East China Ordins’ Yan Huaqiang on finance and …...Global Head of Sales: Ram Kumar Advertising...

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East China Ordins’Yan Huaqiang onfinance and logistics

East China Ordins’Yan Huaqiang onfinance and logistics

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4 | Metal Bulletin Magazine | May 2016

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Features

20Cover storyYan HuaqiangThe general manager of East China Ordins sees opportunities to link finance and logistics for markets in China

Asian markets

28LME builds bridges The LME and HKEx are looking to build bridges between commodity trading inside and outside China

30CME Group widens rangeCME’s expanded range of metal contracts for base metals, precious metals and iron ore gains traction in the Asia-Pacific region

34Asian exchanges broaden horizons Commodity exchanges in China and Singapore plan to increase their international influence

End use markets

48Construction recovery The US construction sector steadily improves, with mixed results for steelmakers

52Flying highAerospace promises a long-term growth market for metals

Platinum group metals

54PGM supply recoversGlobal PGM production has been showing an impressive recovery

38Markets shift balanceLeading brokers, banks and traders discuss their strategies and outlook for the dynamic markets of China and beyond

46A new paradigm emergesStatistical analysis suggests that the structural drivers of commodity markets have changed away from conventional market fundamentals

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May 2016 | Metal Bulletin Magazine | 7

May57Supply chain servicesNews from service providers across the metals supply chain

59End userAdvances and market developments in applications

60EventsForthcoming conferences and exhibitions

Prices

61March averages

Regulars

9CommentAsian market innovations

25People movesNew appointments around the global metals trade and industry

56InnovationsNew developments in metals technology, processes and products

News and analysis

10Non-ferrous news reviewA summary of important developments in the non-ferrous sector over the past month

12Steel news reviewA round-up of important developments in the iron and steel sectors over the past month

14Base metals and steel analysisMetal Bulletin Research analyses the drivers of the base metals, steel and steel raw materials markets

18Regional reviewCorrespondents in Europe, North America, Latin America, Asia, Africa and the Middle East discuss topical issues in their regions

62Chartist‘Dead cat bounce’ or resurrection in China?

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owever keen they are to encourage liquidity, commodity exchanges do not control the volume of trade in the products they list. Nevertheless, their strategies naturally have a substantial effect on the likely level of interest in any particular type of product offered,

through its particular features, and on the attractiveness of the exchange as a trading venue itself.

The factors used to influence the value to market participants of exchanges and their products are many and various. For metals, detailed specifications – such as lot size and permissible brands, margin requirements and prompt dates – have a bearing. The speed and quality of post-trade services, including clearing, are another factor. As is the choice between physical delivery, and the warehouse network that requires, or cash settlement.

Broader issues, such as market opening hours and the levels, speeds and types of market access – electronic, telephone, ring-dealing – affect market users’ choices, as do the levels of exchange fees. Of course, individual retail, institutional and commercial market users have different needs, including the fundamental requirement by some to use markets to hedge effectively.

Add to these considerations the opportunity for arbitrage against other markets, or to offset margin against positions held in other contracts; the competing range of services offered by different brokers; the separate activities of OTC markets; and, not least, the over-arching requirements of national and international regulators, in order to arrive at a list of opportunities and challenges for all trading venues and their users.

Readers of the articles in our main feature section on Asian markets will find all of these factors and more at play, as regional and international exchanges, brokers, banks and traders vie to attract and serve clients in China and throughout Asia through a range of market innovations. And to connect them to wider international trade.

Within China, our cover interviewee, Yan Huaqiang, general manager of East China Ordins, is finding opportunities to develop the company’s own links between metal logistics, warehousing, trading and financial institutions.

The interplay between finance, costs and metal supply and demand is also found in our complementary articles about commodity market drivers, major end-use markets for metals, and the recovery in global mine supply of platinum and palladium. Innovation is needed at every step of the supply chain in today’s markets.

Published by Metal Bulletin. Metal Bulletin, 6-8 Bouverie Street, London EC4Y 8AX. UK registration number: 00142215.Tel: +44 20 7827 9977.Fax: +44 20 7928 6892 and +44 20 7827 6495.E-mail: [email protected]: www.metalbulletin.com

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Metal Bulletin:Editor: Alex HarrisonSteel Editor: Vera BleiDeputy Editor, Non-ferrous: Fleur RitzemaSpecial Correspondent: Andrea HotterOres & Alloys Editor: Janie DaviesCopper Editor: Mark BurtonSenior Correspondents: Jethro Wookey, Nina Nasman, Claire Hack, Nadia PopovaCorrespondent: James HeywoodReporters: Maria Tanatar, Alona Yunda, Serife Durmus, Cem TurkenGraduate Trainee: Charlotte RadfordNewsdesk Manager: Rod GeorgeSenior Sub-editors: Jeff Porter, Tony PettengellSub-editor: Wei Jun LauPrices Manager: Mary HigginsPublisher: Spencer WicksManaging Director: Raju DaswaniCustomer Services Dept: Tel: +44 (0)20 7779 7390Advertising Tel: +44 20 7827 5220 Fax: +44 20 7827 5206.E-mail: [email protected] Head of Sales: Ram KumarAdvertising Sales: Arzu Gungor, Susan ZouAdvertising Sales Support: Eva CichonUSA Editorial & Sales: Metal Bulletin, 225 Park Avenue South, 8th Floor, New York, NY 10003.Tel: +1 (212) 213 6202. Toll free: 1-800-METAL-25.Editorial Fax: +1 (212) 213 6617. Sales Fax:+1 (212) 213 6273.

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Asian market innovations

‘Individual retail, institutional and commercial market users have different needs’

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China Construction Bank buys 75% of Metdist Trading China Construction Bank completed its purchase of a 75% stake in Metdist Trading Ltd on April 6 to create CCBI Metdist Global Commodities (UK) Ltd, which will be the first company majority-owned by a Chinese bank to have ring-dealing membership of the London Metal Exchange. It will begin trading from CCB’s new London offices later this year after a process that began two years ago and was recently concluded for a sum that was not disclosed. Eighteen different companies in China expressed an interest in taking a stake in Metdist, with eight eventually providing firm expressions of interest, said CCBI Metdist ceo Nigel Dentoom.

AWAC secures $350 million of bauxite contracts Alcoa World Alumina and Chemicals (AWAC) has secured multiple bauxite supply contracts valued above $350 million over the next two years. Under the contracts, AWAC will supply bauxite from three of its global mines to customers in China, Europe and Brazil, parent company Alcoa announced on 6 April. The company did not disclose any further details on the terms of the contracts. The AWAC group of companies is owned 60% by Alcoa and 40% by Alumina Limited of Australia.

Peruvian copper is forecast to overtake China Peru is set to overtake China to become the world’s second largest copper producer within the next five years, the ceo of Votorantim Metais, Tito Martins, said at the CRU 15th World Copper Conference in Santiago, Chile. He forecast that Peru’s copper output will reach two million tpy in the next five years, and said it could even reach three million tpy if all scheduled

projects come on-stream. At the moment, only 14.6% of the country’s mining area is under concession and only 1.34% is in effective production, he noted. In 2012, the country produced 1.262 million tonnes of copper.

SMM sells stake in Vale New Caledonia Sumitomo Metal Mining (SMM) has agreed to sell all of its shares (7.6%) in Vale New Caledonia (VNC) for ¥8 billion ($70 million). “Vale Nouvelle Calédonie was unable to meet its commercial production requirement by the end of December 2015, and Sumic thus sold all of its shares in Vale Nouvelle Calédonie to Vale Canada,” SMM said on 1 April.

VNC – formerly known as

Goro – is targeting 38,000 tonnes of nickel production in 2016, up from 30,800 tonnes last year. The plant was designed to produce 60,000 tpy at full capacity.

Tin oversupply in China expected this year The Chinese tin market is expected to remain oversupplied this year amid tamed demand, Wang Libin, general manager of major Chinese tin trader Shanghai Yibei, said in an interview with Metal Bulletin. This is despite nine major Chinese tin producers announcing in December that they will cut 17,000 tonnes of output in 2016.

Sluggish domestic demand has prompted Yibei to slash its daily inventory of tin to about 100

tonnes this year, from a normal stock level of 200-300 tonnes. “Downstream demand is not good; that’s why consolidation is going on in the industry – there are less than 20 brands trading in the market now, compared with more than 40 brands some years ago,” Wang said.

Tungsten and gallium to be cut back in China The China Tungsten Industry Association (CTIA) has called on its members at a recent meeting to continue to control capacity and cut tungsten concentrate output by 10,000 tonnes this year in an attempt to combat poor market conditions. The CTIA estimates that the output of tungsten concentrate last year was probably similar to 2014’s volume, which was 127,000 tonnes.

Three major Chinese gallium producers are also to cut or gradually stop production in a joint attempt to prop up prices, the China Non-ferrous Metals Industry Association said in a statement on 25 March. The three producers are Beijing Jiya Semiconductor Material, Shanxi Zhaofeng Gallium and Guangxi Debao. According to the statement, the three have decided not to add new material and will gradually cut their gallium production until their raw materials run out. Resumption of cut production “will depend on the price”, the statement added.

Pertama ferro-alloys project starts up Asia Minerals Limited’s (AML) ferro-alloys smelting plant Pertama Ferroalloys in Sarawak, Malaysia, has started production. Hot commissioning of the ferro-silicon, silico-manganese and refined ferro-manganese furnaces started in April and will finish in February 2017, delegates were told at MB’s Asian ferro-alloys conference in Singapore. Pertama Ferroalloys is jointly owned by AML (the majority shareholder), Nippon Denko, Chuo Denki Kogyo, Shinsho

News review: non-ferrous

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AWAC secures multiple bauxite supply contracts

Pertama Ferroalloys under construction: full commercial operation is expected next year

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Projects of Germany. A project development agreement was signed by the companies in Berlin in April. Following a preliminary study, the proposed project could process 1.85 million wet metric tonnes of nickel ore per year into 19,500 tonnes of ferro-nickel with a minimum 15% nickel content, PT Antam said. PT Antam will supply the minimum 1.6% nickel-content ore to the facility. The initial estimated project cost is $800 million, with PT Antam’s share at 25%.

Las Bambas on track for commercial production in H2 MMG’s Peru copper mine Las Bambas produced 31,470 tonnes of copper in concentrate during the first quarter of 2016, with commercial production expected to start in the second half. The miner dispatched its first shipment of 10,000 tonnes of copper concentrate to Matarani port and then onwards to China on January 15, arriving at Nanjing on 20 March. MMG maintains its production guidance for Las Bambas at 250,000-300,000 tonnes of copper in concentrate in 2016. Having transferred the concentrator to the operations team, the company said it is now focusing on commissioning the molybdenum plant.

Corporation and Carbon Capital Corporation Sdn Bhd. The project’s sinter plant is expected to be launched this November and performance acceptance testing will start in April 2017. The plant will have a capacity of 240,000 tpy at full operation, expected from the third quarter of 2017.

China agrees to end certain export subsidies China has agreed to end export subsidies it provided to industries, including aluminium products, titanium and special steel, after the USA complained to the World Trade Organisation (WTO) in February 2015. The subsidies challenged at the WTO were part of a programme under which China’s central government gave funding to local and provincial governments, which was in effect passed on to businesses in 179 industrial bases across China, known as demonstration bases. In the memorandum of understanding, China has agreed to six measures, effectively terminating the programme of export-contingent subsidies across seven economic sectors.

Production shuttered at Alcoa’s Warrick smelter Alcoa permanently ceased production of primary aluminium at its 269,000 tpy Warrick smelter in Evansville, Indiana, USA, on 24 March.

As Alcoa previously announced in January, the on-site rolling mill and power plant will continue to operate. A claim with the US Department of Labor’s Office of Trade Adjustment Assistance (TAA) was filed in February for workers at the smelter by a staff representative for the United Steelworkers union (USW), according to TAA records.

Chinese nickel output to fall 11% China’s primary nickel output is expected to be 560,000 tonnes in

2016, down by 11% year-on-year, Fan Runze, an analyst from Antaike told delegates at the China Nickel Conference on 15 April in Shanghai. Nickel pig iron (NPI) will contribute 330,000 tonnes of nickel metal, he forecast, down 14% from 385,000 tonnes in 2015. The number of NPI producers in operation in China fell to just over 40 in first quarter of 2016.

China consumed 960,000 tonnes of primary nickel in 2015, up 2% on the previous year. The stainless sector accounts for 85% of China’s primary nickel consumption, followed by plating (7%), foundry and alloys (6%) and batteries (2%), Fan reported.

Indonesian companies form alumina joint venture Indonesia’s PT Antam and PT Inalum have formed a joint venture to build a 2 million tpy smelter-grade alumina (SGA) plant. The refinery will be built in two phases, with a capacity of 1 million tpy in the first phase. The joint venture will be called PT Inalum Antam Alumina. The companies did not give a timeline for the project.

PT Antam will provide bauxite to the plant, while PT Inalum will look to reduce its dependency on imported alumina once the plant

is in production. PT Inalum currently has a capacity of 250,000 tpy of primary aluminium, and plans to double this by 2020. This will require 1 million tpy of alumina to meet the expansion plans.

Balco to restart aluminium rolling India’s Bharat Aluminium Co (Balco) will restart its rolling business this July, more than six months after closing it following a steep fall in aluminium prices. The plant at Korba in the state of Chhattisgarh will restart operations on 15 July. The smelter at Korba has a capacity of 345,000 tpy and produces ingot, wire rod, billet, busbar and rolled products.

In March this year, Balco also received the fourth unit of a 1,200 MW power plant, developed with the help of China’s Shandong Electric Power Corp, that will allow it to boost its aluminium output.

Three-way joint venture for ferro-nickel in Indonesia Indonesia’s PT Antam will develop a ferro-nickel facility in Pomalaa, Southwest Sulawesi, Indonesia, along with Cronimet Holding and Ferrostaal Industrial

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News review: steel

Tata to sell UK operations; Liberty House invests Tata Steel confirmed plans to sell its entire UK business, following a board meeting in India on 29 March. Having reviewed the restructuring proposals for the Strip Products UK division, the board concluded that the plan was “unaffordable”, that underlying assumptions were “very risky” and the chance of delivery “highly uncertain”.

On 24 March, international steel and metals group Liberty House agreed to buy Tata Steel Europe’s 200,000 tpy Dalzell and Clydebridge steel plate mills in Lanarkshire, Scotland. The value of the deal was not specified but it was believed to be nominal, with Liberty taking on financial responsibility for operating and investing in the two sites.

Liberty House also outlined plans to build a ‘green steelmaking hub’ in the UK, by converting the group’s Uskmouth power station in Newport, South Wales, to renewable power – using biomass, waste and tidal energy – to supply Liberty’s

own idled EAF works nearby, which currently uses imported slab to produce hot-rolled coil.

Greybull buys Tata’s UK long steel assets Greybull Capital has reached an agreement to buy Tata Steel Long Products Europe (LPE) for a nominal fee. The sale covers Tata Steel UK’s Scunthorpe steelworks, two mills in Teesside, an engineering workshop in Workington, a design consultancy in York, and a mill in Hayange in northern France, as well as associated sales and distribution facilities. Greybull Capital said it is arranging a £400 million ($564.81 million) investment and financing package for the European long products business, which will be renamed ‘British Steel’.

Tata Steel began the formal process of selling the remainder of its UK operations on April 11.

Peabody files for Chapter 11 protectionUS coal miner Peabody Energy and a majority of its US entities filed for voluntary

Chapter 11 protection in the US Bankruptcy Court in Missouri, it said on April 13. Peabody, reported to be the world’s largest private-sector coal producer, was “taking a major step to strengthen liquidity and reduce debt”, it said, amid an unprecedented market downturn. “Australian operations are continuing as usual,” Peabody said, adding that all of the company’s mines and offices are operating normally and are expected to continue to do so during the bankruptcy process. Peabody Energy is the fourth major US coal company to file for voluntary Chapter 11 protection over the past year.

Hebei I&S buys Železara Smederevo The Serbian government accepted a bid from China’s Hebei Iron & Steel for the Železara Smederevo steelworks on April 5. The price offered by Hebei Iron & Steel was €46 million ($52.39 million), and the Chinese company was the sole bidder for the steelworks. Hebei Iron & Steel plans to invest €120-300 million ($137-342

million) in the Serbian plant. Železara Smederevo is equipped with two blast furnaces and three basic oxygen converters that can produce 2.2 million tpy of crude steel, cast into slabs and subsequently roll into hot- and cold-rolled coil.

US Steel to cut 25% of non-unionised workforce US Steel is to cut 25% of its non-unionised workforce in North America, a company spokeswoman told Metal Bulletin sister publication AMM on 6 April, as a result of “continued challenging market conditions, including the downturn in the oil & gas industry, depressed steel prices and unfairly traded imports”. The Pittsburgh-based steelmaker did not disclose the exact number of job cuts, which will affect staff working at the company’s headquarters and also those working at plant level. The steelmaker’s European operations will also undergo a restructuring, she said, but no details were given.

Steel demand is forecast to dip this year The World Steel Association (Worldsteel) is forecasting a 0.80% drop in global steel demand to 1,487.70 million tonnes for this year, followed by a small 0.40% rise in 2017 to 1,493.60 million tonnes. The organisation’s short-range outlook, published on 13 April, forecast that China’s demand will fall by 4% this year to 645.40 million tonnes, to be followed by a 3% decline next year to 626.10 million tonnes. Falling demand in Brazil and Russia were the other major factors affecting consumption in 2016. However, next year demand growth is expected in all markets except China, said TV Narendran, chairman of the Worldsteel economics committee.

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US Steel is to cut a quarter of its non-unionised workforce in North America

Get the latest metals news at www.metalbulletin.com


pipeline is a joint venture between Howard Energy Partners and Mexico’s Grupo Clisa. The project is expected to start operations in June 2017.

Al Gharbia Pipe starts construction The ground-breaking ceremony for Al Gharbia Pipe, the UAE’s first large-diameter, sour service tube & pipe plant for oil & gas, took place on 17 April. The plant is a joint venture between the owner of Emirates Steel Industries, Senaat (51%), along with Japan’s JFE Steel (27%) and Marubeni-Itochu Steel (22%). Producing pipe able to withstand high concentrations of hydrogen sulphide, Al Gharbia will also target infrastructure and construction markets. The 240,000 tpy plant will start up in 2018, with 60% of output expected to be sold in the UAE.

Voestalpine to supply plate for Nord Stream 2 Voestalpine has signed a contract to supply ‘several hundred thousand tonnes of special plate’ to Russian producer OMK to make linepipe for the Nord Stream 2 project, which consists of two pipelines totalling 2,500 km running from Wyborg in Russia to Greifswald in Germany. OMK is to supply 33% of the project’s pipe, or about 726,000 tonnes. Pipe deliveries are expected to begin in September 2016, with construction of the two pipelines to start in 2018.

Australia raises AD duties on Chinese rebar The Australian government has imposed definitive anti-dumping duties on imports of rebar from China, raising the maximum levy to 30% from the previous 17.8% cap. Five named exporters had AD duties of 11.7-16.4% imposed, while the 30% maximum was applied to rebar from “uncooperative and all other exporters”. The case was opened in July last year following an application by OneSteel Manufacturing, a part of Arrium.

India initiates AD probe into flat steel from six countries India has initiated an anti-dumping investigation into hot rolled coil (HRC), sheet and plate imports from China, Japan, South Korea, Russia, Brazil and Indonesia. The investigation covers HRC in widths up to 2,100 mm and up to 25 mm thick, and sheet and plate products in widths up to 4,950 mm and with thicknesses up to 150 mm. The period of investigation is July-December 2015. The investigation was initiated after an application by the Steel Authority of India (Sail), JSW Steel and Essar Steel India, supported by Tata Steel and Jindal Steel & Power (JSP).

Vale streamlines and revises capex Vale has confirmed the sale of its entire 26.87% stake in ThyssenKrupp’s CSA slab plant in Brazil’s south-eastern Rio de Janeiro state to the German steelmaker. The move is part of the company’s initiatives to streamline its asset portfolio, the Brazilian miner said on April 4.

The completion of the transaction requires the approval of Brazil’s competition regulator, Cade.

Meanwhile, Vale has again cut its capital expenditure forecast for 2016, this time to $5.50 billion, it said on April 6.

In December 2015, it reduced its capex estimate to $6.20 billion. Vale reported that it had nearly balanced its cashflow through improved discipline around its allocation of capital, which enabled it to identify savings of about $3 billion in the 2015-2016 period.

Abinsk adds to billet capacityThe Abinsk Electric Steel unit of Russian steelmaker Novorosmetall will increase its billet capacity by 550,000 tpy, or 58%, next year.

The Abinsk mill has signed a contract with Primetals Technologies to modernise the electric arc furnace (EAF), ladle furnace and six-strand continuous billet caster. The aim of the modernisation is to increase the production capacity for 130 mm and 150 mm sq size billets from the current 950,000 tpy to 1.5 million tpy. The modernised meltshop is scheduled to come into operation at the end of 2016, and the continuous billet caster in the first quarter of 2017.

Iron ore exports from Port Hedland hit a recordIron ore exports from Australia’s Port Hedland hit a record high of 39.53 million tonnes in March, according to the Pilbara Ports Authority on April 5. This is up from the previous high of 39.40 million tonnes in September last year, and is an increase of 8% from tonnages shipped a year earlier. China imported 32.59 million

tonnes of iron ore from the Australian port in March, up from 31.24 million tonnes in March last year. Other destinations included Japan with 2.57 million tonnes and South Korea with 2.12 million tonnes. BHP Billiton and Fortescue Metals Group export iron ore mainly from Port Hedland, while Rio Tinto ships through Dampier.

Ahmsa and Tubacero to supply steel gas pipeline Mexico’s largest integrated steelmaker, Ahmsa, will supply 73,000 tonnes of plate for the construction of a gas pipeline aiming to transport natural gas from the USA to Mexican end-users. Ahmsa will supply the steel to Mexican pipe manufacturer Tubacero, which will then convert it into tube for the pipeline.

The Nueva Era project consists of a 300 km pipeline with a minimum 30-inch diameter, connecting gas supplies in the US county of Webb, Texas, to the Mexican state of Nuevo Leon. The

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Thyssenkrupp is taking over 100% of the CSA slab plant in Brazil

Plate from Ahmsa will be converted to gas linepipe

MBR analysis


Aluminium is being dragged higher by improved sentiment towards commodities generally, with institutional investor money continuing to return to the asset class. And although aluminium has the strongest demand outlook among the base metals – we forecast growth of around 5% globally this year – this metal is handicapped by a number of bearish factors which will limit the upside for prices. Specifically, stocks remain high, albeit mostly now located in less-visible off-market storage due to the continuing exodus from the LME system.

Aluminium is also burdened by excess capacity and a lack of discipline among producers, especially in China. On firmer

prices, smelters there were always going to struggle to resist restarting idled plants and ramping up new capacity, given pressure on finances, especially at local government level. We believe that at least 330,000 tpy could have been restarted by the end of H1. And if prices remain firm, that figure will almost certainly rise. As a result, we continue to forecast a global surplus this year.

