% 4%
2%4%
6%7%
5%
8%
4%
7%9%
12% 13%15%
6%
10%
16%
38%41% 41%
39%43% 43%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Copper Aluminium Zinc Nickel Lead Steel
% o
f to
tal
1980 1990 2000 2010
Average growth in consumption, 2000-
2010
15.0%
17.7%
13.9%
24.1%
18.9%
16.0%
-1.0%
1.0%
-0.8% -1.6% -1.7%
1.3%
-5%
0%
5%
10%
15%
20%
25%
30%
Copper Aluminium Zinc Nickel Lead Steel
% C
AG
R
China Rest of world
Source: worldsteel, INSG, ICSG, IAI, ILZSG, Macquarie Research, November 2013
Page 22
What happened to demand after 2008 global financial
crisis? Terrible outside China!
Source: LME, Macquarie Research, November 2013
Change in demand from 2007 to 2012
-26%
-16%
-20%-18%
-15%
-11%
-28%
-20%
-23%
-14%
1%
-18%-17%
-14%
-20%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
Europe N.America Japan
20
12
/20
07
%
Copper Aluminium Crude Steel Nickel Zinc
Change in demand from 2007 to 2012
82%
74%
53%
97%
52%
0%
20%
40%
60%
80%
100%
120%
China
20
12
/20
07
%
Copper Aluminium Crude Steel Nickel Zinc
Page 23
Sources of Chinese GDP growth – investment boost
“saved” China in 2009
Source: NBS, Macquarie Research, November 2013
Chinese GDP Growth contributions
5.7 5.54.2 4.0 3.6 3.9 4.4 5.1 5.6
4.2 4.6 4.5 5.34.1 3.8
1.8 1.9 4.1 4.46.3 5.5 4.3
5.56.0
4.5
8.1
5.5 4.4
3.9 3.6
0.1 1.0
0.0
0.7
0.1 0.7 2.6
2.1
2.6
0.9
-3.5
0.4
-0.4 -0.2
0.1
7.68.4 8.3
9.110.0 10.1
11.3
12.8
14.3
10.49.3
7.8 7.5
9.1
9.6
-4
-2
0
2
4
6
8
10
12
14
16
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
F
% c
ha
ng
e Y
oY
(re
al)
-4
-2
0
2
4
6
8
10
12
14
16
Consumption Gross capital formation Net exports Total
Page 24
The changing structure of Chinese growth – less steel
and metals intensive
Source: Dragonomics, Macquarie Research, November 2013
Page 25
Unbalanced growth? Too much investment?
China has invested a lot more than many
developing countries that got caught in a
“middle-income” trap (failed to boost
productivity when incomes reached $10-
15kt, but not much for economies which
escaped it (e.g., Japan, Korea, Taiwan)
China has invested more due to low
interest rates, capital abundance, and a
low capital stock when growth took off.
Consumption is underestimated in GDP by
4-10%
Bottom line: not such a worry.
Share of total Chinese GDP
30
35
40
45
50
55
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
% o
f to
tal
Gross capital formation Private consumption
Source: NBS, Macquarie Research, November 2013
Page 26
Chinese monetary policy now quite “loose” –
partly loans to service debts
Source: NBS, Macquarie Research, November 2013
Loan and money supply growth minus nominal GDP
-10
-5
0
5
10
15
20
25
30
Ma
r-0
0
Se
p-0
0
Ma
r-0
1
Se
p-0
1
Ma
r-0
2
Se
p-0
2
Ma
r-0
3
Se
p-0
3
Ma
r-0
4
Se
p-0
4
Ma
r-0
5
Se
p-0
5
Ma
r-0
6
Se
p-0
6
Ma
r-0
7
Se
p-0
7
Ma
r-0
8
Se
p-0
8
Ma
r-0
9
Se
p-0
9
Ma
r-1
0
Se
p-1
0
Ma
r-1
1
Se
p-1
1
Ma
r-1
2
Se
p-1
2
Ma
r-1
3
Se
p-1
3
Qu
art
ery
: %
ch
an
ge
Yo
Y
Loans M2
Page 27
Debt levels too high and a crisis on the
horizon?
Remember banks owned by government; government budget deficit is only
1.9% of GDP. Loans are all in RMB (not much foreign bank debt as happened in
Asian crisis).
Worst case scenario: many loans could be written off by government without
creating collapse
At over 50% of GDP, Chinese savings rate is high so can finance debt internally.
This doesn’t mean the government doesn’t want to deleverage and cut
investment in inefficient areas (local govt spending, adding to over-capacity in
industry, etc) – this is crucial for long term stability.
However, there is no sign of imminent stress or a “Lehman” moment! June spike
in interbank lending rate to 25% was a “warning” by government about
restraining loose lending.
Page 28
Too much supply in many metals
As demand growth slowed after the global financial crisis, supply growth started
to accelerate (copper growth was delayed but has now caught up)
China has dominated refined supply growth in recent years based on
construction at low capex of conversion capacity, partly based on imported raw
materials.
