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MBR’s Outlookfor 2015

Whitepaper

Metal Bulletin Research summarise their outlooks for the metal market by sector

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Metal Bulletin Research’sOutlook for 2015

In this one-off whitepaper,Metal Bulletin Research(MBR), the forecastingdivision of Metal Bulletin,summarise their outlooks for the metalmarket by sector:

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SteelGlobal Steel 3

North American Steel 4

Steel Costs 5

Steelmaking Capacity and Expenditure 6

Galvanized Steel & Tinplate 7

Stainless Steel 8

Steel Raw MaterialsIron Ore & Coking Coal 9

Steel Scrap & Metallics 10

Ferro-Alloys 11

Tube & PipeIndustrial & Structural Tube & Pipe 13

Welded Linepipe & OCTG 14

Seamless OCTG & Linepipe 15

Non-FerrousBase Metals 16

Aluminium 18

Steel producers’ margins should rise with improving demandLast year, Metal Bulletin Research’s coreexpectations that operating margins wouldrise at the world’s steelmakers given a likelyimprovement in apparent demandconditions proved largely correct, even ifthey struggled to beat a growth rate of 2%.Margins rose strongly in the USA, even asUS producers saw the negative effect onsales of their aggressive, moreconsolidated pricing policies. Cheaperimports invariably increased their marketshare or import penetration and especiallyfor cold-rolled (CR) coil, much to the reliefof Asian and latterly even Europeanexporters whose demand at home was notso impressive. Indeed Chinese apparentsteel demand actually fell last year and byover 3% by our own estimations, and alongwith it prices of most steel products. Again,however, margins at steelmakers improved.A 50% rise in finished steel exports clearlyhelped mills maintain high and efficientoperating rates at their plants though themargin gains were mainly a result of thesharp fall in Chinese raw materials costs,given an unusual battle between the nownumerous and larger iron ore producerscompeting for Chinese demand. Marginsfailed to meet our expectations in Europeanlong products, despite slightly betterdemand conditions but this related more toincreasing competition from Turkish andChinese exporters keen to branch away

from their core but often disappointingdomestic and export markets. Europeanexports, meanwhile, were also hamperedby competition from CIS-based supplierswhose currencies fell even more sharplyagainst the US dollar, boosting theircompetitiveness. While this year has startedwith the remnants of destocking in themore active markets of China and the USAand sentiment has clearly weakened formany important steel using industries, andespecially tube & pipe, one of the largestconsumers of hot-rolled flat products, ouroverall outlook continues to improve.Indeed construction, by a distance themost important steel-using industry, is stillpredicted to have the biggest growth year

since before the recession, driven by asurge in the USA and gathering momentumin much of Europe and the rest of theworld. Manufacturing activity, moreimportant than construction in the maturemarkets such as Japan, is also expected toremain firm, which suggests that most flatas well as long products demand shouldrevive. Clearly improving demand for steelshould support prices and drive demandgrowth for raw materials, but as with lastyear, it is the outlook for raw material supplythat will determine their price direction.Overall it should be another year forsteelmakers to further boost, or in mostcases recover, their margins.

Global Steel Outlook

Stay ahead – get a regular independentoutlook on the market with MBR’s SteelWeekly Market Tracker.The weekly research report includes:

l Price forecasts for slab, billet, plates, hot-rolled sheet/coil, cold-rolled sheet/coil, hot dipped galvanized, rebar and wire rod

l Expert reaction to the latest steel industry events, from all over the globe

l Analysis of the flat and long product market, regional and emerging market focus

l A steel futures report, covering LME, SHFE and SSEC contractsl Two-year quarterly pricing and demand forecasts by region for key products

For more information or to subscribe please email info@metalbulletinresearch.com, call +44 (0) 20 7779 7226 or visit our online store

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HR coil margins over scrap* in key producing market($/tonne)

520480440400360320280240200160120

8040

0Q110

Q310

Q111

Q311

Q112

Q312

Q113

Q313

Q114

Q314

Q115f

Q315f

US

$/to

nne

Source: Steel Tracker. Note: * New arising scrap in USA and EU but hot metal in China

US HR coil margin

EU HR coil margin

Chinese HR coil margin

Forecast prices

North American Steel Outlook

Stay ahead – --get a regular independentoutlook on the market with MBR’s NorthAmerican Steel Market Tracker.The monthly research report includes

l Key trends in steel production, consumption, inventory and tradein the US, Canada and Mexico.

l US domestic and import price forecasts for the next year for bothflat and long products.

lCoverage of steel products including HR coil, CR coil, HDG, plate,wire rod, sections, rebar and merchant bars.

l Assessment of developments in raw material markets, focusingon scrap, pig iron, DRI, and bulk alloys.

For more information or to subscribe please email info@metalbulletinresearch.com, call +44 (0) 20 7779 7226 or visit our online store

US HR prices for 2015forecast to be well belowrecent annual averagesThe downward pricing correction in US sheetprices that began late in the third quarterpersisted through December, and if anythingis gaining pace as the weeks progress. Afteraveraging $620-650/ton in November, HRprices slid throughout December, averaging$600-620/ton for the month. Early 2015 hasseen further weakness, with HR prices slidingto below $500/ton in early March. CR priceshave shown a similar trend, drifting to around$700-720/ton in mid-January $620/ton inearly March, down from an average of$740/ton in December.

The outlook for prices at present is clearlynegative, reflecting short domestic mill leadtimes, elevated inventories, high imports, astrong US dollar, falling raw material prices,declining energy prices, and in turn, reduceddemand for steel from the energy sector.There are also uplifting factors in the market,though these are for now overwhelmed bythe downward factors. The US economy isrising at an impressive pace, as reflected inthe latest upward revision to third-quarterGDP. Declining oil and gas prices, whilereducing demand for steel from the energysector, are also reducing steel mills’production costs, and are driving higherdemand for large steel-intensive SUVs asbuyers see prices at the gas pumpdeclining. Lower fuel prices will also boostconsumer spending during 2015, with

estimates that US consumers will save $50-75bn this year on fuel relative to 2014, oraround $550-750 per household.

While we expect depressing price factors tooutweigh uplifting influences in the near term,with downward pressure on prices likely topersist through much of the first quarter, weequally believe that at some point, a supply-side shock will trigger a pricing rebound. Wecannot forecast the timing of thisdevelopment precisely, given the ‘shock’element, however, we believe this event couldbe triggered by a variety of factors, forexample, severe winter weather, as we sawlast year, unplanned mill outages, or the filingof an anti-dumping case against CR and/orother sheet products. Again, the timing andthe exact nature of the trigger is unknown, butas we have seen in past pricing cycles, actualor perceived disruptions to supply generallyenable domestic steelmakers to quicklyregain pricing power and reinstate upwardpricing momentum.