The lead market continues to be volatile and has been struggling recently compared with other base metals. We put that down to a number of factors. First, being one of the smaller markets it is unlikely to pick up as much speculative or commodity index-type interest. Second, consumers are well-covered by annual contracts, so there is not so much spot business being done. Third, more scrap is entering the supply chain at the higher price levels and this pent-up supply needs to be absorbed before prices can push into new high ground. Fourth, the latest ILZSG data were disappointing, suggesting a swing to a large surplus in

February from a deficit in January. Finally, with zinc in vogue again, lead may have found itself on the sell-side of relative-value trades. Overall, we think that lead prices have been building a base and increased volatility is typical of this. We still expect a global deficit this year and prices should ultimately rise more sustainably to reflect this.

Technical indicators turned upwards again in April, bringing more short covering and fresh long positions. The effect on the supply-demand balance of new mine ramp-ups are being softened by cutbacks and disruptions. And Chinese imports have surged to record highs, albeit largely on account of the open arbitrage window earlier in the year and a pick-up in finance-related demand using copper as collateral again.

There are supportive factors for copper prices, but the real key – namely improved end-use consumption – remains elusive, or at least harder to confirm. Moves in premiums, rather than stocks changing location, are bearing testament to this. However, there may be an

improvement under way now, with broader economic indicators suggesting that China’s economy has stabilised. There are even some copper-centric data points that provide cause for optimism, such as a 36% year-on-year surge in power grid investment in January-February, reflecting government stimulus spending – another one of a growing number of bullish indicators emerging now for copper.

Nickel has come alive since around mid-April, outperforming the other metals and scoring new highs for the year in the $9,000s. LME trading volumes have improved and open interest has risen, indicative of fund buying picking up. This is not something we have seen much of in nickel for a long time and warns that the tide may have turned. There is little evidence yet among the more nickel-specific fundamental indicators to justify the price revival. However, more broadly, commodity market sentiment has improved and investors appear to be returning across the asset class, the outlook for China has stabilised, and the dollar has weakened. Together

with an improved technical picture, it is these factors driving the nickel price. There are still more producers making a loss than those operating in profit, so nickel may not rise much further given the risk of a pick-up in producer selling at these higher levels. Nevertheless, our Q2 forecast of $9,300/tonne is looking achievable if this strength continues.

AluminiumCapped by lack of producer discipline

CopperClimbing higher as more bullish signs emerge

LeadCatching up to do

NickelThe tide may have turned

LME cash price, $/t

LME/MBR

1,200

1,600

2,000

Mar

15

May

15

May

16f

Jul 1

5

Sep

15

Nov

15

Jan

16

Mar

16

LME cash price, $/t

LME/MBR

3,000

5,000

7,000

Mar

15

May

15

May

16f

Jul 1

5

Sep

15

Nov

15

Jan

16

Mar

16

LME cash price, $/t

LME/MBR

1,500

1,750

2,000

2,250

Mar

15

May

15

May

16f

Jul 1

5

Sep

15

Nov

15

Jan

16

Mar

16

LME cash price, $/t

LME/MBR

6,000

12,000

14,000

10,000

8,000

16,000

Mar

15

May

15

May

16f

Jul 1

5

Sep

15

Nov

15

Jan

16

Mar

16

In this regular section, MBR’s base metals team summarise their in-depth reports to highlight key factors driving the markets and short-term price forecasts. MBR’s Base Metals Weekly Forecaster service


Ask an analystWill zinc finally meet bullish expectations in 2016?

Zinc’s emerging bull story seems to be gaining traction, with prices performing strongly again over the past month. At the time of writing, however, prices had hit a wall of resistance in the $1,900s and it will be interesting to see if they can push on from here. After all, premiums are near multi-year lows, the rise in SHFE stocks so far this year has surpassed the fall in LME stocks, consistent with the latest ILZSG data suggesting the global refined market has been running a surplus.

Tightness in the global zinc concentrate market is undeniable, but the question now is when will this deficit

spread to the refined market? It might not be until later in the year, and that would leave room for prices to correct lower and consolidate in the meantime. Indeed, our technical analysis warns that a base is still not yet fully confirmed, so we might see some volatility to prices for a while, including on the downside.

In many ways zinc is the stand-out base metal of the moment. Since the January lows, it has rallied more aggressively than the other base metals and regained its premium over sister metal lead.

But we have seen marked rallies in zinc before – approximately this time last year and again in September-October, and even back in the first half of 2014. On each occasion the move up has come on the back of investors looking for the next big story, and zinc has fitted the bill on account of the major mine closures that had long been scheduled for the second half of 2015. These in theory laid the fundamental foundation to a potentially significant supply-driven bull market, which is a claim that few, if any, other base metals can make.

Last year’s rally attempts and the one in 2014 were anticipatory in their nature and ultimately premature. All the gains, and more, were unwound and new cycle-lows followed. But after these false starts, here we are again with zinc rallying strongly once more. Will it be different this time around? Are these gains going to prove more sustainable and evolve into the next zinc bull market?

The short answer is yes, for a few specific reasons. The fundamental tightness the previous rallies were anticipating has actually

arrived, so higher prices now are built on firmer foundations. There is a deep deficit in the zinc concentrate market, evidenced by the slump in TCs with spot terms currently around $120-125/tonne from above $200/tonne as recently as September. It was brought about by the swathe of price-related mine production cutbacks which compounded the effect of the scheduled end-of-life closures.

Other differences this time versus the previous failed rallies are that China now is stable, not slowing; investors are now returning to commodities, not exiting; and the US dollar is now stable-to-weaker, not appreciating.

In the short term, zinc prices have probably bounced up too high, too soon. We would not be surprised if it takes bit of a breather, but the lows have certainly been seen and prices should continue to move higher in a stepped fashion both this year and next.

‘The fundamental tightness the previous rallies were anticipating has actually arrived’

TinProducers may respond to higher prices

ZincWhen will a refined deficit emerge?

Every month an MBR analyst answers a question raised by readers. If you have a question for our analysts, please email: [email protected]

Analysis by Andy Cole, base metals analyst and editor of MBR’s Base Metals Weekly Market Forecaster. Email: [email protected]

World leading market analysis www.metalbulletinresearch.com

Analysis by Andy Cole, Metal Bulletin Research

LME cash price, $/t

LME/MBR

1,000

1,500

2,000

2,500

Mar

15

May

15

May

16f

Jul 1

5

Sep

15

Nov

15

Jan

16

Mar

16

LME tin prices have improved strongly and at the time of writing were holding comfortably over the $17,000/tonne mark. However, we are getting increasingly concerned that a significant supply response is bubbling up in China. The low prices from mid-January feel a long way away, but the market almost touched $13,000/tonne back then. At the time, Chinese smelters announced a coordinated cutback of 17,000 tonnes – significant enough to trigger the 30%+ recovery in prices that followed.

But Chinese metal producers have never been known for their discipline, particularly in the face of higher pricing. So we would not be surprised if not

only the cutback pledge was not honoured, but that some producers at least may even be raising capacity utilisation rates. First-quarter concentrate imports were over three times higher than those of Q1 2015, which is an ominous sign. A pick up in Chinese output, together with Indonesian exports, could pressure prices down quite sharply, especially as demand remains subdued.

LME cash price, $/t

LME/MBR10,000

15,000

20,000

Mar

15

May

15

May

16f

Jul 1

5

Sep

15

Nov

15

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Mar

16

provides independent, detailed and timely analysis on the latest data, price movements and developments that impact the market conditions and outlook for LME-traded base metals.

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MBR analysis

In this section, MBR’s steel and steel raw materials team summarise their in-depth reports to highlight key factors driving the markets and short-term price forecasts. MBR is a leading independent supplier of product and regional price, supply and demand forecasts for steel and raw materials. For free samples of MBR’s reports, call Harriet Hall (+44 (0)20 7779 8000) or access www.metalbulletinresearch.com/freesample

SteelWhen will the steel market correct?

Steel raw materialsSteel pushes up raw material prices

Ongoing seasonal changes to demand continue to confirm that the steel price rally, which started in China last November, has become more than just a supply-side story, even among markets such as China, where steel demand is still predicted to decline for a third straight year. Forecasters have recently been overestimating Chinese demand, or in reality underestimating the pace of decline. But if the surprisingly robust developments in the Chinese economy were to continue, almost half of which is industrial production (33%), construction (5%) and real estate (7%), it follows we may soon be underestimating steel demand once again.

The extent of the price rises recorded over the first quarter in China surprised us, but the far more acute price rises seen through April, not only in China but throughout the major import markets of the world, suggests we may also have underestimated the price rises to come overseas. MBR is not alone in being surprised by the increasing ambition of suppliers in the USA and even now the EU although the reasons for such surprise have not changed. Indeed it is still hard to detect an obvious demand pull outside of China. Market participants, both in basic steels and tubular goods, have clearly been slower than usual at replenishing inventories and are arriving late to the party, shocked at their so-called steel “replacement” costs. The question on most suppliers’ minds is: when prices correct, as they surely must, will

We have witnessed a pick-up in steel raw materials prices this month, largely on the back of improving steel prices, which have meant that consumers have been willing to pay more than was the case before. It is important to note, however, that this uptrend has been more pronounced in scrap and metallic prices, as opposed to iron ore benchmarks.

Metal Bulletin’s Iron Ore Index for 62% material cfr Qingdao has increased on average by just over $3/tonne through the past month, to close to $60/tonne average for April (at the time of writing), though highs of $70/tonne have been reached in the tail end of this month, and we remain closer to $70/tonne than $60/tonne in the final week of April.

Most spectacularly this month, surging Chinese semi-finished and finished steel prices have meant Chinese margins have risen rapidly, and as a result there has been a partial release of the downside pressure on iron ore suppliers, who had until very recently been battling to secure business with Chinese mills that threatened to cut output, and hence iron ore consumption, as Chinese steel prices fell to unprecedentedly unprofitable levels. This situation seems to have turned around this month. However, MBR’s intelligence confirms the uncertainty around whether the current government-led rebound in Chinese steel markets is sustainable enough to allow the upward trajectory of iron ore to continue, especially amid the oversupplied conditions that exist.

they be as severe on the way down?

In this respect, one of the key ways we can forecast this is calculating the underlying value of steel. In our own cost model this relates to the price at which a modest 50% of the industry can make a normal profit, which we calculate as a 15% return on equity capital before tax. In this respect, the latest steel prices are most certainly overvalued despite the huge rise in raw materials prices over recent months.

What is more difficult to forecast is at what time an inevitable correction in prices takes place and this of course depends much more on supply/demand fundamentals than any cost and profitability criteria. In our view, the extensive destocking taken by steel consumers, whether for credit issues since the financial crisis or simply low capacity utilisation rates at most suppliers, has probably been excessive and put price negotiation firmly on the side of steel suppliers. Buyers’ best hope of prices falling is the point when their suppliers thus begin to “break ranks” and again put volume before price.

With respect to scrap and metallics developments this month, we look to Turkish market dynamics, as they represent much of the trade that occurs in the seaborne portion of this market. MBR understands that despite continued strength in Chinese and Russian-origin billet exports to Turkey, Turkish steelmakers have not been able to use the threat of even more scrap-to-billet substitution to temper the relatively large increases in scrap prices this month. Indeed, MBR believes that scrap suppliers have proven more than able to closely follow the rapid increase in global steel benchmarks.

We think the position of suppliers is bolstered by tight supply availability in scrap-generating countries. At the same time, billet prices exported from China and also the Black Sea have been rising at least as rapidly as seaborne scrap to Turkey, and this has removed some of the onus behind the threat posed by higher Turkish billet purchases. Going forward, with billet prices rising faster than iron ore prices, and availability likely to remain tight, the impetus behind scrap prices may continue.

For access to MBR’s detailed product and regional price, supply and demand forecasts or for a free sample of MBR’s Steel or Steel Raw Materials Market Trackers: www.metalbulletinresearch.com/freesample.aspx

Analysis by Keval Dhokia, Metal Bulletin Research

50

70

9080

110100

60

Global flat products index

Global long products index

Steel price index MBRJan 2012 = 100

Jan

12Ap

r 12

Jul 1

2Oc

t 12

Jan

13Ap

r 13

Jul 1

3Oc

t 13

Jan

14Ap

r 14

Jul 1

4Oc

t 14

Jan

15Ap

r 15

Jul 1

5Oc

t 15

Jan

16Ap

r 16 20

50

80

Asian import HMS No1 CFR

Fines 63.5% cfr main China ports ($/tonne)

Australian hard coking spot fob price (metric)

110MBR

Jan 2012 = 100

Jan

12Ap

r 12

Jul 1

2Oc

t 12

Jan

13Ap

r 13

Jul 1

3Oc

t 13

Jan

14Ap

r 14

Jul 1

4Oc

t 14

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15Ap

r 15

Jul 1

5Oc

t 15

Jan

16Ap

r 16

Analysis by Alistair Ramsay, Metal Bulletin Research


Regional review

The US aluminium industry is struggling to find a solution to

global overcapacity and other trade issues, which it says is having a dire impact upon domestic companies. Heidi Brock, president and ceo of the Aluminum Association, calls the situation urgent, observing that since the beginning of 2015, eight US-based aluminium smelters, representing about 60% of total US primary capacity, have either curtailed production or have closed.

With some of the remaining primary aluminium smelters operating at or below 50% of capacity, Leo W. Gerard, international president of the United Steelworkers (USW) union, says that it is possible that some of those facilities might not be able to even make it through summer.

Gerard placed a lot of the blame upon China’s “breathtaking” growth in primary aluminium capacity, which rocketed from only 2.5 million tonnes in 2000 to more than 32 million tonnes in 2015.

North America Myra PinkhamAluminium plans a fight-back

“China’s policies have created an economic tsunami that has destroyed the global price of aluminium, and rising imports are creating serious injury to American companies and USW members,” he maintains.

Brock says there has been some progress. In mid-April the US and Chinese governments reached a memorandum of understanding for China to end its subsidies on certain metals and advanced materials, including aluminium, steel and titanium. Also, the US International Trade Commission has launched a Section 332 investigation into the global aluminium industry and the competitiveness of US producers, which is expected to be completed by June 2017. “But much more needs to be done,” Brock says.

On 18 April, USW filed a Section 201 petition which, had it been successful, would have provided a 50% duty on all primary unwrought aluminium imports into the USA, but due to a general lack of support for that case, including opposition by the Aluminum Association of Canada, the union pulled its petition by the end of that week.

EuropeRichard BarrettEurofer sets out steel priorities

It is far too early to say whether the recent signs of an uptick in steel demand in

China might provide some relief for the steelmakers in other countries who are struggling under the weight of Chinese steel exports into their home markets.

In the meantime, efforts continue to counteract damage already done, as do calls to support the European steel industry through tough market conditions.

The apparently inconclusive outcome of a mid-April OECD symposium on excess capacity and structural adjustment in the steel sector, at which agreement on a global approach to reducing overcapacity was lacking, according to Eurofer, preceded a reiteration of the size of the problem by the association’s president Geert Van Poelvoorde.

“Global excess capacity is presently in the order of 700 million tonnes; about 400 million of this is in China,” he said. “The country’s leaders must face the reality that their excess capacity is damaging the global industry’s prospects and

is triggering the roll-out of tit-for-tat anti-dumping measures across the world.”

He said that Eurofer’s top priorities are to address global overcapacity, modernise Europe’s trade defence instruments, prevent Market Economy Status being granted to China until the country meets the EU’s market economy criteria, support an effective and pro-competitive revision of the EU Emission Trading System, and create a circular economy in Europe that accounts for the 100% recyclable properties of steel.

Eurofer noted that EU apparent steel consumption grew 5.7% year-on-year in the fourth quarter of 2015, but that increase outpaced growth in real consumption. “Imports grew by almost 30% year-on-year in the third quarter of 2015 and by almost 50% in the fourth quarter of the year,” noted Eurofer director general Axel Eggert.

“What we need is a real commitment on overcapacity from all international governments, who each have an interest in the sustainability and viability of their steel sectors,” Van Poelvoorde concluded.

AsiaJuan WeikChinese steel price sustainability questioned

Market participants in the steel industry all over the world have been eagerly looking

at China and wondering whether they are finally witnessing the beginning of a long-awaited sustainable recovery in the sector. Are they?

Steel prices in China have soared since the end of February, prompting local

steelmakers to focus on their home market. This has created an unexpected vacuum in export markets, causing a massive triggering effect of price rises from Asia to Europe and all the way to the Americas. But before April came to an end, the sustainability of the uptrend in China began to be put in check.

“The rapid increase in Chinese steel prices so far this year is not sustainable, as it is largely due to a seasonal pick-up

in construction and elevated speculation in the steel futures market,” Fitch Ratings said towards the end of the month. The price surge will lead to the resumption of idled capacity in China, but without a sustainable rise in demand, the ratings agency noted. “This will put significant pressure on steel prices in the near term,” it warned.

The speculation in the futures markets was particularly highlighted in a steel conference in Beijing late in April, where delegates were told that futures contracts for 223 million tonnes of rebar changed hands on a single day during the month at

the Shanghai Futures Exchange (SHFE). This astonishing number compares with a total output of 204 million tonnes of the long steel product in China last year.

Amid the shortage of Chinese material in the regional market, steel importers throughout Asia have been accepting ever higher prices for the limited cargoes they can grab, but more and more traders have been raising concerns about a possible market correction sometime soon. “Such a high and steep quick rise spells nothing good,” one trader said. “I’m scared it will all come crashing down and there will be casualties.”


Keep up with all our correspondents at www.metalbulletin.com

Middle EastSerife DurmusInvestments rise as sentiment improves

Among new investments, Algerian private group Bellazoug and UAE

construction materials trader Bidewi Group announced plans to build a 600,000 tpy rebar plant in Relizane, Algeria. The plant will start production in 18 months’ time and then a 1 million tpy electric arc furnace will be added. Bellazoug will own a 51% share, and Bidewi 49%.

The ground-breaking ceremony for Al Gharbia Pipe, the UAE’s first-ever large-diameter, sour service tube & pipe plant for the oil & gas sector, took place on 17 April. The plant is a joint venture between the owner of Emirates Steel Industries, Senaat (51%), along with Japan’s JFE Steel (27%) and Marubeni-Itochu Steel (22%). The plant will be operational in 2018, with a capacity of 240,000 tpy.

Saudi Arabia’s Unicoil has formed a strategic technical partnership with coatings specialist Beckers Group, headquartered in Berlin, Germany. The partnership,

formed on 23 March, will include the installation of a state-of-the-art coating blending system, called BeckryMix, at Unicoil’s plant.

Oman’s Jindal Shadeed inaugurated its newly expanded rebar mill at the Sohar Industrial Port on 21 March. The new mill has a capacity for 1.4 million tpy of rebar, and complements 2 million tpy of billet capacity. The steel complex includes the Gulf Co-operation Council’s largest capacity electric arc furnace, supplied by SMS group. The company also has a 1.5 million tpy direct reduced iron (DRI) furnace, which was commissioned in December 2010.

UAE’s Conares Steel started installation of its 250,000 tpy 12-inch pipe mill at its facility in Jebel Ali Free Zone. The new mill will start production in the last quarter of 2016 and is part of the company’s plan to increase its total capacity to 1 million tpy. Conares produces 500,000 tpy of rebar and 250,000 tpy of tube & pipe, and has a 20% share of the UAE rebar market and 25% of the pipe market.

Latin America Ana Paula CamargoChile forced into steel safeguards

Chile has always been known as a free trade-oriented country, and this feature

also characterises the country’s steel industry.

But in the last couple of years, the Chilean market has suffered from a problem common to all Latin American countries – the high influx of low-priced steel products, mainly from China.

Chile’s sole flat-rolled steel mill, Compañía de Acero del Pacífico (CAP), halted production of flat products in mid-2013 due to strong Chinese competition. Imports of flat-rolled products have been facing “no restriction” in Chile and are “at prices that make local production increasingly unprofitable”, CAP said at the time.

The company then decided to focus on long steel output as a result of the strong increase in flat steel imports. But after that, Chile started to experience a rise in long steel import volumes as well, especially wire rod and rebar.

As a consequence, the steel sector, along with the federal

government, has been focusing on trade defence mechanisms. First, Chile imposed in October last year a provisional safeguarding duty of 37.80% ad valorem on imports of wire rod, valid for up to 200 days.

The country’s anti-trade-distortion committee then recommended in April the adoption of a safeguarding duty of 38.90% on imports of wire rod for a six month-period, excluding goods from Canada, Mexico and Peru. Products subject to this duty are wire rod products classified under seven different tariff codes.

The government approved the proposal on 22 April.

Meanwhile, there are another two trade defence cases being currently investigated. The government started a safeguarding probe into imports of steel nails, mesh and wire in December last year.

It also began, in late 2015, an anti-dumping investigation into rebar imports from Mexican steel producer Deacero. The steelmaker, however, has already denied accusations that it dumped long steel products into the Chilean market.

All good businesses understand the value of

diversification in managing cycles, and saving during good times for when the hard times hit.

Unfortunately, with widening fiscal and trade account deficits in most African countries, it is all too clear that the region is too reliant on commodities, and that

governments have not saved for when the commodity cycle makes a steep U-turn.

The current worldwide commodity price weakness has seen a number of African countries turning to the International Monetary Fund for bail-out money in order to keep their economies afloat. The IMF is a last resort for funding. The institution’s conditions are rigorous and costly. However, in the past year, Ghana,

Mozambique and Angola have turned to the IMF for aid. Kenya has a facility, while Nigeria is in the process of getting an IMF loan. Zimbabwe is in talks with the institution, and there are signs that Zambia may have to turn to the IMF too. Even South Africa might have to follow suit if its investment status gets downgraded further.

IMF managing director, Christine Lagarde, said in April that high yields are shutting African countries out of international capital markets. At the same time, borrowing costs have surged – all bad news if you have a lot of debt to pay off, as is the case with the African deficit accounts.

At times like these, governments typically stimulate growth through increasing internal, national spending on new infrastructure projects or similar. However, very few African governments are in the financial position to do so. Commodities may well remain the mainstay for most African economies, but these countries will have to develop other means of income as well.

Perhaps this difficult period will encourage African leaders to run their countries more profitably during good times, so that when harder times hit, they have the means to ride out the storms without having to resort to bail-outs.

Africa Bianca MarkramWhat Africa can learn from a commodity slump


Yan Huaqiang“We are building a platform between financial institutions and companies”Yan Huaqiang, general manager of state-owned enterprise East China Ordins, sees opportunities to link finance and logistics for markets re-building in China, writes Kiki Kang

Market players in most traditional industries have recently witnessed the slowest growth during the past three decades as China makes efforts to shift the structure of its economy from speedy to sustainable growth. China’s gross domestic production growth fell to 6.9% in 2015 – the lowest since 1990.

With China shifting its mode of development to a ‘new normal’, every sector driven by China has followed suit. As the main driver for commodities during the past decade, the bursting of the ‘China growth story’ also dragged

commodities markets into a cyclical downturn, which are expected to stay in that downturn for a while yet. LME copper prices fell by over 20% last year, for example.

As one of the major players in China’s markets, East China Ordins sees every segment in the market is re-building in accordance with China’s change, while opportunities remain in a gap between the country’s financial system and real economy.

