Afriforesight Rolling Commodity Forecast 2019
Afriforesight Rolling Commodity Forecast 2019
Afriforesight Rolling Commodity Forecast 2019
1 4 M ar ch 2019
Table of Contents
Click on any topic below to move directly to the section of your interest
i. Executive summary
Editors:
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document without our written consent. The writers work fast to get the info to you as soon as possible and we can make no warranties in respect of accuracy. Any forecast
made is just the writer’s best guess and we strongly advise you not to base any risky decisions on them.
i
Rolling Commodities Forecast by Afriforesight - 14 March 2019 / Table of Contents
i. Executive summary
Executive Summary
Forecasts by quarter until end-2020
In this executive summary, for each commodity we provide a graph of the forecast for international prices, along with a very brief explanation of
our forecast drivers until end-2020. Click on the commodity name to jump to the more detailed sections.
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
growth rate is expected to lift to 2.8% driven by the improving global and US
(unchanged from previous forecast) as Trump economies. Apart from incorporating a slightly lower global growth
goes all out to facilitate a healthy global growth for this year our forecast is mostly unchanged.
environment to boost his re-election bid. Our
forecast in 2019 has fallen to 2.7% from
2.8% on a weaker European outlook.
Energy commodities
90 11
Oil: OPEC+ (OPEC and Russian- European natural gas: Rising import
led alliance) production cuts and US supply from Russia and global LNG
sanctions on Iran and Venezuela to push 60 markets, outweighing lower domestic 8
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
by the US, and weak demand growth from incorporating a slightly lower
pushes prices down. Price peaks are expected each year around US summer global growth for this year our
“driving season”. Our 2020 forecast has been lowered on expectation of forecast is mostly unchanged.
faster US production growth.
130 110
Australian (NC) thermal coal: Rising South African (RB) thermal coal: A
Chinese production and import delays pull back in Indonesian exports and
to lower Asian demand and put 90 seasonally lower Indian production 75
downwards pressure on prices. Our should raise prices in 2nd and 3rd
forecast was lowered on greater quarters ’19. Lower imports from main
50 40
Chinese delays of Australian buyer India (as local output ramps up)
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
imports and expectation that Australia will start to compete outside its to put downwards pressure on prices from late 2019. Imports
traditional markets where demand is slowing. from new markets in Africa and Middle East to provide some
support. Our forecast for 2nd & 3rd quarter 2019 was raised
on expectation of seasonally lower Indian mining output
boosting export demand and greater demand for SA
35
Uranium: Growing nuclear reactor electricity generation.
demand should outweigh mining
production, increasing prices over the 25
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
unchanged.
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
steel production) to dampen prices. 120 and battery demand growth. Apart
Apart from incorporating a slightly from incorporating a slightly lower
40 0
lower global growth for this year our global growth for this year our
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
forecast is mostly unchanged. forecast is mostly unchanged.
unprofitable producers exit the market. support price increases over the period.
Apart from incorporating a slightly Our forecast is now for prices to pull
50 7 000
lower global growth for this year our back over the next few months after
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
forecast is mostly unchanged. their recent surge, but rise slowly
thereafter on rising demand for stainless steel manufacturing.
220 2 200
Chrome ore: Rising global ferrochrome Ferrochrome: Firmly rising global
production to outweigh slow chrome stainless steel production to outweigh
ore output growth, as Southern African 140 ferrochrome production and drive 1 600
mining activity is held back, and lift prices up. Apart from incorporating
prices. Apart from incorporating a a slightly lower global growth for
60 1 000
slightly lower global growth for this this year our forecast is mostly
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
and transport demand. Apart from 1 600 applications and consumer products,
incorporating a slightly lower global just outweighing growing supply, to lift
1 200 3 000
prices over rest of period. Apart from
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3 000
Zinc: Strong supply growth from new Lead: Global demand and supply are
2 700
mines to weigh down prices. Our 2 400
both expected to grow slowly over the
Apart from incorporating a slightly period, holding prices more or less 2 100
lower global growth for this year our 1 800 stable. Apart from incorporating
forecast is mostly unchanged. a slightly lower global growth for 1 500
1 200
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
75 13
Cobalt: Oversupply as new projects Lithium: A sharp rise in global
come online in the DRC should production led by Australia to push
push down prices until mid-2020. 40 prices down to mid-2020, before 9
Strong demand growth for batteries battery demand pushes prices up.
for electric vehicles and electronics 5
Prices now increase in 2nd half ’20 5
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
should lift prices thereafter. Apart from as demand growth for batteries for
incorporating a slightly lower global growth for this year our forecast is electric vehicles and consumer electronics offsets rising supply.
mostly unchanged.