While we expect the downward spiral in flatproduct prices will continue for the nextseveral weeks, prices likely have at most onlya further $20-30/ton to decline beforebottoming out. March/April is our target for apotential price recovery, as domestic millproduction cuts help prices to find a floorbefore the first quarter draws to a close.

For 2015, we are forecasting averageannual domestic HR prices at around$590/ton, marking the lowest averagepricing level of this decade. While theoutlook initially could be perceived as quite

gloomy, we believe lower costs this year willhelp mills maintain reasonable marginsdespite the finished product price declinerelative to the recent past.

Prices could undershoot our forecasts in theabsence of any domestic steel productioncutbacks or other supply-side disruptions, aswell as a decision by steelmakers not topursue any trade action this year. We believeprices could overshoot our forecasts if there isa sudden rebound in Chinese iron oredemand, and steel production andconsumption within that nation, triggeringhigher raw material costs globally. An array ofUS anti-dumping case filings and/orsignificant supply-side disruptions could alsosend prices well above our base-caseforecasts for 2015.

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US domestic HR pricecomparison 2012-2015f ($/ton)

20122014

20132015

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Global Steelmaking Costs Outlook

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2014 proved to be a rather volatile year forsteelmaking costs and the related businessdecisions that steel producers made. InEurope, in particular, but as far afield asChina and even the comparatively robustUSA, plants continued to be idled and evenshut down amid a low demand and lowsteel price environment and Eurofer, thebody which represents European steelproducers, revealed just how small theregion’s production capacity would becomein the next few years unless the EC sortedout its comparatively high, and they argued,unfair energy costs; at least before oil andrelated natural gas costs fell towards theend of the year. Our steel cost servicerevealed, however, that even in the first half,steel producers not only in Europe butacross the world had a comparatively goodyear and this was thanks largely to the mostimportant element in steelmaking costs: thatof raw materials.

Frankly through no obvious prudence oftheir own, at least during 2014, steelproducers were able to benefit from anunprecedented battle, largely amongAustralian, and to a lesser extent Chineseand Brazilian suppliers of iron ore, forChinese demand. Though Chinese demandincreased, mainly because of a recovery insteel demand in Chinese steel exportmarkets, the growth was dwarfed by ironore supply and the resulting collapse in ironore prices, of around 50%, proved farsharper than the related steel price declines.Indeed according to our own steel andsteelmaking raw material indices, 2014effectively put an end to the previous six-

year trend of raw materials outperformingsteel. The beauty for many steel producers,was the index system, such as at BluescopeSteel in Australia, where the month-on-month change in iron ore prices in Chinawas directly applied to their own purchases.Other mills still operating two-three monthrolling averages also benefited directly asiron ore prices collapsed. By product,however, our steel cost service alsorevealed the clear distinction in performancebetween different traded steels.Unsurprisingly, given the impact of iron ore,merchant pig iron producers had the mostto benefit in 2014 as they successfullyavoiding dropping prices until later in theyear. In our Q3 2014 report, their margin onsales peaked over 50%, far higher than anysteel product downstream. Nevertheless,downstream steels also managed to retaintheir value, as the underlying demandgrowth for consumer durables such as carsand washing machines accelerated throughthe mature steel markets and remained firm,

at least when compared to constructionsteels, in emerging markets such as China.Packaging industries also provided apersistently high margin for the world’stinmill producers. For the construction steelproducts, such as for bar, rod, and plate,where the mills are often more scrap andpig iron dependent, margins wereunderstandably squeezed by comparisonthough innovative techniques to reduceexposure to scrap and roll billets producedin China and the CIS at certain timesensured that bar mills were generallyprofitable. This year, we believe scrap andpig iron suppliers will respond to thecompetitive threats offered by their rivalswhilst at the same time, our latest forecastssuggest construction steel demand will riseat its fastest pace in more than a decade,not so much in China but in the USA andfarther afield. 2015 could thus be anothervolatile year but at the outset there areprospects that long products producers cancatch their flat-rolled rivals.

Stay ahead – get independent data andanalysis on the market with MBR’s GlobalSteel Cost Service.The quarterly research report includes:

lKey production cost data and analysislProduction costs at each plant for all stages of the production processlDetailed individual coverage including: Pig Iron, DRI, Crude Steel,Billet, Slab, HR Coil, Galvanized Sheet, Wire Rod and Heavy Sections.

For more information or to subscribe please email info@metalbulletinresearch.com, call +44 (0) 20 7779 7226 or visit our online store

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Average operating costs to produce one tonne of steelby process ($/tonne)

720640560480400320240160

800

Q1‘10 Q3‘10 Q1‘11 Q3‘11 Q1‘12 Q3‘12 Q1‘13 Q3‘13 Q1‘14 Q3‘14

US

$/to

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Source: Steel Cost Service

BOF

EAF

Global Steelmaking Capacityand Expenditure Outlook

Steelmaking capacitycontinues to surgeOne of the more unusual developmentsbeing witnessed in global steelmakingcapacity is that for all the highly publicizedclosures of crude capacity over recent years,particularly in mature markets such as at USSteel Hamilton’s works in Canada or atOutokumpu’s Krefeld works in Germany, wecontinue to find that overall, it is still rising yearafter year, and by a rapid degree. Accordingto the World Steel Association (WSA), globalsteelmaking capacity utilization, among the 65reporting countries, slipped to the lowestlevels all year at just 72.7% points inDecember 2014. Though the capacity datawas not published at the same time, this rateimplies an annualized capacity of 2.16bntonnes today. In 2013 , the WSA believes thatthe equivalent capacity utilization figure wasmuch higher at 75.1%, which we cancalculate as generating an annualizedcapacity figure of 2.09bn tonnes. So whilesteel output may be stabilizing year-over-year,having only risen by a provisional 1.1% (byjust 0.9% in China and by 1.4% elsewhere),available steelmaking capacity has increasedby closer to 3.5%; as much as 72.3m tonnes.To be fair to the world’s steelmaking investors,MBR had predicted that steel productionwould rise by about that speed this year,expecting Chinese demand merely toslowdown, rather than retreat as it has done, ifonly temporarily. Nevertheless, this is certainlynot the first time that steelmaking capacity hasbeen rising faster than production. Indeed in

2012, capacity had reached an annualizedtotal of 1.98bn tonnes by December of thatyear, effectively showing that globalsteelmaking capacity rose by close to 113.2mtonnes last year when production, over thesame period, had risen by just 68.5m tonnes.The point being made here is that while thenet additions to steelmaking capacity areretreating (from 113m to 73m), they are notfalling nearly quickly enough and the gapbetween capacity and production growth iswidening rapidly from 1.6 in 2013 to 2.8 timesproduction in 2014.