China’s Premier Li Keqiang started to call for the financial sector to serve the real economy better in 2013 and emphasized that

call several times in his public speeches throughout 2014 and 2015. Li urges the financial system to lend a hand to the country’s real economy, which is facing difficulties, and has demanded that all financial innovation should be based on serving the real economy.

In an exclusive interview at the company’s Shanghai office in March, Yan Huaqiang, General Manager of East China Ordins, told Metal Bulletin Magazine that “Our understanding and feeling of that was that the financial system had not really served the real economy very well at that time [2013].” He

Profile


EAST

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INA

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adds that was why the Chinese government called for it to serve the real economy at first, and later stressed that need further.

Money issued by China’s central bank remains huge, but some of it was used for financial transactions such as price spread arbitrage. “Money failed to get into real industries and create value to the economy,” Yan said.

Finance deals in metals had peaked in 2014 when the Qingdao scandal broke out. Some metal stocks in bonded warehouses at the port were found to have been simultaneously pledged as collateral for several different transactions. This was not the first time that metals were found to have been pledged more than once in China. Similar problems had been identified with steel products in Shanghai in 2012.

Yan pointed out the difference that while the steel case happened inside China, for Qingdao it happened in the bonded area, effectively ‘outside’ China, so different laws applied. The Qingdao scandal significantly changed banks’ attitudes to commodities, from markets to be pursued into something that should be dropped off.

While the Qingdao probe happened in mid-2014, the subsequent big changes in the market showed up in 2015. “We saw people were still trying to hide the problem until they had to face the bad debts by the year end [2014]. Then we saw the markets shuffling last year as they had to seriously tackle those debts. There is always a striking degree of convergence in banks’ business, so we saw everyone was squeezing or quitting, which further intensified the crisis in the market,” said Yan.

As banks tightened the availability of credit for the whole commodity market every commodity trading company, whether good or not, found itself in a difficult situation under pressure from capital and cash flows, Yan said.

There was a joke in the market last year that many of China’s privately owned companies did not dare to shut down their phones in case banks could not reach them

and their credit would consequently be affected! “That’s how the market went through in 2015,” Yan said.

China’s reform measures on currency to some extent could be seen as the ‘last straw’ that woke people up to the new market realities.

The yuan has become more volatile after the People’s Bank of China (PBoC) announced a reform of the renminbi exchange rate formation mechanism on August 11, to increase the flexibility of the exchange rate. The yuan thus ended its one-way appreciation and started to fluctuate in two directions. “That’s a signal that the country will no longer save this market. Allowing the yuan to depreciate means the leadership has chosen to maintain growth but not assets,” Yan explained.

Money consequently flew out from commodities to other sectors, including new energy, the internet and e-commerce, and during the same time, but those markets do not have the same large capital capacity as commodities. That is why there was a booming peer-to-peer lending (P2P) market in China last year.

With those developments indelibly etched on the minds of metal traders last year, all the market players and links, from banks to the credit system, to trading and warehousing, are being rebuilt, Yan noted.

Building a platformAll of these recent developments reminded banks of market risks, but also raised questions of trust in the metal markets in particular. However, East China Ordins sees more opportunities to develop new business after Qingdao, given the company’s strong presence and reach in both trading and logistics fields.

Right after Premier Li’s speech called for the financial system to support the real economy, East China Ordins set up its logistics and structured trade finance department in December 2013, and began to set out its business at the start of 2014.

Registered in 1977, East China Ordins started to get involved in market activities in late-2011,

when Yan was appointed as general manager and relocated to Shanghai from Beijing.

The company focused on trading during 2011 and logistics in 2012. “From 2013, we started working on this financial logistics project as we had already stepped into both sides,” said Yan.

Problems neglected during a bullish commodity market reappeared into view. “Chinese banks are not allowed to do mixed operations. That means that once things like Qingdao happened, they would have no sales way to deal with the metals in hand – the only choice they have is auction,” said Yan.

On the other hand, metal companies were facing pressure in getting credit from banks due to the damage in trust between the two sides.

“We set the position for ourselves as if we were a commodity department in an investment bank. We are building a platform between financial institutions and companies. For financial institutions like banks, we can be viewed as risk controller, while for companies we can be their financial consultant,” Yan said.

A standard financial logistics deal conducted by the company is like that. The bank gives East China Ordins a certain line of supervision credit, used to make loans to a company who applies. Materials used in financing will be stored in East China Ordins’ warehouse, and warrants provided by East China Ordins will be used to secure loans.

East China Ordins releases the pledged materials to the company once loans are paid off to the bank(s). To manage its own risk, East China Ordins also took the responsibility of selecting the partners it deals with.

Yan said that the state-owned background of East China Ordins made it much easier to convince banks to support its business. Its involvement in the market gives it the opportunity to observe market players closely and decide which counterparties to deal with.

Yan’s company has advantages in dealing in materials, given its strong presence in the trading sector. “We

East China Ordins has extended its diverse range of business into wine

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are able to provide liquidity to the market. We have the ability to sell it [materials] in the physical market and turn to cash.” Even if the market is too weak to create enough liquidity, East China Ordins can hold material as stocks, Yan explained.

As a part of Ordins Group, a diverse supplier of all raw materials to the Chinese military, East China Ordins plays an important role for the parent company – both as a commodity trading and operating centre for the group, and as a testbed for business innovation. Yan is also an executive director of Ordins Group.

East China Ordins’ business has soared during the past four years, with revenue surging by 300% year-on-year in 2012 to over 30 billion yuan. The company generated a trading sales revenue of 40.4 billion yuan in 2014, accounting for about half of its group’s total, for which about 77% came from copper and 15% from aluminium. The company also trades other metals, including zinc, lead and minors.

Warehousing and logistics resources owned by its parent company across the country also provide support to this business. Revenue generated by the logistics sector totalled 300 million yuan in 2014.

Leveraging logisticsIn order to build up the structure of the company’s logistics and warehousing business, and also promote the idea of financial logistics, Yan spent about 500 hours on a plane in 2015 to visit every location that the company will have business.

One picture shared by Yan in his ‘wechat’ moments on the last day of 2015 (China’s version of ‘Twitter’) showed that he flew 188 times and covered 273,310 kilometers during 2015. Shanghai and Beijing were the most frequent locations he visited.

“I’d like to see every location and our partners in person the first time, so that I have a visible impression of every place we are talking about in our business,” he said.

Yan has set a target of profitability by the third year of the financial logistics business.

East China Ordins has already co-operated with banks on financial logistics projects. Major ones include 2 billion yuan credit lines from Bank of China, 10.5 billion yuan from China Minsheng Bank and 1 billion yuan from Bank of Dalian, as well as institutions such as China Cinda Assets Management.

Loopholes in the way that China’s warehousing sector has been run have exacerbated difficulties for commodity trading. In Yan’s opinion, a lack of standards and ineffective laws in China’s warehousing industry has been a key issue.

“Without standards and a credit system in this area [warehousing], when we deal one warrant with a bank, it usually requires us to own the rights to all the related assets throughout the business. But we know that in many cases it’s more sensible to have a different owner and operator of the same assets,” said Yan.

He compares examples from the internet, plus fields such as Uber: “Uber doesn’t own car assets, but it has thousands of drivers and cars on the road every day. Those business models from emerging markets actually can offer many valuable ideas to traditional industries.”

Yan believes that China’s logistics and warehousing market has great potential to develop in the next few years and that more mergers and acquisitions are going to happen. There is potential for a giant company to emerge: “China will definitely have a ‘Glencore’ itself, which runs businesses in every sector,” Yan said.

M&A opportunities As one of China’s biggest commodity trading companies – in addition to its ownership of resources in warehousing and logistics – East China Ordins has no plans to expand upstream into metal mining and production so far, choosing instead to focus on middle-stream logistics of extending the supply management chain, and playing a venture capital role to involve it in equity merger and acquisition (M&A) in the industry.

For example, as a part of its financial logistics business, East China Ordins will help companies

get credit from banks to buy raw materials for production. Now they are seeking to extend this supply management chain further.

“Products from this company could be ‘raw materials’ supply to other downstream users. Now we try to sign more off-take contracts to get those semi-finished products and extend our service chain further downstream,” Yan said.

In this area of business, the first market chosen by the company was titanium. “Titanium is widely used in spaceflight and military fields. We are more familiar with that because of our company’s characteristics. That’s the first reason we chose it to be the first market to tap into,” Yan said.

The relatively small size of the titanium market was another reason. “Honestly, major players in big markets such as steel and copper have [their own] strong abilities to secure credit from banks. They don’t need our help. Compared with that, we are more willing to invest in a company who we believe has a good potential for future development, but lacks the dependent financing ability,” he explained.

“We know that merger and acquisition activities in one market are normally very hard to proceed, as there are always conflicts and competition comes along. But what we do is to use our service to work together,” Yan added.

The company aims to get involved in more industry M&A by using its experience in financial logistics in 2016. Most financial logistics business East China Ordins dealt with in 2014 was ‘static pledge’, while more ‘floating mortgage’ for both standard and off-grade products, as well as standard warrants-pledge, business was done in 2015.

The company runs an industry fund worth 1.5 to 2 billion yuan to support its supply management chain, as well as M&A activities in the market to optimize the whole industry. It believes this M&A fund will help to identify high-quality players and, in a bid to eliminate outdated capacities, optimise the whole industry.

While the titanium market is a step to test the waters, the same model could be copied to other

‘I’d like to see every location and our partners in person the first time, so that I have a visible impression of every place we are talking about in our business’

Profile


markets, including steel, aluminium or even copper.

Backed by existing resources and experience in warehousing and logistics, East China Ordins diversified its business further last year by tapping into wine markets. Last year it came into more people’s view by partnership with the annual Cesco dinner in Shanghai in November.

Three crucial yearsYan views the first three years (2012-2014) since he joined the company as having been the most crucial time for the company, given that both structure and targets were formed during that period.

In 2011, after China’s National holiday, Yan was appointed by his parent company, Ordins Group, to lead their trading arm in east China. What he had when he arrived was a company whose business was stagnant and an old small office at Zhaojiabang Road in Shanghai’s Xuhui district.

“The management didn’t give me any limitations about what business I can do, but neither any guidance on what I should do,” Yan recalled.

Before leading East China Ordins, Yan spent over 17 years with parent company Ordins Group as director of the accounting and auditing department and then as head of its non-ferrous metal division.

His experience of both financial and business operations helped Yan a lot at the early stages of his new role at East China Ordins. Financial connections with banks helped him more easily to secure funds from them, while his market knowledge was useful in making decisions.

“That was a transition to myself. If I say that my previous job was management and specific business, then now I was running a company. I needed to set the tone for development.” Yan said.

“I still remember the first few months. I met dozens of banks from morning till night – repeated my plans again and again. The company [East China Ordins] was not familiar to most market players, so I also needed to let people know who we are and what we do. In fact at

that time, I was selling the story to people,” Yan recalled.

Although Yan was initially refused by quite a few banks, he said that he still found many reliable partners to work together closely with to this day.

Besides funds, another important thing that Yan needed at that stage was a passionate team.

“It’s interesting to look back at this part of the experience. I remember I hired our human resource manager on the first day and we went to a recruitment fair together on the second day to build up a team. We were not famous there, so I had to make a public speech myself to attract people’s attention,” Yan recalled.

Suitable candidates were invited to the office on the following day, but only 20 people finally stayed with the company.

“Our office at that time was really small and old. I have to say that condition helped me to choose the right people who really wanted to be with us. Most of them are still here and became directors in their departments,” said Yan.

The company now has relocated to a new office near the Bund and has about 100 employees.

Believe in effortBorn in 1973, Yan is viewed as young among his peers in Chinese state-owned companies. From an observer’s perspective outside China, executives with SOEs usually have a different role from entrepreneurs, given that they are seen more as officials. Yan’s personal character and experience with setting up East China Ordins makes him admire entrepreneurs who make efforts to stand up again even when they have encountered major setbacks.

Chu Shijian – one of the most famous and controversial entrepreneurs in China – is admired by Yan. The now 88-year old Chu has had ups and downs in his life, with his popular title changed from “tobacco king” to “orange king”.

Under Chu’s leadership for 17 years, Red Pagoda was turned into the most popular cigarette brand in China, but he was then accused of corruption and put into prison. Even in his 70s, he started again and

bounced back to create “Chu’s orange” as a well-known brand in the market. Though his life has seen dark times, he is still admired in representing entrepreneurial spirit in China well.

“No person will achieve big things if his life is like a smooth sailing. You won’t understand things deeply if you don’t go through it in person. Chu got up in such old age after the big failure. I respect this persistent spirit,” Yan said.

One Belt, One RoadChina’s One Belt, One Road programme is one of the hottest issues in all markets. It includes plans to build new trade routes linking Asia, Europe and Africa.

“We know many Chinese companies, including mining ones, are looking at projects and seeking opportunities in accordance with the plan. We are also between discussions with China’s Development Bank to follow up the details of the policy,” said Yan.

“We have planned many infrastructure projects outside, but to start any of these, we need to transport our raw materials, such as steel or cement, outside. We noticed some of our partners have already walked out to follow ‘the road’. We are also discussing with some logistics companies and doing some first-phase preparation,” he said.

The One belt, One Road programme includes a ‘Silk Road Economic Belt’, linking China to Europe, cutting through the mountainous regions in Central Asia. A ‘Maritime Silk Road’ will link China’s port facilities with the African coast and then up through the Suez Canal to the Mediterranean Sea.

“Industrial capacities and production transferred from developed countries to China last century. Maybe just in Hebei [the province owns half of China’s steel capacities], now China is facing overcapacity problems after economic slowdown, so it is another round of transfer happening under that huge plan,” Yan said.

However, oversupplied capacity does not mean outdated capacity. “Chinese technology is improving, those spare capacities here are exactly what other developing economies need,” he added.

‘The management didn’t give me any limitations about what business I can do’

People moves


Teck restructures senior management Teck Resources is restructuring its senior management as a result of several impending retirements. Dale Andres, currently senior vice-president of copper at Teck, became senior vice-president of base metals from May 1, covering both the company’s copper and zinc units. Robin Sheremeta, currently vice-president of operations for coal, became senior vice-president of the coal unit from May 1; and Alex Christopher, currently vice-president of exploration, will become senior vice-president of exploration, projects and technical services, effective July 1.

Rusal names new appointments Rusal has appointed Jerome Lucaes as marketing director, sustainability. Lucaes will be responsible for leveraging Rusal’s product stewardship and sustainability credentials. He has spent 15 years in the aluminium sector, both in downstream and upstream industries, at Rio Tinto, Alcan and Pechiney. Rusal has also opened a

representative office in Seoul, South Korea, which will be led by Dong Chan Huh. He joined Rusal from Asia Pacific Aluminium Co, and has previously also worked for Alcoa in South Korea, where he managed primary, FRP, forging, extrusions and hydrated alumina products.

Alcoa appoints three new directors Alcoa has named three additional directors to its board, expanding it to 15 members: Ulrich “Rick” Schmidt, John C Plant and Sean O Mahoney joined the board on February 5. Schmidt is the former executive vice-president and chief financial officer of Spirit Aerosystems Holdings, and served on the board of directors of Precision Castparts Corporation from 2007 until January 2016. Before that he was at Goodrich Corporation from 1994. Plant is the former chairman of

the board, president and ceo of TRW Automotive, which was acquired by ZF Friedrichshafen in May 2015. Plant is a member of the board of directors of Masco Corporation, Gates Corporation and Jabil Circuit Corporation. Mahoney is a private investor with

over two decades of experience in investment banking and finance. He currently serves on the boards of Delphi Automotive, Cooper-Standard Holdings and Formula One Holdings. He previously worked at Deutsche Bank Securities and Goldman, Sachs & Co.

Al Jazeera Steel names new ceoOman’s Al Jazeera Steel has appointed Alagramam Nagarajan Venkataraghavan its new ceo. He is an engineering graduate from the Indian Institute of Technology (IIT) and also has a management and financial qualification from XLRI in Jamshedpur, India. He has had more than 25 years of experience in the steel industry, most recently as vp of sales with Emirates Steel.

Reliance Steel & Aluminum appoints Hoffman Reliance Steel & Aluminum Co has promoted James D. Hoffman to the position of executive vice-president and chief operating officer, effective immediately. Hoffman joined Reliance as senior vice-president, operations, in 2008, after serving as executive vice-president and chief operating officer of Reliance’s subsidiary, Earle M. Jorgensen Company, from April 2006 to September 2008.

Jacques to succeed Walsh at Rio Tinto Jean-Sébastien Jacques will succeed Sam Walsh as ceo of Rio Tinto in July. Currently the ceo of Rio Tinto’s copper and coal division, Jacques has worked for more than 15 years across Europe, Southeast Asia, India and the USA in a wide range of operational and functional positions in the aluminium, bauxite and steel

industries. He also served as group strategy director for Tata Steel Group from 2007 to 2011. Walsh will remain as ceo and a member of the Rio Tinto board until he retires on 1 July 2016.

Kirpalani to head Thyssenkrupp IndiaRavi Kirpalani joined Thyssenkrupp India on March 14 and will take charge as the ceo of the regional headquarters of Thyssenkrupp India, effective from July 1. He succeeds Dr Michael Thiemann. Kirpalani’s last position was as the managing director of Castrol India, and he has spent over 16 years at BP where he held a number of roles in India and in the UK.

Avanco Resources appoints Monteiro Avanco Resources has appointed Otavio Monteiro as general manager of its Antas copper mine, in Brazil’s northern region of Carajas, which has just started concentrates production. Monteiro has been with the company for about two years, previously as plant manager. Monteiro is a chemical engineer with nearly 25 years of experience in the metallurgical and chemical industries, including as gm of the Brazilian aluminium companies Alunorte and Albras.

Adams rejoins Sucden Financial Chris Adams rejoined Sucden Financial in April, after working at Levmet in Monaco. He is assuming strategic responsibility for the LME ring dealing team, which will continue to be managed by Geoff Ison and Danny Messinger. Adams was instrumental in the growth of Sucden’s LME floor trading team after the company became a ring dealing member of the exchange in 1994.

Teroerde appointed Telf’s head of sales Mark Teroerde has been appointed as head of sales at Telf Ag, the Swiss trading house that markets ferro-alloys produced by Kazchrome.

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People moves


Teroerde previously held a number of sales and marketing roles at Kazchrome owner Eurasian Resources Group (ERG) – formerly ENRC – over the past eight years, managing the company’s European and US ferro-alloys sales.

Two new posts at AK Steel AK Steel has promoted Brian Bishop to vp, carbon steel operations, while Michael Kercsmar has been appointed vp, speciality steel operations. Bishop, who joined the company in 1995, will also take on the role of manufacturing planning. He most recently served as director of carbon steel operations. Kercsmar started at AK Steel in 1997, and previously served as director of speciality steel operations; he will now also be responsible for quality assurance.

Ferbasa names Machado Tibo as ceo Brazilian ferro-alloys producer Ferbasa has appointed Rafael Machado Tibo as its new ceo, effective 29 April. He was previously Ferbasa’s business development director, and replaces Geraldo Oliveira Lopes, who continues with the company as a member of the board of directors.

Henderson elected to lead AEC The Aluminum Extruders Council (AEC) of the USA elected Jeff Henderson to be its next president, from April 1. Henderson succeeds Rand Baldwin, who retired after leading the organisation since 2000. Henderson was the director of operations for AEC for the previous two years, and was also a board member while he was working for Sapa.

Tsubaki joins IronRidge Resources Diversified Africa- and Australia-focused miner IronRidge Resources appointed Kenichiro Tsubaki as a non-executive member of the board from 31 March, replacing the retiring Thomas Ueda. Tsubaki joins

the board as part of the company’s strategic alliance with Sumitomo Corporation; he is the head of Sumitomo’s iron and steelmaking raw materials department, based in Tokyo.

Mascarenas elected to US Steel board Paul A. Mascarenas OBE was elected to US Steel Corporation’s board of directors, effective March 1. Mascarenas is president and chairman of the executive board of Fisita (Fédération Internationale des Sociétés d’Ingénieurs des Techniques de l’Automobile), which represents more than 200,000 automotive engineers in 37 countries. He previously had a 32-year career at Ford Motor Co, including as chief technical officer and vice-president of research and advanced engineering. He is also a member of the board of directors at ON Semiconductor and Mentor Graphics.

Outokumpu appoints de la Camp as cfo Outokumpu has named Christoph de la Camp as chief financial officer and a member of its leadership team, from 1 July. He will join the company from Ineos Styrolution Holding in Germany, where he has been chief financial officer since 2011. Before that, he was the cfo of Ineos Nova, the finance director of Nova Innovene International, and in a number of financial and commercial positions at BP. He replaces Reinhard Florey at Outokumpu, who has been appointed as cfo of OMV.

Sandvik names head of HR Johan Kerstell has been appointed executive vice-president, head of human resources and a member of Sandvik’s group executive management. He will start his new position on June 1. Kerstell has been with Sandvik since 2004, and currently holds the position of vice-president and head of human resources at Sandvik Coromant. Before joining Sandvik, he worked for Cap Gemini.

New positions at Novelis Europe and AsiaNovelis appointed Michael Hahne as vice-president and general manager, Automotive, at Novelis Europe, from 1 April. He was previously vice-president and general manager, Can, for the same company. Hahne joined Novelis in 2008 and has held various management positions, mostly in the automotive segment. Marcus Becker, previously

director of metal planning and sourcing at Novelis Europe, will succeed Michael Hahne as the new vice-president and general manager, Can value stream, in Europe. He joined Novelis in 1999 and has held several leadership positions in the can sector. Sachin Satpute has been named as

senior vp, Novelis Inc, and president of Novelis Asia, effective from 1 June. He has held several positions within Novelis Asia and has also served as chief marketing officer of Hindalco Industries.

Song joins Nickel Institute Dr. Philip (Quanming) Song has been appointed manager, Nickel Institute, China. Song will be responsible for market development and health & environment public policy in China. He joins the Nickel Institute from Carpenter Technology, where he was technical manager/metallurgist, Asia. His previous positions include general manager at Shanghai Weldstone and China manager at Bohler Welding Austria.

Votorantim Metais hires Varella Brazil’s Votorantim Metais has hired Fernando Varella to head its aluminium products unit, as it restructures its aluminium business into two separate units. Varella, a former executive director at the food packaging and processing company Tetra Pak, started on 1 April. Meanwhile, Luis Jorge Nunes,

previously Votorantim Metais’ industrial director, has become the director of the primary aluminium unit.

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Asian markets


The LME and its owner, HKEx, are working together to build bridges between commodity trading inside and outside China, writes Richard Barrett

The LME has made significant changes over the past six months. With the LME Ring and the exchange’s staff now located and operating in their new home on Finsbury Square, attention has focused on further advancing the list of initiatives and strategies for growth that the exchange and its owners, Hong Kong Exchanges and Clearing (HKEx), have set themselves.

With LME Week Asia imminent in June, now is a good time to review the exchanges’ actions and plans that have particular relevance to Asian commodity markets. And it is worth recalling some of the points that LME ceo, and HKEx co-head of global markets, Garry Jones made when MB Magazine interviewed him shortly before LME Week in London in October last year.

