GLOBAL LME cash price % change US$/tonne day on day Aluminium 1,914.2 Copper 5,748-1.8 Lead 2,27.2 Nickel,97 -.1 Tin 2,495. Zinc 2,89-1.2 Cobalt 52,75. Molybdenum 14,9. Other prices % change day on day Gold (US$/oz) 1,242.7 Silver (US$/oz) 17.31.5 Platinum (US$/oz) 968. Palladium (US$/oz) 789 1.3 Oil WTI 47.1-2. USD:EUR exchange rate 1.82.7 AUD:USD exchange rate.772 -.2 LME/COMEX stocks Tonnes Change Aluminium 1,975,5 -,825 LME copper 329,85-3,125 Comex copper 124,134 484 Lead 19,25-4 Nickel 381,948-876 Tin 3,965-26 Zinc 379,425 3,75 Source: LME, Comex, Nymex, SHFE, Metal Bulletin, Reuters, LBMA, Macquarie Research, March 217 21 March 217 China Copper Survey: Demand picking up, sentiment remains positive Feature article Our latest China copper survey suggests strong MoM growth in end-user demand, thanks to good orders from infrastructure and construction (property). Overall sentiment remains positive towards the outlook for copper over the next three months, and while fabricators are more positive than last month, smelters and traders are slightly less so. Fabricators are operating at a higher capacity utilisation rate than this time last year, while traders appear set to continue building copper inventory. Smelters lifted concentrate inventory and still plan to increase raw material purchases from here even as TC/RCs have fallen. Latest news PT Freeport Indonesia reported that the mill at its Grasberg copper mine has resumed operations up to ~4% of capacity, having been down entirely since 11 February. The restart reflects a return to normal operations at the domestic Gresik smelter but still means that exports of concentrates are blocked, hence the low utilisation rate. There is no indication of any rapprochement between the operator and the government at this stage. Reuters today reported on the flooding in Peru s central region caused by heavy rains that has damaged 1km of a key rail line between the port of Callao and several mines, including Chinalco s Toromocho copper mine (~17ktpa Cu) and Volcan s lead and zinc assets (~26ktpa Zn and ~6ktpa Pb), plus at least one of Buenaventura s precious metal mines. We understand that Volcan has this week declared force majeure to its customers for supplies of concentrates, exacerbating an already-tight situation in zinc. There are port stocks that can be accessed presently, but it remains unclear as to when the rail line will be repaired, with local sources saying the ground on which many of the train rails rested has been swept away. Macquarie s oil team has updated US production expectations to reflect strong activity levels and continued efficiency/productivity gains in tight oil. We now expect L-48 onshore production to grow by 1.2 MBD exit/exit in 17, up from our prior 1 MBD estimate. While we expect OPEC to extend its cuts at its May get-together, we ultimately believe such action could prove bearish in the medium term, given the magnitude of the mounting US response. Longer term, price impacts are less clear, as tight oil competitiveness increasingly points to fiscal dilemmas for OPEC, portending potential geopolitical risk. Macquarie invites you to register for two forthcoming conferences. Our annual Global Metals, Mining and Materials Conference is being held on June 27 28, 217, at the Sheraton Times Square in New York. This will be Macquarie s 12th year hosting this event, which will feature senior management from up to 4 world-class metals, mining and basic materials companies as well as commodity-related keynote presenters from around the world. Meanwhile, we will be hosting our third-annual Global Gemstones Conference in our London office on April 27. This will include participation of senior executives from all segments of the diamond industry and will provide key insights for this year and beyond. Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Aug-12 Oct-12 Feb-13 Apr-13 Aug-13 Oct-13 Feb-14 Apr-14 Aug-14 Oct-14 Feb-15 Apr-15 Aug-15 Oct-15 Feb-16 Apr-16 Aug-16 Oct-16 Feb-17 Sentiment index China copper survey: demand recovers and sentiment remains positive Our latest China copper survey suggests strong MoM growth in end-user demand, thanks to good orders from infrastructure and construction (property). Overall sentiment remains positive towards the outlook for copper over the next three months, and while fabricators are more positive than last month, smelters and traders are slightly less so. Fabricators are operating at a higher capacity utilisation rate than this time last year, while traders appear set to continue building copper inventory. Smelters lifted concentrate inventory and still plan to increase raw material purchases from here, even as TC/RCs have fallen. Fig 1 Sentiment toward the copper market three-month outlook remains positive Are you positive or negative on the market over the next three months? 