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ECONOMIC OVERVIEW November 2017
Growth Outside China

Macro conditions continue to improve, driven by out-performance in the US and German economies and the US dollar rebounding from lows in September. This was offset by slowing Chinese housing and construction activity. Steel production in China was the lowest since February and house price gains the lowest since April 2016.

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METALLURGICAL COAL November 2017
Will Mozambique's Potential be Fulfilled?

Mozambique was once expected to be the next big player on the global metallurgical coal market. In 2008, exports were expected to reach 40Mtpa by 2016; however, with years of delays and weakening coal prices, only 3.6Mt of exports were achieved for the year. In 2017, Vale’s Moatize mine is leading a significant production ramp-up, with coking coal exports to exceed 8Mt with positive cash margins. Are other producers likely to follow suit to fulfil Mozambique’s massive supply potential?

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ZINC November 2017
Delayed Capacity

Since the start of 2016, new projects and expansions have been delayed as zinc prices, funding, government interaction, location, capital expenditure problems, geotechnical issues, community relations and financing have pushed projects back, resulting in the zinc market primarily relying on production from existing mines.

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NICKEL November 2017
What new laterite technologies might change the game?

Nickel laterites accounted for around 60% of nickel production in 2016. Laterite processing is more complex than sulphide processing and, given laterites are expected to grow to around 74% of nickel supply by 2030, it prompts the question: what are the advantages and limitations of existing laterite technologies, and what new technologies might change the game in the future?

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THERMAL COAL November 2017
Stripping Back Strip Ratios

Overburden removal accounts for over 60% of mining costs, which in turn average over 50% of FOB cash costs for thermal coal open cut mines. As thermal coal prices doubled in the last two years, dragline mine strip ratios have remained largely steady at 6:1 bcm:ROMt since 2011, with a slight uptick of 1.5% in 2017, while truck and shovel mine strip ratios declined 10% to 6.1 in 2016 from their peak of 6.7 in 2011, then rose 4% in the last year to 6.3.

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LNG November 2017
Europe's LNG Battleground

Western Europe remains the locus of LNG imports, with active terminals in Spain, Portugal, the Netherlands, UK, Italy and France. Further to the east, Europe has been pondering new LNG terminal projects due to emission-lowering regulations for bunker fuel. There has been a sense of vulnerability due to over-reliance on both Russian gas and trans-Mediterranean pipelines which has driven new LNG terminal projects for Italy and Turkey, amongst others.

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COPPER November 2017
Copper Processing Remains Hydrophobic

Hydrometallurgical processing of chalcopyrite remains an elusive goal for the copper industry. This quest is driven by the negative environmental reputation smelters have attained due to noxious gas and dust emissions. After 50 years of research, there is still no economically competitive hydrometallurgical process route for extracting copper from chalcopyrite. How do the hydrometallurgical processes compare to conventional pyrometallurgy?

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ALUMINIUM November 2017
Braking Hongqiao Groups's Expansion Plans

With a stated aim of improving the currently oversupplied aluminium market, China's Ministry of Industry and Information Technology (MIIT) "Rectification and Curtailment of Unapproved Capacity for Aluminium Smelter Industry" policy issued in April, has recently had a substantial impact on the largest primary aluminium producer in the world. Despite curtailment of near 2.7Mtpa of capacity deemed unapproved, and potentially likely to be affected by further heating season cuts, the China Hongqiao Group smelting behemoth remains in a position to supply 10% of global primary aluminium production in 2017.

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IRON ORE November 2017
Snapping the Elastic

Chinese domestic concentrate production reached a peak in 2011 at 360Mt and maintained this level before significantly declining from 2013. Production rebounded in 2017 on rising prices and is forecast to increase 10% yoy to 220Mt. Chinese production is famously price elastic due to low barriers to entry and lax regulation but the government’s economy wide crack down on pollution and emphasis on quality over quantity is likely to snap the elastic and put a firm lid on domestic capacity.

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STEEL October 2017
Charging the Premium

In this article we will explore the implications of China’s supply side reforms on ferrous raw material procurement and how their influence on the iron ore price spread will help the largest companies expand market share.

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METALLURGICAL COAL October 2017
The Ups and Downs of Stripping Ratios

Already, in the current price surge, average metallurgical coal mine strip ratios have increased 9%, with a further rise likely, leading to 10% increase in cash costs globally. Mine profitability is hard to regain: global average strip ratio of metallurgical coal mines rose 20% in response to the 2010-2011 price peak but took twice as long to fall back when prices plummeted.

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OIL & GAS October 2017
Mediterranean New Gas Hub - Egypt

The giant Zohr field discovered in 2015 remains the largest gas discovery in the Levantine Basin to date. With fast tracked development of the 850Bcm field, the future of Egypt’s natural gas market remains brighter than ever before. Despite the previous expectations, regional geopolitical tensions and the highly regulated domestic market did not hamper development and the Zohr field is due to deliver its first gas by the end of this year.

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IRON ORE October 2017
DRI/HBI: Production and Trends

Global DRI/HBI production was 73Mt in 2016 and annual growth is forecast at 6% p.a. until 2020. Currently, Iran leads the world in DRI production and capacity, utilising 65% of its iron ore supply to produce DRI. Europe and North America have proposed further DRI projects to reduce carbon emissions and improve steel making economics.

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LNG October 2017
North American LNG: Ready for Lift Off

The first wave of major US LNG projects are already hitting global markets, and projects in the pipeline could lift the US export capacity to 80 – 110Mtpa by the mid-2020s. Projects already due for completion by 2019 will easily lift the US to the number three place and just behind major LNG exporting nations Australia and Qatar.