Changes in refined metals production, 2008-2012
1974
312 312
900
-216-55
55 150
-500
0
500
1000
1500
2000
2500
Al Cu Ni Zn
'000t
China
Ex-China
Source: CNIA, ICSG, IAI, INSG, ILZSG, Macquarie Research, November 2013
Page 29
Base metal raw material constraints have been removed
in China by high imports of raw materials
Source: Chinese Customs Statistics, Macquarie Research, November 2013
Indonesian government policy change in 2014 to impact bauxite/nickel?
Bauxite imports
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
ton
ne
s
Nickel ore/conc. imports
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
ton
ne
s
Copper concentrate imports
0
200000
400000
600000
800000
1000000
1200000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
ton
ne
s
Page 30
China to the end of the decade?
Growth rates to continue to slow due to:
1. Demographics making labour tight, urbanisation less: Potential growth
rates for the economy lower
2. Restructuring of the economy to reduce debt levels, increase efficiency,
reduce over-capacity, encourage more consumption driven growth
However, growth will continue: China is still a “developing” economy
Government measures designed to make growth sustainable (albeit at
a lower rate than in past)
Page 31
Our assumptions to 2020
Trend growth in Chinese consumption
15.0%
17.7%
13.9%
24.1%
18.9%
16.0%
6.2%
9.6%
6.1%7.3% 7.3%
3.5%
0%
5%
10%
15%
20%
25%
30%
Copper Aluminium Zinc Nickel Lead Steel
% C
AG
R
2000-10 2010-20F
Trend growth in Ex-Chinese consumption
-1.0%
1.0%
-0.8%
-1.6% -1.7%
1.3%1.0%
3.8%
1.3%1.8%
1.3%
2.9%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Copper Aluminium Zinc Nickel Lead Steel
% C
AG
R
2000-10 2010-20F
Source: ICSG, ILZSG, INSG, NBS, Macquarie Research, November 2013
Page 32
What this means in quantities – still large Actual and "needed" supply growth for copper
1.5
4.0 4.1
7.8
0
1
2
3
4
5
6
7
8
9
1980-90 1990-2000 2000-10 2010-20F
mt
refi
ned
co
pp
er
Mine
and
scrap
Actual and "needed" supply growth for zinc
0.6
2.2
3.7
4.4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
1980-90 1990-2000 2000-10 2010-20F
mt
refi
ned
zin
c
Actual and "needed" supply growth for nickel
183 168
344
711
0
100
200
300
400
500
600
700
800
1980-90 1990-2000 2000-10 2010-20F
'00
0t
refi
ned
nic
kel
Actual and "needed" upply growth for aluminium
3.1
6.1
16.7
31.5
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
1980-90 1990-2000 2000-10 2010-20F
mt
refi
ned
lead
Source: Macquarie Research, November 2013
Page 33
Capex cuts continue – the first of three years
of underinvestment?
Source: wood Mackenzie, Macquarie Research, November 2013
Macquarie forecasts for YoY changes in global
mining capex
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f
Changes in copper mine output forecast, Oct 13 vs May 2012
326
165
-346
280
-577
-1568
-2000 -1500 -1000 -500 0 500
2013f
2014f
2015f
2016f
2017f
2018f
kt
Page 34
We should be in a phase of taking supply
offline (ex-copper), but the process is slow
Source: LME, Wood Mackenzie, Macquarie Research, November 2013
LME Aluminium prices and cash costs
1000
1500
2000
2500
3000
3500
Ja
n-0
0
Ja
n-0
1
Ja
n-0
2
Ja
n-0
3
Ja
n-0
4
Ja
n-0
5
Ja
n-0
6
Ja
n-0
7
Ja
n-0
8
Ja
n-0
9
Ja
n-1
0
Ja
n-1
1
Ja
n-1
2
Ja
n-1
3
$/t
on
ne a
lum
iniu
m
9 0 t h percent ile LM E cash
LME nickel prices and cash costs
0
10000
20000
30000
40000
50000
60000
Ja
n-0
0
Ja
n-0
1
Ja
n-0
2
Ja
n-0
3
Ja
n-0
4
Ja
n-0
5
Ja
n-0
6
Ja
n-0
7
Ja
n-0
8
Ja
n-0
9
Ja
n-1
0
Ja
n-1
1
Ja
n-1
2
Ja
n-1
3
$/t
on
ne n
ickel
9 0 t h percent ile LM E cash
y
LME zinc prices and cash costs
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Ja
n-0
0
Ja
n-0
1
Ja
n-0
2
Ja
n-0
3
Ja
n-0
4
Ja
n-0
5
Ja
n-0
6
Ja
n-0
7
Ja
n-0
8
Ja
n-0
9
Ja
n-1
0
Ja
n-1
1
Ja
n-1
2
Ja
n-1
3
$/t
on
ne z
inc
9 0 t h percent ile LM E cash
LME copper prices and cash costs
0
2000
4000
6000
8000
10000
12000
Ja
n-0
0
Ja
n-0
1
Ja
n-0
2
Ja
n-0
3
Ja
n-0
4
Ja
n-0
5
Ja
n-0
6
Ja
n-0
7
Ja
n-0
8
Ja
n-0
9
Ja
n-1
0
Ja
n-1
1
Ja
n-1
2
Ja
n-1
3
$/t
on
ne z
inc
9 0 t h percent ile LM E cash
Page 35
In summary: Surpluses to 2015 then markets
to tighten: Zn, Pb, Cu and Sn to outperform?