9 8 7 6 5 4 3 2 Increasing number of respondents positive Increasing number of respondents negative Copper Smelters Copper Traders Copper Fabricators Source: Macquarie Research, March 217 Downstream demand showed a strong seasonal pick-up: Both fabricators and traders reported strong growth in their sales over the past month, which has happened earlier than the seasonal recovery seen in the previous two years. This improvement in sales means market expectation of demand recovery seen in our last survey has been met, and the next thing to watch is when visible copper inventory in China will start to decline, which should be seen as an indicator of market tightness. As negative import arbitrage continues to prevent bonded copper inflow, we can expect to see some destocking in domestic inventory if demand continues to recover, which should also lead to a recovery in physical premiums, which have been very weak recently. Fig 2 Fabricator sales improved seasonally and at an earlier time than in the previous two years Fig 3 Traders sales also jumped sharply over the past one month 9 8 7 6 5 4 3 2 Have sales increased or decreased over the last month? Increasing no. of fabricators seeing sales rise Increasing no. of fabricators seeing sales fall 9 8 7 6 5 4 3 2 Are sales increasing or decreasing? Increasing no. of traders seeing sales rise Increasing no. of traders seeing sales fall Source: Macquarie Research, March 217 Source: Macquarie Research, March 217 21 March 217 2
Jan-14 May-14 Jul-14 Nov-14 Jan-15 May-15 Jul-15 Nov-15 Jan-16 May-16 Jul-16 Nov-16 Jan-17 The pick-up in demand is driven by infrastructure and construction: The MoM growth in downstream demand has been led by increased orders from power and construction sectors, which is in line with our steel survey that also showed demand has been underpinned by infrastructure and construction. However, copper smelters domestic orders remained soft over the past month, as we haven t seen a large-scale restocking from downstream buyers despite improved end-user demand, as they are waiting for a clearer price trend. This is the usual situation we see in the market when the copper price is range-bound, as it gives little incentive for restocking. This is reflected by weak physical premiums, with onshore premiums staying at negative Rmb2 /t and offshore premiums falling from near-us$6/t in February to below US$45/t lately. Fig 4 End-user demand driven by increased orders from power and construction sectors Fig 5 However, smelters domestic sales have not yet shown much MoM increase 15 5-5 - Net change in orders at copper fabricators - end use sectors Power White goods Construction Transportation Machinery Others 9 8 7 6 5 4 3 2 Have domestic orders increased or decreased? Increasing no. of smelters seeing orders increase Increasing no. of smelters seeing orders decrease Source: Macquarie Research, March 217 Source: Macquarie Research, March 217 Downstream buyers restocking may come through in near term: Although large-scale restocking has not yet happened, based on our survey and talks with industry participants, the survey shows restocking interest remains for both traders and fabricators, as they continue to hold a positive sentiment toward the copper market. Most likely, we believe they are waiting for a more attractive price to undertake raw material restocking given physical market indicators, such as premiums, remain weak. The survey also shows that copper fabricators capacity utilisation rate is higher than the same period in the past few years, and as the capacity utilisation rate is set to continue rising over the peak season, we should expect increased raw material purchases from those users. Fig 6 Traders showed continued interest to restock copper Fig 7 Fabricators capacity utilisation rate is higher than at the same time in previous years 9 8 7 6 5 4 3 2 Do you plan to increase or decrease inventory next month? Increasing no. of traders planning to build inventory Increasi Copper fabricators capacity utilisationr rate 94% 92% 9% 88% 86% 84% 82% 8% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 214 215 216 217 Source: Macquarie Research, March 217 Source: Macquarie Research, March 217 21 March 217 3
Copper conc inventory, days of use Smelters capacity utilisation rate is higher YoY but stable MoM: The copper smelters we surveyed reported a slight rise in their capacity utilisation rate, while in YoY terms this utilisation rate is clearly higher than in previous years following through on strong momentum from the end of 216. For the coming month, smelters expect production to be flat MoM, and we learned that several Chinese smelters are planning to do maintenance from late-march to April, which could restrain refined copper supply growth over the next month. Fig 8 Smelters capacity utilisation rates are stable MoM Fig 9 although in YoY terms are clearly higher than in previous years 94% 92% 9% 88% 86% 84% 82% 8% 78% 76% 74% What is your current capacity utilisation rate (one month lag) How do you expect production to change over the next month? 