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
begins another decline on rate hike platinum in autocatalysts to drive firm price
expectations. Our forecast is now for price declines end ‘19 on increases. Apart from incorporating a
trade dispute resolution and during 2nd half ‘20 on US rate hike slightly lower global growth for this year
expectations.
230
Rough diamonds: Growing jewellery
sales and constrained supply to lift
prices over forecast period. Apart from 180
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
mostly unchanged.
As always, we would appreciate any feedback on this report. Please contact us with any questions, suggestions or comments at 021 422 4500 or
[email protected].
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Produced by Afriforesight the year to give him a clean campaign run for 2020.
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
In 2020 growth is expected to improve to 2.8% as
World GDP Index 124 125 125 127 128 129 129 130 131 132
Y-on-Y Change 3.0% 2.9% 2.6% 2.7% 2.7% 2.7% 2.7% 2.8% 2.8% 2.8%
much of the world contributes to a firmer economic
Annual Change 2018 3.1% 2019 2.7% 2020 2.8% development path, as we expect:
Produced by Afriforesight • Trump goes all out to foster a healthy global growth
environment after taking credit for “trade peace”.
• Trump’s US shale oil lobby, as well as his Saudi
Our forecast for global GDP growth in 2019 is now slightly and Russian friends, should pay him back for
lower at 2.7% (previously 2.8%) as economic expansion earlier higher prices, now “heeding” his demands
falters in all 3 major economic regions. In 2020 the growth
to produce more and pushing global prices down.
rate is expected to lift to 2.8% (unchanged from previous
Lower oil prices should stimulate industrial and
forecast) as Trump goes all out to facilitate a healthy
transport activity, boosting global growth.
global growth environment to boost his re-election bid.
• Americans might also be deployed to resolve
Global growth for 2019 to be slower at 2.7% as:
the conflicts in Venezuela and Libya, to ensure
• Europe and China slow down more than previously
improved oil exports. All to give American voters
expected due to trade damage and higher oil prices
cheap gasoline prices in the period before the
(Europe really suffers, but China only shows the
November elections.
world weaker numbers to seek sympathy from
US politicians to avoid harsh intellectual property • The US Fed is also expected to continue keeping US
constraints). interest rates low as cheaper oil helps cool inflation
expectations. This benign interest rate policy and
• The US slows down as the impact of 2018’s tax
easing inflation fears would also allow many of the
stimulus wears off. The Fed’s shift to a more growth
world’s central banks to reduce their interest rates,
supportive interest rate policy (with no further hikes
providing a boost to the global economy.
now expected for this year) should slowly start
having a positive impact only during the 2nd half of • Lower interest rates should also gradually lift
2019. global consumer expenditure, boosting demand for
consumer-related commodities.
• Trump continues to engineer a higher oil price to
please his well-heeled oil lobby through sanctions
on Iran and Venezuela’s oil exports, and helped Compiler: Jacques Botha ([email protected])
further by the OPEC+ alliance’s production cuts. Supported by Charles Kieck ([email protected])
2019: The US dollar is expected to stay relatively flat
1 250 over 2019 due to the Fed’s new stance of holding
1 200 back on interest rate increases until their inflation
1 150 target is only very clearly met. We however expect
slight strengthening towards the end of the year if
1 100
Trump wraps up his trade disputes - with the boost
1 050
in global demand stoking market fears of inflation and
1 000
subsequent rate hikes. But the Fed may even calm
950 markets with the mere pretence of wanting to raise
900 rates.
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
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2020: The dollar is expected to flatten again through
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
the 1st half 2020 as declining oil prices allay inflation
Dollar Index 1 181 1 201 1 192 1 191 1 192 1 197 1 195 1 194 1 197 1 206
fears and hold rate hikes at bay. Thereafter, the strong
Q-on-Q Change 2.0% 1.7% -0.7% -0.1% 0.1% 0.4% -0.2% -0.1% 0.3% 0.7%
US economy and recovering global economy should
Y-on-Y Change 1.7% 2.6% 5.8% 2.9% 1.0% -0.3% 0.2% 0.2% 0.4% 0.7%
cause inflation fears to return along with expectations
of US rate hikes, which may occur by end-2020.