Source: Macquarie Research, November 2013
Global market surplses/deficits for base metals (expressed as % of
demand
-20%
-10%
0%
10%
20%
30%
40%
50%
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
F
20
14
F
20
15
F
20
16
F
20
17
F
20
18
F
Cu
mu
lati
ve
su
rplu
s(+
)/d
efi
cit
(-)
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Av
era
ge
fo
r a
ll m
eta
ls
Aluminium Copper Nickel Zinc
Lead Tin Average
Accumulated market balance as a percent of
global consumption
21% 21%22%
2%
-5%
-3%
2%
7%
-1%
2%
-2%
3%
-10%
-5%
0%
5%
10%
15%
20%
25%
Al Ni Zn Cu Pb Sn
% o
f a
ve
rag
e c
on
su
mp
tio
n
2008-2012 2013-2017
Page 36
Base metals detail
Page 37
Nickel and aluminium have similar issues
Nickel
Surplus of 319kt from 2008 to 2012,
equal to 21% of 2012 world use. Large
surpluses continue in 2013; without large
supply cuts, further large surplus
predicted for 2014.
China accounts for all of the demand
growth and 85% of supply growth since
2008
Large surpluses due to massive growth
in Chinese nickel pig iron production –
major delays in Greenfield capacity
additions outside China have reduced
potential over-supply.
Indonesia a big part of Chinese raw
material supply.
Aluminium
Surplus of 8.5mt from 2008 to 2012,
equal to 21% of use. Smaller surpluses
in 2013 and 2014 but cuts needed.
Demand and supply growth dominated
by China: 90% of demand growth and
more than 100% of supply growth
No end in sight to the surpluses as
financial players/traders soak up excess
material from producers, pay high
physical premiums and “lock” the
material away
Indonesian bauxite a big part of
aluminium raw material supply.
Page 38
Nickel stocks keep rising while (reported)
aluminium stocks are falling
Reported stocks for nickel and aluminium
300
350
400
450
500
550
600
650
Ja
n-1
1
Fe
b-1
1M
ar-
11
Ap
r-1
1
Ma
y-1
1
Ju
n-1
1
Ju
l-1
1
Au
g-1
1
Se
p-1
1
Oct-
11
No
v-1
1
De
c-1
1
Ja
n-1
2
Fe
b-1
2M
ar-
12
Ap
r-1
2
Ma
y-1
2
Ju
n-1
2
Ju
l-1
2
Au
g-1
2
Se
p-1
2
Oct-
12
No
v-1
2
De
c-1
2
Ja
n-1
3
Fe
b-1
3M
ar-
13
Ap
r-1
3
Ma
y-1
3
Ju
n-1
3
Ju
l-1
3
Au
g-1
3
'00
0t
Ni
6500
6700
6900
7100
7300
7500
7700
7900
8100
8300
'00
0t
Al
Nickel Aluminium
Source: LME, INSG, IAI, Comex. SHFE, Macquarie Research, November 2013
Page 39
Most of the Chinese raw materials stocks are
Indonesian material… Chinese are preparing for
2014 restrictions
Source: CM, SMM, CRU, Macquarie Research, November 2013
Estimated Chinese bauxite stocks
0
5
10
15
20
25
30
35
2009 2010 2011 2012 2013
mt
gro
ss w
eig
ht
Ports and refineries
Estimated Chinese nickel ore stocks
0
5
10
15
20
25
30
35
2009 2010 2011 2012 2013
mtt
gro
ss
we
igh
t
Ports Producer
Page 40
What could happen in Indonesia in
2014?
2009 Mining Act requires a full ban on exports of unprocessed mineral
products (including bauxite and nickel ore) from January 12, 2014
Recent feedback from Indonesia suggests that companies who are
planning to build nickel and alumina plants (to come on stream in 2015
and onwards) are already negotiating 2014 export quotas!
Politically acceptable compromise may well be a rise in export tax from
20% to 50% with reductions for exporters with plants under
construction.
Even a 30-40% reduction in exports from 2013 inflated levels may not
change Chinese production levels for nickel pig iron/alumina that much
in 2014 due to heavy destocking.
Page 41
Nickel supply/demand summary – surplus to
2015?