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ALUMINIUM October 2017
China’s Emission Control Policy in Action

The last year has shown the resolve of China’s Central Government to achieve comprehensive control in reducing pollutant emissions. Recent developments suggest an environmental agenda is now front and centre in their vision for the future. This is evidenced by the current strict audits and a timeframe to achieve adoption of both emission limit policies, to reduce the upper emission limits for pollutants, and efficiency control policies. aiming to raise efficiencies to eliminate outdated and low-capacity equipment for power generation or industrial production.

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THERMAL COAL October 2017
China’s Import Dilemma

The month of September saw widespread thermal coal supply tightness throughout China, resulting in the price spread for domestic 5500 NAR products over exports from Australia increase 97% to ~US$14/t. Due to the implementation of several import-limiting directives, end-users have been reluctant to look to the international market to replenish falling stockpiles. If domestic supply issues aren’t fixed quickly, China may be forced to throw open its gates to imports once more.

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COPPER October 2017
Peruvian Copper

Peru has overtaken China as the second-largest copper producer. Copper in concentrate output of 2.36Mt in 2017 compares to 1.30Mt in 2014. Output surged due to start ups at Las Bambas, Constancia and Toromocho and expansion at Cerro Verde. The climb has levelled off as the new project pipeline clogged due to environmental, community and product quality issues, and from weak copper prices. But new projects are again receiving attention with the rise in copper prices since late 2016.

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NICKEL October 2017
Capital Intensity of Nickel Operations

Nickel projects delivered during the boom suffered from very high capital intensities between US$40/lb and US$55/lb. This was compounded by ramp-up issues that have seen many large-scale projects fail to ever reach nameplate capacity. Prohibitive capital intensity, poor performance and excess capacity has seen few large projects approved in recent years, with the exception to this being new Chinese NPI capacity. The question now is will the cost of capacity in the future be any different?

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ZINC October 2017
Underground Haulage

Underground operations are expected to account for 59% of the 2.18Mtpa of new zinc capacity to be commissioned in the short to medium term. Decline haulage will be used at 63% of these operations, reflecting advancements in mechanised fleets, decline development and the types of deposits being developed. This trend should continue with further technology advances and as the economic turning point between a decline and a shaft moves deeper.

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ECONOMIC OVERVIEW October 2017
What Goes Up...

Commodity markets were stronger, lifted by positive China data and the US dollar falling to a two and a half year low heading into September. Chinese Industrial and construction activity remained strong in August despite government spending policies. Chinese steel production hit a record high of 74.6Mt in August, while electricity generation increased 4.8% year-on-year to 594.5bkwh. The German business sentiment index slipped to 115.2 in September, just below July’s all-time high of 116.0.

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METALLURGICAL COAL September 2017
A Precariously-Placed PCI Market

With nearly 8Mt of low-volatile pulverised coal injection (LVPCI) export capacity forecast to exit the market by 2025, a lack of committed new supply exists to replace the exhausted reserves. This impending shortage would increase LVPCI prices relative to hard coking coals, resulting in improved cash margins for producers. In 2017, the top five exporters of LVPCI are expected to account for 45% of the global market, with all holding assets in the Bowen Basin of Queensland, Australia.

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LNG September 2017
Dissecting India's LNG Market

India’s increasing demand for natural gas in the fertilizer and power generation sectors has driven prospective buyers to consider new LNG import projects on both the country’s east and west coasts. However, India’s gas operators typically face more downstream risk due to heavy price regulation. This means that India’s LNG spot market, while increasingly liquid since 2015, is highly price sensitive.

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ZINC September 2017
Ready to Restart

With the zinc mining industry in a third consecutive year of concentrate deficits, miners are looking to the past to fill the supply gap. Between 2017 and 2019, 1.63Mt of additional capacity will commission. Even with the start up of the MMG’s 170ktpa Dugald River and Vedanta’s 250ktpa Gamsberg mines, 53% of the additional capacity will come from restarted operations. The restarts will depend on each resolving problems relating to processing circuits, orebody challenges or debt levels.

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ALUMINIUM September 2017
Sparking Interest in US Smelters

The last few years have seen the US primary aluminium production facing significant cost pressures as depreciating currencies conspire with old technology and high power costs to make producers in other countries more cost effective primary aluminium producers. Which begs the question – is there still hope for US aluminium smelters? The recent interest in capacity restarts from both Century Aluminium and Alcoa, highlights the importance of power cost in the viability of reviving smelting operations, despite outdated technology in use.

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NICKEL September 2017
Last of the Giants?

The era of discoveries of large, high-grade nickel sulphide provinces appears to be over. It has been a century since the giant discoveries of Sudbury or Norilsk, each containing nickel approaching 20Mt. The last large, high-grade province discovered was Kambalda in Western Australia in the 1960s, with 5Mt of contained nickel. Recent nickel sulphide discoveries are either low-grade and large or high-grade, small, and very difficult to discover. So where will future nickel come from?

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THERMAL COAL September 2017
Indian Summer

The Indian government would like the country to cease importing thermal coal by 2020 and rely exclusively on domestic thermal coal. To this end, Coal India, India’s main producer, plans to reach the ambitious target of 908Mt total production by 2020 up from 580Mt in 2017. This scenario is unlikely, since land acquisitions, environmental clearances and, most importantly, logistics regularly cause Coal India to fall short of its targets, creating an opportunity for 100Mt of imported thermal coal.

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COPPER September 2017
Dealing with Impurities

Producers are seeking innovative site-specific methods to remove arsenic and other impurities from copper concentrates, rather than simply blending out the impurities. Codelco has installed an arsenic-removing roaster at its Ministro Hales mine, while Dundee has expanded its specialised Tsumeb smelter, one of the few plants set up for high-arsenic concentrates. Development of hydrometallurgical techniques may offer means of removing arsenic with reduced environmental impacts and capital costs.