To pin down the value of the USD, we use the Bloomberg Dollar
index, which is calculated by averaging the dollar’s value against
the following basket of other currencies: euro (31.5% of the
index), Japanese yen (18%), Canadian dollar (11.4%), British
pound (10.5%), Mexican peso (10%), Australian dollar (5.1%),
Swiss franc (4.5%), South Korean won (3.7%), Chinese yuan,
RMB (3%) and Indian rupee (2.1%). These weightings are
updated annually. Compiler: Jacques Botha ([email protected])
120
OPEC+ holding back global supply
100 OPEC+ (OPEC and their Russian-led allies) agreed
again in December 2018 to reduce output to prop up
80
global prices. OPEC moved immediately, cutting about
60
1.5% of global supply by January (see graph) and is
expected to have removed a further 0.3% of global
40 supply in February. OPEC’s Russian-led allies have
lagged on their part of the agreed output cuts (see
20
graph). Russia has since announced that it will speed
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Q-on-Q Change 1.4% -10.4% -6.5% 10.9% 4.5% -5.1% -9.3% 1.9% 1.2% -7.5%
34.5 18.0
Annual Change 2018 30.5% 2019 -2.8% 2020 -8.5%
Produced by Afriforesight
33.5 17.5
32.5 17.0
Sep 17
Nov 17
Sep 18
Nov 18
Jan 16
Mar 16
May 16
Jul 16
Jan 17
Mar 17
May 17
Jul 17
Jan 18
Mar 18
May 18
Jul 18
Jan 19
sanctions on Iran and Venezuela (see grey box).
• The US summer driving season hump should boost OPEC Allies
prices substantially in the 2nd and 3rd quarters before
low winter demand reduces prices. Source: Bloomberg
1 200
2 400
1 600
600
800
0
Jan '19 exports Allowed exports Pre-sanction exports
Source: Reuters 0
Non-US US
Forecasts by quarter until end-2020
12 European prices (blue in the graph and table)
10 Rest of 2019 & 2020: Prices to trend down around
8
seasonal price fluctuations, as increasing supply from
LNG importers outweighs rising continental demand.
6
• Supply to increase firmly as imports continue growing
4 strongly, from the combination of piped gas (mainly
2 from Russia) and the expanding seaborne (LNG) gas
market, outweighing a gradual decline in the limited
0
domestic output.
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Produced by Afriforesight
US prices (red in the graph and table)
Rest of 2019 & 2020: Prices to rise as growing domestic
6
and export demand outweighs supply increases.
5
• Production should rise on the back of increasing shale
4 oil production.
3 • Producers are increasingly looking at the export market
with higher prices, focusing on Asia and to a lesser
2
extent, Europe.
1
0
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Produced by Afriforesight
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
European Gas
9.83 9.47 7.16 6.23 5.94 6.88 6.48 5.80 5.63 6.10
Price ($/mnBtu)
Q-on-Q Change 12.5% -3.7% -24.4% -13.0% -4.7% 15.9% -5.9% -10.5% -2.8% 8.3%
Q-on-Q Change 2.9% 31.6% -25.5% -1.1% 6.4% 5.2% 6.1% -7.7% 2.3% 4.1%
Produced by Afriforesight
Compiler: Vinesh Chetty ([email protected])
Supported by Nathan Musson ([email protected])
Forecast by quarter until end-2020
120
Export price
1st quarter 2019: Strong Indonesian export supply and
100
strong Indian production should continue to push down
prices:
80
• Indonesia is exporting excessive coal volumes at
60
discount prices to Asian markets (see box below),
including to South Africa’s main market India, as
Indonesia looks to increase foreign exchange reserves,
40
to boost its floundering economy, ahead of its hotly
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Important note: The 2nd quarter 2019 averages are lower than
the 1st quarter averages only due expectations of low prices early
in the quarter. However, we expect the prices to rise throughout
the 2nd quarter.
Jul 17
Jul 18
Apr 17
Oct 17
Apr 18
Oct 18
Jan 17
Jan 18
Jan 19
margins.
Source: All Ports through Bloomberg
Domestic price
1st quarter 2019: Currently weak export demand (see • Exports have been encouraged to help boost foreign
Export price above) and lower demand from Eskom currency reserves, to improve the government’s
(60% of domestic use) due to the large number of coal- standing ahead of the major election scheduled for
fired power plants which are offline for repairs and 17 April.
maintenance should weigh down prices. • Indonesian coal is considered a bargain, averaging
$71/t in February compared to South Africa’s $84/t.