Source: INSG, Macquarie Research, November 2013
`000t 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f
Total SS production 33666 35525 38910 41889 45157 47444 49139 50401
% Change 5.7% 5.5% 9.5% 7.7% 7.8% 5.1% 3.6% 2.6%
Ni-containing SS prod. 25080 26944 29268 31641 34250 35938 37023 38037
% Change 9.3% 7.4% 8.6% 8.1% 8.2% 4.9% 3.0% 2.7%
Nickel Consumption 1597 1662 1791 1907 2050 2118 2149 2176
% Change 7.3% 4.1% 7.7% 6.5% 7.5% 3.3% 1.5% 1.3%
Nickel Supply 1630 1781 1922 1941 2019 2085 2140 2173
% Change 12.3% 9.2% 7.9% 1.0% 4.0% 3.3% 2.7% 1.5%
(of which NPI) (282) (362) (482) (474) (475) (460) (450) (450)
World Market Balance 34 119 131 34 -31 -33 -8 -3
LME/Producer stocks 186 227 358 392 360 327 319 316
Weeks' world demand 5.9 7.0 10.2 10.5 9.0 7.9 7.6 7.4
LME Cash Price (cents/lb) nominal 1036 795 688 703 794 907 998 1089
LME Cash Price ($/tonne) - nominal 22831 17527 15166 15500 17500 20000 22000 24000
Page 42
Aluminium outlook – getting closer to balance but
massive stock overhang
Worst fundamentals of any base metal over the past decade due to large growth in Chinese supply
Weak prices but high premiums have kept producers in business and supply on-stream
Strong demand growth should help to rebalance markets eventually
Warehousing “games” – ongoing demand for material not needed by consumers: will this end soon?
What can happen to turn things?
Role of Indonesia in bauxite exports to China
Chinese costs rising? (New low-cost Western capacity but closures in the East?)
Strong ex-Chinese demand growth
Production cuts due to falling premiums as new LME rules take effect?
Page 43
Problem for world market – China has largely been
self-sufficient….in fact a growing net exporter of
metal and semis
Source: WBMS, Chinese Customs, Macquarie Research, November 2013
Chinese Aluminium Production and
Consumption Since 1970 ('000t)
0
2500
5000
7500
10000
12500
15000
17500
20000
22500
1970 1975 1980 1985 1990 1995 2000 2005 2010
'00
0t
Al
Production Consumption Production
Chinese net Imports of aluminium, scrap alloy and
semis
-3000
-2000
-1000
0
1000
2000
3000
4000
1970 1975 1980 1985 1990 1995 2000 2005 2010
'00
0t
Al
Al and Alloy Semis Scrap Total Al units
Page 44
Supply growth is all about China
Chinese aluminium production and capacity
4
6
8
10
12
14
16
18
20
22
24
26
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
mt
an
nu
ali
se
d p
rod
uc
tio
n
Capacity Production
Ex-China aluminium production and capacity
21
23
25
27
29
31
33
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
mt
an
nu
ali
se
d p
rod
uc
tio
n
Capacity Production
Source: IAI, CRU, Macquarie Research, November 2013
Page 45
Adding aluminium premiums to exchange prices
significantly shifts results of breakeven analysis
Aluminium prices and cash production costs
0
500
1,000
1,500
2,000
2,500
3,000
0 10 20 30 40 50
Cumulative production, m tonnes
US
$/t
on
ne
C1 cash cost
LME price + premiums
YTD LME average price
Source: LME, Wood Mackenzie, Macquarie Research, November 2013. Note: LME cash settlement price average 1 Jan – 19 November 2013
Page 46
Macquarie global aluminium S&D
Source: WoodMackenzie, CRU, IAI, Macquarie Research, November 2013
'000 tonnes Al 2011 2012 2013F 2014F 2015F 2016F 2017F 2018F
World consumption 45552 47906 50800 53943 57331 60694 63967 66953
% change YoY 10.4% 5.2% 6.0% 6.2% 6.3% 5.9% 5.4% 4.7%
of which: China 19976 21942 24136 26308 28676 30970 33138 35126
of which: Ex-China 25575 25965 26664 27635 28655 29724 30829 31827
World production 46174 48091 51099 54861 58032 61261 64206 66767
% change YoY 8.7% 4.2% 6.3% 7.4% 5.8% 5.6% 4.8% 4.0%
of which: China 20000 22500 24500 26500 28500 30923 32837 34087
of which: Ex-China 26174 25591 26599 28360 29532 30338 31369 32680
Global balance 622 185 300 917 701 566 239 -186
All stocks (est) 11703 11981 12281 13198 13899 14465 14704 14519
Weeks' demand 13.4 13.0 12.6 12.7 12.6 12.4 12.0 11.3
LME price 2395 2018 1854 1863 1950 2200 2300 2500
Page 47
Indonesia’s share of Chinese aluminium
production around 22% in 2013
Source: GTIS, CM, WoodMackenzie, Macquarie Research, November 2013
Source of bauxite and alumina for Chinese aluminium
production needs (real consumption)
15% 15%20%
26% 23% 22%
11% 7%
8%
9%10% 15%
55%
53%
55%
62%57% 54%
19%25%
17%
3%10% 9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 2010 2011 2012 2013F
Indonesia Other imports Chinese domestic Imported alumina
Chinese raw material stocks rise sharply in 2013
0
1
2
3
4
5
6
7
8
2009 2010 2011 2012 2013
Al co
nte
nt
of
bau
xit
e a
nd
alu
min
a s
tocks
1
3
5
7
9
11
13
15
17
sto
cks in
wks o
f A
l p
rod
ucti
on
Bauxite Alumina weeks' Al production
Page 48
Copper: Transitioning away from raw
material constraint
Source: NBS, China Customs, Macquarie Research, November 2013
Imported
Blister
6%
Domestic
mined copper
19%
Imported
concentrate
28%Scrap
18%
Refined copper
imports
29%
Chinese copper imports - YoY change
-1000
-500
0
500
1000
1500
2000
2500
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013f
2014f
,000t
Cu
co
nta
ined
Refined
Blister
Scrap
Conc
Page 49
Supply growth always has the propensity to
disappoint…but there’s a lot of it!