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IRON ORE September 2017
What's on the Menu?

The iron ore fines spot index prices (CFR North China basis) for 58% Fe and 62% Fe have diverged sharply since the fourth quarter of 2016. The spread ranged from 5% to 15% between 2010 and mid 2016 when it started to climb. Over H1 2017 it has averaged 25% and it has been argued that this new level may be permanent. Of the major iron ore fines exporting countries, Australia produces the largest proportion of the lower grade fines. Analysis of Mineral Resource and Ore Reserve statements of the three big Australian producers indicates their exposure to the spread.

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OIL & GAS September 2017
How E&Ps are Adjusting to Low Oil Prices

At US$40-50 per barrel, the global oil and gas industry is not exactly thriving, but three years since the price collapsed it can evidently survive with oil prices around, or even under, that range. International oil companies, however, are still struggling to demonstrate they can cover both the investments needed for stabilizing output and returning dividends to investors, without relying on net asset disposals.

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STEEL September 2017
Winter is Coming

The Chinese Central Government’s 2017-2018 Beijing, Tianjin and Hebei Winter Air Pollution Plan mandates a 50% reduction in steel production and a 30% reduction in coke production, based off installed plant capacity. Operations in 26 nominated cities surrounding Beijing and Tianjin, will be ramped up in the coming months to offset the anticipated lost production. In the long term, continued pollution actions will deter greenfield project investment in provinces neighbouring Beijing.

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ECONOMIC OVERVIEW September 2017
Sturdy First Half Bumps Expectations

Chinese economic activity has been solid heading further into the second half of 2017. August PMI data was stronger suggesting the manufacturing sector maintained strength. Activity was buoyed by a year-long construction surge, solid retail figures and a rise in exports. The continuing fall of the US currency is an encouraging factor for China and could boost export-oriented sectors in the September quarter. Market tensions soared as North Korea launched a missile over Japan on the 29th of August, with markets expected to closely scrutinize the actions of the US President over the coming months.

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NICKEL August 2017
Trouble in Paradise: New Caledonia

Just over a decade ago, the tropical island of New Caledonia was seen by many as the key to future finished nickel supply. Blessed with abundant nickel resources and the highest average grades of any nickel laterite producing country, major players in the global nickel industry Inco and Falconbridge invested heavily in new capacity. Fast forward to today, and New Caledonia’s nickel industry is on the ropes, with high hopes yet to be realised. How did it get to this?

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IRON ORE August 2017
Status of the Iron Ore Pellet Market

The Atlantic Pellet Premium has been less volatile than the Chinese Pellet Premium over the last year and a half. The Atlantic premium gradually increased over 2016, before a step change up in 2017, and has been stable ever since. However, the Chinese pellet premium has seen greater volatility, and in late 2016, it was near the Atlantic Premium due to a shortage of domestically produced pellets in China following a shortage of domestic ferrous feed suitable for blast furnace pellet production. The Chinese Pellet Premium instead generally tracks with the Chinese Lump Premium as blast furnaces in China can often adapt their burden blend to substitute these two products.

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THERMAL COAL August 2017
Steaming Along

At 2.8Bt, China’s thermal coal production fell only 2.5% in 2016, although the gap between demand and domestic supply was sufficient to increase imports by 29%. Domestic production is mainly in Inner Mongolia and Shanxi in the north and Xinjiang in the west, whereas coal-fired generation capacity is largest in the eastern and northern provinces. The mismatch results in domestic coal being transported up to 2000km at up to ~US$31/t and competing with cheaper imported coal.

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ALUMINIUM August 2017
UC RUSAL - The Aluminium Bear

From 2010 to 2014, United Company RUSAL was the largest aluminium producer in the world. However, after the aggressive expansion of large Chinese companies over the last few years, RUSAL now ranks third for primary aluminium production, but remains the largest non-Chinese producer globally. The company has curtailed old capacity over the last few years but recently has been looking forward to restarting its new smelter project developments using latest in-house high-amperage reduction technology.

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COPPER August 2017
Mining the Red Metal Giants

Among the very large copper resources yet to be exploited, Zijin and Ivanhoe’s Kamoa-Kakula in the DRC is expected to be the first to enter production, due to the high copper grades and project momentum. Metalloinvest’s Udokan in eastern Russia is the next most likely project to be developed. Other red metal giant resources are likely to remain undeveloped in the medium term due to environmental, political and technical factors.

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ZINC August 2017
Grade Expectations

After a period of steady decline, the average weighted zinc grade of primary zinc mines is expected to increase, from 4.9% in 2017 to 5.2% in 2030. This rise in zinc grade is a function of large low-grade operations closing, such as Sumitomo’s 275ktpa San Cristobal, and the commencement of higher grade operations including Vedanta’s 250ktpa Gamsberg and MMG’s 170ktpa Dugald River. This rise in zinc grade is in contrast to the declining grade trends for both copper and nickel.

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METALLURGICAL COAL August 2017
Is History Repeating Itself?

With the premium HCC price forecast to increase 68% in 2017, there are signs operators are prioritising production volumes over cost control. When prices rose during 2009–2011, the largest coal producers employed a similar strategy, resulting in exaggerated cash margin reductions of up to 90% when prices dropped in 2012. With significant 1H 2017 cost increases being reported, will this latest price rise be a case of lessons learned or history repeating itself?