So will the world’s steelindustry try to dosomething about it? Well, given that the battle to supply rawmaterials has become even more intensethan the battle to supply the world’s steel, theagenda to reduce the “oversupply” has

become a little more muted of late asproducers find that their profitability is on therise. Isolated examples aside, we can allacknowledge that low utilizations, such asthose in Europe see chart, are a recipe forpoor prices and clearly if, as we expect, thebattle for raw materials begins to diminish asonly the most profitable players survive,steelmakers will need to take more control oftheir own profligacy. This is clearly still a long-term development for them as next year,according to our latest Steel Capacity andCapital Expenditure database, we haveidentified a gross addition of 119.440Mtonnes coming on stream and over 100Mtonnes more through the following threeyears. Though less than half of this will beavailable to producers, given different start upand ramp up times – it takes a full year toreach full capacity – it is hardly conducive tobringing tightness to a market, where thedemand outlook, though improving, has itsincreasing share of downside risks.

Stay ahead – get regular independent dataand analysis on the market with MBR’sSteelmaking Capacity & Capex Study.The quarterly subscription to Steelmaking Capacity & Capex Study includes:

l A written report sent out quarterly highlighting the key findings andpoints of analysis. The Steelmaking Capacity & Capex provides ananalytical commentary and forecast by product, with capacity andcapital expenditure out to 2016;

l Statistical information for product capacity by producer/miner andby site

l Statistical information for product capital expenditure by investor,location, capacity, $(m) cost and start upstartup

For more information or to subscribe please email info@metalbulletinresearch.com, call +44 (0) 20 7779 7226 or visit our online store

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Crude steel capacity utilization in Europe by leadingproducer (%)100%

80%

60%

40%

20%

0%ArcelorMittal

TATA ThysenKrupp

Voestal-pine

CELSA ILVA Salz-gitter

SSAB HKM Total

EU Capacity Utilization (%)

Global Tinplate Outlook

This year has seen tinplate mills inindustrialized countries adjusting to the sizeand form of their mature domestic marketsand to the loss of exports markets theyenjoyed before the development of tinningcapacity in consuming areas where marketsare still growing. The predominantlyintegrated tin mills of the USA and the EUhave rationalized and modernized capacityand after years of declining output theirmarkets are in better balance. Prices shouldstabilize in 2015.

Japan still has substantial tinplate capacity;South Korea and Taiwan rather less; China’scapacity is large and growing. There are twomain sources of downward pressure onprices in the market in eastern Asia: overallexcess capacity and the low prices offered bynon-integrated mills that buy re-roll HR coilwhich they double reduce for substrate. Theyserve the lower grade end of the market buttheir low prices influence other tinplate prices.Baoshan Steel, China’s biggest tinplateproducer, has tried and failed to control thesenon-integrated suppliers; these will continueto pose a threat to full cost tinplate prices,especially in a year when coil prices are likelyto be weak, as they will be in 2015.

Asia also has several stand-alone tinninglines, that buy ready substrate “black plate”or “loam” plate; they usually support higherprices. Some were established in tin miningcountries such as Thailand, Malaysia andIndonesia in order to maximize income fromlocal mineral resources. Most obtainsubstrate from Japan. The prices they bid forloam plate reflect their competition withimports, including competition with pricedChinese non-integrated mills but they have adegree of protection.

It is common for peaks in demand for highgrade food quality tinplate to coincide withmajor harvests, industrial scale fishingseasons and so on. Extra orders in China aregenerated by demand for fancy gift boxesbefore Lunar New Year, but excess supply willmake it unlikely for prices to rise in thecoming quarter. Agribusiness and fishingindustry demand are likely to support firmprices in the middle of the year, but prices arelikely to fall in the later months.

Stay ahead – get a regular independentoutlook on the market with MBR’s GalvanizedSteel and Tinplate Market Tracker.The monthly research report includes:

l 6-month forecasts and key price movements for all major regionsl Assessment of transaction prices in the major regions of America,Europe and Asia

l A global tinplate market analysis with 6-month forecasts for key regions

l Key price movements and developments in raw material prices

For more information or to subscribe please email info@metalbulletinresearch.com, call +44 (0) 20 7779 7226 or visit our online store

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Any outlook for grade 304 stainless steelmust incorporate a view on nickel prices. Assuch, with MBR expecting average nickelprices to head up toward $20,000/tonne thisyear (up from an average of around$17,000/tonne during 2014), we wouldexpect average prices of grade 304 stainlesssteel to increase as well.

Outside of this obvious impetus for prices,stainless steel producers worldwide shouldbenefit from tighter supply/demandfundamentals. Capacity cutbacks willcontinue apace in Europe, with the region’slargest producer, Outokumpu, set to close its800,000 tonne facility in Bochum, Germanyduring the second half of next year.Elsewhere, US demand strength will helpproducers there to maintain higher capacityutilization rates.

The wildcard of course remains China.Consumption growth here is set to slow inthe coming years, as indeed it has doneduring 2014. Over the last 12 months,Chinese producers have resorted toshipping their excess material elsewhere,leading to an increase in China’s net exportposition of almost 80% when comparedwith 2013. This has understandably causedtensions, particularly with the EU, who mayimpose anti-dumping duties on Chinesematerial at some point during 2015. Thismay be the key factor in determiningwhether the world’s stainless steelproducers will increase their price-settingpower on grade 304 products during 2015,or whether they will continue to remain atthe whim of the nickel market.

Global Stainless Steel Outlook

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Stay ahead – get a regular independentoutlook on the market with MBR’s StainlessSteel Market Tracker.The monthly research report includes:

l Regional analysis and outlook for stainless steel, flat and longproduct pricing

l Short and medium-term forecasts for key market parameter –consumption, production and price.

l Selected regional supply and demand analysisl Analysis of alloy surcharge composition and short-term outlook

For more information or to subscribe please email info@metalbulletinresearch.com, call +44 (0) 20 7779 7226 or visit our online store

LME nickel price vs. Asia 304 price ($/tonne)Despite falls toward the end of 2014, MBR expects nickel prices to move higher during 2015

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EXPORT S IMPORTS NET EXPORTS

Chinese stainless steel trade data (‘000 tonnes)

Global Iron Ore & Coking Coal Outlook

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MBR expects that iron ore prices will remainat comparatively low levels throughout 2015,as Chinese demand, which is the destinationfor close to 70% of seaborne supply, ispredicted to slow. In fact, China’s pig ironproduction may have peaked in 2014although early indications from CISA-member mills, who consume the vastmajority of China’s iron ore, reveal thatproduction has actually accelerated on ayear-on-year basis though the outlook is notso promising seeing as finished steelproduction has been stabilising at the sametime. Chinese steel demand has beendecelerating rapidly since 2013 and thoughexport growth has continued to supportChinese steel production and resulting ironore demand, we highly doubt that thissituation can continue. The Chinesegovernment seems particularly determinedto restrict the exports of long products andhas reduced the preferential tax rebatesassociated with them, which is bound torestrict volumes in the short term. Whilesome end-user demand indicators areoutperforming expectations – Chineseautomotive production rose by more than11% in January – we accept the predictionsof the Chinese institute CAAM andindependent forecasters, the OEF, that suchmomentum cannot continue; not least asincreasing numbers of metropolitan areaslook to encourage public transport andreduce urban pollution caused by increasingautomotive use. We expect Chinesemanufacturing demand to slow, though not

outright decline as the latest PMI statisticshave suggested so far and so inevitably thebest demand conditions for iron ore andmetallurgical coke are to be found in the restof the world, even though actualconsumption outside China trails China by adistance. Global economic growth ispredicted to accelerate this year and with itthe industries which drive steel consumptionbut iron ore and coke’s particulardependence on China damages the outlookfor the sector, especially as China’s scrapconsumption, albeit from a comparativelylow level – it’s smaller than Europe’s – isfurther impacting Chinese demand for iron.