He said then that the LME and HKEx are working to help develop London as a centre for offshore RMB. “Hong Kong and London are the two major centres for offshore RMB and our two headquarters. LME Clear can now take RMB as collateral,” he noted.

At the same time, Trevor Spanner, then head of LME Clear and now coo of HKEx, confirmed that the use of RMB as collateral will see gradual adoption over time. He noted that a key part of HKEx strategy is “all around” internationalising China, so allowing China Mainland access to international product and allowing international investors access to China product. LME Clear successfully launched its RMB initiative on 28 July last year.

“We’re at that nexus of internationalising China,” said Spanner last October. “The LME has an important part to play in that, given the positioning of commodities and metal in the China story, we think we’ve got a lot to add to that,” he stressed.

Today, the LME notes that the renminbi has seen rapid adoption internationally and that the exchange has seen increased interest from Chinese participants looking to hedge global metals price risks. It says that it was therefore a natural step for LME Clear to meet this latent demand to transact in RMB by adding the currency to its list of accepted cash collateral.

The new LME Ring now has category 1 dealers from two Chinese financial institutions: CCBI Metdist Global Commodities (UK) Ltd, created recently by the purchase of a majority share of long-time ring dealing business Metdist Trading Ltd by CCB International (China Construction Bank), and GF Financial Markets (UK) Ltd, part of China’s GF Group.

Making connectionsHKEx has already built a connection between Hong Kong and mainland China for equities through Hong Kong-Shanghai Stock Connect. A similar connection between HKEx and Shenzhen is still planned: “We’re ready for that and we’re looking at commodities further down the road,” Jones told MB Magazine last year.

Today, an HKEx spokesperson confirms that the exchange is technically prepared for the equity connection with Shenzhen. “We are awaiting regulatory approval and have no information about the timetable of the regulatory approval,” he adds. “We expect a preparatory period of three to four months will be required by the markets on both sides following the announcement of regulatory approval.”

The LME would like to see more links with the Chinese ‘on-shore’ market, but Jones has explained that the differences between the markets are big. “The LME is a physical

market and it has a large open interest, reflecting hedging needs. We have good volume, but the Chinese exchanges are all day-trading. They have low open interest and very high trading volumes. Our market is nearly all institutional and physical,” he explained last October. “Theirs is all in retail. So there has to be a meeting of those markets at some point.”

He stressed that is what HKEx and the LME are looking to do, but noted that equities were tackled first because that was Hong Kong’s biggest strength. “They bought the LME to diversify out into commodities,” he reminded.

Three-year planIndeed, extending the LME’s role as the commodities branch of HKEx is an important part of the long-term strategy of both exchanges, as underscored by HKEx’s wider three-year strategic plan (2016-18) published in January this year.

HKEx’s key initiatives for commodities are to expand its suite of products on the LME and in Hong Kong into adjacent commodities; build a convenient channel for Asian liquidity to access the LME market and products; develop a spot commodities trading platform in China’s mainland market; and pursue cross-border connectivity with mainland commodities exchanges and products.

There has already been tangible progress on some of the LME’s specific initiatives over the past half-year. One is a universal warehouse receipt repository. Jones likened it to LMEsword – the exchange’s electronic system for holding and administering warrants. The new LMEshield is effectively an electronic receipt custody system.

The innovation is to extend Sword’s electronic transfer, pledging and administration functionality to owners of metal taken off-warrant from the LME or of metal that exists outside the LME network. Jones said that will mean that lenders against metal will be much more certain that

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the metal is there and properly accounted for, that there is a proper receipt and that it could not be traded several times.

In March this year, the LME announced a strategic alliance with Henry Bath & Son Ltd, CMST Development Co Ltd and Mercuria Energy Trading to list warehouses for the LME’s new LMEshield repository in regions along China’s ‘The Belt and Road’ routes.

In the first phase of the project, Henry Bath will list one of its warehouses as an LMEshield facility along the ‘21st Century Maritime Silk Road’, with the support of CMST. Metal receipting and support will be provided by Mercuria. China Merchant Securities supports commodities financing in LMEshield locations along the Belt and Road routes.

“The infrastructure projects stimulated by China’s Belt and Road strategy have created significant demand for base metals and other commodities. This LMEshield initiative reinforces the LME’s position as a conduit for trade flow between China and the rest of the world,” said Jones at the time of the announcement in March.

In the second phase of the project, the parties will identify a country along the ‘Silk Road Economic Belt’ route in which to locate a new LMEshield warehouse.

Broader electronic accessThe LME has already taken steps to provide broader access to electronic trading through LMEselect. The proposal to extend access to LME category 3 and 4 members was announced in May last year. “Today’s proposals are crucial to our overarching aim to maximise liquidity and participation on the LME,” said Jones at the time.

The rule changes allowing Category 3 and Category 4 members of the LME to become LMEselect participants, and added flexibility to the criteria required to apply for LME membership, came into effect on 10 August 2015. Category 3 and 4 members will still have to clear through a Category 1 or 2 member, the exchange notes.

Prospective members may, in some cases, benefit from exemptions from the UK Financial Conduct

Authority (FCA) authorisation requirements, making the LME electronic market more attractive to non-UK based traders who are keen to take advantage of the exchange’s enhanced liquidity initiatives, but who were previously not eligible or were discouraged by electronic access restrictions, the exchange adds.

The LME says that it cannot give details of specific membership applications received since these rule changes were made, but that it has seen increased interest from a range of parties, including organisations based in Asia. It adds that in March 2016, under the LME’s Liquidity Roadmap initiative, it extended its New Market Participant (NMP) programme to include nickel, lead and tin after its successful launch in aluminium, copper and zinc, noting that 17% of these new participants trading on LMEselect are based in Asia.

Spanner told MB Magazine last October that the LME was thinking about extending clearing down the Asian day. “We need to keep it under review so that we don’t get wrong-stepped by changes in legislation, but if we were to go live on this it would probably be very late in 2016 to early 2017. That’s what we think the regulatory timeframes would be,” he said last year. Today, the LME says that LME Clear is still looking at Asian time zone coverage as part of the “what next” for the clearing house in terms of how it expands its franchise.

Central marketplaceHKEx is putting together a business plan and structure for its plans for a central marketplace for commodities in China. Jones told Metal Bulletin in March that the exchange has already started hiring people to work on the spot commodities platform, which will be based on the Chinese mainland.

Jones said the idea is that participants in commodities, from producers down, and including retail, could access the markets through the platform structure. The electronic trading platform will be supported by warehousing and a financing platform.

“The idea is that it builds up across commodities, pulling exchanges

together. Chinese exchanges aren’t really going in that direction right now. There are three main commodity exchanges in China but there are hundreds of spot commodity exchanges, with the latter suffering because there’s no credit intermediation,” he told MB.

One of the key objectives is to link the mainland’s price discovery process for commodities to the physical market. There is also the potential to establish and internationalise benchmarks through Hong Kong and the LME. As part of the plan to “physicalise” the mainland China commodities market, HKEx plans to develop Chinese warehouses for Chinese business.

London-Hong Kong connectionHKEx is also working with the LME on a plan, to be called London-Hong Kong Connect, to connect the two exchanges more directly. “We’re in feasibility at the moment, and haven’t made a final decision. We’re not committed to a start yet, as the regulators hold the key in this,” Jones told Metal Bulletin in March. He said that the structure and processes required to link the two countries will be “very complicated”, and will include having the necessary technology to link clearing houses in Hong Kong and London.

“The theory is people would trade from Hong Kong or mainland China, through Hong Kong brokers, keeping their money or margin with them [their brokers], and clear on LME Clear, through Hong Kong. The clearing houses would be linked,” Jones told Metal Bulletin.

Eventually the scope of the system could be extended to establish a mainland-Hong Kong Commodities Connect mechanism that acts as a bridge between the two markets and makes onshore commodities derivatives accessible to Hong Kong and international participants.

“We’re aiming to get more business into the LME from Asia, develop the Hong Kong market as a commodity centre, build a mainland spot commodity platform, and then develop a possible link through the Connect system. In the grand plan, they would all be linked over time, but you have to build the pools and businesses first,” Jones concluded.

Asian markets


CME Group has seen its expanded range of metal contracts gain further traction in the Asia-Pacific region. Richard Barrett asks Youngjin Chang, CME’s executive director of metals products, and Yvonne Zhang, director, metal products, Asia Pacific, to outline progress and strategyWhen MB Magazine spoke with Yvonne Zhang, CME Group’s director, metal products, Asia Pacific, in April last year, contracts for copper, gold, silver, platinum, palladium and iron ore, the means by which a commodity exchange can provide a more transparent platform for trade in them, and how they can be successfully integrated to complement CME’s other

products, were occupying her mind and those of her other colleagues globally in the exchange’s metals product group.

One year on, she says that those overall priorities remain similar, but CME’s expanded portfolio of contracts, to include more base metals, is an additional factor. Building on CME’s historical copper contract, it now includes

physical aluminium, zinc and lead contracts, as well as four new regional aluminium premium futures contracts: US Midwest (AUP), European duty paid (EDP) and duty unpaid (AEP), plus Japan (MJP).

“We now have full infrastructure in base metals,” says Zhang’s colleague, Youngjin Chang, CME’s Chicago-based executive director of metals products. She adds that volumes are growing in all of them, both in terms of quantity of trade and open interest, stressing that open interest in the exchange’s four regional aluminium premium contracts has climbed to more than 850,000 tonnes in total.

Although it is a contract physically delivered in the USA, “The physical aluminium contract is also gaining traction during the Asian time zone,” says Chang, “Momentum is growing there too.”

Meanwhile the volume of trade in CME’s copper contract was up by 16.4% in 2015, by comparison with the previous year, and open interest averaged 12% higher, climbing further still, by the same percentage, in the first quarter of 2016. “Pretty extraordinary growth,” Chang declares, adding that increasing market participation during Asian hours applies to the copper contract too.

When Metal Bulletin’s Andrea Hotter spoke with Derek Sammann, global head of commodities and options products at the CME Group, in December last year, he said that the group’s fastest growth is within its non-US client base. At that point he said that 39% of the exchange’s business in metals is from a non-US client base, the highest of all its businesses, which are closer to an average of 24% from non-US sources.

China is naturally a very important country for future non-US business. “We’re packaging global products for regional consumption. The China commodities trading story is one that will play out over years as China evolves onshore and offshore, and we’re playing for the long game,” he told Hotter.

Zhang told MB Magazine last year that the number of Asian firms executing 24/7 strategies was

CME

FREE

PORT

“We now have full infrastructure in base metals,” says CME’s executive director of metals products, Youngjin Chang

CME’s portfolio now includes contracts for copper, physical aluminium, zinc and lead, plus regional aluminium premium futures

CME Groupwidens range


CME iron ore futures volume Q1-15 v Q1-1640,000,000

Q1-15

8.4m mt

35.4m mt

Ton

nes

Q1-16

35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0

Gold (GCK) volume Q1-15 v Q1-1625,000

Lots

20,000

15,000

10,000

5,000

0 Q1-15

8,171

20,455

Q1-16

CME iron ore options Q1-15 v Q1-1620,000,000

Q1-15

9m mt

18.3m mt

Q1-16

18,000,000

14,000,000

16,000,000

12,000,000

10,000,000

8,000,000

6,000,000

4,000,000

2,000,000

0

Ton

nes

picking up in Asia, supported in part by the number of US funds and commercial traders who have set up trading desks in the region, and that the CME platform was a preferred one for seamless transition between the different time zones.

Tailored to participantZhang reminded last year that Asia has three fundamentally different types of market participant: those looking to hedge physical market exposure; institutional and individual investors; and those who are looking to succeed in ‘strategic speculation’. CME Group tailors its products to suit the different categories of market user.

Chang notes that the consistent growth in open interest indicates the use of CME contracts by market participants holding positions overnight, hedging and managing price risk. “In zinc, aluminium and iron ore, commercial participants and people building positions are participating. One type of participant is not outperforming others,” she says.

Zhang concurs, also stressing the addition of base metal and aluminium premium contracts over the past year: “Growth in the Asian time zone has surged this year, driven by paper traders and commercial customers.” She adds that the gold contracts, which are her speciality with other precious metals, have also seen average day volumes increase and that bid-offer spreads have remained tight.

The Comex-listed gold kilo futures contract launched in January last year offers market participants in Asia the ability to make or take delivery of gold kilo bars of minimum 9999 fineness at CME approved vaults in Hong Kong. As Zhang pointed out last year, the bid-offer spread for the contract is usually tightest during the Asian session, with most market makers actively quoting during that period. The negative interest rates applying in parts of Asia have encouraged investment in precious metals, says Zhang now.

No contract an islandZhang also stressed the point last year that no contract exists and

thrives in isolation, highlighting, for example, that the kilo gold contract is structurally easier to trade against other Asian markets. It can be used for inter-market trading through spread trading opportunities against gold futures listed on regional exchanges in exact kilo units.

“There needs to be a ‘connectivity’ to allow price comparisons and opportunities for arbitrage between them,” said Zhang to emphasise the importance of complementing other exchanges’ products. “No product on an exchange can work in a vacuum.”

By their nature, aluminium regional premium contracts are linked to underlying base prices for the metal. Chang says that, despite the fall in aluminium premium prices, volumes in the premium futures contracts have been robust.

Looking across the full CME range of products, the exchange enables margin offsets across all of its contracts. Base metals offset against energy contracts are just one example, but Chang says that in itself is nothing new.

Iron oreWhile iron ore still sees considerable trade via OTC markets, the growth in exchange-based contract volumes has been substantial over the past year. CME’s Iron ore 62% Fe TSI futures volumes hit more than 35 million tonnes in Q1 2016, with average daily volumes of 1,148 lots in Q1 2016.

Chang notes that iron ore trade saw a five-fold (400%) increase in volume last year, by comparison with 2014, and good growth in the first quarter of 2016 – up by 200% year-on-year. “CME options saw a record day of 12,810 lots and record open interest in the last quarter,” she adds. “There are more Asian participants in the flow and we are encouraged by that. Asia is a key component in the metals space.”

OutlookZhang sees China’s One Belt, One Road initiative as a positive development. “It’s a long-term plan and the vision is good to ensure that commodities can trade more efficiently across borders,” she says. But while it should provide the opportunity for exchanges to develop new structures and innovative products that will make pricing more transparent, the initiative is still in the planning stage at present: “It could be a decade-long process,” says Zhang.

Chang and Zhang say that they are open-minded about considering new metal contracts or developing existing ones further. They say they are talking to market participants on a daily basis: “We want to introduce the right types of new contract and develop their liquidity.”

They conclude that precious metals and ferrous materials contracts in particular have made good progress in the Asia-Pacific region, while the aluminium premium futures have also been well accepted. CME will be looking for further progress over the coming year.

CME

Growth in the Asian time zone has surged this year, driven by paper traders and commercial customers, says CME director, metal products, Asia Pacific, Yvonne Zhang

KUMZ RUSSIACold rolling mill plant featuringa 6-high Diamond mill for the productionof coils for the aerospace sector.2800 mm wide strip production:the widest 6-high mill in the world.

LUOYANG WANJI MACHINED ALUMINIUM CHINA6-high cold rolling mill featuring “Opty-Six” technology and ”H-System”process control, including mass flow and feed-forward. Max. strip width 1,900 mm;finished thickness down to 0.2 mm.

ALERIS DUFFEL BELGIUMComplete cold rolling plant featuring a 6-high Diamond mill designedfor EDT rolling for specific automotiveapplications.

Latest references out of total 125 cold rolling mills

Danieli Headquarters 33042 Buttrio (Udine) ItalyTel (39) 0432.1958111

DANIELI ALUMINIUM COLD ROLLING MILLTECHNOLOGYFOR ADVANCEDSTRIP AND FOIL PRODUCTION> 4 and 6-high DiamondFlex mills> Single stand and tandem mills> Aluminium foil mills> DAN-ECO2 ecological systems> DAN-PURITY filters

www.danieli.comDANIELI TEAMA CENTURY OF PARTNERSHIPEXPERIENCE

Danieli’s 4 and 6-highDiamondFlex mills for stripand foil productionincorporate the bestmechanical and automationsolutions to deal with thespecific challenges of high-productivity aluminiumrolling. As of March 2016Fata Hunter is part of theDanieli Team.

Aluminium Flat Product Rolling and Finishing Lines

OARC - OMAN ALUMINIUM ROLLINGCOMPANY OMANWorld-class 4-high cold rolling mill for390 and 1050x2150 mm Al light gauge.Part of a turnkey complex producing140,000 tpy of multi-purpose Al sheetssupplied by Fata EPC (Danieli Group).

Esecutivi 418x274 MB 2013_08_09 qxd8_VALERIO_Layout 1 22/04/16 15:33 Pagina 29

www.danieli.com

KUMZ RUSSIACold rolling mill plant featuringa 6-high Diamond mill for the productionof coils for the aerospace sector.2800 mm wide strip production:the widest 6-high mill in the world.

LUOYANG WANJI MACHINED ALUMINIUM CHINA6-high cold rolling mill featuring “Opty-Six” technology and ”H-System”process control, including mass flow and feed-forward. Max. strip width 1,900 mm;finished thickness down to 0.2 mm.

ALERIS DUFFEL BELGIUMComplete cold rolling plant featuring a 6-high Diamond mill designedfor EDT rolling for specific automotiveapplications.

Latest references out of total 125 cold rolling mills

Danieli Headquarters 33042 Buttrio (Udine) ItalyTel (39) 0432.1958111

DANIELI ALUMINIUM COLD ROLLING MILLTECHNOLOGYFOR ADVANCEDSTRIP AND FOIL PRODUCTION> 4 and 6-high DiamondFlex mills> Single stand and tandem mills> Aluminium foil mills> DAN-ECO2 ecological systems> DAN-PURITY filters

www.danieli.comDANIELI TEAMA CENTURY OF PARTNERSHIPEXPERIENCE

Danieli’s 4 and 6-highDiamondFlex mills for stripand foil productionincorporate the bestmechanical and automationsolutions to deal with thespecific challenges of high-productivity aluminiumrolling. As of March 2016Fata Hunter is part of theDanieli Team.

Aluminium Flat Product Rolling and Finishing Lines

OARC - OMAN ALUMINIUM ROLLINGCOMPANY OMANWorld-class 4-high cold rolling mill for390 and 1050x2150 mm Al light gauge.Part of a turnkey complex producing140,000 tpy of multi-purpose Al sheetssupplied by Fata EPC (Danieli Group).

Esecutivi 418x274 MB 2013_08_09 qxd8_VALERIO_Layout 1 22/04/16 15:33 Pagina 29

www.danieli.com

Asian markets


Commodity exchanges in China and Singapore are looking to increase their national, regional and international influence. Metal Bulletin’s Asian team outline the priorities of several key onesThe China Securities Regulatory Commission(CSRC) oversees a range of exchanges, including Shanghai Futures Exchange (SHFE), Zhengzhou Commodities Exchange (CZCE), Dalian commodity exchange (DCE) and Chinese Financial Futures Exchange ( CFFE), as well as the Shanghai Stock Exchange and Shenzhen Stock Exchange.

Base metals (including copper, aluminium, lead, zinc, tin and nickel), precious metals (including gold and silver), and ferrous metals (including rebar, wire rod and hot rolled coil) futures are traded on SHFE. In 2015, SHFE’s trading volume

accounted for nearly a quarter (24.72%) of the whole of China’s trading volume, according to China Futures Industry Association (CFIA) statistics (see table).

Data from the same source showed that base metals had a trading volume of 0.222 billion lots on SHFE in 2015, accounting for 21.2% of all trading volumes on SHFE. The value of base metals transactions on SHFE was 27.44 trillion yuan (US$4.23 trillion) last year, accounting for 43.16% of all transactions on the exchange.

By the end of 2015, SHFE had a total of 64 warehouse logistics enterprises for delivery, situated

in 125 different locations. The warehouses for non-ferrous metal delivery are mainly distributed in Shanghai, Jiangsu, Zhejiang, Guangdong and Tianjin.

In the second half of 2013, SHFE started to implement night trading. Precious metals night trading started in July that year. Base metals and ferrous metals night trading started in December 2013.

“Enterprises became more active in hedging on SHFE after night trading started. Chinese domestic prices more highly correlate with international prices,” a SHFE official said.

Nickel contract performance In volume terms, nickel has turned out to be the star of all base metals on SHFE over the past year, after it launched on 27 March 2015. SHFE’s nickel contracts have become the second most actively traded on the Chinese exchange after copper. The increase in volumes on the LME’s nickel contract, alongside tighter spreads, has captured the attention of traders.

The SHFE has raised warehouse capacity for nickel to 102,000 tonnes from 40,000 tonnes, and a total of nine brands have been approved for SHFE delivery, including six local ones and three from Norilsk. This makes it a more widely accessible contract than when it first launched.

From 27 March 2015 to 31 March 2016, SHFE nickel trading volumes totalled 176.425 million lots, according to SHFE’s bilateral statistics, with a turnover of 13.8052 trillion yuan ($2.131 trillion).

On 26 November 2015, nickel saw a record daily high in trading

Asian exchangesbroaden horizons

China’s futures market size in 20152015 Trading volume y-on-y Share Transaction value y-on-y Share (billion lots) change (trillion yuan) changeSHFE 1.051 24.72% 29.36% 63.56 0.51% 11.47%CZCE 1.07 58.25% 29.91% 30.98 33.30% 5.59%DCE 1.116 45.05% 31.20% 41.94 1.06% 7.57%CFFE 0.341 56.66% 9.53% 417.76 154.71% 75.38%All China 3.578 42.78% 100% 554.23 89.81% 100%

Source: China Futures Industry Association (unilateral trade statistics)

Base metals trading volume on SHFE in 20152015 Trading volume Change Transaction amount year-on-year (million lots) (y-on-y) (trillion yuan)Copper 88.31 25.26% 17.6 4.26%Aluminium 22.9 64.44% 1.27 32.33%Lead 1.31 -10.13% 0.0845 -18.43%Zinc 45.24 11.89% 3.22 -3.33%Tin 0.516 — 0.0562 —Nickel 63.59 — 5.21 — All 221.866 — 27.4407 —

Source: China Futures Industry Association (unilateral trade statistics)


volume of SHFE at 2.056 million lots. Transaction value stood at 0.1441 trillion yuan on that day, according to SHFE’s bilateral statistics.

Access to tradingChinese futures companies and funds, as well as foreign companies that have wholly-owned subsidiaries in China, can trade on the exchange through domestic brokers.

The spread between the SHFE and LME is closely watched worldwide, as it allows traders and investors to take advantage of arbitrage opportunities.

On top of this, sources noted that the introduction of night trading to the SHFE in 2013 opened up trading at the same time as exchanges in the USA and Europe. This gave Chinese funds and traders greater capacity to be active at the same time as their peers in the west, thus increasing their influence.

Following the March launch of the nickel contract, nickel participants immediately took advantage of any arbitrage opportunities – an interest partly driven by the increased desire to use nickel in financing deals as other metals went out of favour.

Some market participants believe the launch of the SHFE contract could drive up demand for nickel in Chinese financing deals and eventually lead to more nickel finding its way back to China.

Chinese domestic refined nickel inventory came to 202,000 tonnes at end of March 2016, including domestic, SHFE and bonded warehouses. This was an increase of nearly 300% from March 2015, according to market data.