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LNG August 2017
A New Market for Downscaled LNG

The recent announcement that Australia’s Pluto LNG would be expanded to meet the small scale onshore market via modular LNG trains, highlights the growing interest in small scale Liquefied Natural Gas (LNG) options. Small scale, modular LNG ranges in size from less than 0.250Mtpa up to 1.5Mtpa per train. What is interesting about Pluto is that the expansion will be situated at the existing Pluto LNG site, providing a number of synergies and infrastructure savings.

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OIL & GAS August 2017
Challenges Faced by Australia's East Coast

Australia’s east coast natural gas market has been irrevocably transformed over the past seven years. Facing an unprecedented demand surge from liquefied natural gas (LNG) export plants, producers and consumers have experienced a rapid break from the stable gas market that has ruled for decades. High gas exploration and production costs, and exposure to international markets have had the effect of doubling domestic gas prices from US$4/GJ in 2014 to around US$8/GJ in 2017.

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STEEL August 2017
The Induction Reduction

The Chinese Government has enforced the closure of all Induction Furnace (IF) steelmaking capacity, contributing to a spike in Chinese rebar prices. AME estimates that 30-50Mtpa of unreported IF production has been eliminated, which will result in official production numbers rising in the second half of the year. The top 10 producers in China account for less than 30% of total production.

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ECONOMIC OVERVIEW August 2017
Summer Slowdown Approaching

Commodity markets were stronger in July, buoyed by stronger China and US data, and a weaker US dollar. However, the outlook for August looks mixed. The northern hemisphere summer holiday period will slow activity and the Chinese construction season will pass its peak. We expect visible inventories to start to build, which should trigger profit-taking, particularly in some of the stronger performing commodities in the bulks and base metals market.

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OIL & GAS July 2017
Nuclear's Decline is Good for Gas

Nuclear power accounts for about 20% of electricity generation in the United States. Yet, the sector is facing its biggest decline in years, with an increasing number of nuclear units being retired on economic and environmental concerns. However, bad news for the nuclear power sector means good news for natural gas producers.

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METALLURGICAL COAL July 2017
US Resurgence

Spurred by a resurgence in coal prices, US metallurgical coal exports rose 34% in the six months prior to the March Quarter of 2017, and are expected to rise ~10% to 41Mt in 2017. However, other exporting countries have also ramped up their production, resulting in a likely oversupply of metallurgical coal in 2018–2019, and subsequent decline in coal prices. As a higher cost producer at an average of US$86/t in 2017, US mines will be most vulnerable to price falls.

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ECONOMIC OVERVIEW July 2017
Late Bounce in June Buoys Sentiment

Commodity markets were somewhat volatile in June, but recovered late in the month as Chinese demand prospects improved and the US dollar weakened. Investor sentiment was a lot more cautions for most of the month, due to disappointing May Chinese manufacturing data. However, the mood dissipated, with a bounce in June activity and a pickup in external demand.

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THERMAL COAL July 2017
The Big Five

Almost 25% of thermal coal traded on the international market in 2017 will be sourced from the five largest-volume producers. These companies, led by Glencore, have operations in an array of supply regions, targeting a variety of products and demand markets. While Russian miner SUEK possesses a cost advantage over its competitors, it is the cornering of key demand markets based on product specifications and geographical advantages that has allowed these companies to flourish.

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IRON ORE July 2017
Estimating Magnetite Processing Costs

AME’s innovative EVO methodology captures the major segments of each site’s process flowsheet and allows detailed analysis of crushing, milling, gangue rejection and consumable costs and energy consumption. We have compared processing costs by region and segment within a set of 107 magnetite projects globally.

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LNG July 2017
US Seeks the Throne

The US is rapidly adding liquefaction capacity and has the potential to dethrone Australia as the world’s top LNG producer by the mid-2020s. Two years ago, the US had essentially zero export capacity, but is now currently on track to possess a liquefaction capacity of 138Mtpa by 2025. The US LNG flood appears imminent, but when and where will it arrive?

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ALUMINIUM July 2017
Vale US Primary Aluminium

Historical US primary aluminium production peaked at 4.7Mtpa in 1980, being 30% of global supply. Declines have been continuous, with the current remaining US smelting capacity of 0.8Mtpa on notice from a combination of older technology and uncompetitive power tariffs from 3rd party suppliers. Without intervention, the Trump presidential term may witness the last gasp of the primary US aluminium industry.

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COPPER July 2017
Latin American Copper Frontiers

Panama and Ecuador are all set to join the ranks of mined copper producers in 2018. In Panama, First Quantum is developing the 320ktpa Cobre mine and in Ecuador, a Chinese consortium is building the 95ktpa Mirador mine. Ecuador, in particular, is an emerging mining frontier with its copper and gold potential attracting substantial exploration and development investment.

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NICKEL July 2017
Nickel Mine Grade Decline

The last decade has seen the average grade of nickel sulphide ore (excluding ore from PGM mines) decline from 1.19% to 0.89%. Grades have declined at existing operations, and low-grade resources such as Talvivaara in Finland have been developed. The only reasonable scenario that could reverse this trend would be the discovery of a new, large-scale, high-grade nickel province.

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ZINC July 2017
Big Boppers

The zinc mining industry has seen few large-scale developments since Goldcorp’s 170ktpa Peñasquito mine was commissioned in 2009. This is all set to change in the near term as four projects with capacities between 120ktpa and 400ktpa are poised to be commissioned. However, there are no certainties, as changes in the zinc price, capital expenditure, geotechnical issues and financing could cause further project delays, leaving the market to continue to rely on production from existing mines.

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STEEL July 2017
Has POSCO Shown Us Their Hand?