Nevertheless, iron ore supply is something themarket can worry less about in 2015. Unlike2014, when more than 160M tpy of newcapacity flooded the market, boosting surplusstocks in China (see chart), 2015 will witness amilder net increase in supply. On one hand,though major suppliers are pressing on withtheir expansion plans, the pace is a lot slowerand volume much smaller; on the other, moredisplacement will be seen in 2015 thatincludes high-cost seaborne supply fromjunior miners and Chinese domestic supply.And thus while muted, prices should findsupport and in our view move comfortablyabove their current levels.

Stay ahead – get a regular independentoutlook on the market with MBR’s Steel RawMaterials Weekly Market Tracker.The weekly research report includes:

l Detailed and clear supply/demand analysis and pricingdevelopments covering the iron ore, coking coal, coke, scrap, ironmetallics and ferroalloys markets.

lConcise outlook on the direction of the steel raw materials markets.l Robust two year iron ore, coking coal, coke, scrap and iron metallicsprice forecasts.

lGlobal monthly trade data for large steel raw materialimporting/exporting countries.

For more information or to subscribe please email info@metalbulletinresearch.com, call +44 (0) 20 7779 7226 or visit our online store

Chinese port stocks vs.Chinese port stock/demand ratio, months ofdemand on hand1.2

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S-D Balance

Apparent Iron Ore consumption

Real demand (NBS)

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Global Steel Scrap & Metallics Outlook

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MBR anticipates that international scrap andmetallics benchmarks will be prone tomarked downside risks through 2015, ascomparatively high supply availability will beexacerbated by at least initially slackdemand. We believe scrap and metallicsprices are currently overvalued compared toalternative steelmaking raw materials costs inmajor consuming markets, even after thedramatic falls recorded in early February. Asa result, MBR expects electric arc furnacesteel producers, in particular, will continue tobattle for heavy discounts on scrap,merchant pig iron and DRI/HBI costs toimprove their competitiveness.

Hot metal production costs have becomemore competitive over the past year, giventhat iron ore prices have slipped to around$62/t, CFR Qingdao, in early February,compared to $140/t at the end of 2013. Infact, the value of an iron unit in iron ore finesversus the equivalent in scrap has deviatedaway from its long-term mean. If we assumethat scrap is a substitutable form of pure iron(produced via blast furnaces), the long-termaverage value of an iron unit in scrap hasbeen 1.95x that in iron ore and just under2.10x since 2010 (see chart). This ratiocurrently stands at up to 2.8x in Asia;suggesting scrap prices are overvaluedcompared to current iron ore pricing levels.Indeed, this high value has alreadysupported the strong growth in (non-China)Asian integrated (BOF-route) production andthe decline in mini-mills (EAF-route) outputover the past year. It has prompted some

minimills to re-roll blast furnace producedbillet or slab rather than melting relativelyexpensive scrap to be more competitive.

While US minimills had more than enoughdemand last year to increase production –integrated output by contrast fell – astrengthening US dollar threatens morecompetition this year. Mini-mills are droppingsteel prices frequently to protect marketshare and scrap suppliers, struggling with

the dollar to be competitive abroad, haveslashed prices to support their consumers’margins. We believe US scrap-intensiveelectric arc furnaces will face furthercompetition from abroad and expect localintegrated producers to have anotherchallenging year from some of these lower-cost semi-finished and finished steelproducers but so long as hot metal costsrise, scrap demand and prices may soonfind support.

Stay ahead – get a regular independentoutlook on the market with MBR’s SteelScrap and Metallics Forecaster.The monthly research report includes:

l Independent analysis of international steel scrap and metallicsmarket, split by six key regions i.e. North America, South America,Europe, CIS, Asia (excl. China) and China.

lClear and concise views on current supply/demand fundamentals, highlighting trade flows, and an outlook on thedirection of the markets.

l International steel scrap and metallics price assessments. l Robust steel scrap and metallics two year price forecasts. lGlobal monthly trade data for large importers/exporters.

For more information or to subscribe please email info@metalbulletinresearch.com, call +44 (0) 20 7779 7226 or visit our online store

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Hot metal vs. scrap costs in Asia (US$/tonne)

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Global Ferro-Alloys Outlook

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Ferro-silicon supply is tighter than formost other ferro-alloys, lending support toprices. In addition to reduced Chinese andBrazilian supply, several European producershave been affected by energy andenvironmental issues in recent months.Reduced supply will continue to support theferro-silicon market in early 2015, with thenorthern hemisphere winter leading to furthersupply restrictions in the near term. Europeanferro-silicon prices are expected to trade in anarrow range in the short to medium term inline with subdued demand from steelmakerscautioned on erratic currency movements inthe euro/dollar rate, while political stabilityworries persist in Ukraine and the MiddleEast. European demand seems satisfied formelt rates in the next few months, while therecent slump in the Russian rouble meansreplacement costs for Russian ferro-siliconlook to be good value. Inflows of Russianmaterial will likely be a factor in the USA aswell. The dismissal of the US anti-dumpingcase against Russian and Venezuelanimports will see resumed shipments of ferro-silicon from these nations to the USA in thenear term, but we do not expect this todisrupt the market given underlying supplytightness and expectations of further growthin US steel demand during 2015. In China,steel production has continued to increasesince November but demand is showing nosigns of recovery, and ferro-silicon prices areset to linger at low levels.

There are no indications that the upwardmomentum in global silicon metal priceswill reverse in the near term. In fact, supplyshortages are expected to become morepronounced as the northern hemispherewinter season progresses. Chinese outputwill be negatively affected by rising powercosts, while we will also see Europeanproducers take outages, such asFerroatlantica’s normal first-quarter furnaceclosures in France. Demand from theautomotive sector, particularly in NorthAmerica, shows no sign of slowing, and willcontinue to prop up demand for aluminiumalloys, and in turn, silicon metal. Demandfrom the solar industry also remains buoyant,with reports of shortages due to strongpolysilicon demand. Chemical sectordemand is also rising, however, this is onearea that could be vulnerable given decliningoil prices. Oil-based products and silicon-based silicones products compete innumerous chemical industry applications,and declining oil prices versus rising siliconprices could prompt some shifting away fromsilicones towards oil-based products,

dampening demand for silicon metal. Wehave not yet heard that this shift is occurring,but it is a potential trend to watch.