Rest of 2019 & 2020: Rising Eskom electricity output • In February, Indonesia started cracking down on
and industrial demand, coupled with slow supply some smaller miners for not meeting government
growth (see grey box) to boost prices. requirements to sell 25% of their coal domestically.
• We expect that Eskom’s “new government support We expect Indonesia is unlikely to restrict the larger
package” of R23bn per year will boost the price through miners before their 17 April election, but after the
two avenues: election foreign currency holdings will become less
ÌÌ Heavy spending on maintenance and repairs to of a political issue, and government should return to
improve power plant availability leading up to the conserving coal for the country’s industrial expansion
peak demand period during winter. In March 2019
South African production to remain tight
only about 62% of Eskom’s power plants were
• South African production growth has been
online, much lower than its 80% target. Reaching its
constrained in recent years and is expected to remain
target should boost demand, and thus the price.
weak due to lack of investment in new projects.
ÌÌ Purchasing of appropriate coal for its power plants,
• Eskom is also avoiding investment in tied mines.
after previously using maintenance-hungry, lower-
• Smaller miners can produce in current conditions
grade product in some cases, which was a major
generally but aren’t investing enough to maintain
factor in plants being damaged and taken offline.
output when transition to more expensive
This demand for higher quality coal should raise the
underground mining will be needed.
average domestic price.
• Industrial demand should rise on gradually improving
domestic growth.
• Domestic coal supply should grow only slowly due to Compiler: Vinesh Chetty ([email protected])
a lack of investment, the breaking the industry up into Supported by Nathan Musson ([email protected])
smaller players.
120 100% Asia needs less imports
80 50%
160
60
40 0%
80
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
0
2017 2018E 2019F 2020F
Price ($/t) 116.6 105.2 96.9 93.6 91.1 89.2 88.0 85.8 84.7 84.3 China Japan South Korea
Q-on-Q Change 12.2% -9.8% -7.9% -3.4% -2.7% -2.1% -1.3% -2.5% -1.3% -0.5%
Source: IHS, Australia’s Industry Dept
Annual Change 2018 21.7% 2019 -13.5% 2020 -7.5%
• China is expected to import less over the forecast
Produced by Afriforesight
period as it ramps up domestic coal mining to support
their local economy and boost employment.
• Australia’s exports to China have been particularly
Forecast by quarter until end-2020 badly hit in 1st quarter 2019, as China stepped up
Jan - early Mar 2019: Indonesia flooded the market coal inspections at ports, delaying import clearance
with cheap coal (see Thermal Coal - South Africa) times to 90 days in March, up from 40 days in January
pushing prices down. and 20 days under normal conditions.
• Japanese and South Korean import demand is also
Rest of 2019 & 2020: While we expect that Indonesia set to decline slightly as they gradually move to
will start reserving coal for domestic usage again in the ‘cleaner’ energy sources.
2nd quarter 2019, lower imports from major east Asian
buyers (see graph) and growing Australian supply
should push down on prices. Due to weaker demand
from its traditional markets, Australia is expected to
start shipping to other south Asian and Middle Eastern
markets, but will need to offer discounts to compensate
for greater shipping distances and compete with other Compiler: Vinesh Chetty ([email protected])
coal suppliers like South Africa. Supported by Nathan Musson ([email protected])
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Produced by Afriforesight
Fukushima disaster, with each reactor facing public
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 scrutiny and some being decommissioned instead.
Price ($/lb) 25.7 28.4 28.5 28.4 28.8 29.2 29.7 30.2 30.7 31.4
• Supply to increase slowly as smaller producers come
Q-on-Q Change 17.0% 10.6% 0.2% -0.5% 1.4% 1.5% 1.6% 1.7% 1.9% 2.1% back online as prices rise, even as larger producers
Annual Change 2018 10.6% 2019 16.6% 2020 6.2% keep their supply steady.
Produced by Afriforesight • Major global producers - including the largest,
Kazatomprom and Cameco - lowered output in 2018 to
boost prices. Prices rose enough to turn profit margins
positive for the 1st time in 2 years, making further cuts
Forecast by quarter until end-2020 unnecessary.
1st half 2019: Spot market purchases from major
miners - seen over the past year to meet long-term
supply contracts at prices below production costs - Compiler: Joshua Rorke ([email protected])
Supported by: Vinesh Chetty ([email protected])
are expected to fade in the near term, weighing down
prices.
