Fast Moving Consumer Goods

COMMODITY NEWSBRIEFS: 15 FEBRUARY 2013

Please note that these articles are available in electronic format and can be requested and delivered via e-Mail.

(http://intra.spoornet.co.za)

DISCLAIMER

The information contained in this publication is for general information purposes only. The information is provided by Transnet Freight Rail, a division of Transnet Limited, and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the publication, or the information, products, services, or related graphics contained in the publication for any purpose. Any reliance you place on such information is therefore strictly at your own risk. In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of profits arising out of, or in connection with, the use of this publication. This publication may refer to other publications which are not under the control of Transnet Freight Rail. We have no control over the nature, content and availability of those other publications. The inclusion of any other publications or other website links does not imply a recommendation or endorse the views expressed within them. Every effort is made to keep the content of the publication correct and complete. However, Transnet Freight Rail takes no responsibility for, and will not be liable for information in the publication being incorrect or incomplete. Transnet Freight Rail also does not guarantee the availability of the publication at any specific intervals

FAST MOVING CONSUMER GOODS

CONSUMERS ‘SET TO START PAYING MORE FOR FOOD’ (Business Day, 15/2/2013)

Consumers already burdened with rising costs should prepare for higher food prices as the long-term price pressures on agricultural products continue to soar, FNB head of agriculture information Jan van Zyl said during a briefing on agri-business on Wednesday. Consumers have driven economic activity through their spending in the past two years, which is expected to slow this year as incomes increasingly come under pressure from higher food, fuel and energy costs. "There is pressure on the available production of agricultural commodities, which will over time translate into food inflation," Mr van Zyl said. "Over time, food will unfortunately become more expensive." Global food prices rose particularly in the second half of last year, following drought and floods which caused declines in supply in major food-producing countries including the US. South Africa has not escaped the higher international food prices, with domestic food inflation at times being among the largest contributors to headline inflation which started rising towards the end of last year. The Reserve Bank has also warned that food is among factors it sees adding upward pressure on inflation in coming months. Higher food prices are seen by analysts as not only worrying because of the inflation implication, but what they mean for food security. More than 11-million people are reported to be food-insecure.

INTERMODAL

BALTIC DRY INDEX STEADY DURING SLOW RETURN TO MARKET (Industrial Minerals, 14/2/2013)

Shipping rates for transporting dry bulk minerals felt slightly this week, with the Chinese New Year still muting activity. However, iron ore demand could be picking up in other regions, indicating more mineral imports, which could see a short-term support for shipping rates. The Baltic Dry Index (BDI) was 751 on 13 February compared with around 767 before Chinese New Year. Capesize, Panamax, Supramax and Handysize indices were 1,448, 782, 664 and 414 respectively. The BDI fell due to limited shipping activity, with China – the world’s largest steel maker – still on holiday for the rest of the week to celebrate its new year. “The Chinese New Year holiday is, as expected, resulting in inactive markets in the Far East, but also in the Atlantic,” ship broker Fearnleys said of the Capesize shipping sector. “The index has remained basically flat throughout the week, and owners are patiently awaiting more cargoes to appear.” Despite China’s absence from the market, other countries were showing signs of growing steel manufacturing rates, which would mean additional iron ore and coal imports. Japan, the world’s second-largest steel producer, increased steel product orders by 1% to 88.5m tonnes in 2012 compared with 2011. Although demand in the construction and the shipbuilding sectors fell, steel consumption for car manufacturing increased, according to Japan Iron and Steel Association data. The outlook for the BDI also looked positive with fleet growth finally set to start slowing down and become more balanced with dry-bulk shipping demand. “Dry-bulk supply and demand is currently challenged, but we believe there is a solid potential for recovery beginning in the second half of 2014,” Citigroup analysts said. The bank also forecast mineral and grain demand would grow by 5% next year. Expansion of the dry- bulk fleet is also expected to weaken to 5%, as fewer new vessels are delivered. This compares with an average increase of 18% in the 2011-13 period. Shipping overcapacity has suppressed the BDI in recent years. The slowing of new builds entering the fleet and higher scrappage rates of older vessels is likely to lift shipping rates in the coming few years.