Looking forwardThe SHFE is understood to have been in contact with other foreign nickel brands, including Glencore’s Nikkelverk and Sumitomo, about further brand registration. With a large inventory of refined nickel, and very active trading on various exchanges and the spot nickel market, Chinese nickel

industry participants believe the expansion in warehouse capacity announced by the SHFE today will not be the last.

SHFE will improve its internationalization and keep launching new products. There are launch plans for stainless steel, steel scrap, alumina oxide, aluminium alloy, non-ferrous metals index futures and commodity options, Mr Jiang Xiaoquan, assistant director of non-ferrous metals markets at SHFE, said at a recent conference held in Shanghai.

SHFE will also foster institutional investors, optimise the structure of market investors, and try to service China’s real economy better, he added.Ellie Wang

SGX looks to ChinaThe Singapore Exchange plans to provide more China-connected contracts this year, as it further taps into investors’ interest or concerns in China.

The bourse, which already accounts for 90% of global iron ore derivative trading in dollars, is also striving to obtain more market share through other initiatives, such as acquisition, in an increasingly competitive global market.

“The current outlook for the global economy remains uncertain and volatile. We expect this to pose challenges to our

securities market, but support continued growth in the demand for our derivatives products,” SGX ceo Loh Boon Chye said. “Uncertainties in the Chinese market could influence our derivatives trading volumes, and increasing competition from global exchanges will affect our financial results over time,” he added.

In March, SGX announced its intention to list contracts on the MSCI China Free Index, which will add to SGX’s China-linked offering that spans equity, foreign exchange and iron ore derivatives.

In addition to the SGX FTSE China A50 Index Futures, SGX offers one of the most liquid CNH futures markets, which has cleared over US$32 billion since launch in 2014.

Among its wide spectrum of contracts, the bourse has gained a dominant position in iron ore derivatives trading, which has recorded frequent new highs since launch in 2014.

In March, SGX 62% iron ore derivative volumes totalled an all-time high of 231 million tonnes, surging by 197% year-on-year. Open interest averaged 211.2 million tonnes, jumping by 76% from a year ago.

“A lot of the quick rise [in iron ore derivative trading] is driven by the fact that fundamentals of how the market itself is pricing is changing. That is driving a huge

‘The current outlook for the global economy remains uncertain and volatile. We expect this to pose challenges to our securities market, but support continued growth in the demand for our derivatives products’

SGX

The Singapore Exchange plans to provide more China-connected contracts

Malaysia ChinaSwitzerland

www.udtrading.com

Asian markets


amount of usage of derivatives in the iron ore space,” William Chan, head of SGX bulk commodities, said.

“As China internationalizes and [further] opens up, we think it’s going to be more and more important for us to establish a deep liquidity pool, which will then connect onto the China platform,” he added.

Demonstrating its attention to the Chinese market, SGX opened an office in Shanghai in the middle of 2015, after setting up its Beijing office in 2008.

The SGX may soon face challenges from the Dalian Commodity Exchange on iron ore contracts, as the latter is planning to launch bonded-warehouse delivery for its iron ore contract this year.

In addition to new contracts, SGX is also considering acquisitions. At the time of writing, SGX is still in talks to buy the Baltic Exchange, according to an official at SGX.Linda Lin

Internationalizing iron oreAccelerating the internationalization of iron ore futures is one of the most important tasks of the Dalian Commodity Exchange this year, the east China based exchange said.

“Currently our exchange is focused on promoting the approval of iron ore to be a specific commodity for which foreign investors can engage in futures trading in China,” an

official from DCE told Metal Bulletin Magazine.

DCE wants iron ore to be like crude oil, which was last year designated by the China Securities Regulatory Commission as the first commodity for which foreign investors and brokers were allowed to trade its futures in the country.

DCE said that it has completed its whole programme of work on iron ore internationalization, and the exchange got agreement last January from China customs to do bonded delivery business at the ores yard at Dalian Port Bulk Cargo Logistics Center Ltd. In

other words, this company was specified as the first bonded delivery warehouse of iron ore for the bourse.

“This February 5, we published a notice about DCE having changed some details about the implementation of bonded delivery, further perfecting the bonded delivery rules about iron ore futures, which means the business of iron ore futures bonded delivery is landing,” DCE said.

DCE will start iron ore bonded delivery business from May 20 of this year. Bonded delivery warehouses will be increased in due course on actual needs, the exchange added. Bonded delivery trade will be on the basis of yuan delivery, it added.

In 2015, total trading volume of iron ore on DCE was 260 million lots on a single-direction basis, up 169% year-on-year. This volume accounted for about a quarter of the total commodities trading volume of the exchange in 2015. The rate increased by 10.73% over 2014, data from DCE show.

Open interest of iron ore on the exchange was 940,000 lots at the end of 2015 – up 114% year-on-year. One lot for the DCE iron ore contract represents 100 tonnes. A total of 150,400 investors were trading iron ore on the DCE, including 3,254 institutional investors, according to the bourse.

In line with the rise of open interest, DCE’s iron ore investors also largely increased last year, by late 2015, its monthly average trading customer number had increased by 84% when compared with 2014.

Last year, DCE shortened its night trading period from 21:00-02:30 hours to 21:00-23:30 hours. The change made was based on an extensive consultation with DCE investors. Since individual investors accounted for a relatively high proportion in the domestic futures market, and institutional investors were still in the process of entering it, individual investors found it difficult to adapt to the reality of longer trading hours, so that is why DCE changed the time.Rena GuD

CE

Accelerating the internationalization of iron ore futures is one of the most important tasks of the Dalian Commodity Exchange

Iron ore swaps/futures volumes & openinterest (62% Fe)

Source: SGX

mil

lio

n t

on

nes

160

140

120

100

80

60

40

20

0

Mar

14

May

14Ju

l 14

Sep 14

Nov 14

Jan 15

Mar

15

May

15Ju

l 15

Sep 15

Nov 15

Jan 16

Mar

16

FuturesSwaps OI

Iron ore options volumes & open interest(62% Fe)

120

140

100

80

60

40

20

0

Mar

14

May

14Ju

l 14

Sep 14

Nov 14

Jan 15

Mar

15

May

15Ju

l 15

Sep 15

Nov 15

Jan 16

Mar

16

Options on futuresOptions on swaps OI Source: SGX

mil

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n t

on

nes

Asian markets


Global commodity prices, exchange rate movements, China’s macroeconomic strategy and regulatory concerns are amongst many major factors impinging on Asian markets. Metal Bulletin’s team of journalists in Asia ask leading brokers, banks and traders about strategy and outlook

AVRA International sees opportunityBoutique private trading and logistics firm AVRA International is looking for investment opportunity even as policy and the geopolitical climate continue to stress investment decisions, ceo Ben Stewart said.

“Caution will remain, however, as you consider asset values, scale, structure and execution,” he said, adding that you have to be careful with any commodity where the shorts are concentrated in one market.

“The markets are good for patient entrants like us, who have the risk capital, who have established a platform, who respect value of relationships and carry low costs with a willingness to scale into big ventures,” he said.

“There is a stack of business opportunity presenting right now, be it the sale of non-core and/or greenfield assets, looking for early-stage capital to complete pre-feasibility and/or bankable feasibility studies or to restructure.”

The firm, which was established in 2011 by European backers with a deep shipping heritage, has had four years building its brand and reputation in the markets. “No denying that the strength and reputation of our shareholders has helped fast track our relationships with banks, insurance companies and some of our merchant clients.”

“The fact that we’re private, agile and purposely run a low cost model are the core advantages of our platform at this stage,” Stewart said, adding that the lean company has ensured it avoids the “SG&A and

HR issues” commonplace at many of their competitors.

The Singapore-headquartered firm, which opened its wholly foreign-owned enterprise (WFOE) in China earlier this year, is planning to open an Australian office by end of the year. AVRA will employ 70 people globally by the end of the year.

“We are having more robust coal conversations [in Australia] and supplemental discussions on metals down there,” Stewart said, adding that the company is focused on both standard merchant trading engagements as well as project investment.

In 2016, AVRA Commodities, a wholly owned unit of AVRA International, expects 60% of its revenue from coal, 20% from refined metals, 15% from iron and metal ores and 5% from crude oil.

In 2015, it saw 90% of revenue come from coal and 10% from metal ores like chrome, manganese and nickel originating from South Africa, Madagascar and Philippines. In 2015, AVRA’s tonnage grew by 30% across products and revenue grew 50% year-on-year, even with the commodity price environment being challenging.

“The firm completed its first Cape-sized iron ore shipment in March, has a solid shipment programme lined up for the second quarter and is actively considering investment in metallurgical coal to complement this business.” The broader China team is building out its bauxite, aluminium and refined copper business.

“From a strategic perspective, we’re highly conscious of continuing to support our successful Asian coal

franchise while patiently adding supplemental new businesses,” Stewart said about the challenges of making expansive decisions.

“AVRA is one of the largest private traders of energy coal from Indonesia and will charter 6 million tonnes of dry bulk freight this year. By virtue of the origin of our equity, the shipping sector will always be considered for investment. We are considering a few opportunities now.” Stewart said.

He added that the company would like to invest in North America in the future. “South America on the other hand is a ‘black box’ and we aren’t there currently. Our shareholder and core merchant relationships don’t intersect there”.

Smaller players have started to disappear in a tough market. “An additional brightspot is that tough credit, uncertain margins and questionable execution has reduced market competition. The marketplace is a little ‘more civilised’ now compared to six months ago,” Stewart concluded.Shivani Singh

AWIN Resource International concentrates on non-ferrousSingapore-based trading company Awin Resource International is betting on non-ferrous trading, scaling back on the ferrous business and planning to open two overseas subsidiaries – in Malaysia and Dubai – in a bid to gain more market share.

The company has recently entered into the “longer” time-consuming base metals concentrates market, which will help in its triangular relationship with miners, smelters and China’s privately-owned Amer International Group, general manager Lim Ying Ying told Metal Bulletin Magazine.

A wholly owned subsidiary of Amer, Awin was founded in 2011 to take care of copper procurement for its parent company, as well as to trade non-ferrous and ferrous products and look at M&A opportunities. Amer, a Shenzhen-

Markets shift balance

‘There is a stack of business opportunity presenting right now’


based multinational owned by Chinese billionaire Wang Wenyin, produces copper wires and cables, and has other metals, mining and property investments. Amer ranked 247 on the 2015 Fortune Global 500 list. In 2015 Amer’s turnover was 300 billion renminbi ($46.31 billion).

Awin traded only refined metals in 2013 and 2014 and started its concentrates business in mid-2015. “In the second half of 2015 we’ve transacted close to 150,000 tonnes of concentrates, with copper making up one third of the volume and zinc, lead and silver two thirds,” Lim noted. “It’s not a huge number but it’s a very good start for a new set-up because, unlike refined metals trading, entry into the concentrates business generally takes a longer time as the creditability of the company’s performance has to be affirmed by global producers and smelters,” she added.

The target for 2016 is 250,000 tonnes of concentrates, both in the international and Chinese domestic markets.

“We are a bit unique because we perform three roles for Amer: procurement, trading, and M&A, which is looking for overseas mining assets for Amer. Other than the M&A, the trading and the procurement actually go hand in hand,” Lim said while explaining the role of procuring copper concentrates for Chinese smelters from whom they buy cathodes for Amer.

The company has also maintained good relationships with major copper producers – such as Codelco, Anglo American, BHP Billiton, Antofagasta and Aurubis – despite recent years of “prevailing negative import parity for copper” in China, she noted.

“China is a dynamic and dominant market for copper. With our expansion of cable and wire factories in Gansu and Yingkou, our need for copper will continue to increase tremendously over time, thus it is key for us to ensure we receive consistent supplies from both offshore and onshore copper producers through a combination of trading and procurement activities.”

Awin, which recently expanded into petrochemicals and agri

products, has scaled back on its ferrous trading business, which it believes is “more opportunistic”. It sees more prospects to gain market share in non-ferrous in the midst of current market restructuring.

The non-ferrous segment represents around 80% of the company’s business. Ferrous is less than 5%, with the rest of the business comprising thermal and coking coal, agriculture and petrochemicals. The company currently employs more than 50 people at its headquarters in Singapore and a 100% subsidiary in Shanghai.

Looking ahead, Awin has plans to expand its reach into East and West Asia. In the first half of 2016, it

expects to open Awin Resource Malaysia, a 100% subsidiary of Awin Singapore. “Other than Malaysia, we have plans to also branch out to Dubai by the end of this year, though this plan may slide into 2017 as we tend to take a more prudent approach in times of a weak market,” Lim said.

“We also have Awin Resource UK entity, which was registered way before I joined. It could be activated once we identify any investment opportunity,” she added.Shivani Singh and Juan Weik

CCB internationalizesChina Construction Bank Corp (CCB), the country’s second largest bank, took another step forward

Bands Financial expandsHong Kong based brokerage firm Bands Financial, set up by John Browning and Tiger Shi, is on track to open its Shanghai office in the third quarter of 2016 as it sees tremendous interest in world markets from the mainland.

“Although underlying metal prices are weak and may get weaker, the appetite to enter the futures market by Chinese investors and hedge funds continues to grow,” said Browning, Bands’ managing director. He added that, despite the Chinese manufacturing slowdown, Chinese exchange metal contracts are the top five most actively traded metal contracts globally.

In terms of product innovation, the broker is delivering its order routing platform in both Mandarin and English, with access to the LME monthly date structure. Further innovation is expected to follow shortly.

“On the 3rd July 2015 we placed our application documents with the Securities and Futures Commission (SFC) to become a licensed futures broker here in Hong Kong. At that time we had no bank accounts, no share capital, no office, no employees, no software, no clearing brokers and no clients,” managing director Shi said.

“The only thing we had was ambition. On the 19th November 2015, just 20 weeks later, we executed our first client trade. Creating a fully regulated futures broker here in Hong Kong is our innovation,” he added.

Both brokers, who previously worked for Jefferies and Newedge, have said they plan to have 50-60 clients by October 2016 from hedge funds, corporates and high net worth individuals.

Bands Financial is a licensed type II broker in Hong Kong that offers its clients trading of equity index, energy, grains, softs, precious metals and base metals. The broker provides market coverage for all major exchanges outside China,

including HKEx, BMD, SGX, TOCOM, OSE, ICE, LME, EUREX, CME, CBOT, COMEX and NYMEX.

The newly set up brokerage firm has seen its fee revenue from futures growing exponentially, but Shi added that is to be expected at this early stage of the company. “Within that, revenue from LME is muted and reflects the lack of consensus about price direction in the first quarter.”

“Once the consensus [on metals price direction] forms, we expect the LME to play a larger role in our day-to-day activity.” In the near-term, the broker does not expect metal markets to fall “very far”.

“It would seem the Chinese producer/consumer/merchant is still coming to terms with the change in the marketplace following the Qingdao warehouse experience,” Browning said, adding that “The closure of the currency or interest rate arbitrage trade has also deeply impacted revenues.”

Shi said that the Chinese slowdown has compounded these problems. “At the start of the year we have heard of copper end- users contracting only 5% of copper off-take compared to the same time last year. Clearly there is not enough metal business to sustain many of the recently formed trading companies and we expect consolidation.”

Browning noted that the speculative pick-up in the Chinese iron ore and rebar markets, however, has prompted a reappraisal of the base metal outlook. “Our feeling is that one quarter will be good, the next less so, but overall the market is unlikely to fall very far. It seems a positive consensus around metals is being created, but we will have to see if this can be sustained in the summer months.”Shivani Singh

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Asian markets


in internationalization through its deal with long-time LME ring-dealing business Metdist Trading Ltd.

CCB completed purchase of a 75% stake in Metdist on April 6 to create CCBI Metdist, which will be the first company majority-owned by a Chinese bank to have ring-dealing membership on the LME.

Founded by Lord Raj Bagri CBE, Metdist Trading is part of a global group that has its roots in India. The company was the first overseas member of the LME and has long supported the exchange.

LME ceo Garry Jones noted at a ceremony to mark the event that it was appropriate for the international exchange that one of its ring-dealing members with close ties to India has joined forces with a large bank from China, which consumes and produces a large proportion of the world’s metal supply, and on whose development future market growth is expected.

The ceo of CCBI Metdist Global Commodities (UK) Ltd is metals industry veteran Nigel Dentoom, who has over 40 years’ experience in metals derivatives and physical metals markets.

“The initial tasks at CCBI Metdist are to implement a new suite of back, middle and front office IT support systems, recapitalise the company and relocate the business to its future home at 111 Old Broad Street, where China Construction Bank’s are located. Running alongside these tasks will be a managed build in the company’s staff complement. First you need to lay the foundations, then build the house,” Dentoom told Metal Bulletin.

“Following completion of the expansion milestones set out above, we will develop a global LME customer portfolio, with a strong presence in the Chinese space. Other LME and base metal products will be added as the customer book matures. In time other asset classes will be offered,” he added.

CCB is not entirely new to the LME. In September 2014, the LME, along with its owner HKEx, signed a memorandum of understanding with CCB for

strategic co-operation in the development of new products, joint publicity, marketing and other areas. The Metdist Trading transaction has been conducted through CCB’s investment banking subsidiary.

“The acquisition of a 75% shareholding interest of Metdist significantly advances the global strategy of CCB of developing a leading position in the base metals and global commodities markets,” said CCB chairman Wang Hongzhang. “This strategic acquisition is a natural progression of CCB’s product range and markets,” he added.

As Metdist Trading ceo Apurv Bagri, son of its founder, noted, the deal is a logical next step for the firm as the balance of international growth shifts. “As Asia, and in particular China and India, continue to increase in significance and economic power in the global economy, CCB becoming Metdist’s new majority shareholder is a natural progression for the company,” Bagri said.

The two companies have made it very clear that the new entity will develop a global business in the derivatives and commodities markets, but with a significant focus on China and India.

“Whilst a significant amount of LME transactions already originate from China, the Chinese market continues to open and deregulate, whilst the pace of the internationalization of the RMB advances. With more Chinese SOE’s gaining licences to hedge on overseas future markets, and with the Chinese fund market expanding almost monthly, the amount of LME activity from the mainland will continue to grow annually,” Dentoom said.

“The Chinese economy continues to expand, albeit at a reduced rate, and the country’s financial system continues to deregulate. With the HKEx’s plans for a commodities platform on the mainland and with the LME progressing its strategy to expand into China, whilst the pace of Chinese growth may continue to slow to a new norm, the commodities market activity originating from and into China will

unquestionably increase,” Dentoom concluded.Rena Gu

GF Financial Markets (UK) highlights China’s outreachThe LME’s first Chinese ring-dealing member, GF Financial Markets (UK), believes the One-belt, One-road (OBOR) initiative is a “good idea” which will bring new construction and business opportunity for the Chinese economy, according to managing director Edward Shi.

“Under the Belt and Road initiative strategy, more businesses are encouraged to ‘go out’ and expand overseas, which will encourage new demands for metal trading,” Shi told Metal Bulletin Magazine.

“In my view the European countries will benefit more from OBOR. President Xi came to the UK last year, and the British relationship with China is very good,” he said, adding that the European market is bigger and more important than American markets for Chinese goods in general terms of consumption.

He outlined various Chinese investments into the UK as marking a golden era in relationships. Top Chinese property companies like Vanke, Greenland and Wanda have invested in multi-billion dollar real-estate and infrastructure projects. China Railway Rolling Stock Corp (CRRC), in partnership with UK and Chinese universities, has set up a research centre for the building of a high-speed railway connecting London to Birmingham and Manchester. China has also agreed to invest in new nuclear power plants in the UK.

Elsewhere in Europe, China’s Cosco won the deal to control and run Greece’s Piraeus port recently. All these deals suggest that “not only countries [on the OBOR] belt will benefit, but also close to [the] belt will benefit,” Shi said. He added that the “Chinese market participants will be involved more and more in metal as well as other commodities trading for hedging and other investment opportunities.”

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Asian markets


“We provide around-the-clock cover for our customers so that they can access the market in Asia day-time zone, which is a very important boost for our business growth,” Shi said from his office in London.

Earlier in April, the broker received a Chinese Securities Regulatory Commission (CSRC) licence to be a renminbi qualified financial investment institution (RQFII) and now the UK entity has a 1 billion renminbi quota which it can invest directly into China.

The number of staff employed in London has risen by 15% to 40 in the past year, Shi said.

The wholly owned unit of China’s GF Futures has the licence to trade base metals, precious metals, agricultural products and energy. It will start trading forex, interest rates and stock index futures by end of Q2 or early Q3, Shi said.

In terms of the market, he said that GF is not as bearish as a few months ago. “However, we are yet to turn bullish,” he added. “We see recovery in Chinese PMI in March, which shows recovery in manufacturing. The Chinese government will invest domestically, build railways, encourage SME to grow business by reducing taxes – all these policies are good for the Chinese economy.”

However, demand will not grow significantly in the short term. “I think the American economy is strong. The Chinese economy is slowing down, European is weak. Other economies in Asia are normal. I think the Chinese economy will recover from next year.”

He noted that a lot of people are talking about India, but he thinks India has its own problems too. “The question is not only on China slowdown, but how the world economy is performing as a whole. No country can be a single driving power in today’s world. We need US to have better figures, we need Europe to sort out its debt, and China to keep carrying out economic reforms to really encourage people’s spending again.”

Meanwhile, with the world economy yet to show signs of positive growth, and with demand yet to pick up, it looks like metals will trade within a range.

“Personally I think 2017 is when we’ll see price recovery in metals,” said Shi.Shivani Singh

Sucden Financial sees diversificationBusiness conditions have been challenging over the last year or so with a noticeable decline in LME activity by many Asian trade clients, Sucden Financial’s head of Asia business development, Jeremy Goldwyn, told Metal Bulletin Magazine.

“Fortunately for Sucden, this has largely been offset by an ongoing diversification in trading activity by

our Asian investment and paper trading clients,” Goldwyn said.

He added that many in the investment community have increased their overall activity with changing focus to non-base metals, while some others with a metal focus have switched to non-LME metal contracts on other exchanges, such as CME’s.

“Arbitraging a variety of markets and seeking less crowded trades, as well as exhibiting a distinct change to addressing currency (RMB) risks post last year’s dramatic devaluation, and seeking new opportunities away from stock index markets,” has been the strategy adopted by clients.

Marex Spectron enhances technologyLME ring dealing member Marex Spectron continues to invest in its technology and its Nanolytics research product even as it remains cautious on base metals prices, global head of market analytics Guy Wolf told Metal Bulletin Magazine.

“Whereas five years ago we may have been known primarily as an LME ring dealer, we now have a very strong technology offering and they complement each other,” he said, adding that “We believe we need a service model that provides a broad range of solutions to clients whether ring, voice or screen.”

“Most market participants need a variety of ways to access liquidity – whether low latency or pure-voice. There is no single ‘best’ way – client needs vary just as market conditions do. Our status as a liquidity hub is an important part of that, just as our technology offering is,” he added.

Marex Spectron claims to be responsible for more LME transactions than any other category I dealer. The broker also has significant market share in cocoa, coffee and sugar. It also has major market shares in off-exchange markets for oil, petroleum products, power and gas.