9 8 7 6 5 4 3 2 Copper smelters capacity utilisationr rate 95% 9% 85% 8% 75% 7% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 214 215 216 217 Source: Macquarie Research, March 217 Source: Macquarie Research, March 217 Smelters lifted concentrate inventory and plan to build more: For copper concentrate our survey shows that Chinese copper smelters have lifted their concentrate inventory over the past month, and they have plans to further increase concentrate purchases over the next month. Supply disruptions at major global mines have led to an expectation of a tighter concentrate market in the future, which could be the driver behind smelters raw material inventory building behaviour, even though they are not increasing refined copper output. Spot TCRC to China has declined from US$85 9/t in mid-february to US$7 75/t this week, the lowest we have seen since August 213. Fig Copper smelters lifted concentrate inventory over the past month Fig 11 Smelters planning to increase concentrate purchases 45 4 35 3 25 2 15 5 What level of copper concentrate inventory are you holding? 9 8 7 6 5 4 3 2 Do you plan to increase copper conc purchases? Increasing no. of smelters planning to increase purchases Increasing no. of smelters planning to decrease purchases Source: Macquarie Research, March 217 Source: Macquarie Research, March 217 21 March 217 4
Tuesday 21 March 217 Prices Closing price * Closing price * 21-21- 2-2- % ch. day 217 YTD Ave 216 US$/tonne US /lb US$/tonne US /lb on day US$/tonne US$/tonne LME Cash Aluminium 1,914 87 1,9 87.2 1,747 1,65 Aluminium Alloy 1,699 77 1,78 77 -.6 1,548 1,555 NAASAC 1,935 88 1,94 88 -.3 1,746 1,74 Copper 5,748 261 5,855 266-1.8 5,541 4,863 Lead 2,27 3 2,266 3.2 2,156 1,872 Nickel,97 458,4 458 -.1 9,83 9,69 Tin 2,495 93 2,495 93. 19,2 18,6 Zinc 2,89 127 2,843 129-1.2 2,636 2,95 Cobalt 52,75 2,393 52,75 2,393. 4,375 25,655 Molybdenum 14,9 676 14,9 676. 14,469 14,453 LME 3 Month Aluminium 1,927 87 1,922 87.3 1,751 1,6 Aluminium Alloy 1,7 78 1,72 78 -.6 1,56 1,577 NAASAC 1,95 88 1,955 89 -.3 1,765 1,725 Copper 5,776 262 5,88 267-1.8 5,557 4,867 Lead 2,273 3 2,274 3. 2,159 1,878 Nickel,16 461,165 461. 9,855 9,657 Tin 2,4 925 2,35 923.2 18,985 17,912 Zinc 2,829 128 2,864 13-1.2 2,646 2,2 Cobalt 52,75 2,393 52,75 2,393. 4,386 25,758 Molybdenum 15, 68 15, 68. 14,47 14,472 * LME 2nd ring price - 17 hrs London time. Year-to-date averages calculated from official fixes. Gold - LBMA Gold Price (US$/oz) Silver - LBMA Silver Price (US$/oz) Platinum - London 3pm price (US$/oz) Palladium - London 3pm price (US$/oz) Oil WTI - NYMEX latest (US$/bbl) EUR : USD exchange rate - latest AUD : USD exchange rate - latest 1,242 1,232.7 1,153 1,249 17.31 17.23.5 16.46 17.14 968 968. 931 987 789 779 1.3 722 613 47.1 47.98-2. 49.58 43.24 1.82 1.74.7 1. 1.7.772.773 -.2.719.745 Exchange Stocks Change since last report Cancelled End-16 Ch. since (tonnes) 21-2- Volume Percent warrants stocks end-16 LME Aluminium 1,975,5 1,985,875 -,825 -.5% 828,35 2,22,175-227,125 Shanghai Aluminium 316,337 316,337.%,722 215,615 Aluminium 2,291,387 2,32,212 -,825 -.5% 828,35 2,32,897-11,5 LME Copper 329,85 332,975-3,125 -.9% 149,525 311,825 18,25 Comex Copper 124,134 123,65 484.4% - 8,112 44,22 Shanghai Copper 325,278 325,278.% - 146,598 178,68 Copper 779,262 781,93-2,641 -.3% 149,525 538,535 24,727 LME Zinc 379,425 375,675 3,75 1.% 173,625 427,85-48,425 Shanghai Zinc 186,298 186,298.% - 152,824 33,474 Zinc 565,723 561,973 3,75.7% 173,625 58,674-14,951 LME Lead 19,25 19,425-4 -.2% 68,575 194,9-4,875 Shanghai Lead 73,665 73,665.% - 28,726 44,939 Lead 263,69 264,9-4 -.2% 68,575 223,626 4,64 Aluminium Alloy 15,12 14,68 44 3.% 1,4 12,98 2,14 NASAAC 125,2 124,46 56.4% 97,38 27,64 Nickel 381,948 382,824-876 -.2% 1,226 372,66 9,882 Tin 3,965 4,225-26 -6.2% 2, 3,75 215 Source: CME, LBMA, LME, Reuters, SHFE, Macquarie Research 21 March 217 5
This publication was disseminated on 21 March 217 at 18:44 UTC. Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+% Neutral expected return from -% to +% Underperform expected return <-% Macquarie South Africa Outperform expected return >+% Neutral expected return from -% to +% Underperform expected return <-% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3 index return Neutral (Hold) return within 5% of Russell 3 index return Underperform (Sell) return >5% below Russell 3 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 6 % in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 4 6% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 3 4% in a year. Low medium stock should be expected to move up or down at least 25 3% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 December 216 AU/NZ Asia RSA USA CA EUR Outperform 57.53% 5.72% 45.57% 42.28% 6.58% 52.79% (for global coverage by Macquarie, 8.71% of stocks followed are investment banking clients) Neutral 33.9% 33.97% 43.4% 5.11% 37.23% 35.62% (for global coverage by Macquarie, 8.5% of stocks followed are investment banking clients) Underperform 8.56% 15.3% 11.39% 7.61% 2.19% 11.59% (for global coverage by Macquarie, 4.63% of stocks followed are investment banking clients) Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN 58 2 832 126, AFSL 238947, a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by, a division of Macquarie Equities Limited ABN 41 2 574 923 AFSL 23754 ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. 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