In their failed bid for Arrium, a Korean consortium of Newlake Alliance Management and JB Asset Management flagged their intentions to use POSCO’s alternate ironmaking technology, FINEX. We believe that POSCO planned to convert the Whyalla blast furnace to create a full scale FINEX proof of concept. This article will introduce FINEX technology, explore the benefits of its integration with existing ironmaking infrastructure, and outline the benefits POSCO could reap from ageing ironmaking facilities.

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STEEL June 2017
Can POSCO bring FINEX to the mainstream?

A Korean consortium, including POSCO, has emerged as the preferred bidder for Arrium’s steelmaking assets. Arrium has been under the administration of KordaMentha since April 2016. Whilst specific details are yet to emerge, we do know that POSCO plans to invest up to US$1bn to modernise the plant and introduce its patented FINEX technology to Australia.

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COPPER June 2017
Capital Intensity of New Copper Mines

The big new Las Bambas, Cobre Panamá, Aktogay and Bozshakol mines have high capital intensities of more than US$7.8/lb of annual copper capacity. Las Bambas has a capital cost of US$6.6bn due to its remote location and the need to construct a new town, while Cobre Panamá’s US$5.48bn capex includes a new power plant and port facility, and processing low-grade ores. Aktogay and Bozshakol also have low-grade ore, which requires greater ore volumes to be processed per tonne of copper.

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ALUMINIUM June 2017
Price Volatility and Environmental Scrutiny

Since early May, over 4Mtpa of refining capacity in China has been announced as curtailed, or planned to be curtailed. These stoppages are due to poor profitability in the face of three primary issues—firstly, the falling alumina price with weakening smelter demand; secondly, increasing bauxite sourcing issues and raw material prices; and thirdly, increased environmental scrutiny as inspection teams begin assessing province emissions.

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NICKEL June 2017
The Battle to Regain Lost Ground

Australia’s nickel industry is in decline, losing market share as production declines, reserves are exhausted, and operations lose cost competitiveness. Recent times have seen several major closures as operations have been unable to remain economic in a period of depressed nickel prices. Will Australia’s nickel industry retreat quietly into insignificance, or will it find new ways and opportunities to regain lost ground?

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ZINC June 2017
Mississippi Valley Type Zinc Deposits

Mississippi Valley Type (MVT) zinc deposits have long been a stable source of high-quality, high-grade zinc concentrate, accounting for 5% of global mined zinc. However, over the next 15 years, AME expects many large long life MVT mines to close, reducing the amount of clean zinc concentrate available. New mines on MVTs are not expected to replace the lost production as a lack of suitable deposits and high operating costs limit the number of MVTs being developed.

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LNG June 2017
Spreads Tighten as Gas Markets De-Link from Oil

The oil price crash has reduced the gas spread between Europe, Asia and the US over the past few years. Going forward, the rise of hub-priced US LNG will keep gas spreads closely aligned to Henry Hub prices going forward. We expect smaller spreads will benefit companies with geographically diverse and flexible portfolios as arbitrage profits shrink.

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IRON ORE June 2017
Status of South African Iron Ore Production

South African production is derived from four deposits in the Northern Cape, with a unique and complex history of formation. High site and transport costs to export markets are partially offset by the quality of the products. However, replacement of these deposits remains a crucial issue for the long-term sustainability of the industry.

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THERMAL COAL June 2017
Optimism Renewed

With price increases in excess of 15% in 2016, and global export thermal coal demand anticipated to rise 5% in 2017, optimism has returned for thermal coal producers eyeing expansion plans in order to take maximum advantage. Export capacity additions are forecast to total 155Mt over the next three years, with over 75% destined for the Asian market. The two largest thermal coal exporters, Indonesia and Australia, are expected to remain dominant, accounting for ~60% of capacity additions from 2017–2019.

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OIL & GAS June 2017
What Can Shale E&Ps Oil Hedging Positions Tell Us

US E&P companies have increased crude oil hedging by almost 50% from 2Q 2016 to 1Q 2017. Indeed, the majority of US companies have hedged part of their production for 2017. The increase in shale production in recent years can be seen in the WTI futures market. While open interests reach record high levels, long-term future contracts are steadily falling.

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ECONOMIC OVERVIEW June 2017
China Stabilising after Strong March Quarter

Macro conditions looked mixed in May, but a ramp-up in June Quarter construction activity saw most indicators point to better demand conditions. The data looked blurred because of a strong Chinese March Quarter, stimulated by near record loan activity in the December Quarter of 2016. On the flipside, the US started to recover from a slow March Quarter, and the Euro economies breathed a sigh a relief from a conformist French election win.

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METALLURGICAL COAL June 2017
Resource Reservations

China’s metallurgical coal imports are expected to rise 10% in 2017 to 65Mt. In 2016, the country produced 1Bt of ROM metallurgical coal, mainly higher volatile semi-soft and semi-hard coking coals. Despite export prices rising sharply in 2016, China’s hard coking coal (HCC) ROM production was proportionally less than either its HCC coke mix requirements, or its HCC resources, indicating China is importing to conserve its own resources or obtain better quality and lower cost coal.

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STEEL June 2017
Modi-fying India’s Steel Industry

India recently released its National Steel Policy 2017, highlighted by a significant downgrade to its forecast of steel production growth. The new production target of 300Mtpa of capacity by 2030 brings India’s vision in line with AME’s forecast that we have maintained for the past 2 years. However, even if this ambitious target is met, India will still fall well short of the average steel production and consumption rates expected of a developing economy.

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COPPER May 2017
Rising Energy Costs

Despite producer efforts to improve energy efficiency and reduce costs, energy use in copper mining is rising. As global mined copper output increases, ore grades decline, open pits get deeper, ore gets harder and use of seawater is more widely adopted, total energy demand and energy used per tonne of copper produced are increasing. BHP Billiton’s Escondida faces higher energy demand when its new desalination plant is commissioned and three concentrators are operating from late 2017.