Source: Wood Mackenzie, Company data, Macquarie Research, November 2013
Change in copper output, 2015f vs. 2012
0 50 100 150 200 250 300 350 400 450 500
Escondida
Antapaccay
PT Freeport Indonesia
Oyu Tolgoi
Toromocho
Buenavista (Cananea)
Sentinal
Collahuasi
MMH
Caserones (SXEW)
Salobo
Sierra Gorda
Ok Tedi
Batu Hijau
,000t
Greenfield
Brownfield
Page 50
Copper mine output growth accelerates
Unmistakeable rise in Chilean copper mine output
5.1
5.4
5.3
5.8
5.6 5.6
5.8
6.0
4.6
4.8
5.0
5.2
5.4
5.6
5.8
6.0
6.2
Q112 Q212 Q312 Q412 Q113 Q213 Q313E Q413F
mt
Cu
an
nu
alis
ed
World copper mine production by quarter
15.5
16.5
16.8
18.0
17.417.5
18.318.5
14.0
14.5
15.0
15.5
16.0
16.5
17.0
17.5
18.0
18.5
19.0
Q112 Q212 Q312 Q412 Q113 Q213 Q313E Q413F
m t
on
ne
s a
nn
ua
lis
ed
Source: Wood Mackenzie, ICSG, Macquarie Research, November 2013
Page 51
We expect high-single-digit mine output growth –
and above trend demand
Source: Wood Mackenzie, ICSG, Macquarie Research, November 2013
Copper mine supply growth
-600
-400
-200
0
200
400
600
800
1000
1200
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013f
2014f
2015f
2016f
2017f
2018f
,000 t
on
nes
Copper demand growth
-2500
-2000
-1500
-1000
-500
0
500
1000
1500
2000
2500
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013f
2014f
2015f
2016f
2017f
2018f
,000 t
on
nes
World ex-China
China
Consistent
growth expected
Less need to
substitute/thrift
Page 52
Turning copper on its head – the cathode market
has been tighter!
Source: CRU, China Customs, LME, Macquarie Research, November 2013
YoY change in China's Cu scrap imports, 3MMA
-30%
-20%
-10%
0%
10%
20%
30%
40%
Jan-1
0
Apr-
10
Jul-10
Oct-
10
Jan-1
1
Apr-
11
Jul-11
Oct-
11
Jan-1
2
Apr-
12
Jul-12
Oct-
12
Jan-1
3
Apr-
13
Jul-13
Premiums are high, helped by Johor queue
Page 53
Financing contributed to tightening market – we’d
expect imports to fall
Source: China Customs, LME, Macquarie Research, November 2013
Physical cash arbitrage - Chinese copper imports (inc.
premium)
-300
-250-200
-150
-100-50
050
100
150200
250
Jan 1
3
Feb 1
3
Mar
13
Apr
13
May 1
3
Jun 1
3
Jul 13
Aug 1
3
Sep 1
3
$/t
on
ne
SHIBOR spike –
imports
encouraged
Chinese cathode imports
0
50
100
150
200
250
300
350
400
450
500
Jan
-11
Ap
r-1
1
Ju
l-11
Oct-
11
Jan
-12
Ap
r-1
2
Ju
l-12
Oct-
12
Jan
-13
Ap
r-1
3
Ju
l-13
'000t
Page 54
Stocks are set to build – the question is where?