Ferro-manganese, and to a lesser extentsilico-manganese, markets have proveddisappointing over the past year, as amplesupply has overwhelmed less thanimpressive growth in crude steel output.We expect this supply-demand imbalance tocontinue to impede manganese alloy pricesduring 2015. Manganese alloy prices arepoised for further declines in the near termdue to muted demand from domesticsteelmakers across Europe. The biggestexporter to Europe recently has been SouthAfrica, where suppliers have been sellingaggressively. The weakening rand is makingSouth African exports increasinglycompetitive in Europe. Moreover, there hasbeen no interruption of supply from Ukraineamid the political and security unrest in theeastern part of the country, with Ukrainianmanganese alloy output in fact rising in 2014.A weakening euro coupled with the potentialfor duties against imports of Indian silico-manganese should create an environment inEurope in which prices can rise. The practiceis different to the theory though, as priceslook likely to hold steady at best, and atworst, fall even further. Chinese manganesealloy markets are struggling amid sufficientstocks and weak demand from steelmakers.US steelmakers are struggling with a slip indemand for their finished products andincreased import competition, promptingsteel mills to reduce operating rates.

The early-year restocking of raw materialsat Europe’s stainless steel mills has eithercome too late or is too feeble in itsmagnitude for the world’s major ferro-chrome smelters. Recent weeks have seenSouth African ferro-chrome producers give into demands by Europe’s stainless mills toreduce the quarterly charge chrome contractprice for the first quarter of 2015. First-quartercontract prices have been agreed down$0.07/lb to $1.08/lb, the lowest level in fiveyears. With ferro-chrome smelters offeringever-larger discounts on contract prices,contract buyers are now receiving material atprice levels similar to those seen on theChinese spot market, at $0.80/lb. ThisChinese spot price has stabilised, however,and MBR believes it will be difficult for a largenumber of ferro-chrome producers to makemoney much below this level. Further pricefalls are likely to be limited, unless discountsare reduced. Indeed, if discounts wereremoved entirely, the contract price could stillfall significantly.

The nickel market is at an interestingjuncture where the supply outlook is set toget increasingly bullish later this year andfor a few years to come. The root of thetightness comes from Indonesia’s ban on oreexports just over a year ago, but due to theban being well telegraphed the Chinesestockpiled and the Philippines addedcapacity. These actions have delayed theimpact of the Indonesian supply cuts asPhilippine ores have been blended with thehigher grade Indonesian ores that werestockpiled at Chinese ports ahead of the ban.However, the essential Indonesian orestockpile is running down and, oncedepleted, falling output of nickel units fromNPI production in China will need to bereplaced with other types of nickel, includingLME-grade material. Considering some 450ktof nickel units have come from NPI in recentyears, the gap from lower NPI production islikely to be significant over the next few years.We think the market will start to get bullishwhen the upward trend in LME stocks turnsinto a downward trend. Nickel prices haveremained volatile in recent weeks, and havenow returned to the upper levels of the basearea where they were trading before lastyear’s March-May ballistic rally. Havingeroded all of last year’s gains, it doessuggest that last year’s enthusiasm has nowbeen washed out of the market, resettingsentiment more in line with the currentfundamentals. These have weakened givenhow much metal has come out of Chinafollowing the Qingdao port scandal, as seenby the rise in LME stocks. That said, while thecurrent fundamentals might be far frombullish, the future fundamentals still look setto tighten, so it will now be a case of whenthe market starts to anticipate this.

The molybdenum market has not had agood start to the year as far as pricing isconcerned. There has been generalweakness in most markets, with prices forferro-molybdenum in Europe dropping tobelow $20/kg. The market is incredibly quiet,with very little trade taking place. MBR sees noreason for this to change in the near term.There could well be a widening gap betweenbids and offers as trading activity slows down,and buyers and sellers struggle to see eye toeye. The US market began the year withprices rising 2% initially, but these prices toohave now slipped to below $10/lb. We expectprices to hold steady at these levels in theshort term. Any pricing gains during 2015 willonly return prices to levels justified by theunderlying supply-demand balance. With newmolybdenum supply coming onstream, the

Global Ferro-Alloys Outlook(continued)

12

market will trend to over-supply for theforeseeable future, dampening prices this year.

Ferro-vanadium traders have noted aninconsistent trading pattern in recentweeks in Europe and consequently havedifficulty in taking a position for anybusiness outlook in the coming weeksand months. European ferro-vanadiumprices resumed losses in January, with thebulk of business easing to around $21/kg,with a handful of smaller lots trading 5-10cents either side of that range. Short-termindicators appear bearish, while somesources have noted an increase in offers ofmaterial from several smaller Chineseproducers. Chinese 80%-grade ferro-vanadium export prices have fallen sharply inJanuary due to slow demand and a similartrend in the domestic market. Export pricesare likely to fall further as that trend looks setto persist, while production costs have alsobeen getting cheaper and the RMB has beenweakening versus the dollar. Chinesevanadium is in surplus supply as domesticproducers have been producing at asubstantial rate despite weakening demand.The US ferro-vanadium market has beensteady, hemmed between tight supplies andslow demand for nearby delivery. Spotmarket buying should be slow right throughFebruary after destocking in December, whilesteelmakers appear content to use their rawmaterial stocks for the time being. A shortageof nearby supplies, with producers well soldin quarterly contracts, has ensured thatavailability is tightly controlled, and as such issupporting prices.

European ferro-tungsten prices havecontinued their retreat again this month,following stock liquidation and reduceddemand from steelmakers in recentweeks. The market may be bottoming out,however, after a recent improvement inChinese concentrate prices, although dealercaution is stymieing activity. In China therehas been slow business in early 2015,prompting some producers to haltproduction. We understand severalproducers in Hunan province have receivedno new orders so far this year and will shutdown early for the Chinese New Year Holidaybetween 18-24 February.

The Chinese government announced inJanuary that export duties on rare earths willbe cancelled on 2 May 2015, with the sameexpected for tungsten as China intends tocomply with WTO rules. The current exportduty on ferro-tungsten is 20%. If the exportduty is removed, foreign shipment levelsshould recover and illegal trading should thinto virtually nothing. A slowdown in economicactivity in China, added to the arrival of theHemerdon tungsten project in southwestEngland and smaller tailings operations,particularly in Australia, should cap tungstenprices in 2015.

Historical and forecast European ferro-alloy prices($/tonne)1,800

1,600

1,400

1,200

1,000

800Jan13

May13

Sep13

Jan14

MaySep

Sep14

Jan15

May15

Sep15

Jan16

FeSi 75%

SiMn 65-70%

HC FeCr 60%

Forecast prices

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Stay ahead – get a regular independentoutlook on the market with MBR’s Ferro-Alloys Market Tracker.The monthly research report includes:

l Analysis of ferro-alloys market prices, supply and demanddevelopments and forecasts.

l Extensive price forecasts, supply-demand data by ferro-alloysand by region.

lMarket conditions for regional ferro-alloys markets.l Analysis and forecasts for crude steel and stainless steelproduction and consumption.

l Analysis of the latest market indicators and trade trends for bulkand speciality alloys.