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NICKEL May 2017
The Changing Shape of China’s NPI Industry

China’s NPI Industry has proven very resilient in the face of low prices over the past two years, despite NPI operations being widely considered marginal swing producers. While this is somewhat true, many of the larger and more integrated operations have continued operations as smaller higher cost operations have left the market, leading to industry consolidation in the face of increasing challenges including declining ore grades.

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ALUMINIUM May 2017
Changing Landscape of Alumina

China’s increased aluminium smelting capacity over the last 15 years has been supported by the development of significant domestic alumina capacity to satisfy the Smelter Grade Alumina (SGA) demand. This change in geographic aluminium production, along with energy costs and raw materials supply sources, has had a major impact on alumina producers outside China. The last few years have seen these competitive pressures lead to curtailments and product changes in a number of previously established SGA suppliers.

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ZINC May 2017
In the Penalty Box

The 2017 benchmark zinc treatment charge is US$172/t of concentrate. Spot treatment charges are US$30-40/t. The global zinc concentrate market is forecast to be in a 108kt deficit in 2017. Chinese smelters are threatening extended maintenance periods. These market dynamics are causing pain for smelters as they try to secure concentrate feed. The last point of negotiation for concentrate deals could be concentrate penalties.

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COAL May 2017
Glencore Settles with Tohoku at US$85/t

Reports have come out today that Glencore and Tohoku Electric have concluded contract negotiations for the 2017–2018 Japanese financial year, at US$85/t FOB Australia. Tohoku previously settled contracts with other miners at US$81–84/t. Settlement talks were delayed as the market awaited clarity following Cyclone Debbie, and while Glencore held out for a price above US$90/t. Glencore conceded, but should still be satisfied.

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OIL May 2017
Nigeria's Oil Uncertainties

Nigeria’s oil production still 1Mbpd below 2011 peaks despite increased production in Q1 2017. Political deadlock about the new Petroleum Industry Bill has seen capital investment levels and number of new projects decrease since 2008. Proposed greenfield developments in the pipeline require a break-even price of US$60¬90/bbl. Currently, there is 800kbpd in future projects that remain unsanctioned.

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LNG May 2017
Australian Government Export Controls

The Australian Government has imposed an export control on LNG producers to ensure supplies in the domestic market. We expect Santos’ 7.8Mtpa GLNG facility to be mainly affected by this new regulation, because over 60% of its feed gas comes from the domestic market. Going forward, the regulation will force LNG exporters to increase their investment into domestic gas sources despite their relatively high cost.

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STEEL May 2017
China's Cheap Scrap

China’s crackdown on Induction Furnaces may remove up to 50Mtpa of production from mid-2017. An excess of scrap availability may shake up scrap pricing and use within the industry. A successful removal of Induction Furnace production may be a double win for China’s BF & EAF production.

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THERMAL COAL May 2017
Burning Down the House

China has seen a renaissance in the use of coal for power generation over the past nine months, as growth in power generation from other sources, particularly hydro, has not been sufficient to satisfy growth in electricity demand. With supply restrictions on domestic Chinese mines in place since April 2016, China’s increased electricity demand has been met by imported thermal coal. Thus, imports have surged and are likely to remain strong.

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IRON ORE May 2017
Production at Risk

The iron ore price has begun to fall during the second quarter of 2017 and is expected to remain subdued for the medium term. With the continued ramp up of Roy Hill and S11D and the probable return of Samarco; a surplus is likely to exist in the short term. Given the expectations of a surplus and lower prices we have examined which type of operations are most at risk and culling of production is most likely to occur.

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METALLURGICAL COAL May 2017
The Next Wave of Supply

With global import demand forecast to increase 7.4% in 2017, producers of metallurgical coal are dusting off previously-shelved development and expansion plans to capitalise on favourable market conditions. These additions in export capacity are anticipated to total 80Mt over the next three years. Dominant exporter Australia is only anticipated to account for ~30% of these additions, with competitors Canada, Mongolia and Russia all vying to claim valuable market share.

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ALUMINIUM April 2017
China's Oversupply Control

China has halted 2mtpa of aluminium smelter developments in Xinjiang province. This action is widely believed to be the prelude to broader Chinese aluminium capacity control as China’s Capacity Control Protocol aims to cut capacities which have failed to comply with NDRC No.1494 [2015]. We believe the impact of the announcement might be overstated, given the existing productive capacity available within China.

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ZINC April 2017
Capital Intensity of New Zinc Mines

Zinc concentrate shortfalls over 2016 and 2017 are prompting renewed interest in new zinc mines. No greenfield zinc project of more than 100ktpa has come on line since Goldcorp’s Peñasquito mine was commissioned in 2009. Poor zinc prices and excess capacity have held back the development of long-known large projects. This is now changing with an influx of investment in new and idled zinc mines..

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COPPER April 2017
The Copper Mega Mines

Three of the top five copper mines experienced disruptions in early 2016. BHP Billiton’s Escondida and Freeport’s Cerro Verde were impacted by strikes in the March Quarter. Freeport’s Grasberg is in dispute with the Indonesian government and was unable to export concentrates. These three mines supply 10% of global copper in concentrate. Drawn out returns to normal output at Escondida and Grasberg and potential disruptions at other major mines may push copper prices higher.

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METALLURGICAL COAL April 2017
The Best New Coking Coal Projects

Higher prices and growing demand has seen more interest in new coking coal projects. AME looks at three projects with great potential; Mezhegey, Jan Karski and Red Hill. Overall, these projects could add 25.4Mtpa of product, requiring around US$7–8bn of funding.