“Our position as a specialist broker means that we can tailor our technology investment specifically to metals, which is important for an exchange such as the LME with its esoteric dates structure,” Wolf said.

“We also have been working on expanding our Nanolytics research product and integrating that into our execution service model. The first phase of that will be developing a Nanolytics Live product which will supplement our voice-desk service – that is now running in beta internally. The second phase will be integrating it into our smart execution algorithms.”

He maintains that this emphasis on technology and new products is essential. “We see this type of investment as complementary to maintaining a

large LME floor presence – it is a powerful combination.”

Marex Spectron, which employs about 600 people across its offices in Europe, North America and Asia, said “We’ve had a strong Q1 across all regions in base metals this year.”

Currently, the broker is “cautious” on base metals prices. “We see them being generally range-bound and should be traded accordingly.”

“Directionally, the dollar remains a key factor and the path and pace of US rate rises is the unknown,” Wolf added.

“Whilst the demand environment is not great, it is not deteriorating as in previous years and things are relatively stable. There are risks in both directions, but the downside risks of yuan devaluation and US rate increases likely out-weigh the risk of Chinese demand stimulus at current levels in our view.”

The bright spots are primarily coming from the supply side at the moment, particularly in zinc, he noted. “Base metals normally have a 5-7 year cycle and given that we are coming up to five years of the demand slow-down, it is no surprise that supply is adapting to this.”

“Supply never gets cut as quickly as one might think. Everyone hopes that everyone else will cut production first and it is a decision that, once made, is expensive to reverse. So it is normal that we are only now seeing this happen. That will help stabilize base metal markets, but we need to see a turn in the demand dynamics for a rally to be sustainable.”

“There is probably greater opportunity in the spreads where, particularly in copper, the curve is not yet offering enough to attract sufficient metal into LME warehouses. In zinc, the move into deficit may be easier to have exposure through spreads as well as directionally, macro factors can dominate the micro fundamentals,” Wolf said.Shivani Singh

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Asian markets


“With regards to LME-specific business, we have seen some traders, Chinese and Western, reduce or even withdraw from the markets, but net business has held up remarkably well given the lower price environment, with resultant lower commissions,” Goldwyn noted.

Sucden has seen some clients switch their focus from collateralised metals trading in the international and bonded metal sector, towards Chinese domestic trading where the financing game continues, he elaborates. “As a result their hedging has also moved from LME to SHFE,” Goldwyn, who has been responsible for growing the broker’s Asian and particularly Chinese business, said.

“We remain overall optimistic about the opportunities relating to greater China and continue to consider candidates for our teams in London and Hong Kong, though competition and new entrants offset the availability of potential recruits, many of whom continue to emerge from the shrinking commodity banking sector,” he added. In recent years the broker has expanded its Hong Kong presence considering its proximity to China.

Sucden Financial is a broker that operates in a wide range of markets, including exchange and OTC traded financial and commodity futures and options, equities, foreign exchange and bullion. Technology and the delivery of a reliable trading platform that offers access to a wide range of markets “is now an absolute ‘must-have’ in the international brokerage world,” said Goldwyn. “Meantime the costs incurred as a result of the ever developing global regulatory environment add to the burden of service delivery,” he added.

The tough times are not yet over in his view. “Some of the bounce experienced in commodity prices in the first quarter of 2016 belies the true story of both supply and demand.”

Speaking of metal markets in general, he said that too little supply-side action has been taken and that the demand side is far from recovering. He also pointed

to news that some Chinese aluminium smelters have restarted idled capacity on some light metal price recovery. “So we expect a volatile but possibly weak quarter or two ahead.”

“As a result, counterparty risk and the quality of clients as opposed to the quantity remain an area of focus,” Goldwyn concluded. “The challenges will continue, but they bring with them opportunity. We are not quite at a watershed in terms of LME trading, the rise of exchange competition and the difficulties of multinational jurisdictions, but these features ensure life only gets more complex and the stakes higher…”Shivani Singh

UD Trading growsUD Trading, a unit of India’s UD Group, has seen its business expand dramatically across the Asian continent over the last 6-7 years, UD Trading director Dhaval Shah told Metal Bulletin Magazine.

Asia has always been a pillar of strength for the metals market, whether it is supply or demand, he said. “In our view, it would be an increasingly important market as producers and end users in Asia mature and develop greater capability. On the demand front, we feel that much of Asia remains untapped and the appetite for metals can only grow as demand for infrastructure increases,” the trading house said.

“China consumes roughly 50-60% of metals and the fact that it is slowing down is not a good sign for the overall market,” Shah said, adding that it was important to note that China was continuing to grow, albeit at a lower rate. “Despite an overall China slowdown, there are still pockets of opportunities. A possible and good example would be a weakening yuan that could lead to possible aluminium exports out of China.”

There are opportunities ex-China. “On the other bright spots, India is a very positive story considering its plans for infrastructure development.” Indonesia is another key market which is showing signs of an improving economy. Their recent policy changes show steps in the

right direction – for example, they are allowing more foreign ownership in certain industries. “Vietnam and other emerging Asian economies would continue to encourage growth as their economy matures and demand for infrastructure and even luxury products such as cars increases,” Shah added.

The recent challenging environment has seen several notable companies either closing down their business and/or having major issues running their existing business, he said. However, UD Trading’s business has performed relatively well as compared to the industry. “Our volumes have increased over last year and, with continued geographic diversification, we feel we are well positioned in this region despite the current market conditions.”

The company has expanded its ferrous and non-ferrous trading markets geography, such as Bangladesh, South Korea, Taiwan, China and the Philippines, in the past year.

UD Trading has no plans of expanding beyond its core ferrous and non-ferrous business. Headquartered in Singapore, the company has offices in Hong Kong, Malaysia, India, China and Dubai. UIL Singapore, a unit of UD Trading, is a LME category 5 member.

“Looking at the current market environment, we have a cautiously bullish view on the physical metals market,” said Shah. “Asia-Pacific continues to drive the base metals market, being the major consumption region. The strong US dollar, weakening Chinese demand, plunge in oil prices and concerns over global economy have pressurised base metals prices.”

Inventories of many non-ferrous metals are high and thus the existing stockpiles need to be consumed before the prices can see an upward trend, Shah said. “The prices of all the base metals, whether the premiums or the price, are at a multi-year lows, which in some cases encourages growing end-user demand which will be supportive in the mid- to long-term.” Shivani Singh

‘Some of the bounce experienced in commodity prices in the first quarter of 2016 belies the true story of both supply and demand’

Asian markets


There is strong statistical evidence that the structural drivers for commodity markets have changed, writes Dan Smith

Much has been made of the recent sharp falls in commodity prices, including oil, copper and iron ore. Major commodity market price moves have become increasingly tied to underlying financial and macroeconomic factors, rather than fundamentals. Indeed our statistical work shows that there was a structural break in oil and copper market drivers as early as 2003 (see chart 1).

Through most of the 1980s and 1990s fundamentals of supply and demand drove inventory changes and this fed through into prices. The relationship between prices and inventory was fairly stable and predictable, and pinch point charts helped identify when upside risks were starting to build. This led to a comfortable life for fundamental analysts who focused on this. Forecasting might be challenging, but at least there were some decent, reliable tools in the box to help understand recent price trends and performance.

Unfortunately this pinch-point technique fell apart in spectacular fashion and from 2003 until the present there has been a dramatic alteration of underlying commodity market drivers across a large number of markets. Having started in 2003, this became even more obvious during the 2008/09 financial crisis when stocks ballooned in markets like aluminium. Much of this inventory came from financing activity rather than fundamentals. The importance of fundamentals steadily diminished and these were replaced by financial variables as key drivers (see charts 2,3 and 4).

It is much more important now to follow the path of the US dollar and major equity markets than to worry about the fine details of supply, demand and inventory levels. We

argue in this piece that the next 5-10 years are likely to see these financial flows remaining dominant, as the market has altered structurally for two key reasons – China and investors. This will usher in a new paradigm for commodity market analysts, as a new rulebook has been created.

China’s influenceChina is important for demand for sure, but its statistics are poor and even headline measures of industrial activity such as industrial production (IP) perform poorly according to the statistical research that Oxford Economics has carried out. This means that while demand is incredibly important, there is no decent statistical relationship between variables such as IP, gross domestic product (GDP), or even what are normally considered more reliable measures, such as car sales or purchasing manager indices (PMIs) and global commodity prices.

Also, China is largely a ‘black hole’ when it comes to measuring inventory levels for both oil and base metals. The LME has no warehouses in China for the base metals and while there are reported figures for inventory stored on the Shanghai Futures Exchange, these are tiny relative to the size of domestic demand and the statistical link to prices is again notably absent.

A new paradigm emerges

Chart 1: Correlation between copperand other variables (52 week rolling)

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Without sufficient data, speculators and investors have reverted to variables that they can easily measure and understand. This forms the basis for price forecasts for analysts that have adapted to this new economic paradigm.

Investors’ impactThe most important shift in our opinion has come from investors. Commodities used to be seen as something of a backwater for analysts and fund managers and few outside the industry had a good grasp historically of how the markets worked outside oil and gold. It was also time-consuming and difficult to forecast fundamentals for individual markets. Demand for wheat, for example, had little correlation with demand for oil and supply characteristics were radically different.

Direct investment in commodities was also a problem as buying futures meant having to roll contracts to avoid delivery, and physical ownership of commodities meant incurring substantial storage costs. However, new investor products and indices were created as the China boom started to unfold from 2001 and this created commodities as an asset class to compete for attention with equities and bonds.

Physical ETFs and commodity indices really took off from 2003 and rising prices helped to reinforce increasing investor interest. Gold was a good example of the increasing interest in commodities (see Chart 5). The World Gold Council worked with ETF providers and helped create the first physical ETFs in 2003, with the SPDR® physical gold ETF briefly becoming the largest in the world at the height of the gold price bubble, with assets under management reaching US$148 billion in October 2012.

While short-term speculators have always been involved in commodities, this wave of long-only money was unprecedented and helped to alter the dynamics of markets from gold to oil to copper. Figures from Barclays show that investor flows into the base metal markets peaked at a net inflow of US$9 billion in 2010, with assets

under management for all commodities rising to US$418 billion in 2012. These inflows were encouraged by academic papers, commodity index sellers and fund managers, who saw commodities as a source of inflation protection, diversification and extra yield.

The problem is that a speculative bubble developed through 2010 and 2011 and when Chinese demand started to slow, commodity prices started to fall and investor returns tumbled. The fact that global manufacturing prices were also being pressured by overcapacity in China meant that there was a ‘double whammy’ effect from this demand slowdown.

Suddenly diversification started to look very costly against a backdrop of price falls. Besides, who needs to protect against inflation nowadays when consumer price inflation is struggling to rise much above zero in major consuming areas such as Europe, Japan and the USA? Once investors started to sell in significant numbers the bubble really burst and commodity markets went into a downward spiral for over four years.

Distorted prices?One point of contention is to what extent did this wave of long-only

commodity investment distort prices on the way up and the way down? This is very difficult to prove, but certainly we find strong statistical evidence that the structural drivers for commodities have changed. However, comparing the size of investor flows with the size of commodity markets suggests that there is little reason for concern.

More important is that many commodity markets are extremely illiquid, with low daily volumes, particularly further out along the forward curve. This means that there is plenty of potential for investors to drive prices in good and bad times. Some support for this argument comes from Chart 6, which shows that speculative positioning exceeded 15% of open interest at the peak of the copper price boom.

OutlookLooking ahead, the market has changed in a number of important ways. China is much bigger than before in terms of demand, reducing the importance of OECD supply-demand figures and lessening the importance of analysis of Western inventory levels. Moreover, investor positioning still remains elevated compared with where it was 10 years ago.

Given the range of new products and indices available, this is not surprising. While many commodity investors have been forced out of long positions, a significant part has proved to be immune to the cycle, as money has been diverted away from other areas. These markets remain inherently volatile – much more so than traditional financial investments given the long lags between supply and demand.

Overall though the reasons for believing that commodities are starting to look cheap are building and once the next upswing starts it should become more obvious whether fundamentals or financials are back in the driving seat. Financials are clearly in charge for now, but fundamentals are still there hidden in the background waiting to make a comeback.

The author is a senior commodities analyst with Oxford Economics in London.

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End use markets

48 | Metal Bulletin Magazine |May 2016

Construction activity in the USA is picking up, although there are various reasons why steelmakers are not benefiting as much from that as in the past, reports Myra Pinkham

While US construction activity is continuing to grow at a fairly brisk pace, domestic producers of such construction-related steels as structural shapes, bar, wire rod and plate, are not necessarily benefiting as much as might be expected. This is not only because of increased imports of these products, but also because some construction applications have become less steel-intensive than they had been in the past.

Nevertheless, Chris Graham, senior vp of Steel Dynamics’ manufacturing group, notes that the construction sector accounts for about 40% of all steel consumption in the United States. Even though its rate of growth has slowed somewhat over the last six months or so, construction spending, whether measured as starts or value put in place, continues to be one of the strongest sectors of the US economy, along with the automotive industry, observes Scott Hazelton, managing director of IHS’s economics and country risk practice.

Starts tend to be more volatile as the full value of the construction project is put in the initial year while with put-in-place spending that cost is divided by the period of time that the construction project is ongoing.

“Construction spending continues to grow, just at a slightly slower rate,” Hazelton says.

It is not surprising that construction spending is up given how well the US economy is performing, says Alex Carrick, chief economist with the CMD Group. He maintains that the rate of US job creation has been “incredible” with the total number of jobs in the USA already exceeding their pre-recessionary peak levels for the past two years.

This is despite weaker economic performance elsewhere in the world. Carrick points out that that the US Federal Reserve is the only central bank that has already taken initial action on raising interest rates, which is an indication of their confidence about the economy.

Headwinds yet to comeRobert Murray, chief economist with Dodge Data & Analytics, says he expects that 2016 will see “one more step in the hesitant expansion of construction starts that we have seen in recent years,” with odds favouring further growth in 2017. “But after that the headwinds will be increasing,” he says, “especially given expectations of rising interest rates and inflation.”

Overall US put-in-place construction spending was up 10.3% year-to-date through February after seeing a 10.6% year-on-year increase in 2015, points out Ken Simonson, chief economist for Associated General Contractors of America (AGC). That includes a 10.7% year-to-date increase for residential construction, a 10.6% increase for private non-residential construction and a 9.2% increase for public works construction.

Carrick says year-to-date through March total US construction starts were up 7.4%, including an 11.8% increase in private non-residential building, a 3.7% increase in residential construction and a 5.8% increase in public works starts.

John Cross, vice-president of the American Institute of Steel Construction (AISC), says that while on a square-foot basis non-residential and high-rise (five storey and greater) multi-family construction was basically flat last year, it could see a 5-7% gain in 2016.

There has, however, been a growing disconnect between US construction activity and its impact upon domestic steelmakers making construction-related steel products, maintains Christopher Plummer, managing director of Metal Strategies. SDI’s Graham agrees, noting that there is currently 2-2.5 million short tons of idled capacity for construction-related steel products.

The problem, according to John Anton, director of steel analytics for IHS’s pricing and purchasing service, is that while demand for construction-related steel products has been improving, it has not been booming and, therefore, has not increased enough to put pressure on steelmaking capacity.

Plummer observes that last year, construction-related steel shipments from the top three domestic suppliers of those products were collectively down by10.3%. He says that industry-wide US shipments of steel reinforcing bar were down 16.5% in 2015. Likewise, domestic shipments of merchant bars were down 5.5% and shipments of structural shapes were down 4.9%.

One reason for this is that, with the US economy performing better than certain others around the world, as well as the strong US dollar, it has

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The new Daniel Boone bridge in Missouri was opened in 2015, but there are thousands of other old bridges in the USA in need of repair or replacement

Construction recovery


resulted in higher imports of construction-related steel. Graham says this, in turn, means that domestic steelmakers are not benefiting as much as they could from rising construction activity.

Imports have impact This was particularly the case for rebar imports, which, according to Plummer, increased 38.6% last year. Anton observes that a trade case did result in protection from rebar imports from Mexico, but not from Turkey. It remains uncertain whether a recently imposed 3.64% retroactive, or remand, duty on Turkish rebar will have much of an impact given that it is estimated to only represent a $15 per ton cost increase.

Plummer says that the strong US dollar and the weak construction markets in many other parts of the world, including China and Europe, has hampered the export of construction-related steels. For example, US exports of structural shapes fell 32.4% in 2015, followed by a 27.2% decline year-to-date to the end of February. Likewise, US exports of rebar fell 32.0% last year and by 26.7% year-to-date.

In addition, Plummer maintains that the construction sector has become less steel-intensive in recent years, which is going hand-in-hand with the demographics shift toward greater urbanisation.

That shift has resulted in an increase in urban mixed use, or ‘live-work-play’, construction projects, Carrick says, observing that not only is central city living becoming increasingly popular with the ageing baby boomers, who want to live closer to shopping and entertainment and medical services, but also for millennials who want to be close to where they work. Also, millennials have been saddled by high student debts and are largely delaying household formation and, therefore, are tending to look for apartments in urban areas versus buying a house of their own.

This also has been one reason why multi-family residential construction has been outpacing single family construction, at least to date. But its rate of growth might now be beginning to wane, IHS’s Hazelton says, predicting that after increasing 36% in 2013, 30% in 2014 and 21.8%

in 2015, multi-family housing start growth could ease to 4% this year.

Murray says an exceptional amount of recent multi-family construction growth was in the New York City metropolitan area. But he says that over the next few years the rate of growth of single-family starts are expected to exceed that for multi-family, rising 14% in 2015 and another 16% this year. But, according to Carrick, this is not due to another demographics shift, but rather because multi-family starts are back to about where they were before the recession at about 400,000 units per year.

And given growing concern that there might have been overbuilding in New York and in certain other cities, such as San Francisco, Kermit Baker, chief economist for the American Institute of Architects (AIA), says it is possible that 2016 will be the last growth year for multi-family construction for this cycle, which is not good news for steel, as high-rise apartments use considerably more steel than single family homes.

Meanwhile, single-family starts are only at about 700,000-800,000 units, which, according to Robert Denk, senior economist with the National Association of Home Builders, is only about 60% of the 1.3 million starts you would expect in a normal housing market.

Offices downsized There are also other reasons why the urbanisation trend could impact the intensity of steel use, Plummer says. While office building construction is one of the strongest non-residential construction sectors, with put-in-place spending up 30.5% year-to-date through February, there has been a growing trend to downsize office space, including cramming more employees into the same space through smaller cubicles and for the offices to have fewer ‘bells and whistles’ and more open space – all of which is resulting in less use of steel per new office building. Also, in many cases new office buildings are not being built. Instead, older buildings, including warehouses and retail space, is being retrofitted into offices.

Partly because of this, Plummer says that while US office space construction rose by 10 million square feet year-on-year in the first

quarter of 2016, this is still well below the 15-20 million square feet pace at the top of the last cycle 10 years ago.

Despite this, SDI’s Graham says that things look better than they had in some time for steel suppliers to the construction sector, with the industry starting to see a little boost in capacity utilisation in the past eight weeks or so, largely due to the success of certain trade cases on imported steel products, including the preliminary anti-dumping and countervailing duties for such coated products as galvanized and galvalume sheet, which, amongst other applications, is used for metal roofing and siding. Graham says that while the largest improvement has been for flat-rolled steel, operating rates for steel long products are also more robust than they had been all year.

According to the AIA’s latest consensus construction forecast, overall US non-residential construction spending is expected to increase 8.3% in 2016 and another 6.7% in 2017, with one of the largest increases being spending for hotels and other lodgings, which is expected to increase by 14.8% this year and another 7.8% next year (see table). This, Baker says, is despite the fact that in some areas of the country online accommodation service Airbnb is absorbing up to 15% of hotel or shared room space. Murray attributes some of the increase to some large hotel and casino projects.

Even with the strong US dollar curbing some foreign travel, Carrick says overall travel, including business travel, is up and the lodging market has finally hit a point where there has been some take-off in momentum.

US market consensus growth forecasts, % 2016 2017Overall non-residential building 8.3 6.7Commercial/industrial 9.9 7.5Hotels 14.8 7.8Office space 12.8 8.8Industrial facilities 11.9 5.3Retail 7.5 5.6Institutional 6.7 6.7Amusement/recreation 11.2 7.7Healthcare facilities 6.6 6.9Education 6.5 6.6Religious 2.6 4.0Public safety 1.8 4.2

Source: The American Institute of Architects semi-annual consensus, issued in February 2016.


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End use markets


Usually, non-residential construction moves in lockstep with residential construction, but Graham says this time around there has been a slight disconnect, partly due to the construction of distribution warehouses to support increased Internet sales. “But Amazon and other online shopping sites have begun to reach the limit in their need for additional warehouse space,” AGC’s Simonson maintains, although as of the first quarter they were still seeing year-on-year increases.

In fact, Baker says that the only non-residential building sector that has not been doing that well – with only a 7.5% rate of growth expected this year and only about a 5.6% increase anticipated in 2017 – is retail store construction – partly due to the impact of Internet sales upon the need for brick-and-mortar stores.

Murray says that even construction starts for institutional projects, which tumbled by about 30% from 2008 to 2013 before edging back up starting in 2014, are advancing. He predicts that institutional starts will see an 11% increase this year, thanks to the passage of certain school bond issues, as well as strength in transportation terminal and sport arena projects.

Infrastructure picks upAnother previously lagging construction sector which is now picking up modestly, and could possibly see even greater growth going forward, is infrastructure, or public works construction, especially with the US Congress finally passing a long-term surface transportation reauthorisation bill in December after a decade of short-term extensions.

Simonson says that highway and bridge spending, which had increased 6.7% in 2015, should see further increases at least for the next few years. There is also optimism about other infrastructure projects, including at the nation’s ports and water and sewer projects that tend to move in step with residential and non-residential construction.

“Everyone knows that there has to be good money allocated toward repairing and building new infrastructure if we are going to compete in the world economy. The word infrastructure is synonymous

with productivity,” says Carrick, who added that already in the first quarter, heavy engineering construction starts were up 5.8% year-on-year, including an 11.8% increase for roads and highways, a 17.8% increase for bridges and a 9.8% increase for water and sewage projects.

No panaceaEven though it will have a positive impact, the expected increase in infrastructure construction activity is not a panacea for the steel industry, Graham maintains. “While everyone agrees that further infrastructure investment is necessary, that by itself will not be enough to result in the restarting of all the steelmaking capacity that is currently idled,” he says, estimating that a 10% increase in spending for public infrastructure construction would increase steel consumption by 1.6-2.4 million net tons.

Hazelton says the five-year, $305 billion, Fixing America’s Surface Transportation (FAST) highway bill will help as it will better enable state and local governments to engage in long-term planning and, therefore, is more likely to result in higher quality projects, including more bridge construction versus repaving projects, with its impact likely to start being felt later this year or early next year.

But this bill alone will only provide a short term boost. “It will not begin to address the deficiencies in current bridge infrastructure,” he explains. “That would require spending trillions of dollars, not just millions.”