TIMBER, PAPER, PUBLISHING

SAPPI SCORES ON CELLULOSE DEMAND (Mail & Guardian, 15/2/2013)

A vast project is under way to modernise and change the Sappi Ngodwana mill near Nelspruit to produce higher-value export cellulose products rather than the paper, packaging and pulp products of the past. Project GoCell, which was begun in mid-2012 and is being fast-tracked, will be largely completed by the middle of this year. It will cost $330-million, or about a fifth of the replacement cost of the Ngodwana mill, which is currently valued at $1.5-billion. The project is employing about 2 000 people for about two years of construction. The upgrading and transformation of the Ngodwana mill represents a strategic move by Sappi to gain the best possible value from its timber-derived products. In most of South Africa, except in the Eastern Cape, commercial forestry areas have reached a plateau and cannot be expanded much more. Forestry companies such as Sappi are gaining productivity by improving the cultivars of trees, which yield about 17% more per unit than a few decades ago, says Ralph Boettger, the chief executive of Sappi. As part of its drive to maintain its lead in the international chemical-cellulose market, Sappi has a similar, parallel project to expand another major mill — the Cloquet mill near Minnesota in the

United States. The Ngodwana project involves producing 210 000tpa of dissolving wood pulp, although the Cloquet mill project will produce 330 000tpa at a project cost of $170-million, a lower unit cost partly because the mill is ideally suited to chemical cellulose production, Boettger says. When both mills are complete, Sappi will have the capacity to produce about 1.3-million tpa of chemical cellulose and will be the world's biggest producer by far.

MINERAL MINING

MINING OUTPUT CONTINUED TO FEEL EFFECTS OF STRIKES IN DECEMBER (Business Day, 15/2/2013)

Mining production in South Africa fell strongly in December 2012, dropping by 7.5% from a year earlier, suggesting that the effect of work stoppages at mines during the third quarter continued to be felt in the fourth, Statistics South Africa figures released on Thursday showed. The December fall follows a 3.8% drop year on year in November, revised down from the previously reported 4.5% fall. The highest negative growth rate was recorded for platinum group metals, followed by gold, copper and chromium ore. Mining in general was negatively affected in 2012 by weaker global demand for commodities and higher operational costs, most notably steep wage increases. Stats SA reported that the main contributors to the 7.5% decrease were platinum group metals, which contributed a negative 7.1 percentage points; and gold, contributing a negative 3.4 percentage points. Minerals that made significant positive contributions were iron and diamonds. Total mining production was 3.1% lower in 2012 compared with 2011, following a fall of 0.9% in 2011 and a 4.8% increase in 2010. In the fourth quarter of last year, seasonally adjusted mining production fell by 6.1% compared with the previous, quarter mainly due to decreases in contributions from gold, iron ore and platinum group metals. The sales of minerals fell by 15.6% year on year in November 2012, with the largest negative growth rate recorded for the category of "other" metallic minerals, followed by iron ore and gold. (Whole article)

MINING ROYALTIES REGIME TO COME UNDER SPOTLIGHT – ZUMA (Mining Weekly, 15/2/2013)

South Africa’s current mining royalties regime would come under the spotlight as part of a tax study the Finance Minister would commission, President Jacob Zuma said in his State of the Nation address to a joint sitting of Parliament on Thursday evening. Zuma also revealed that he had held top-level talks with Anglo American chairperson Sir John Parker on the plans of Anglo American Platinum to restructure and retrench 14 000 people. Construction of the Majuba coal railway line, the President said, would begin soon in order to switch the transportation of coal from road to rail in Mpumalanga to protect that province’s roads and additional rail capacity to improve the transportation of iron-ore had opened up South Africa’s west coast. On the tax study, he said that Pravin Gordhan would be commissioning the review of South Africa’s current tax policies to make sure that the country had an appropriate revenue base to support public spending.