Source: LME, CRU, SHFE, Macquarie Research, November 2013
Exchange and bonded stocks
0
200
400
600
800
1000
1200
1400
1600
1800
Ja
n-0
9
Ap
r-0
9
Ju
l-0
9
Oct-
09
Ja
n-1
0
Ap
r-1
0
Ju
l-1
0
Oct-
10
Ja
n-1
1
Ap
r-1
1
Ju
l-1
1
Oct-
11
Ja
n-1
2
Ap
r-1
2
Ju
l-1
2
Oct-
12
Ja
n-1
3
Ap
r-1
3
Ju
l-1
3
Oct-
13
Ja
n-1
4
Ap
r-1
4
kt
LME Comex SHFE Bonded
Forecast
We expect the build in LME
inventories from ex-China
smelters delivery, however
this could come in bonded
or even off-market
Page 55
Smelters – some reasons to feel cheerful for once!
Source: Wood Mackenzie, LME, Macquarie Research, November 2013
Copper TC/RC - Spot to China
0
5
10
15
20
25
30
35
40
Jan
10
Jul
10
Jan
11
Jul
11
Jan
12
Jul
12
Jan
13
Jul
13
(c/lb) Share of copper price received by smelters - spot
basis
0
100
200
300
400
500
600
700
800
900
Ja
n-0
7
Ju
l-0
7
Ja
n-0
8
Ju
l-0
8
Ja
n-0
9
Ju
l-0
9
Ja
n-1
0
Ju
l-1
0
Ja
n-1
1
Ju
l-1
1
Ja
n-1
2
Ju
l-1
2
Ja
n-1
3
Ju
l-1
3
$/t
on
ne
Page 56
What returns copper to deficit – the peak of SX-EW
helps
Source: Wood Mackenzie, Macquarie Research, November 2013
Incentive price for 10% IRR - SxEw projects
0
2000
4000
6000
8000
10000
12000
14000
Bole
o
Kip
oi
Kolw
ezi
KO
V
White R
ange
El P
ilar
Andin
a
Kala
kundi
La G
ranja
Tia
Maria
Antu
coya
$/t
on
ne
YoY changes in SxEw output
-300
-200
-100
0
100
200
300
400
2007
2008
2009
2010
2011
2012
2013f
2014f
2015f
2016f
2017f
2018f
kt
Chile DRC Rest of World
Page 57
Copper projects are both increasingly dilutive to
the existing asset base and highly capital-
intensive
Source: Wood Mackenzie, CRU, Macquarie Research, November 2013
Weighted average copper project by year of delivery
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
0 5000 10000 15000 20000 25000 30000 35000 40000
Life of mine capital intensity
Av
era
ge
he
ad
gra
de
2000-2011
2012-2018f
2000
2001
2002
2004
2005
2006
2007
2008 2009
2010
20112012
2013f
2014f
2015f
2016f
2017f2018f
Page 58
Macquarie’s copper supply-demand balance
Source: Wood Mackenzie, ICSG, Macquarie Research, November 2013
Global Refined Copper Balance'000 tonnes 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f
World Production 18,298 18,930 19,624 20,105 20,868 21,985 22,972 23,753 24,521 24,457
% Change Y-o-Y 0.1% 3.5% 3.7% 2.5% 3.8% 5.4% 4.5% 3.4% 3.2% -0.3%
World Consumption 17,426 19,188 19,957 19,886 20,698 21,633 22,625 23,589 24,500 25,210
% Change Y-o-Y -3.1% 10.1% 4.0% -0.4% 4.1% 4.5% 4.6% 4.3% 3.9% 2.9%
Balance 873 -258 -333 220 170 352 346 163 21 -753
World Reported Stocks 1,358 1,183 1,174 1,078 1,248 1,600 1,946 2,109 2,131 1,377
Stocks (Weeks) 4.1 3.2 3.1 2.8 3.1 3.8 4.5 4.6 4.5 2.8
LME Cash Price ($/t) 5,164 7,539 8,811 7,950 7,351 6,550 6,525 7,525 7,875 7,875
LME Cash Price (c/lb) 234 342 400 360 333 297 296 341 357 357
Concentrates Market ('000t Cu)'000t Cu 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f
Mine Production:
Concentrates 12527 12658 12593 13036 14218 14715 15368 16177 16545 16319
SX-EW 3281 3340 3414 3660 3756 4034 4210 4135 4365 4270
Total 15809 15998 16006 16696 17974 18748 19577 20312 20910 20589
% Change Y-o-Y 1.8% 1.2% 0.1% 4.3% 7.7% 4.3% 4.4% 3.8% 2.9% -1.5%
Concs Balance -277 -32 -341 12 284 0 0 0 0 0
Page 59
Zinc – The mine supply problem – too much in
2013…
Source: ILZSG, Macquarie Research, November 2013
Global zinc mine, refined metal
output
9
10
11
12
13
14
15
J 2
009
M 2
009
S 2
009
J 2
010
M 2
010
S 2
010
J 2
011
M 2
011
S 2
011
J 2
012
M 2
012
S 2
012
J 2
013
M 2
013
m t
on
nes,
3M
MA
an
nu
ali
sed
Mine
output
Refined
output
Chinese zinc mine output
0
1
2
3
4
5
6
7
J 2
004
J 2
005
J 2
006
J 2
007
J 2
008
J 2
009
J 2
010
J 2
011
J 2
012
J 2
013
m t
on
nes,
an
nu
ali
sed
Monthly
12MMA
Page 60
…and too little in the latter part of the decade
Source: Wood Mackenzie, ILZSG, Macquarie Research, November 2013