Bill McEleney, managing director of the National Steel Bridge Alliance, agrees, given the number of US bridges that are currently either structurally deficient or functionally obsolete. A statement by the American Road & Transportation Builders Association (ARTBA), states that while, according to the US Department of Transportation’s National Bridge Inventory database, there were 2,574 fewer structurally deficient bridges in 2015 than during the previous year, there are still 58,500 structurally deficient bridges and that at the current pace of bridge investment it would take at least 21 years before they are all replaced or upgraded.

Recognising the need for alternative ways to fund needed infrastructure projects, over the past 18-24 months around a third of states also increased their gasoline taxes and other spending sources, such as public/private partnerships, to help fund infrastructure projects, AGC’s Simonson points out. The FAST Act, however, unlike previous highway bills, relies on some unconventional funding mechanisms, including changes in passport rules, Federal Reserve Bank dividends and privatised tax collection, in addition to the failing Highway Trust Fund, which depends upon the federal gasoline tax and which has not been raised since 1993.

Domestic steel companies tend to benefit greatly from such infrastructure projects, McEleney says, as such federally funded projects are bound by ‘Buy America’ requirements that legally enforces the purchase of US products.

More port spending Jean Godwin, executive vice-president and general counsel for the American Association of Port Authorities, says that AAPA’s recently released Port Planned Infrastructure Investment Survey, states that US ports and their private sector partners are expecting to invest $155 billion in 2016-2020, up considerably from $46 billion over the previous four year period. This includes investments in terminal, piers, wharfs and roads, as well as in dredging projects, purchase of equipment, including cranes, and repair and maintenance work.

She says the Gulf Coast region had the highest level of investments, including for the construction of liquefied natural gas export facilities, but a major driver was readying the ports for the larger Panamax ships resulting from the expansion of the Panama Canal and rising international cargo numbers.

“I see US construction activity continuing to improve,” Carrick says. “I think we have a good stretch ahead of us, another three to four years. The population is growing and more people are spending money. That helps.

The author is a specialist writer based in New York.

‘I think we have a good stretch ahead of us, another three to four years. The population is growing and more people are spending money’

End use markets

52 | Metal Bulletin Magazine |May 2016

Civil aerospace is forecast to continue its good growth pattern in the long term, which is good news for the suppliers involved, reports Steve KarpelIn tough economic times, the aerospace market often seems to defy the pervading gloom and set its own agenda. Although not immune to economic cycles, this sector is one that has shown consistent growth in the past, and moreover, is forecast by its major players to continue an above-average growth over the long term.

The two dominant manufacturers of large passenger jets, Boeing based in the USA and Airbus in Europe, each publish a 20-year global market forecast, and reach similar conclusions. Boeing’s Current Market Outlook 2015-2034 looks at the probable global demand for new commercial planes (passenger and cargo) over this period. It forecasts that the number of planes in service will double from 21,600 in 2014 to 43,560 in 2034, with a total demand for 38,050 new planes over this period (see tables).

The company notes that aviation is becoming more geographically diverse, with about 40% of new planes – or over 14,000 – being delivered to the Asia-Pacific region up to 2034, and about 20% each delivered to North America and Europe. The total value of new deliveries in this period is put at nearly $5.6 trillion.

In its Global Market Forecast 2015-2034, Airbus estimates that new aircraft deliveries up to 2034 will total 32,585, including 22,927 single-aisle planes, with a total value of $4.9 trillion. Airbus notes that air travel has proven to be resilient to various external shocks over the past decades, showing a persistent growth trend in spite of the 1970s oil crises, two Gulf wars, the 1997 Asian economic crisis, the 9/11 terrorist attacks and the 2008-09 financial crash. The company points out that annual global air travel, as measured by revenue-passenger

kilometres (RPK, or number of paying passengers multiplied by distance flown) has in fact increased by 85% to over 6 trillion since 2001.

Airbus forecasts that global air travel will double in the 15-year period 2015-29, to over 12 trillion RPK, as a result of an average annual growth of 4.6%.

Bill Bihlman, president of aerospace consultancy Aerolytics, Indiana, USA, urges some caution, however, when projecting demand some 20 years ahead, especially as the world has seen “much more volatility since 2001”. He believes that it is difficult to forecast much beyond 3-5 years.

Nevertheless, the long-term growth pattern in aerospace will be encouraging to suppliers, and to the metal industries that have an appreciable stake in the sector, such as aluminium, titanium, nickel and cobalt.

About 80% of a typical aircraft’s unladen weight is aluminium, according to the International Aluminium Institute (IAI), and the alloys and finished components tend to be high-value. The low density of aluminium has made it essential in aviation, ever since the Wright brothers’ first flight in 1903, which used a 12 hp engine modified with an aluminium block to reduce its weight.

Aluminium advances Low density is combined with the essential qualities of strength, toughness and high corrosion resistance in the various specialist aluminium alloys that are established in aviation. But more importantly, it has proven possible to develop new alloys that have allowed aerospace technology to advance, a prominent example being aluminium-lithium.

Although known since the 1950s, aluminium-lithium alloys have recently become a vital component of modern aerospace, and Alcoa opened what it described as the world’s largest plant for these alloys in late 2014 in Lafayette, Indiana, USA, with 20,000 tpy capacity. Alcoa points to its growing demand owing to “an outstanding combination of strength, toughness, stiffness, corrosion resistance and high-temperature performance, at a lower cost than titanium or composites.”

The world’s largest passenger jet, the Airbus A380, required seven years of joint research between Airbus and Alcan Aerospace (now Constellium) to develop the new set of aluminium alloys that make the project possible. One of several technological challenges was to cast advanced 7xxx alloys into massive 16.8-tonne ingots which are required to make the plane’s very large wing spars, but this was achieved and the airliner made its first flight in 2005. In the A380, 61% of the structure is aluminium alloy, 22% is composite, and 10% is titanium and steel.

Myriad titanium usesAnother metal that makes a big contribution to aerospace is titanium, which is used for its low density and high strength-to-weight

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Stages in titanium component production via Rapid Plasma DepositionTM

Flying high

The commercial aeroplane market up to 2034 In service In service New demand 2014 2034 2015-34Large widebody 740 670 540Medium widebody 1,620 3,800 3,520Small widebody 2,520 5,800 4,770Single aisle 14,140 30,630 26,730Regional jets 2,580 2,660 2,490Total 21,600 43,560 38,050

Source: Boeing


ratio, corrosion resistance, mechanical properties and all-round reliability.

In the airframe, it is used in wing structures, landing gear, critical fasteners, springs and hydraulic tubing. In engines, it is used for parts that operate up to 600°C, mainly in the compressor. This includes inlet blades, discs, hubs, inlet guide vanes and cases. Titanium-base alloys make up 20-30% of the weight of an engine. Aerospace makes up 40% of titanium’s total market, which is the greatest market proportion for any aerospace material, according to Aerolytics.

The compatibility of titanium with carbon-fibre composites, especially with respect to thermal coefficient of expansion, means that its use in aerospace is growing alongside the application of composites.

A disadvantage of titanium is its relatively high cost compared with steel or aluminium, which is a result of the energy required to produce the primary metal and the processing needed to convert it to a finished product. The extensive machining needed to produce a component from an ingot may result in up to 90% of the metal being turned into scrap – a wasteful process. However, it now appears that the evolving technology of additive manufacturing (or ‘3D

printing’) may boost titanium further by making component production quicker and less wasteful. With this technology, the component is built up layer by layer into a finished or near-net shape product.

Many companies are turning their attention to 3D printing – suppliers of raw materials and component manufacturers. Alcoa, for example, has entered into an agreement with Airbus to supply 3D-printed titanium parts for fuselage and engine pylon components. It expects to deliver the first parts in the middle of this year (see End user, page 59).

More powder capacitySuppliers of metal powders for additive manufacturing are anticipating increasing demand from aerospace and other industries, and are preparing greater capacity. Praxair Surface Technologies in the USA started production of aerospace-grade, fine, spherical titanium powder last August, using a proprietary high-pressure gas atomisation process specifically designed for this metal.

In the UK, Metalysis is developing its innovative metal powder production technology that has the potential to reduce the cost of production, and

environmental impact, even further compared with current technologies. Currently focusing on titanium, the process is able to produce the powdered metal directly from titanium ore, rutile, in one step, and the resulting material has been successfully tested in 3D printing applications.

Aerospace components can be the subject of competition between different materials, such as aluminium vying with carbon fibre composites for wing or fuselage structures. In another example, engine front intake blades are often titanium, but General Electric has been using fibre-reinforced composite blades on some engines for over 20 years. Now Alcoa has developed an aluminium-lithium fan intake blade forging for Pratt & Whitney’s PurePower® engine – the first such use of aluminium alloy in a jet engine, says Alcoa. In a 10-year $1.1 billion contract, the company will supply Pratt & Whitney with aluminium fan-blade forgings plus a range of other advanced components.

The new aluminium fan blade has found a place where others use alternative materials. General Electric and Rolls-Royce have made the investment in composite blades, notes Bihlman.

Nickel-base superalloys are another vital aerospace material, and typically make up 40-50% of the total weight of an engine, according to the International Nickel Study Group. Aerospace accounts for about 20% of the total superalloys market, estimates Aerolytics. These materials are also important for various other elements that may form part of the alloy, such as cobalt, rhenium, molybdenum, ruthenium, tantalum and tungsten. About 16% of cobalt demand is accounted for by superalloys, reports the Cobalt Development Institute.

Rolls-Royce has forecast that the global civil aircraft market will require 149,000 engines to be delivered in the period 2012-2031, with passenger traffic increasing by a compound 4.5% RPK over this period. This ties in with other forecasts for a steadily growing demand for commercial aviation in the years ahead.

3D printing developmentsAdditive manufacturing technology is undergoing various developments that could increase its efficiency and utility, especially in aerospace. Norway-based Norsk Titanium has developed a Rapid Plasma Deposition™ (RPD™) process. This starts from commercially-available titanium wire rather than powder, which is melted in an argon atmosphere and then built up in layers according to CAD data to a near-net shape component, up to 80% complete, that requires very little finish machining. The company claims that production costs and times are 50-75% less than traditional routes via billet production and forging, owing to the significantly less waste generated and machining energy used.

Norsk Titanium notes that the new Airbus A350 (which incorporates a significant amount of composites) contains 14% titanium. It estimates that such an aircraft could generate as

much as 154,000 lb (69.9 tonnes) of titanium scrap during its production. Using the RPD process could save about $2.3 million per plane, the company claims.

Another composite-intensive aeroplane, the Boeing 787 Dreamliner, contains about 15% titanium. Norsk Titanium observes that military aircraft can incorporate much higher proportions of titanium: the Lockheed Martin F-35 comprises 30% of this metal, for example. The military sector accounts for 12% of aerospace material demand, says Bihlman.

The size of components made by RPD is limited only by the machine size, says Chip Yates, vp marketing, of Norsk Titanium, and parts up to one metre long can be made at present. The company is now building a factory in the USA that will contain 40 RPD machines for supplying the aerospace and defence markets, and it has signed contracts with major aircraft makers.

Demand by region, 2015-2034Region New Value* planesAsia 14,330 2,200 PacificEurope 7,310 1,050North 7,890 940 AmericaMiddle 3,180 730 EastLatin 3,020 350 AmericaAfrica 1,170 160CIS 1,150 140Total 38,050 5,570

*Catalogue prices, $ billions. Source: Boeing

Platinum group metals


Last year saw an impressive recovery in the volumes of global PGM production, reports precious metals consultancy Metals Focus

In spite of a relatively dire year for platinum and palladium prices, at least in US dollar terms, last year bore witness to an impressive recovery in the volumes of global PGM production, as South African mines recovered from one of the longest and most costly strikes in the country’s history. Centred around the Bushveld Igneous Complex, South African PGM mines are responsible for producing some 70% and 35% respectively of the world’s platinum and palladium annually, and as such, the fortunes of the country’s miners have a significant bearing on the global supply chain of these metals.

In 2015, global platinum mine production rose by a robust 26%, to 6.29 Moz. Putting aside the recovery from the South African strike, this was nonetheless an impressive total, representing the highest level of annual mine output since 2011. Unsurprisingly, leading this increase was South Africa, which, largely unaffected by industrial action or safety

stoppages, increased platinum mine output by some 43%, to a four-year high of 4.41 Moz.

Palladium mine production also rose in 2015 and although the gain was a more modest 8%, this did lift production to a near decade high of 7.04Moz. The reason for the more muted gain in palladium production was due to the metal’s more geographically diverse supply over platinum, with Russia historically being the world’s top producer. Elsewhere, Canadian production has been growing in significance over the past five years. However, 2015 saw the first contraction in its supply in five years, down 8% y-on-y, to 777 koz.

South Africa bounces backThe Bushveld Igneous Complex is a large layered igneous intrusion hosting the PGM-rich UG2 reef, Merensky Reef and Plat Reef. Covering an area of approximately 65,000 km2 to the north of Pretoria, the deposit has been responsible for producing around three-quarters of all the platinum and one-third of all the palladium ever mined.

On the back of a relatively calm, strike-free year, South African production bounced back strongly in 2015. Not only did the country’s platinum production increase by 43%, but a 30% gain in palladium output saw the country surpass Russia for the first time to become the world’s top producer of both metals.

The country itself has a long mining history, having been the largest gold and platinum producer for much of the 20th century. In recent years, however, the mining industry has been suffering. Precious metals mines in the country are generally deep

level underground operations that are highly labour intensive, high risk and high cost. In addition, the workforces are also highly unionised and in recent years this has come to the fore in the form of increased levels of industrial action. This has not only led to a loss of life, but also considerable losses in production. It has also been a major driver in the above-inflation cost increases that the industry has experienced in recent years.

Looking back at the impact of industrial action in the country, combined South African platinum and palladium production fell by just short of 1.0 Moz (-13%) from 2011 to 2012 and then again by 1.61 Moz (-24%) between 2013 and 2014. In total, some 60% of the industry’s capacity was affected by strike action lasting five months, as some 70,000 workers, across 14 mines, downed tools between January and June 2014.

Although significant, wage increases are not the only cause of cost inflation in the country. Successive electricity tariff hikes, as Eskom looked to raise funds to bolster its ageing power generating capacity, have also had a major impact on production costs. PGM production in the country is dominated by underground operations, which are heavily reliant on electric power to run nearly all aspects of the mining operation, not to mention the associated power-intensive processing facilities. As a result of these factors, based on data from Metals Focus’ PGM Mine Cost Service, basic mine site cash operating costs have risen by 9% a year over the past five years; in 2015 these averaged R401,000 per platinum equivalent kg.

PGM supply recovers

Geographical breakdown of platinum and palladium mine supply in 2015

Source: Metals Focus

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However, one parameter that must be considered, when discussing the South African PGM mining industry, and indeed platinum prices themselves, is the performance of the South African rand. As the chart shows, the correlation between the two in recent years has been quite remarkable. Since mid-2011, the rand had been declining against the US dollar at a fairly steady rate of around 17% a year. This has had two major effects. First, it has been a major contributor in softening the above-inflation production cost increases and, secondly, it has helped to offset the decline in dollar-denominated PGM prices. For instance, the dollar price of platinum fell from a peak in 2011 of $1,904/oz to a low of $818/oz in January 2016, a decline of 57%, while the rand price remained largely unchanged.

As a result, in spite of a prolonged period of marked cost inflation and deteriorating PGM prices, only 20% of the South African cost curve was loss making in 2015. That said, when factoring in additional expenses such as royalties, sustaining capital expenditure and corporate overheads, the loss making portion of the cost curve rose to 57%.

Russian supply fallsRussia is the second most important country when it comes to global platinum and palladium production, accounting for, respectively, 12% and 37% of global platinum and palladium mine supply in 2015. Most of this comes as a by-product of nickel production from Norilsk Nickel, which is the world’s largest producer of both nickel and palladium. The company’s Russian operations in 2015 produced a total of 2.61 Moz of palladium and 622 koz of platinum. This was down marginally on the previous year, by 2% and 1%, respectively.

The company’s key production centre for PGMs is the Polar division, which is located on the Taimyr Peninsula, above the Arctic Circle. The mining area is only accessible by river, sea and air, and mining takes place at four

mines. However, combined platinum and palladium production from Norilsk’s Russian operations over the last decade has declined by some 17%.

Other suppliersCollectively, South Africa and Russia accounted for 82% and 75% of global platinum and palladium production in 2015, with three countries, Canada, Zimbabwe and the USA, contributing most of the remainder. Last year, the collective palladium output of these three countries declined by 4% y-on-y on the back of an 8% decline in Canada, where production of Vale’s Sudbury Complex fell 14%, from a multi-year high in 2014. Meanwhile, the collective platinum output remained unchanged y-on-y, as declines in Canada were offset by gains in Zimbabwe, as Zimplats continued to lift production.

The collective contribution from these remaining countries has increased significantly over the past five years, with their share of global platinum and palladium production increasing from 15% in 2010, to 22% last year. Most prominently, palladium production from Canada has risen

by 510 koz since 2010, on the back of higher nickel by-product production, which tends to be richer in palladium compared with platinum. Of note, output from Glencore’s Sudbury Integrated Nickel Operations and Vale’s Sudbury Complex (which was impacted by prolonged strikes in 2010) has risen strongly, as has output from North American Palladium’s Lac des Iles mine.

As a result of this growth in Canada, and the ongoing transition of South African mines to process a higher proportion of UG2 and Platreef ore (over the more platinum rich Merensky Reef ), global palladium mine supply has risen by 10% over the past five years, while in contrast, platinum mine supply has fallen by 1%.

Outlook for 2016In spite of some cuts to supply, South Africa is again expected to be the biggest producer of both platinum and palladium this year, with production from Russia expected to decline for a second year. As a consequence of lower output in these two main producers, global platinum and palladium mine supply is forecast to contract by 7% and 8% respectively in 2016.

South African platinum production is expected to fall by 350 koz (-8% y-on-y), as the full impact of last year’s closures at Twickenham and Eland are realised, along with cuts to production and shaft closures at other operations, such as Rustenburg and Marikana. In addition, the lower levels of capital expenditure over recent years are also expected to have some negative impact on supply going forward, as are the upcoming round of miners wage negotiations in South Africa.

Metals Focus is a London-based independent precious metals consultancy comprising specialists dedicated exclusively to the precious metals industry. It will be publishing a detailed Platinum & Palladium Focus in May, providing in-depth analysis of the global PGM markets and outlook (www.metalsfocus.com)

2,000

600

800

1,000

1,200

1,400

1,600

1,800

Jan-1

0

Jan-1

2

Jan-1

3

Jan-1

1

Jan-1

4

Jan-1

5

Jan-1

6

Platinum in dollars versus the rand

Source: Bloomberg

6

8

10

12

14

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18

Platinum US$/oz (LHS) Inverted USD:ZAR (RHS)

1,800

400

The cost of production - South Africa in 2015

Source: Metals Focus – PGM Mine Cost Service

600

800

1,000

1,200

1,400

2015 Platinum ($1,054/oz)

1,600

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Drosrite produces molten aluminium which can be promptly recycled to the foundry, saving some heat input energy.

The process uses a rotary furnace with a controlled argon atmosphere. After completion, the residue still contains 1-3% aluminium, and the injection of oxygen causes an exothermic reaction with the residual aluminium that raises the temperature in preparation for the next batch of dross to be processed.

The company patented the technology in 2012, and an automotive parts manufacturer in North America has recently made the first industrial installation. Automotive parts production is seen by PyroGenesis as the main potential growth area for Drosrite, but other markets will be targeted, such as primary and secondary aluminium smelters.

housings, and all parts that previously used standard 5754 alloy will be converted to RC5754.

The alloy has been developed in conjunction with Jaguar’s REALCAR (REcycled ALuminium CAR) project to promote sustainable vehicle production. REALCAR was launched in 2008 by the automotive company, and is a multi-stakeholder initiative to create a closed-loop manufacturing model that recycles cars at the end of their life.

allows customers to buy smaller lot sizes.

The process starts at the company’s Canton, Ohio, site where its special bar quality (SBQ ) steel is forged-rolled and heat treated. It is then sent to TimkenSteel Material Services in Houston, Texas, where it is bored and honed. TimkenSteel recently entered into a supply agreement with A&A Machine & Fabrication of Texas, to further process, market and sell HPT for LDPE customers. TimkenSteel accepted an order for HPT for a major petrochemical producer earlier this year.

Innovations

and it produces no hazardous by-products that have to be disposed of at additional expense.

The production or processing of molten aluminium in air results in the formation of surface dross, which can contain around 60% aluminium metal. This is usually skimmed off and sent to a third party to reclaim the aluminium, which involves processing the dross in a furnace with added salt. PyroGenesis Canada of Montreal says it has developed a more efficient aluminium recovery system, designed to be used at the production site instead of sending the dross to third parties.

Drosrite™ is a salt-free and cost-effective process, says the company, which maximises metal recovery while reducing energy consumption and operating costs,

Maximising aluminium recovery

Novelis and Jaguar Land Rover have collaborated to launch RC5754, a new aluminium alloy product that is designed to contain up to 75% recycled content. It has been successfully integrated into the structural components of a high-volume passenger vehicle, the Jaguar XE, and it will also be featured in all new and legacy Jaguar Land Rover models, says Novelis. In the Jaguar XE, it is used for stiffness-dominated parts including floor panels and wheel

TimkenSteel of Ohio, USA, has developed a new process to make special high-pressure steel tubing (HPT) that is used in the production of low-density polyethylene (LDPE). The company says that it has designed a more streamlined process using the assets and operations it already has in place to create cost efficiencies: HPT that previously took more than a year to produce now takes a matter of months. This will enable HPT customers to plan projects more precisely. Another advantage is the flexibility of the process, which

Novelis and Jaguar raise automotive sustainability

TimkenSteel streamlines high-pressure tubing

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Collaboration on new nanopowders The UK’s Centre for Process Innovation (CPI) and nine other European partners are collaborating in the design, scale-up and construction of a high-energy ball-mill pilot plant for the production and validation of innovative nanostructured powders. These will be suitable for high-value manufacturing applications such as cutting tools, medical implants, and a range of aerospace and automotive components.

The project, due for completion in September 2017, makes nanostructured powders with a proprietary technology developed by lead partner MBN Nanomaterialia. The technology will allow for the production of powders with ultrafine crystalline structures, in order to enhance strength, reduce weight, or provide superior wear, corrosion, or thermal resistance. The project is reported to have already shown excellent results for abrasive tools.

An efficient way to extract aluminium from dross

New automotive alloys undergo extensive testing

A speedier route to high-pressure tubing


distribution network with the launch of its ‘Materials4Me’ online shop in Spain in February and in Germany from April, following its earlier launch in the UK. Customers using Materials4Me can choose from some 2,500 items, including products in both standard and customised dimensions. With the option of ordering small quantities, the system addresses the needs of repair and maintenance contractors, researchers and small businesses, says Thyssenkrupp, giving access to new target groups with promising market potential.

Materials Services’ digital strategy has its roots in the USA, where it has been operating an online shop since 2007, and it is now being rolled out in Europe. Portals for existing customers will be introduced in Benelux, Denmark, Sweden and Switzerland in the first half of 2016, with customers being given access to framework contracts plus other defined documents and catalogues; a full e-commerce function will follow later this year.