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IRON ORE April 2017
Haulage Distances at Open Pit Mines

The haulage distance from the pit to the primary crusher or the waste dump is typically the single largest contributor to operating cost in the mining segment of an open cut operation and is a major factor in determining mobile fleet numbers and configuration. AME’s assessment of haulage costs in the Pilbara places them in the range of 20%-60% of the total mining cost. AME has incorporated detailed analysis of haulage distances over time into the new EVO engineering model for costing mining operations. Detailed examination of pit layouts during haulage distance estimation also provides insights into mine planning.

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THERMAL COAL April 2017
Vietnam: The Benefits of a Falling Coal Price

Vietnam to consume 220Mtpa of thermal coal by 2030. Vinacomin has high production costs, cannot complete in export market if prices below US$80/t. If thermal coal prices remain around or below US$80/t in the future, Vietnam could become a huge importer.

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LNG April 2017
Shifts in the LNG Trading Structure

LNG trade is rapidly changing. Strengthened buyer positions are reducing contract length and volumes, and increasing the penetration of hub-pricing. These changes create attractive market conditions for trading houses, better prepared to optimise portfolios, manage risk and deal with price fluctuations. The latest Egyptian tender in Nov 2016 (96 cargoes) was dominated for the first time by large intermediary players including Glencore, Trafigura, Vitol and Gunvor.

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STEEL April 2017
The Coke Connection

LVPCI supply disruptions as a result of North Korean sanctions could result in Chinese steelmakers looking for alternate sources of PCI suitable coals. PCI is a proven means of increasing blast furnace productivity and decreasing operating costs. Coke performs a fundamental role within the blast furnace, high volume blast furnaces require high strength coke in order to provide support to the burden.

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NICKEL April 2017
Trends in the Nickel Intermediate Market

Trade in intermediate products forms a significant part of the nickel value chain, one which is often overlooked in favour of mined and finished nickel. Nickel intermediate products consist of nickel contained in matte, mixed sulphide precipitate (MSP), mixed hydroxide precipitate (MHP), and other intermediate nickel products including salts and oxides which require further processing before being classed as a finished product.

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ALUMINIUM April 2017
Chinese Smelting Technology Triumph

The massive increase in Chinese smelting capacity to pass 50% of world production by 2015 has seen the emergence of homegrown technology exceeding technical metrics of established Western technology providers. The reduction in energy consumption has been a major focus in the competitive aluminium smelting landscape. The technology advances and cost of implementation has seen Chinese technology providers leverage their experience to gain foreign sales.

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COAL April 2017
Global HCC Lost due to Cyclone Debbie

Severe Tropical Cyclone Debbie hit the Queensland coast on the 28th March 2017 and the subsequent flooding has impacted coal production for the past week. While the mines and the ports appear to have escaped major flooding or damage, the rail infrastructure has not been so fortunate. Rail Operator, Aurizon, has today announced that three of its five major coal haulage networks will be out of action for up to five weeks.

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COAL March 2017
Implications of Cyclone Debbie

Severe Tropical Cyclone Debbie has the potential to severely impact production and exports from Queensland’s Bowen Basin mines over the coming weeks. The Bowen basin is the largest producing metallurgical coal region in the world, with over 1.5Mt extracted each week, most of which is export coking coal.

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GAS March 2017
Argentina Taps its Vast Shale Resources

The Argentine government announced plans to develop its vast shale gas resources and eliminate LNG imports in five years. The country is the third in the world, after the US and Canada, to commercially develop tight oil and shale gas.

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STEEL March 2017
Burden Blends

When tight supply hit both the iron ore and coking coal seaborne markets, the ability to maintain a stable burden blend determines the extent to which steel producers are able to capitalise on favourable market conditions. Variations in feed availability means that burden blending and charging practises will differ. This month, AME looks at the blending opportunities in ferrous feeds where the sweet spot is to limit phosphorus and alumina content, minimising the premiums paid and allowing for maximum flexibility on procurement.

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ZINC March 2017
India's Zinc Mines Heading Underground

India’s mine production is going through significant change. The world’s largest zinc mine, Hindustan Zinc’s 750ktpa Rampura Agucha will see its share of total Indian zinc production decline from approximately 90% to 50%. The fall comes as part of Hindustan Zinc’s US$1.5bn plan over six years to expand existing underground operations and move underground at Rampura Agucha as it targets a mined metal capacity of 1.2Mtpa by FY2019. Progress towards the target has not been smooth sailing as shaft construction issues, and water ingress, ventilation and geotechnical problems, have limited the advancement.

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METALLURGICAL COAL March 2017
Mongolia Reloaded

In 2016, as global metallurgical coal imports increased 3.7% and China’s imports increased 24%, Mongolia exported 23Mt of metallurgical coal—its largest ever annual volume. Market undersupply in the December Quarter led to the premium hard coking coal contract price of US$285/t for the March Quarter of 2017, and prompted the re-start of three idled mines. While future export volumes depend on China’s domestic production, AME forecasts Mongolian metallurgical coal exports to rise around 18% in 2017.

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THERMAL COAL March 2017
The Pick of the Crop

Import demand growth of 3.7% in 2016, plus December Quarter prices averaging ~35% higher quarter on quarter, have caused a reassessment of undeveloped coal projects. Three promising thermal coal projects are Boikarabelo, Mount Pleasant and Buck Creek. A combination of coal quality, established customer bases and infrastructure synergies gives these prospective greenfield operations an advantage, with a strong potential to post positive cash margins if they are developed.