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
steel market
International Index 109.3 99.4 98.8 102.5 100.1 100.5 101.2 102.9 102.6 103.0
Trump’s trade war resolutions that we expect late in
Q-on-Q Change -2.9% -9.1% -0.6% 3.7% -2.3% 0.4% 0.7% 1.7% -0.3% 0.4%
2019 will be a major boost to global confidence and
Annual Change 2018 10.5% 2019 -7.3% 2020 2.0%
boost steel demand significantly. If resolutions include
Produced by Afriforesight
removal or reduction of steel tariffs we expect this to
reinforce the sentiment-driven positive price effect, if
only slightly.
While these tariffs drove a clear wedge between
Important note: The 1st quarter 2019 average is lower than the 4th
US and international prices, the actual effect on the
quarter 2018 average only due to the sharp fall in prices over the
global physical market was minor, as evidenced by the
4th quarter 2018 due to weak global growth sentiment. However,
we expect the price to rise throughout the 1st quarter 2019 despite second graph which shows only minimal shifts in US
forecasting a slight decline in quarterly average price. production and import demand in the global context
(the green line indicates when tariffs were imposed).
Forecast by quarter until end-2020
1st half 2019: Inflated iron ore costs to boost prices:
• Brazilian iron ore (see p11) supply disruptions
following the Brumadinho tailings dam disaster should
boost steel manufacturing costs in the near term.
• Uncertainty around Trump’s trade disputes is expected
to continue holding back global growth sentiment,
weighing on demand.
150
100%
Brazilian exports dwindling
130 90%
110 80% 4-week averages
8
90 70%
7
70 60%
50 50% 6
Brumadinho
30 40% disaster
5
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
1 Jun 18
1 Aug 18
1 Sep 18
1 Nov 18
1 Dec 18
1 Jan 19
1 Feb 18
1 Mar 18
1 Apr 18
1 May 18
1 Jul 18
1 Oct 18
1 Feb 19
1 Mar 19
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
Price ($/t) 66.2 71.0 83.1 82.3 74.7 69.2 68.2 65.6 63.6 62.0
Q-on-Q Change 1.7% 7.2% 17.1% -1.0% -9.2% -7.3% -1.5% -3.8% -3.1% -2.5% Source: GlobalPorts through Bloomberg
Annual Change 2018 -4.4% 2019 12.0% 2020 -16.1% As the graph shows, Brazil’s iron ore production was
Produced by Afriforesight already on a seasonal decline when the deadly tailings
dam collapse on 25 January at Vale’s Corrego De
Feijao mine near Brumadinho occurred, leading to the
Forecast by quarter until end-2020 closure of several other mines in the country.
Rest of 1st half of 2019: Continued supply disruptions Brazil’s exports are bound to decline further in the near
term as Vale will decommission all its similar dams,
in Brazil (see grey box) should keep prices high.
necessitating temporary production curbs over the
2nd half 2019 and 2020: Strongly improving production next 3 years, and a proposed law change is expected
growth from the rest of the world should exceed slow to extend the outages to other miners.
steelmaking demand, leading prices down.
• Exceptional margins due to high prices should spur non-
Brazilian miners to raise production over the period.
• Continued decommissioning of tailings dams should
hold back some production in Brazil.
• Brazil is however expected to expedite the resumption of
temporarily halted mines and increase production from
unaffected mines to minimise the economic impact.
• Global steelmaking demand should grow slowly over
the forecast period as global growth sentiment improves Compiler: Eduan Hauman ([email protected])
with expected trade dispute resolution. Supported by Jacques Botha ([email protected])
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Manganese Ore Dollar Price Gross Margin about 20% manganese while South African ore is
Produced by Afriforesight
usually sold at a higher grade of around 37%.
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China’s steel and ferro-alloy producers prefer the
Price ($/dmtu) 5.93 5.90 5.32 5.39 5.34 5.25 5.19 5.28 5.21 5.17
South African grade, as using higher graded ore curbs
Q-on-Q Change -2.2% -0.4% -9.8% 1.3% -0.9% -1.8% -1.1% 1.7% -1.3% -0.8%
polluting emissions.
Annual Change 2018 38.9% 2019 -13.2% 2020 -2.2%
300
100%
Australian supply temporarily disrupted
Australia’s main coking coal producing region North
250 80%
Queensland was hit by major flooding in February,
200 60% curbing global trading and supply as some railways
and ports closed in the aftermath, pulling back
150 40%
exports (see graph). Mines are also expected to
100 20% have been affected, which may depress supply for
slightly longer, but Australia’s exports should pick up
50 0%
firmly towards mid-2019.