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Global Industrial & StructuralTube & Pipe Outlook

13

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Industrial and Structuraltube and pipe marketsmixed outlook in 2015A struggling economic outlook in bothChina and Europe is weighing down on theoutlook for industrial and structural tubesdemand here into 2015. Major over-capacities in the European market remainsa further driver to prevent significantrecoveries in this market into 2015.

There are some brighter spots, withdemand for precision seamless and weldedtubes from the automotive markets likely tohold-up in 2015. Indeed, the benefits ofexceptionally low oil prices could eventuallywork through the system to the end-userprompting rising consumer spending in theEU. In turn, this could see automotive andindustrial output potentially start to trend-upwards later into the year. There remainsthough a number of political events in 2015which could stifle demand improvements inthe precision markets.

Some respite to local European industrialand structural producers could come if thedollar continues to strengthen against theEuro making it difficult for a number oftubular imports from countries such asTurkey to remain competitive in Europe. The rapidly falling currencies to the East inRussia and the Ukraine are though causefor concern in the EU and this couldcontradict the benefit of a strengthening USdollar as Russian and Ukrainian industrial

and structural tube producers see the EUmarket as attractive even with import dutiesin place.

In the USA, consumers are already benefittingfrom lower oil prices resulting in risingconfidence and spending. Automotivepurchases will continue to drive manufacturingoutput gains as consumers relieve pent up cardemand while fuel efficiency becomes less ofa concern in the decision-making process.The strong dollar, however, will limitmanufacturers’ ability to export and providecompetition on the home market for sales.

Output, and ultimately mechanical tubingdemand, could be constrained. Importpenetration in the tubing market will likelygrow as well, offsetting at least part of thedomestic shipment gains from rising demand.

Construction tubing demand still lags thatof mechanical tubing demand, althoughthe steady growth experienced late lastyear is expected to continue through 2015.Again, import competition will put a lid onprice appreciation.

Stay ahead – get a regular independentoutlook on the market with MBR’s Industrial& Structural Tube & Pipe Market Tracker.The monthly research report includes:

lCoverage of HSS, mechanical, precision, and piling markets in thekey regions.

l Forecasts of regional price movements and the supporting analysisl Intelligence on activity by distributors and suppliers.l Tracking the capacity changes and enhancements with insight intohow these changes will affect market dynamics.

l Data on trade flows and consumption patterns and their relation tothe markets

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EU seamless drawn and non-drawn mechanical pipeprices (€/tonne)1,600

1,400

1,200

800

600

400

200

0

Jan

13Fe

b 13

Mar

13

Apr

13

May

13

Jun

13Ju

l 13

Aug

13

Sep

13

Oct

13

Nov

13

Dec

13

Jan

14Fe

b 14

Mar

14

Apr

14

May

14

Jun

14Ju

l 14

Aug

14

Sep

14

Oct

14

Nov

14

Dec

14

Jan

15Fe

b 15

Mar

15

Apr

15

May

15

Jun

15Ju

l 15

Forecast prices

EU seamless mechanical tube EU cold-drawn seamless precision tube*

*Does not include surcharge on these tubes

Global Welded Linepipe &OCTG Outlook

14

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Global linepipe momentummay slow in 2015By mid-2014, the global large-diameterlinepipe markets were showing signs ofgrowth following more than a year of weakdemand. In North America, demand fornatural gas infrastructure especially in theeastern USA, and Mid-Continent oilpipelines have been the main growth drivershere. With the awarding of the Rover, SabalTrail, Dakotas, Sandpiper, Lone Star pipelinesupply contracts, among others, in recentmonths, domestic capacity is filling creatingan opening for import competition in thismarket. Indeed, lead times for NorthAmerican large-diameter linepipe producersare now stretching out well into 2015 withsome mills taking orders for 2016 delivery.

The collapse in oil prices have createdconcern amid producers to this market,however, as some projects could bedelayed or cancelled altogether. MBRbelieves that the natural gas lines will likelyavoid the fallout given that this infrastructurewas far overdue and will eliminatebottlenecks in the northeast which causedsevere price spikes in gas supplies lastwinter. Oil and CO2 pipelines, however,could face tighter scrutiny under currentprice conditions. MBR has heard thatEnterprise Products Partners’ North Dakotato Cushing, Oklahoma project has beencancelled. The pipeline faced competitionas well as lack of interest due to low oilprices and was unable to secure the

needed commitments from shippers.Meanwhile, rail, which is more flexible tovarying demand than pipeline investment,will remain a viable alternative for oiltransport, especially for Bakken crude oil.

CO2, which is used for enhanced oilrecovery (EOR) in mature wells, could see ademand shift as oil from EOR wells isdeemed unprofitable and this production issuspended. CO2 pipelines, therefore, havethe potential to be delayed under sustainedlow oil prices.

Nevertheless, MBR forecasts that linepipepricing in the region will fail to registersignificant gains this year as producerscompete for available projects to sustainthem over any near-term slowdowns inactivity. The level of import competition willbe determined by activity on the homemarkets, such as the EU.

Indeed, pipeline planning and constructionactivity also picked up in the EU, China andCIS into the second half of 2014.

By the fourth quarter of 2014, Russian mills’utilization rates soared as they producedpipe to supply to three major projects:

South Corridor, Power of Siberia and SouthStream. Meanwhile, EU and Asianproducers vied for tenders to supply pipe tothe TAP/TANAP projects, with significanttonnage going to Chinese suppliers as wellas Turkish consortia.

Nevertheless, there is now uncertainty in theprogress of the South Stream project as theproject has been cancelled by the Russiangovernment and pipe production indefinitelysuspended. MBR believes that theuncertainty over Russian pipelines acrossthe Black Sea could support other dormantprojects moving ahead, such as the EastMediterranean pipeline, and GALSI. Anyspare capacity here, however, will continueto look to other markets, namely NorthAmerica for potential supply opportunities,especially given the dollar’s strength.

Stay ahead – get a regular independentoutlook on the market with MBR’s WeldedLinepipe & OCTG Market Tracker.The monthly research report includes:

l Analysis of key developments in OCTG and linepipe in theAmericas, Europe/CIS, MENA, and Asia.

l Intelligence on activity by distributors and suppliers.l Information on all capacity changes.l Tracking the changing dynamics of pipeline construction plansand analysis of how that will affect linepipe demand.