Ex-China zinc mine output
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
J 2
011
A 2
011
J 2
011
O 2
011
J 2
012
A 2
012
J 2
012
O 2
012
J 2
013
A 2
013
J 2
013
Yo
Y %
ch
, 3M
MA
Zinc mine major projects and depletions
-1500
-1000
-500
0
500
1000
2013f 2014f 2015f 2016f 2017f
,000 t
on
nes
Ozernoe
Shalkiya Restart
Dugald River
McArthur River
Century
Brunswick
Perseverence
Lisheen
Skorpion
Questions regarding
sustainability of
Chinese output
Page 61
Just like others, the Chinese market has been
tightening…
Source: worldsteel, INSG, ICSG, IAI, ILZSG, Macquarie Research, November 2013
China's zinc mine and metal output
0
1
2
3
4
5
6
J 2
009
M 2
009
S 2
009
J 2
010
M 2
010
S 2
010
J 2
011
M 2
011
S 2
011
J 2
012
M 2
012
S 2
012
J 2
013
M 2
013
m t
on
nes,
3M
MA
an
nu
ali
sed
Mine
output
Refined
output
Reported commercial zinc stocks
0
500
1,000
1,500
2,000
2,500
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
'000 t
on
nes,
mo
nth
en
d
Producers
Merchants
Consumers
SHFE
LME
China's zinc concentrate imports
0
50
100
150
200
250
300
350
400
450
Ja
n-1
0
Ju
l-1
0
Ja
n-1
1
Ju
l-1
1
Ja
n-1
2
Ju
l-1
2
Ja
n-1
3
Ju
l-1
3
'00
0 t
on
ne
s
Page 62
…however higher treatment charges are
encouraging smelters back
Source: CRU, ILZSG, Macquarie Research, November 2013
China's refined zinc output
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
J 2
011
A 2
011
J 2
011
O 2
011
J 2
012
A 2
012
J 2
012
O 2
012
J 2
013
A 2
013
J 2
013
Yo
Y %
ch
an
ge
Zinc TCs - spot vs contract
0
50
100
150
200
250
J 2
011
A 2
011
J 2
011
O 2
011
J 2
012
A 2
012
J 2
012
O 2
012
J 2
013
A 2
013
J 2
013
US
$/d
mt
Contract
Spot
Page 63
The lack of LME stocks in Asia perhaps the
biggest 2014 price risk
Source: LME, CRU, ILZSG, Macquarie Research, November 2013
Global refined zinc consumption
-15%
-10%
-5%
0%
5%
10%
15%
J 2
011
A 2
011
J 2
011
O 2
011
J 2
012
A 2
012
J 2
012
O 2
012
J 2
013
A 2
013
J 2
013
Yo
Y %
ch
an
ge
World galv. steel sheet output
7%
4%
9%
5%
6%
9%
4%4%
1%
2%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2011 Q
1
2011 Q
2
2011 Q
3
2011 Q
4
2012 Q
1
2012 Q
2
2012 Q
3
2012 Q
4
2013 Q
1
2013 Q
2
Yo
Y %
ch
an
ge
LME zinc stocks by region
0%
20%
40%
60%
80%
100%
J 2
009
J 2
009
J 2
010
J 2
010
J 2
011
J 2
011
J 2
012
J 2
012
J 2
013
J 2
013
% t
ota
l, m
on
th e
nd
M.East
Europe
USA
Asia
Page 64
Macquarie’s zinc supply-demand balance
Source: Wood Mackenzie, ILZSG, Macquarie Research, November 2013
'000t zinc 2012 2013F 2014F 2015F 2016F 2017F 2018F
Mine production 13,250 14,250 14,850 15,250 15,000 15,750 16,400
YoY change 4.0% 7.5% 4.2% 2.7% -1.6% 5.0% 4.0%
Refined production 12,600 13,100 13,650 14,150 14,550 15,200 15,800
YoY change -3.2% 4.0% 4.2% 3.7% 2.8% 4.5% 3.9%
Consumption 12,446 12,945 13,542 14,147 14,756 15,338 15,900
YoY change -0.8% 4.0% 4.6% 4.5% 4.3% 3.9% 3.7%
Balance 154 155 108 3 -206 -138 -150
LME cash price
LME Cash Price ($/t) 1,946 1,933 1,988 2,150 2,375 2,350 2,200
LME Cash Price (c/lb) 88 88 90 98 108 107 100
Page 65
Ex-China lead mine supply struggling…
Source: China Customs, ILZSG, Macquarie Research, November 2013
Ex-China lead mine output
-4%
-2%
0%
2%
4%
6%
8%
J 2
012
M 2
012
M 2
012
J 2
012
S 2
012
N 2
012
J 2
013
M 2
013
M 2
013
J 2
013
Yo
Y %
ch
, 3M
MA
YoY change in China's Pb concentrate imports, 3MMA
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Jan-1
0
Apr-
10
Jul-10
Oct-
10
Jan-1
1
Apr-
11
Jul-11
Oct-
11
Jan-1
2
Apr-
12
Jul-12
Oct-
12
Jan-1
3
Apr-
13
Jul-13
Page 66
…making future Chinese mine supply
increasingly important – more so than for zinc
Source: ILZSG, CRU, Macquarie Research, November 2013
Chinese mine output as a proportion of global
0%
10%
20%
30%
40%
50%
60%
70%
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
Jul-12
Jan-1
3
Jul-13
Lead
Zinc