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0
Jan 18
Jun 18
Aug 18
Sep 18
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Dec 18
Jan 19
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Mar 18
Apr 18
May 18
Jul 18
Oct 18
Feb 19
Abbot Point Dalrymple Hay Point Weipa
2nd half 2020: Rising ferrochrome and nickel input costs
120 and rising competition from low-cost Asian producers are
expected to push unprofitable producers to cut production,
lifting prices on lower supply.
100
60 5
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International Index 92.8 89.8 89.5 89.1 88.5 87.9 87.4 86.8 87.2 87.9
Q-on-Q Change -3.6% -3.2% -0.3% -0.4% -0.7% -0.6% -0.6% -0.7% 0.5% 0.8% 2.5
0
Forecast by quarter until end-2020 Operating Under construction Planned
Rest of 2019 & 1st half 2020: Strongly rising global Source: Shanghai Metals Market
production led by new low-cost Indonesian capacity
Indonesia has become the largest growth centre for
(see grey box) to weigh down prices. global stainless steel output and will account for about
Factors softening the decline: 20% of global production in the medium term, up from
• Demand should grow moderately as global consumer 7% currently, as it is expected that their planned projects
spending lifts with global economic growth (see p1), come to fruition (see graph). Due to vast domestic nickel
boosted by expectations that Trump will resolve his and energy resources, Indonesian stainless steel mills
trade disputes in the 2nd half of 2019. have significant logistics cost advantages stemming
• A relatively low global interest rate environment over from use of domestically-produced nickel pig iron.
the period should further boost consumer demand for
stainless steel-containing durable goods.
• Ferrochrome and nickel input costs (see p17 and
p15) are expected to rise.
• Inner Mongolian production (about 10% of China’s
output) should be constrained over the next few
Compiler: Jason Welz ([email protected])
months by heightened safety inspections and electricity Supported by Nathan Musson ([email protected])
shortages.
14 000
50% Asia to drive production growth
12 000
• Indonesian ore production (about 29% of global in
10 000
1st half ’18) is set to increase sharply to feed rapid
8 000 growth in domestic nickel pig iron (NPI) production.
6 000 0% About 55% of Chinese and Indonesian NPI output
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Constrained Southern African output to curb
390
global supply growth
350
310
270
South Africa
230 8%
5%
190 Kazakhstan
8%
150
110 India
10% 50%
70
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Turkey
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3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 Zimbabwe
19%
Price ($/t) 169 164 166 185 192 188 185 192 197 193
Others
Q-on-Q Change -16.1% -3.5% 1.5% 11.2% 3.9% -2.2% -1.6% 3.8% 2.9% -1.9%
Annual Change 2018 -24.5% 2019 -4.3% 2020 5.0% Source: Govt files, Bloomberg
Produced by Afriforesight
Southern Africa remains the world’s largest source
of chrome ore as shown in the chart above; with
South Africa accounting for the lion’s share of
Forecast by quarter until end-2020 regional output, but Zimbabwe’s 5% is rising rapidly.
Rest of 2019 & 2020: Moderate global demand growth Recovery in global chrome ore prices in recent years
for ferrochrome production ahead of chrome ore supply has encouraged mine expansions and increased
should support continued price increases: processing of chrome-bearing PGMs tailings, but
• Chinese demand is expected to rise firmly in the near further growth from this region is expected to be
term as ferrochrome smelters ramp up after Chinese constrained over the forecast period:
New Year (see p17), and winter pollution-related • South Africa’s production growth should be curbed
curbs end. Demand growth over the rest of the period by uncertainty over power supply, but output should
to be supported by rising ferrochrome production in the nonetheless increase gradually as PGM projects
rest of the world, especially in Asia. process more chrome-containing tailings.
• Global chrome ore supply is expected to rise, but held • Zimbabwe’s growth to be held back by persistent
back by slower growth from Southern African producers foreign currency shortages and excessive domestic
(55% of global output - see grey box). fuel costs.
• Price increases to be held back by:
ÌÌ Stocks at Chinese ports remain relatively high at
over 2 month’s worth of consumption in March.