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US large-diameter (over 16” OD) linepipe imports (‘000 tonnes)Spiral LSAW

8070605040302010

0

Jan

12

Apr

12

Jul 1

2

Oct

12

Jan

13

Apr

13

Jul 1

3

Oct

13

Jan

14

Apr

14

Jul 1

4

Oct

14

Tube and pipe marketsfacing a 2015 correction2015 is shaping up to be a tough year for theseamless OCTG and linepipe markets. Forthe past five years or so, these markets weresome of the strongest in the steel industry,but are now facing headwinds at the start ofthe year.

Much of the change in outlook toward aweaker position this year is the result of fallingoil prices. Global crude oil prices are downabout $45/bbl year-over-year, after fallingthrough much of second half of 2014 on theback of rising production in the USA as wellas globally, and slower than expecteddemand growth in Asia and the EU. US oiloutput and rig counts remained relativelysteady into December as drillers maintainedoperating budgets. Rig counts are now fallingsharply as marginal high-cost producersleave the market. Overall oil production islikely to continue to grow – although at aslower rate than expected – in the first quarteras the larger operators move production tolower-cost holdings.

Nevertheless, OCTG purchasing is alreadyaffected, and inventory holdings are now aconcern. US distributors will look to controlstocks to avoid an oversupply in the market.Seamless mills are being idled as a result ofthe cut in demand and prices are underpressure. The falloff in drilling will also lead tocuts in linepipe demand and prices here willalso be affected.

The problems are not just constrained toNorth America, other OCTG markets in theworld are seeing demand falling noticeablyfrom the high-cost production offshore fieldsand unconventional drilling areas such as theNorth Sea, West Africa and South America.Even in regions like the Middle East, whereextraction costs are much lower, such hasbeen the speed and size of the drop in the oilprice that National Oil Companies here arenow thought to be examining their OCTGsupply chains. MBR expects that as a result,OCTG prices could be pushed down into thesecond half of this year.

While the energy markets are difficult topredict, oil prices are not expected to recoveruntil the second half of the year. Meanwhile, itis assumed that oil production growth will beconstrained in North America, but there willbe no collapse in output in the time period.Operators will maintain steep cost cuttingprograms which will continue to put pressureon OCTG and linepipe prices. Seamlessmarket share will also take a hit as a result ofthe cost cutting as ERW supply becomesaccepted into previously seamless-onlyapplications. Prices will likely average lowerthan in 2014.

Stay ahead – get a regular independentoutlook on the market with MBR’sSeamless OCTG & Linepipe Market Tracker.The monthly research report includes:

l Supply and demand analysisl Forecasts of regional price movementsl Analysis of key developments in Seamless OCTG and Linepipe inthe Americas Europe/CIS, MENA and Asia.

l Data on trade flows and consumption patternsl Intelligence on activity by distributors and suppliers

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Global Seamless OCTG& Linepipe Outlook

15

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May

‘11

Sep

‘11

Jan

‘12

May

‘12

Sep

‘12

Jan

‘13

May

‘13

Sep

‘13

Jan

‘14

May

‘14

Sep

‘14

Jan

‘15

250

200

150

100

50

0

US oil rig count – selected basins (units)

Source: Baker Hughes and MBR

600

500

400

300

200

100

0

Global Base Metals Outlook

CopperLow prices havedisconnected from tightfundamentalsThe steep fall in copper prices this at the startof this year mirrors declines in oil and ironore, among others, in that each market hasdescended to, or even beyond, 5-year lows.But that’s where the similarity ends. Oil andiron ore are very oversupplied markets, butcopper is not. Indeed, it has been our viewfor a while that, fundamentally, copper is notin a bad shape at all. And, if anything, theoutlook is getting tighter. In fact, we haverecently revised our supply-demand balanceto show a small deficit this year, as webelieve demand remains fairly resilient and

sub-$6,000/tonne prices will see ChineseSRB stockpiling more metal. Meanwhile, thesupply side is on course underperformsignificantly, with 2015 already well on theway to being a record year in terms of supplydisruptions. There has been a pick-up incapacity closures, operational difficulties andother unplanned disruptions, average gradesare still falling, investments continue to bescaled back, the risk of labour disputes hasgrown, there remain processing bottlenecksand scrap collection in an already tightsecondary market is likely to be reducedfurther. So while we have lowered our Q1price forecast to accommodate the recentwash-out, our view is that prices havebecome disconnected from the underlyingfundamentals, which is not sustainable.Therefore, we are still looking for copper toend this year comfortably above the Q1 lows

and well on the way to recovering the lossesinflicted since mid-2014.

A record year in the makingfor copper mine disruptions

16

LeadThe dark horseLike copper, lead is another market that hasunderperformed its fundamentals.Exchange stocks are low relative toconsumption, destocking in China has leftinventories lean there, and supply anddemand are roughly balanced overall. Inaddition, there is now more talk ofproduction cuts and the lower prices arealso likely to start making it more difficult forsecondary producers to get scrap. So, aswith copper, there is a case for lead pricing

to improve during this year, and that is ourbaseline assumption. But the other thingthat is so noteworthy about lead is itsquietness. For some time, there has beenvery little action on stocks, spreads arebenign, premiums are lifeless, LME turnoverand open interest have shrunk drastically,and prices have gone from a premium overzinc to a deep discount. Interest needs toreturn to this market and, when it does, wethink it has a significant rerating to undergo.It may even turn out to be the top performerthis year, potentially overshadowing moreobvious consensus top picks, like nickeland zinc.

Biggest potential upside ofall the base metals

NickelDeficit delayed, but still comingThe nickel market got too bullish too soon in2014. Chinese NPI producers proved to bemore resilient and resourceful than they wereinitially given credit for, Philippine minersproduced more ore at higher average gradesthan previously expected, and the Qingdaoscandal triggered the mobilisation of anenormous tonnage of previously invisibleinventory from China to LME warehouses. In the end, the fundamentals didn’t improveanywhere near as much as the nickel bullshad hoped they would. But they are stillimproving and 2015 is when some degree oftightening up should belatedly start to be felt.The thing is, visible nickel stocks are much

higher now than a year ago, the demand-side is less robust and investors alreadyburnt from sell-off in nickel and othercommodity markets over the past 6-9months will be wary about getting too bullishagain. Nickel prices will probably remainvolatile in the short term given broader issuesbut, once the dust settles, falling NPI

production and the end to the relentless LMEstock build should lay the foundation for asustainable improvement in prices this year,and next. The recovery may not set in untilQ2 at the earliest or, more likely, even later inthe year, but it is coming. We are modelling aglobal market in balance at worst this year,and in a clear deficit in 2016.