Lead market balance under different scenarios
-800
-600
-400
-200
0
200
400
2013F 2014F 2015F 2016F 2017F 2018F
,00
0 t
on
ne
s
Chinese Supply falls 5%pa
Base
Chinese Supply grow s 5%pa
Page 67
Macquarie’s lead supply-demand balance
Source: CRU, ILZSG, Macquarie Research, November 2013
'000t lead 2012 2013F 2014F 2015F 2016F 2017F 2018F
Mine production 4,900 5,100 5,200 5,300 5,300 5,400 5,550
% Change YoY 8.9% 4.1% 2.0% 1.9% 0.0% 1.9% 3%
Total production 10,450 10,850 11,100 11,300 11,400 11,700 12,150
% Change 2.0% 3.8% 2.3% 1.8% 0.9% 2.6% 4%
Consumption 10,400 10,750 11,100 11,400 11,600 11,750 12,100
% Change YoY 3.5% 3.4% 3.3% 2.7% 1.8% 1.3% 3%
Refined balance 50 100 0 -100 -200 -50 50
LME cash price
$/tonne 2061 2126 2175 2400 2250 2200 2200
c/lb 93.0 96.0 99.0 109.0 100.0 100.0 100.0
Page 68
Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand
Outperform – return > 3% in excess of benchmark return
Neutral – return within 3% of benchmark return
Underperform – return > 3% below benchmark return
Benchmark return is determined by long term nominal GDP growth
plus 12 month forward market dividend yield
Macquarie – Asia/Europe
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected <-10%
Macquarie First South - South Africa
Outperform – return > 10% in excess of benchmark return
Neutral – return within 10% of benchmark return
Underperform – return > 10% below benchmark return
Macquarie - Canada
Outperform – return > 5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return > 5% below benchmark return
Macquarie - USA
Outperform – return > 5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return > 5% below benchmark return
Volatility index definition* This is calculated from the volatility of historic
price movements.
Very high–highest risk – Stock should be
expected to move up or down 60-100% in a year
– investors should be aware this stock is highly
speculative.
High – stock should be expected to move up or
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be aware this stock could be speculative.
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or down at least 30-40% in a year.
Low–medium – stock should be expected to
move up or down at least 25-30% in a year.
Low – stock should be expected to move up or
down at least 15-25% in a year.
* Applicable to Australian/NZ stocks only
Recommendation – 12 months
Note: Quant recommendations may differ from
Fundamental Analyst recommendations
Financial definitions
All "Adjusted" data items have had the following
adjustments made:
Added back: goodwill amortisation, provision for
catastrophe reserves, IFRS derivatives & hedging, IFRS
impairments & IFRS interest expense
Excluded: non recurring items, asset revals, property
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minority interests
EPS = adjusted net profit /efpowa*
ROA = adjusted ebit / average total assets
ROA Banks/Insurance = adjusted net profit /average
total assets
ROE = adjusted net profit / average shareholders funds
Gross cashflow = adjusted net profit + depreciation
*equivalent fully paid ordinary weighted average number
of shares
All Reported numbers for Australian/NZ listed stocks
are modelled under IFRS (International Financial
Reporting Standards).
Recommendation proportions – For quarter ending 30 September 2013
AU/NZ Asia RSA USA CA EUR
Outperform 50.56% 56.87% 48.78% 41.00% 61.75% 47.10% (for US coverage by MCUSA, 5.85% of stocks covered are investment banking clients)
Neutral 38.95% 25.18% 42.68% 54.40% 34.43% 30.89% (for US coverage by MCUSA, 3.90% of stocks covered are investment banking clients)
Underperform 10.49% 17.94% 8.54% 4.60% 3.83% 22.01% (for US coverage by MCUSA, 0.00% of stocks covered are investment banking clients)
Page 69
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