ÌÌ Seaborne supply is boosted by higher exports from
South Africa on lacklustre local demand due to
higher electricity prices. Compiler: Ayanda Makupula ([email protected])
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Ferrochrome Integrated Ferrochrome Gross Margin SA and Zim ferrochrome smelters facing
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 strong power tariff hikes
Price ($/t) 1 931 1 845 1 834 1 929 1 973 1 944 1 928 1 986 2 032 2 017
South Africa’s (the 2nd largest global ferrochrome
Q-on-Q Change -4.2% -4.5% -0.6% 5.2% 2.3% -1.5% -0.8% 3.0% 2.3% -0.7% producer after China) energy regulator has already
Annual Change 2018 -9.8% 2019 -3.5% 2020 3.7% approved above-inflation increases of 13.8% and
Produced by Afriforesight 8.1% for 2019 and 2020, respectively (see graph
below). These increases are expected to be more
than the industry can bear on average and may
lead to production cuts.
Forecast by quarter until end-2020
Rest of 2019 & 2020: Modest global ferrochrome
output growth due to slowing Southern African 120
Supply
• Global supply is expected to rise slowly, supported by 40
projects that should add 850ktpa capacity (about 7% of
global output) over the period. These include Yuanda
0
Juhua, Guangxi Liuzhou (both in China) and Gulf Mining 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
(Oman) expansions as well as new smelters planned
by Safe Alloys (Oman) and Eurasian Resource Group Source: Afriforesight, NERSA
(Kazakhstan).
• Factors holding back supply:
ÌÌ Unplanned power supply disruptions in South Africa.
ÌÌ Sharp electricity (20-30% of smelting costs) price
Forecast by quarter until end-2020
2 300 100%
Rest of 1st half 2019: Subdued alumina input costs to
2 100 80% keep prices low:
• Brazil’s large Alunorte alumina refinery is expected to
1 900 60%
return to full output, from 50% currently, weighing down
1 700 40% global alumina prices.
• Revitalised Chinese industrial activity from mid-March
1 500 20%
due to the end of winter pollution curbs should boost
1 300 0% global aluminium demand, partly offsetting downward
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price pressure.
LME Aluminium Spot Gross Margin
Produced by Afriforesight
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2nd half 2019 & 2020: Demand growth from the
consumer packaging, transport and, to some degree,
Price ($/t) 2 054 1 966 1 872 1 869 1 887 1 908 1 925 1 944 1 965 1 983
building sectors to slowly push up prices.
Q-on-Q Change -9.3% -4.3% -4.8% -0.2% 1.0% 1.1% 0.9% 1.0% 1.1% 0.9%
Annual Change 2018 7.3% 2019 -10.8% 2020 3.7%
Produced by Afriforesight
Compiler: Eduan Hauman ([email protected])
Supported by Jacques Botha ([email protected])
5 000
Low stocks continue to support price
4 000 20%
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Price ($/t) 6 120 6 164 6 222 6 266 6 341 6 404 6 449 6 507 6 592 6 605
Q-on-Q Change -11.1% 0.7% 0.9% 0.7% 1.2% 1.0% 0.7% 0.9% 1.3% 0.2%
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300
Jan 17
Mar 17
May 17
Jul 17
Sep 17
Nov 17
Jan 18
Mar 18
May 18
Jul 18
Sep 18
Nov 18
Jan 19
Mar 19
Forecast by quarter until end-2020 Source: Bloomberg
Rest of 1st half 2019: Subdued market activity due
Copper inventories at major exchanges have
to US-China trade deal uncertainty should limit price
rebounded somewhat by mid-March, but are still 56%
increases.
down from their peak in March 2018, currently standing
• Further downward price pressure is expected in the at just over 5 days of average global production.
near term as Chinese smelters and traders enter the
export market to capitalise on low stock levels at major
commodity exchanges (see grey box).
90 000 DRC projects to oversupply market until mid-
80 000 2020
70 000 • DRC production (66% of global in 2018) increased
60 000 35.6% y-on-y during Jan-Sept ’18, with Glencore’s
50 000 operations in Katanga providing much of this growth,
40 000
as the graph illustrates. Further growth is expected in
30 000
2019 as Eurasian Resources, Chemaf and Pengxin
are expected to start production at projects with
20 000
48ktpa combined capacity (about 35% of global in
10 000
2018).