0

-200

-400

-600

-800

-1000

-1200

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

6.0%5.0%4.0%3.0%2.0%1.0%0.0%

-1.0%-2.0%-3.0%-4.0%

Al Cu Pb Ni Sn Zn

Chinese NPI production now in retreat50

45

40

35

30

25

2900027000250002300021000190001700015000

Oct

13

Nov

13

Dec

13

Jan

14

Feb

14

Mar

14

Apr

14

May

14

Jun

14

Jul 1

4

Aug

14

Sep

14

Oct

14

Nov

14

Dec

14

Jan

15

NPI output (LHS) Ore stock (RHS)

17

TinChinese supply surge hasdamaged the fundamentalsAll eyes in the tin market will be on China,Indonesia and Myanmar this year to see howcrucial supply-side issues pan out. There isthe potential for production to acceleratefurther in China, fuelled by the continuedemergence of Myanmar as a major andseemingly increasingly reliable source ofconcentrate, while there is the potential forIndonesian supply to be further constrainedby the government’s trade policy tinkering.

Overall, we are neutral on tin’s fundamentaloutlook in the short to medium term. Butmaintain a bullish longer term view givenstructural supply shortages that theemergence of Myanmar does not fullycompensate for. If demand is anywheredecent this year, we think a global supplydeficit is certainly a possibility in the tinmarket, but with frailties on the economicgrowth front in most key regions this hasbegun to feel more like a best case scenario,and recent revisions to our base case see themarket recording a small surplus. Thisshould keep the upside to prices in check,but we still see Q1 as the low point of the

year with scope to recoup much of last year’slosses as 2015 progresses.

ZincWe are not strong believersin the zinc bull storyLike nickel, the zinc market is waiting for thefundamentals to tighten. The expectation oftightness was priced in by last year’s rally upto $2,400/tonne, but the closure of the giantCentury mine in Australia is the key event inthe bull story now and that closure will nothappen until later this year. It remains to beseen how much effect it, and the closure ofother mines, will really have on theconcentrate market and ultimately the refined

market. Our view has been that the supplygap the zinc bulls are looking for won’t be abig deal. As it is, both concentrate and metalremain comfortably supplied at the moment,as evidenced respectively by strong TCs andsoft physical premiums. The January sell-offtook zinc back almost as far as the$2,000/tonne level, so effectively it hasfollowed nickel’s path, as we feared – rallyingprematurely on future supply concerns,waiting for some months for thefundamentals to catch up, then giving backvirtually all of its gains as bulls lost patience.We expect prices to recover modestly overthe course of this year, and we also expectanother annual supply deficit on paper. But

we still find it hard to get too excited aboutzinc’s outlook yet.

Stay ahead – get a regular independentoutlook on the market with MBR’s BaseMetals Weekly Market Tracker.The weekly research report includes:

l 3 year price forecasts plus analysis and opinions on keydevelopments from the week and topical themes

l Technical and fundamental analysis l Trading strategies for all base metalsl Price modelling and forecasting utilising high-low case scenario planning

l Analysis of speculative money flows and fund activity in the basemetal commodities

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Metal Bulletin’s APEX results 2014: In Metal Bulletin's independent analyst price expectationresults for base metals for 2014 MBR came 4th overall with 95.94% accuracy. MBR also came3rd in zinc, 4th in copper and 5th in tin.

Rising TCs warn there’s noconcentrate shortage yet

Chinese production is accelerating22,000

18,000

14,000

10,000

6,000

2009

2010

2011

2012

2013

2014

220

180

140

100

60

20

5700

5500

5300

5100

4900

4700

4500

4300

Imported ($/tonne) (LHS)Domestic (RMB/tonne) (RHS)

Jul 12 May 13 Mar 14 Jan 15

Global Aluminium Outlook

MBR forecasts that the global aluminiummarket will remain in deficit for 2015,although the deficit should narrow from2014’s level. We are now forecasting a year-on-year growth rate of 7.4% for globalaluminium production in 2015, or a 3.83Mtincrease in absolute terms. Most of thisincrease will come from China where weforecast output to increase by 9.1%, whilerest of the world (ROW) production isexpected to increase by 5.7%. The totaldeficit is expected to be just 161kt, althoughthis will be split into a surplus of 1.144Mt inChina and a ROW deficit of 1.305Mt.

The global economy remains riddled withuncertainties, but nevertheless our base-case view is for an accelerating trend andwe remain confident that aluminiumdemand is set to show another year ofexpansive growth, with 5.8% forecast. In factnot since 2009 has aluminium demandcontracted, and MBR estimates that by theend of last year global aluminium demandwas 50% (or 17.7Mt) higher than it wasduring the 2009 downturn. Of this total,11.3Mt of additional demand has takenplace in China, leaving a more modest (butstill substantial) 6.3Mt of additional demandin the ROW.

But while demand growth will remain ontrack overall, there are certainly some majorheadwinds in some regions which are likelyto keep Q1 2015 buying activity lean at best- our major concern is European aluminiumdemand growth prospects (with a forecastof only 1.6% growth in 2015); only slightlyabove GDP.

Another hot topic is the trend in aluminiumpremiums. We believe the implementation ofthe LME’s new warehousing rules isexpected to have a relatively significantimpact on premiums as queues for physicalmetal are forced lower.

After the new load-out rates areimplemented, affected warehouses are likelyto experience a significant increase in therequired load-out rate.

In addition, with the market expecting USinterest rates to start rising this year, theprofitability of financing deals might begin tobe undermined. This combination of newwarehousing rules and a less favourableenvironment for financing deals mightincrease the availability of metal and putdownward pressure on regional premiums.

Stay ahead – get a regular independentoutlook on the market with MBR’sAluminium Weekly Market Tracker.The weekly research report includes:

lMarket analysis and forecasts with two-year supply, demand andprice forecasts.

l Analysis of regional production levelsl Premiums: historical forecasts of key regional primary aluminium premiums

lCoverage of alumina, secondary market, power, carbon products,fund activity and stock financing profitability.

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Global supplydemand balance

60

50

40

30

20

10

0

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

f

3.02.52.01.51.00.50.0-0.5-1.0-1.5

(milli

on to

nnes

)

Aluminium premium

600

500

400

300

200

100

0

($/to

nne)

Jan

12

Jul 1

2

Jan

13

Jul 1

3

Jan

14

Jul 1

4

Jan

15

Consumption (LHS)Production (LHS)Balance (RHS)

European duty paid spotUS MidwestJapan quarterly

Metal Bulletin’s APEX results Q4 2014: In Metal Bulletin's independent analyst priceexpectation results for aluminium for Q4 2014 MBR came 1st with 99.19% accuracy.

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Metal Bulletin Research is the forecasting and analysis arm of Metal Bulletin

l Ferro-alloys Market Tracker lNorth American Steel Market Tracker lStainless Steel Market TrackerlGalvanized Steel and Tinplate Market Tracker lSeamless OCTG & Linepipe Market TrackerlWelded Linepipe & OCTG Market Tracker l Industrial and Structural Tube and Pipe Market TrackerlSteel Scrap and Metallics Forecaster lSteel Raw Materials Weekly Market TrackerlSteel Weekly Market Tracker lBase Metals Weekly Market Tracker lAluminium Weekly Market TrackerlGlobal Steel Cost Service lSteelmaking Capacity & Capex Study