WATER SCARCITY HAMMERS RATINGS (iAfrica, 15/2/2013)

Environmental factors‚ such as water scarcity‚ could adversely affect the ratings of global mining companies if they fail to proactively manage the accompanying operational and political risks to their businesses‚ says Moody's Investors Service. In a report‚ "Global Mining Industry: Water Scarcity to Raise Capex and Operating Costs‚ Heighten Operational Risks"‚ released on Thursday‚ Moody’s noted that mining projects were already competing with local communities for limited water resources‚ while having to comply with stringent environmental rules is adding to capital expenditure (capex) budgets for new mines. In addition‚ tighter environmental permitting requirements could add to project timelines and require the companies to seek more complex water procurement systems. This in turn would push up the companies' operating costs because of the higher associated maintenance and energy cost‚ the ratings agency said. Furthermore‚ political risk is likely to increase as competition for water resources between mining companies and local populations intensifies. "Water scarcity is already changing the mining landscape as environmental legislation becomes more stringent‚ and operating in some countries increases political risk as mining companies' water supplies can be restricted if the needs of communities increase‚" said Andrew Metcalf‚ an analyst in Moody's corporate finance group and author of the report. "If‚ as a result‚ projects take longer to complete‚ and become costlier and riskier to execute‚ we would expect these factors to exert downward pressure on the ratings of the mining companies‚" he said.

GENERAL

CAPITAL SPENDING ‘AT LOWEST LEVEL SINCE 2005’ (Business Day, 15/2/2013)

Capital spending by the government and private sector fell to its lowest level since 2005 last year as the contribution of the private sector waned, according to a report from Nedbank. The figures cast doubt on whether the government can achieve its aim of spending R4-trillion on infrastructure over the next 15 years. They also highlight the need for the government to partner with the private sector to drive its investment programme. Estimated capital expenditure on projects that have been announced fell to R148bn from R174bn in 2011, the third annual decline in a row, the Nedbank report, released on Thursday, said. The value of new projects announced last year dropped to R88.1bn from R92.6bn. The main reason for the decline was a scaling back of investment plans by the private sector, which more than offset gains in spending programmes by the government and public corporations, the report showed. "This is worrying as the private sector accounts for the bulk of fixed investment activity undertaken in South Africa, making it a key driver of production and export capacity, and also the biggest employer," Nedbank economist Nicky Weimar said on Thursday. "The fact that the private sector is not confident enough to raise the capital and undertake the expenditure for expansionary activity is not encouraging, as it caps the country’s ability to grow faster and employ more people over the medium term."

CURRENCIES AND PRICES

MARKETS AND INDICATORS
JSE
Alsi / 14/02 / 40,733 / / -75.87 / -0.19%
Financials / 14/02 / 30,298 / / -10.05 / -0.03%
Industrials / 14/02 / 39,117 / / +146.12 / +0.37%
FOREX
Rand/Dollar / 04:57 / 8.7914 / / -0.06 / -0.68%
Rand/Pound / 04:55 / 13.6075 / / -0.13 / -0.93%
Rand/Euro / 04:55 / 11.7466 / / -0.17 / -1.42%
COMMODITIES
Gold (usd/oz) / 04:57 / 1,632.86 / / -10.74 / -0.65%
Platinum (usd/oz) / 04:54 / 1,700.00 / / -24.00 / -1.39%
Brent (usd/barrel) / 14/02 / 118.03 / / -0.63 / -0.53%
World Markets
Wall St (DJIA) / 14/02 / 13,973 / / -9.52 / -0.07%
Germany (DAX) / 14/02 / 7,631 / / -29.00 / -0.38%
Japan (Nikkei) / 04:34 / 11,212 / / -39.19 / -0.35%

(Business Report, 15/2/2013)