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30 9%* 12%*
Price ($/t) 65 387 56 951 35 211 33 450 32 447 31 960 31 481 31 166 31 634 32 488
Q-on-Q Change -25.2% -12.9% -38.2% -5.0% -3.0% -1.5% -1.5% -1.0% 1.5% 2.7% 2%*
Annual Change 2018 30.6% 2019 -54.4% 2020 -4.7%
20
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450
300
150
0
2017 2018 2019 2020
Greenbushes Mt Marion Pilgangoora Altura Whabouchi
Bald Hill Mt Cattlin Wodgina Finniss
Compiler: Joshua Rorke ([email protected])
Source: Afriforesight, company filings
Supported by Jacques Botha ([email protected])
4.5 Zinc
We forecast the LME refined zinc spot price.
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24%
LME Zinc Dollar Spot Gross Margin
Produced by Afriforesight
Transport
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45%
Price ($/t) 2 537 2 629 2 660 2 636 2 625 2 604 2 573 2 552 2 537 2 524 6%
Consumer goods & electrical
Q-on-Q Change -18.4% 3.6% 1.2% -0.9% -0.4% -0.8% -1.2% -0.8% -0.6% -0.5%
appliances
Annual Change 2018 1.2% 2019 -10.0% 2020 -3.2%
25%
Produced by Afriforesight Others
Source: Boliden
2 600
4% Batteries
3%2%
2 400
5%
Rolled & extruded products
6%
2 200
Pigments & other compounds
2 000
Ammunition
1 800
Alloys
80%
1 600
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Others
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Source: International Zinc & Lead Study Group
Price ($/t) 2 097 1 978 2 058 2 060 2 062 2 058 2 058 2 064 2 064 2 058
Q-on-Q Change -12.0% -5.6% 4.0% 0.1% 0.1% -0.2% 0.0% 0.3% 0.0% -0.3%
Produced by Afriforesight
5.1 Gold
Forecast - key aspects
Forecast: Prices over the first 3 quarters are expected to be volatile on a rising path on growth uncertainty
and inflation fears (i.e. fears of stagflation) as global trade remains uncertain and the oil price remains high.
By the 4th quarter Trump would have ended his trade-war-mongering allowing recession fears to subside. In
2020 inflation fears will be weak as oil trends at lower levels, but sound global growth will boost gold jewellery
demand to compensate for lower safe-haven demand. Expectations of US rate hikes late in the year should
weigh further on the price.
Change to previous forecast: Price increases are now expected to end by 4th quarter 2019 as trade
disputes are expected to be resolved earlier and low global interest rates lead to stronger stock
markets.
Outlook for the profitability of major global gold miners is EXCELLENT: Gross profit margins should
average around 46% in the 1st quarter ’19 and edge down later over the forecast period, as shown on the right-
hand axis of chart.
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3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
ÌÌ The most powerful country in the world has a
impulsive president who shoots before he aims and
Price ($/oz) 1 211 1 230 1 307 1 331 1 343 1 316 1 316 1 320 1 308 1 298
has the keys to initiate a nuclear holocaust.
Q-on-Q Change -7.3% 1.6% 6.3% 1.8% 0.9% -2.0% 0.0% 0.3% -0.9% -0.8%
ÌÌ The Middle East remains a volatile pressure pot.
Annual Change 2018 0.8% 2019 4.3% 2020 -1.0%
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
110
Above-ground stocks at year start Mined production
55
2011
2012
2013
2014
2015
2016
2017
2018
Demand
1 700 • Investment demand should rise firmly due to:
70%
ÌÌ Expectations of a shift away from palladium to
1 500
55% platinum by petrol autocatalyst manufacturers due
1 300
40%
to the relative deficit of palladium and surplus of
platinum in global markets (see grey box), as well as
1 100 25% the price differential.
900 10% ÌÌ Expectations of gradually rising fuel cell demand
over the forecast period, though use is currently
700 -5% limited to a small range of passenger cars and niche
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0.60
HC/CO/NOx emissions (g/km)
0.45
0.30
0.15
0.00
40/Pt
30/Pt
27/Pt
20/Pt
40/Pd
30/Pd
27/Pd
20/Pd
32.5/Pd
32.5/Pt
Forecast by quarter until end-2020
260 100%
Rest of 2019 & 2020: Prices to rise slowly as global
250
consumer spending is stimulated by relatively low
240 80%
interest rates over the forecast period and easing trade
230
220 60%
war tensions, outpacing a slow recovery in production.
210 • A lack of financing from banks for cutters and polishers
200 40% in India should curb physical demand, while market
190 uncertainty over De Beers’s entry into the synthetic
180 20% diamond market should also weigh on prices initially.
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