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ALUMINIUM March 2017
Seaborne Bauxite

Seaborne bauxite related to China’s huge demand has seen nearly a 200% increase in the past decade. With developments in Guinea, and to underpin the major mine development in Australia and offtakes from Australia and South America, AME foresee a further increase possible to support coastal and near coastal refineries. Chinese alumina producers may continue to exploit this pathway of raw material supply, while shipping costs remain near multi-decade lows.

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IRON ORE March 2017
Price Not Yet Enough

The iron ore price was unexpectedly resilient over 2016 and into 2017. The monthly average price reached US$80/t in December 2016 and maintained that level into January 2017 compared with a monthly average low of US$40/t in December 2015. A price over US$80/t was last achieved in October 2014. In response to the price rebound over 2016 and early 2017, are there any signs that new projects are being approved?

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COPPER March 2017
Sea Water to the Rescue

Copper operations in Chile are at significant risk of disruption whilst securing sufficient, reliable water supply for ore processing. This risk is increasing due to fresh water scarcity, drought susceptibility and increasing water demand and restrictions on its use. Chilean copper mines are increasingly moving to the use of desalinated sea water and direct use of raw sea water to meet their needs. Use of sea water, particularly desalinated water, increases capital and operating costs.

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NICKEL March 2017
The DSO Market in Flux

The seaborne laterite market has been thrown in turmoil with the recent announcement that Indonesia will relax its ore export ban. This will see the once dominant player in the DSO market return after a three-year hiatus. Furthermore, the Philippines Department of Environment and Natural Resources delivery of its Final Mining Audit Report, has resulted in the DENR calling for even more significant closures than anticipated by the industry. The uncertainty in DSO supply will provide significant volatility to the nickel market in 2017.

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LNG March 2017
America and the Great Gas Glut

An oversupplied market, under-utilisation, and an upcoming surge of LNG. Is there any hope for what was once the fuel of the future? The past few years has seen demand growth lag behind increases in liquefaction capacity, forcing operators to reduce utilisation rates as markets dry up. AME expects liquefaction capacity to increase at 8% year on year until 2020, easily outpacing demand as growth from major consumers such as Japan and Korea flatline.

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OIL March 2017
Towards the Lighter End of the Barrel

New crude oil demand patterns are being established as the demand gradually shifts from heavy industry to high-end manufacturing, commercial services, and personal consumption. The social and economic incentives to downsize industry are mounting as the country considers its environmental agenda, rising levels of urbanisation and personal income. It will accelerate the shift in product demand from middle distillates to light ends.

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GAS February 2017
How UK Oil Sector Reduced OPEX amid Low Oil Prices

The average operating expenditure of oil and gas projects in the UK North Sea (UKNS) has increased sharply over the past decade. This determinant cost component peaked at around US$29/boe in 2014 to mark a threefold increase compared to that of 2004 in same dollar values. The North Sea is a mature hydrocarbon province which has been producing since the mid-70s. The historical annual average peak of nearly 3Mbpd in 1999 was followed by a consistent decline at an average year on year rate of 4.7%.

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THERMAL COAL February 2017
The State of the Union: South Africa

With volumes totalling over 70Mt, South Africa was the fifth-largest exporter of thermal coal globally in 2016. India purchases over 50% of South African coal exports, with key policy and pricing shifts leading to the decline of once-primary customers Turkey and China, and the emergence of new consumers such as Pakistan. Nearly 70% of South African export thermal coal is produced by three companies, with Glencore the lowest cost in 2016 at US$34/t FOB on average.

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IRON ORE February 2017
Vale Carajás S11D

On 16 December 2016 Vale SA officially opened the Carajás S11D Iron Project, the largest project the company has ever undertaken. S11D’s location in the protected Carajás National Forest has heavily influenced the design of the project and adoption of technology to minimise its impact on the environment. The project will deliver 90Mtpa of high grade, low cost, iron ore fines when it ramps up to full production in 2020 and will be very competitive with Australian operations.

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NICKEL February 2017
African Nickel: An Uncertain Future

Africa’s nickel industry faces significant uncertainty, with established producers halting production, and question marks over future development. Africa produces 1.4% of world finished nickel and 5% of mined nickel, a level which has remained relatively stable since 2010. This masks significant volatility, as increased nickel production from PGM producers in South Africa and Zimbabwe and new production from Madagascar, mask the decline in output from traditional producers like Botswana.

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COPPER February 2017
Declining Copper Ore Grades

The average grade of copper ore mined has declined by 1.7% per year over the past ten years to 0.60% in 2016. The fall is due to declining grades at some of the world’s largest, long-life mines and the development of new low-grade mines. The declining grade trend will continue for these same two reasons. BHP Billiton’s 1.1Mtpa Escondida is dealing with declining grade by lifting throughput and First Quantum’s 320ktpa Cobre Panama starts up in 2018 mining ore with only 0.4% copper.

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ALUMINIUM February 2017
Ripples in China's Imported Bauxite Sourcing

The South East Asian (SEA) bauxite export situation has been highly variable over the last few years. Vietnam has maintained a nil export policy, but Indonesia and Malaysia have seen rampant resource exploitation followed by government intervention in the form of export bans. Indonesia’s easing of its bauxite export ban in 2017 is likely insufficient to prevent relegation of the region to niche supplier status as other large scale sources of high quality bauxite are entering the market.

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METALLURGICAL COAL February 2017
A Fresh Injection

Despite the current price surge encouraging increasing supply, low volatile PCI (LVPCI) remains a low margin coal product due to the complex geology and high strip ratios of the mines that produce low volatile coals. At an average of US$47/t FOB, Russia produces the lowest cost LVPCI and plans to increase volumes into the Pacific market, traditionally dominated by Australia, by at least 30% in the next ten years.

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