Materials4Me has a differentiated approach for each country, says Thyssenkrupp, with services tailored to the needs of the relevant market, using the structures established in each country.

Supply chain services

Global metal service centre Klöckner & Co has teamed up with software provider Sage to develop a new edition of the Sage Office Line accounting and enterprise resource planning (ERP) system that will be specially preconfigured for steel and metal processors. Klöckner is in the process of digitising its entire supply and service chain, and says that it is increasingly linking up with both suppliers and customers for electronic data interchange. This will allow easier access to the Klöckner & Co product catalogue and speed up the automation of orders.

Gisbert Rühl, ceo of Klöckner & Co, stated: “The collaboration has great potential. This solution lets Klöckner customers professionally manage their business processes on attractive terms while giving them online access through the system to our extensive range of steel and metal products.”

A digital transformation for metals distribution

Customer needs are precisely met in the digitised marketplace

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There has been a development phase lasting several months to analyse the needs of customers and replicate them in the software. The solution is being initially tested with customers, while the joint commercial launch of the system by Klöckner and Sage is expected in the first half of this year.

Meanwhile, Thyssenkrupp Materials Services is continuing the digital transformation of its

Spectro launches upgraded analysers

Sandvik engineers a leaner product division for customers

Sandvik will merge its separate Mining and Construction operations into one business area – Sandvik Mining & Rock Technology – on 1 July. The new division will have a decentralised business model with separate product areas, with each having full responsibility and accountability for its respective business.

“Products developed for the customer segments mining and construction are based on common

Sandvik merges two divisionstechnologies with a similar aftermarket offering. In addition, manufacturing units are already largely shared with, to some extent, shared frontline resources. By joining the operations into one business area we achieve a leaner and more efficient structure,” said Björn Rosengren, Sandvik´s president and ceo.

Lars Engström, currently president of Sandvik Mining, has been appointed president of Sandvik Mining & Rock Technology.

Spectro Analytical Instruments of Kleve, Germany, has introduced upgraded versions of two of its metal analysis spectrometers, one floor- or bench-mounted and the other handheld.

The company’s seventh generation of its SpectroMaxx arc/spark optical emission spectrometer has been designed to deliver greater savings of consumables and faster

measurements. It has up to 60% lower consumption of argon, with no loss of analytical performance. There is also a 15-20% reduction in measurement time, fast and simple calibration, reduced maintenance levels, and an even simpler ease of use, Spectro reports.

The company’s handheld Spectro xSort XRF spectrometer has been upgraded to

deliver improved speed and precision for the analysis of light elements in particular. The xSort Alloy model delivers grade identification in seconds, while the more powerful Spectro xSort AlloyPlus model analyses most alloys in two seconds, and identifies alloys based on light elements, including aluminium, magnesium, silicon, phosphorus and sulphur, in seven seconds.

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End user

Vallourec’s seamless tubes support Les Halles

Constellium has signed a multi-year contract with Airbus to supply a broad range of advanced aluminium rolled products for airframes, including wing skin panels and aero-sheets for fuselage panels, as well as rectangular and pre-machined plates for structural components. In support of Airbus’s continuous improvement targets, Constellium noted that it is committed to increasing the ‘buy-to-fly’ ratio by developing and implementing near-net-shaped and pre-machined products.

Constellium added that the two companies will deepen their cooperation in logistic and recycling solutions in order to reduce inventories along the supply chain and support the ramp-up of key Airbus programmes such as the A320neo and the A350 XWB.

Constellium and Alcoa sign contracts with Airbus

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The Airbus A350 incorporates Constellium’s advanced aluminium products

The new Les Halles structure incorporates Vallourec tubing

Vallourec has supplied its seamless tubes to the Les Halles redevelopment project in Paris. The new structure, designed by the architects Patrick Berger and Jacques Anziutti, was inaugurated on 5 April, marking the finale of an extensive construction project.

Les Halles is a monumental structure with two wings housing cultural and commercial spaces, connected by a leaf-shaped canopy made up of overlapping glass sections and covering a vast, open plaza.

Nearly 15 meters above the ground, the Vallourec seamless steel tubes (9 metres and 12 metres in length) support a part of the structure, giving it solidity, in particular by anchoring the first six canopy sections in the two buildings on either side of the canopy. With a thickness of 30 mm to 50 mm, the tubes have an exterior diameter of 508 mm and were manufactured with a steel grade of S460 NH. The tubes were produced in the Vallourec

Rath Pilger mill (near Düsseldorf) in Germany and delivered in record time to the Viry-Fayat Group’s factory, in the Vosges region of France, says Vallourec.

Construction tubes account for 17.8% of Vallourec’s overall sales, and the company notes that it has contributed to several iconic structures, such as the Mont Saint-Michel footbridge in north-western France, the Burj Al-Arab Tower in Dubai, the Sony Centre in Berlin and 30 St Mary Axe (“The Gherkin”) in London.

This contract – for which specific terms were not disclosed – builds on the partnership agreement signed with Airbus in 2010 that marked the introduction of Constellium’s Airware™ technology on the A350 XWB.

The aluminium company will supply Airbus mainly from its plants in Ravenswood in the USA and Issoire in France.

Meanwhile, Alcoa has entered an agreement with Airbus to supply 3D-printed titanium fuselage and engine pylon components. It expects to deliver the first such parts to Airbus in mid-2016. This contract incorporates Alcoa’s expertise gained from its 2015 acquisition of titanium company RTI (now called Alcoa Titanium & Engineered Products), as well as its own recent investments in 3D printing. Alcoa is now boosting its 3D printing capabilities with a $60 million expansion at its Technical Center near Pittsburgh.

The company will also employ advanced CT scan and Hot Isostatic Pressing (HIP) capabilities at its advanced aerospace facility in Whitehall, Michigan. HIP is used to strengthen the metallic structures of traditional and additive-manufactured parts made of titanium and nickel-base superalloys.

SSAB launches EG ultra-high-strength auto steelSSAB Steel has introduced Docol 1500 MZE, an electrogalvanized martensitic ultra-high-strength steel for automotive applications. This cold-rolled product is designed to meet stringent requirements for corrosion resistance, low vehicle weight and high energy absorption capabilities. The minimum tensile strength is 1,500 N/sq mm, which is achieved in production by using a special heat treatment together with a very high cooling rate.

1500 MZE joins a broad range of Docol advanced steels, which include HSLA, dual-phase, martensitic, press-hardening, electrogalvanized and tube grades.


Events20th Zinc and its Markets Seminar 9 – 11 May 2016 Madrid Hesperia Hotel, Madrid, SpainThis well-established conference will review the entire value chain, focusing particularly on the question of future demand and the effects of an economic transition in China. There will also be an opportunity to visit either Técnicas Reunidas or Glencore Asturiana. metalbulletin.com/events

AluSolutions 10 – 11 May 2016 ADNEC, Abu Dhabi, UAEThis international free-to-attend exhibition and conference addresses the challenges and opportunities of sustainable aluminium use, including energy, greenhouse gases, waste management and scrap recovery. www.alusolutions.com

4th International Nickel Conference 11 – 12 May 2016 Pestana Chelsea Bridge, London, UKRepresentatives from across the nickel supply chain will explore the major issues, such as the outlook for supply and demand fundamentals; China, Indonesia and Philippines updates; new projects; and market growth opportunities. metalbulletin.com/events

Singapore Iron Ore Week 17 – 20 May 2016 Sands Expo and Convention Centre, SingaporeParticipants will gain insights into the challenging issues facing the industry, including oversupply, the threat of weakening demand and volatility in prices. Both producers and consumers will address these topics. www.ironoreweek.sg/en

Iranian Steel Tube & Pipe Conference 24 – 25 May 2016 Parsian Evin Hotel, Tehran, IranMetal Bulletin’s inaugural Iranian tube and pipe conference will give detailed coverage of the Iranian market, looking at projects, requirements, investment opportunities and the prospects for international trade. metalbulletin.com/events

22nd International Iron Ore Symposium 5 – 7 June 2016 The Steinberger Hotel, Berlin, GermanyThis event is the place to discuss the key issues affecting the iron ore market at a time of great challenges, with multi-year low prices, a market surplus and supressed demand.metalbulletin.com/events

Mining Strategic Excellence: North America 9 – 10 June 2016 Hilton Toronto, Toronto, CanadaThis inaugural conference is the only one of its kind to address innovation and operational excellence from a strategic perspective. It will examine the challenges facing mining alongside solutions and strategies from both within mining and other industries. metalbulletin.com/events

4th LME Week Asia 14 June 2016 Hong Kong Convention & Exhibition Centre This metals seminar will feature talks and panels on pricing, commodities, precious metals, and other issues in the current trading environment. www.hkexgroup.com/eng/events/lmeweekasia/index.htm

Steel Success Strategies XXXI 13 – 15 June 2016 Sheraton New York Times Square, USAThis major event covers world steel markets, raw materials, logistics, technology, iron ore and steel derivatives, and many other aspects of the sector. metalbulletin.com/events

11th Asian Stainless Steel Conference 15 – 16 June 2016 The Ritz-Carlton Hotel, Hong KongThe stainless steel market slumped in 2015 as a 20-year long expansion in China – with over 50% of world output – came to a halt. This event will address the key issues relating to the Chinese and other Asian stainless industries. metalbulletin.com/event

5th Copper Recycling Conference 15 – 17 June 2016 Sheraton Arabella Park Hotel, Munich, GermanyThis conference will focus on copper’s re-use and recycling industry dynamics, looking at the drivers, innovations, opportunities and threats facing the copper, copper alloy and electronic scrap generating, processing and consuming businesses. metalbulletin.com/event

Iranian Base Metals Conference 6 – 7 September 2016 Parsian Azadi Hotel, Tehran, IranMB’s inaugural Iranian Base Metals Conference will examine the market dynamics for aluminium, copper, lead and zinc, and how Iranian base metal industries fit into the global picture. The impact of sanctions lifting will be discussed, along with guidance on conducting business in Iran. metalbulletin.com/event

Mining Strategic Excellence: South America 6 – 7 September 2016 Sheraton Santiago Hotel and Convention Centre, Santiago, ChileThis inaugural conference addresses innovation and operational excellence from a strategic perspective. It will look at case studies drawn from base metals, ferrous metals, precious metals, industrial minerals and coal. metalbulletin.com/events

15th International Stainless and Special Steel Summit 6 – 8 September 2016 Hotel Intercontinental Lisbon, Portugal Over 200 top executives from around the world and from all tiers of the global supply chain are expected to convene in Lisbon to discuss the world stainless and special steel sectors.metalbulletin.com/events

2nd Iranian Iron & Steel Conference 26 – 28 September 2016 Abbasi Hotel, Esfahan, Iran Connecting the Iranian iron ore and steel markets with the world, this conference will be the ideal place to learn about Iranian markets and create international links. metalbulletin.com/event

For full details of Metal Bulletin Events www.metalbulletin.com/events

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Low High

Low HighAluminiumAluminium P1020A, in-warehouse premiumRotterdam duty unpaid spot $/tonne 73.91 85.22Aluminium P1020A, in-warehouse premiumRotterdam duty paid spot $/tonne 121.67 143.33

AluminaIndex fob Australia 244.41

AntimonyMB free market Regulus 99.65%, max Se 50ppm,$/tonne in warehouse 5,127.78 5,496.11MMTA Standard grade II $/tonne 5,138.89 5,493.33

BismuthMB free marketmin. 99.99%, $/lb, tonne lots in warehouse 4.28 4.64

CadmiumMB free marketmin 99.95%, cents/lb in warehouse 56.33 61.89min 99.99%, cents/lb in warehouse 57.56 65.11

CobaltMB free marketHigh Grade, $/lb in warehouse 10.41 11.25Low Grade, $/lb in warehouse 10.31 11.17

CopperUS High-grade cathode premium indicator, $/tonne 121.25 132.28

Germanium DioxideMB free market min 99.99%, $/kg 835.00 910.00Rotterdam $/kg 1,200.00 1,400.00

GoldLondon $/troy oz Morning 1,246.31 Afternoon 1,246.34 Morning 876.15 Afternoon 875.76 Handy/Harman 1,245.14

IndiumMB free marketIngots min 99.97%, $/kg in warehouse 240.56 280.00

MagnesiumMB free marketmin 99.8%, $/tonne 1,900.00 2,000.00China free market min 99.8% 2,018.00 2,040.00

MercuryMB free marketmin 99.99%, $/flask in warehouse 1,216.67 1,616.67

MolybdenumFree market in warehouse Europe drummed molybdic oxide $/lb Mo 5.31 5.42US canned molybdic oxide $/lb Mo 5.28 5.60

NickelFree market in warehouse premiumEurope $/tonneuncut cathodes 40.00 130.004x4 cathodes 150.00 250.00briquettes 90.00 190.00USMelting $/lb 0.15 0.20

PalladiumMorning $/troy oz 563.81Afternoon $/troy oz 567.38

Platinum: per troy ozMorning $/troy oz 967.62Afternoon $/troy oz 968.43

RhodiumEuropean free marketmin 99.9% in warehouse, $/troy oz 659.35 759.35

SeleniumMB free marketmin 99.5% in warehouse $/lb 4.72 6.41

SiliconMB free market ¤/tonne 1,810.00 1,940.00

SilverLondonspot pence/troy oz 1,083.73spot cents/troy oz 1,542.05Handy/Harman cents/troy oz 1,546.45

TinEuropean free marketSpot Premium 99.9% $/tonne 362.50 500.00Spot premium 99.85% $/tonne 337.50 387.50Kuala Lumpur (ex-smelter) $/tonne 16,834.78

TitaniumFerro-Titanium70% (max 4.5% Al), $/kg d/d Europe 3.39 3.73

TungstenEuropean free market APT $/mtu 167.25 183.75

FOUNDRY INGOTSAluminiumLM24 1,226.00 1,300.00LM6/LM25 1,462.00 1,536.00Aluminium Europe ¤/tonne 1,580.00 1,660.00Phosphor BronzePB1 ex-works £/tonne 5,260.00Zinc Alloy10 tonne lots ZL3 £/tonne 1,859.00

LONDON METAL EXCHANGEHigh, low and average Mar (21 days)LME averages are mean of buyers and sellers except for settlement and 3 months sellers. March 2016 March Low High Average $ $ $Copper Grade A ($)Cash 4,310.25 5,102.50 4,947.043 months 4,320.25 5,070.25 4,930.29Settlement 4,310.50 5,103.00 4,947.553 months seller 4,320.50 5,070.50 4,930.95Copper Grade A (£)Settlement 3,005.51 3,576.58 3,477.203 months seller 3,012.06 3,562.95 3,464.54Tin ($)Cash 13,225.00 17,622.50 16,989.173 months 13,212.50 17,497.50 16,854.88Settlement 13,235.00 17,625.00 16,995.953 months seller 13,225.00 17,500.00 16,870.24

March 2016 March Low High Average

$ $ $Lead ($)Cash 1,596.50 1,896.25 1,807.483 months 1,597.50 1,887.75 1,809.69Settlement 1,597.00 1,896.50 1,808.023 months seller 1,598.00 1,888.00 1,810.33Lead (£)Settlement 1,098.84 1,340.38 1,270.893 months seller 1,100.75 1,333.90 1,272.11Zinc ($)Cash 1,453.25 1,859.75 1,804.323 months 1,466.50 1,865.50 1,808.87Settlement 1,453.50 1,860.00 1,804.643 months seller 1,467.00 1,866.00 1,809.31Aluminium ($)Cash 1,452.50 1,621.25 1,530.213 months 1,451.25 1,588.25 1,536.83Settlement 1,453.00 1,621.50 1,530.573 months seller 1,451.50 1,588.50 1,537.17Aluminium Alloy ($)Cash 1,507.50 1,610.00 1,560.363 months 1,535.00 1,625.00 1,585.12Settlement 1,510.00 1,615.00 1,565.243 months seller 1,540.00 1,630.00 1,590.00Nickel ($)Cash 7,705.00 9,372.50 8,700.953 months 7,737.50 9,395.00 8,745.24Settlement 7,710.00 9,375.00 8,704.053 months seller 7,750.00 9,400.00 8,750.95Nasaa ($)Cash 1,660.25 1,739.50 1,682.263 months 1,667.50 1,747.50 1,699.64Settlement 1,660.50 1,740.00 1,684.623 months seller 1,670.00 1,750.00 1,703.57Cobalt ($)Cash 21,702.50 23,750.00 23,118.453 months 21,800.00 23,750.00 23,141.67Settlement 21,705.00 24,000.00 23,158.573 months seller 21,850.00 24,000.00 23,391.67Molybdenum ($)Cash 11,500.00 11,950.00 11,950.003 months 11,500.00 11,950.00 11,950.00Settlement 11,750.00 12,200.00 12,200.003 months seller 11,750.00 12,200.00 12,200.00Steel Billet ($)Cash 75.00 195.00 86.433 months 90.00 210.00 101.43Settlement 100.00 220.00 111.433 months seller 115.00 235.00 126.43LME Settlement Conversion Rates$/£ 1.42$/yen 112.97$/¤ 1.11

Monthly pricesMarch averages

DisclaimerThis Disclaimer is in addition to our Terms and Conditions as available on our website and shall not supersede or otherwise affect these Terms and Conditions. Prices and other information contained in this publication have been obtained by us from various sources believed to be reliable. This information has not been independently verified by us. Those prices and price indices that are evaluated or calculated by us represent an approximate evaluation of current levels based upon dealings (if any) that may have been disclosed prior to publication to us. Such prices are collated through regular contact with producers, traders, dealers, brokers and purchasers although not all market segments may be contacted prior to the evaluation, calculation, or publication of any specific price or index. Actual transaction prices will reflect quantities, grades and qualities, credit terms, and many other parameters. The prices are in no sense comparable to the quoted prices of commodities in which a formal futures market exists.

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Chartist

‘Dead cat bounce’ or resurrection in China?Jim Lennon, managing director, Red Door Research, looks at surprising recovery in China

Occasionally things happen in markets that defy all logic and expectations. One of those is unfolding before our very eyes and many appear not to have noticed its full significance. I am referring to an incredible revival in the Chinese demand for commodities in recent months!

Having appeared to have been in terminal decline in recent years (see April issue Chartist), Chinese steel output exploded higher in March (reportedly to near all-time highs). Reported steel rebar prices in Northern China (Beijing/Hebei) have doubled since November last year, with no sign of the rise abating amid reports of strong demand and falling inventories. Reported Chinese cement production rose by an incredible 24% y-on-y having shown y-on-y falls in each of the previous 12 months. National power generation grew by 4% y-on-y – its highest growth since September 2014.

The ‘dead’ Chinese housing market also sprang back to life with investment, sales and new starts rising 6%, 33% and 19% respectively in January-March on 2015 levels during the same period. Furthermore, this appears not to be a ‘flash in the pan’ as funding available to property developers increased 15% y-on-y in March and planned new investments for new fixed asset investment projects rose by 40%.

The immediate cause of the apparent V-shaped recovery is a massive easing of liquidity in an economy that has been starved of liquidity for a number of years (see chart). The government appears to have been panicked by what appears to be a severely weakening economy in the second half of 2015 and acted (or over-reacted) by easing monetary and fiscal policy to a degree that is still not fully appreciated by commodity markets.

State sector investment in infrastructure is rising faster than at any stage since the 2009 stimulus (March infrastructure investment was up 20% y-on-y) and there has been a massive surge in bond issues by local government to finance this. Macquarie Bank economists estimate that total bond issuance and social financing (bank loans) increased by a scarcely believable 56% y-on-y in January-March (see chart).

The reason the government is doing this appears to relate to the upcoming major leadership change in 2017 (when half the existing Politburo retire). Having inflicted severe pain on the ‘old’ economy in recent years through policies designed to reduce

over-supply in these markets and the generally negative attitude of hedge fund sellers (in China as well as elsewhere). However, what has been remarkable is the massive surge in imports of key base metals (see chart). Imports of refined copper and nickel were the highest ever in Q4 2015 and Q1 2016 as ‘investors’ imported and stockpiled material, wanting to buy dollar denominated commodities partly as a hedge against a devaluation in the RMB.

So far the impact on ‘real’ demand for commodities has been less than the impact on ‘apparent’ demand due to widescale restocking. Real consumption does appear already to have improved in construction/infrastructure and is flowing into auto sales, but the impact on the other end-use sectors remains small. This may change in the coming months as the impact of the credit and spending flows further into the real economy.

However, the authorities may now fear that they have overdone the stimulation and rising inflation is becoming a significant near-term risk (some say CPI inflation could rise to as much as 10% this year but will not be reported as such). Typically monetary policy takes a minimum of six months to have an impact, so the excessive credit creation of Q1 2016 will continue to have a positive impact well into the second half of 2016, even if the authorities decide to roll back the stimulation measures in the near term (so far there is no indication that they are planning to do that).

These developments in China have taken many by surprise and there remains a great deal of confusion, and even denial, among analysts and investors about what is happening. However, whatever the medium-term impact this policy reversal may have, it is a significant short-term demand reversal in what was thought to be a global weakening year for commodities. China has lived up to its reputation to constantly surprise the world!

industrial over-capacity and shift the economy’s focus from investment to consumption and services, the government grew increasingly concerned about the social (and political) implications of sharply deteriorating growth and mass unemployment in certain sectors of the economy.

Critics will argue that this risks making matters worse down the line in terms of adding to already excessive debt levels and maybe even encouraging the overbuild of even more ultimately unneeded industrial capacity. Chinese steel researcher Mysteel calculates that from a situation late last year where only 15-20% of China’s steel producers were profitable, by the end of March 95% were profitable! A similar turnaround appears to have taken place in the aluminium producing sector.

However, the government has previously warned banks not to extend credit to struggling steel and aluminium companies and paradoxically some companies are struggling to get credit lines to restart, which may well further the short-term upside in steel and aluminium prices.

China is not the only economy to throw money at its problems in recent years (credit creation and QE measures remain firm policies in Europe, the USA and Japan as well). Interestingly, whereas in Europe and the USA a lot of this excess liquidity has flowed into stock markets and housing, disillusionment with the stock market means that Chinese liquidity has flowed less into equities this time around and back into housing and into commodities. Volumes on the Chinese domestic commodities exchanges have surged and so have prices (of iron ore, steel rebar, coke etc).

The impact on base metal prices has been positive since February, but, so far at least, has been relatively limited due to the large

Total Chinese credit creation flow byquarter, 2008-Q1 2016

Chinese new imports of primary nickeland copper by quarter, 2008-Q1 2016

Source: Macquarie Research, Metal Bulletin, Steel Benchmarker

8,000

7,000

6,000

4,000

3,000

2,000

5,000

1,000

0Q10

8Q30

8Q10

9Q30

9Q110 Q31

0Q111 Q31

1Q112 Q31

2Q113 Q31

3Q114 Q31

4Q115 Q31

5Q116

Total social finance & local government bond swap Copper (LHS) Nickel (RHS)

1,200

1,000

800

600

400

0

160

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0 t n

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140

100

120

60

40

80

0

-20

200

2003

2000

2001

2002

2004

2005

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www.cwtcommodities.com

Aluminium can be recycled again and again – infinitely. Hydro has been developing natural resources since 1905, and like our metal we are here to stay.

www.hydro.com

www.hydro.com

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