Afriforesight Rolling Commodity Forecast 2019

Rolling Commodities Forecast
1 4 M ar ch 2019
Table of Contents
Click on any topic below to move directly to the section of your interest
i. Executive summary
A. Background for industry forecasts

1. Global Growth. . ................................................................... 1
2. Dollar Index........................................................................ 3
B. Industry information for each commodity

1. Energy
1.1 Oil.................................................................................... 4
1.2 Natural Gas...................................................................... 6
1.3 Thermal Coal.................................................................... 7
1.3.1 Thermal Coal - South Africa....................................... 7
1.3.2 Thermal Coal - Newcastle Price................................. 9
1.4 Uranium. . ........................................................................ 10
2. Steel and its inputs
2.1 Steel.............................................................................. 11
2.2 Iron Ore.......................................................................... 12
2.3 Manganese Ore.............................................................. 13
2.4 Coking Coal. . .................................................................. 14
3. Stainless steel and its inputs
3.1 Stainless Steel.. .............................................................. 15
3.2 Nickel............................................................................. 16
3.3 Chrome.......................................................................... 17
3.3.1 Chrome Ore. . ........................................................... 17
3.3.2 Ferrochrome............................................................ 19
4. Other base metals

4.1 Aluminium. . ..................................................................... 21
4.2 Copper........................................................................... 22
4.3 Cobalt............................................................................ 23
4.4 Lithium........................................................................... 24
4.5 Zinc. . .............................................................................. 25
4.6 Lead. . ............................................................................. 26
5. Precious metals & diamonds
5.1 Gold............................................................................... 27
5.2 Platinum......................................................................... 28
5.3 Diamonds....................................................................... 30
Editors:
Jacques Botha Nathan Musson Eduan Hauman

Strategy Economist & Chairman Chief Commodity Economist Head of Construction Costs
jacques@afriforesight.com nathan@afriforesight.com eduan@afriforesight.com
Disclaimer: The publication’s content is confidential and only for the use of the recipient and remains proprietary to Afriforesight. You may not copy or distribute this
document without our written consent. The writers work fast to get the info to you as soon as possible and we can make no warranties in respect of accuracy. Any forecast
made is just the writer’s best guess and we strongly advise you not to base any risky decisions on them.
i
Rolling Commodities Forecast by Afriforesight - 14 March 2019 / Table of Contents
i. Executive summary
Executive Summary
Forecasts by quarter until end-2020
In this executive summary, for each commodity we provide a graph of the forecast for international prices, along with a very brief explanation of
our forecast drivers until end-2020. Click on the commodity name to jump to the more detailed sections.
Economic backdrop  

3.6% 1 250
World growth Our forecast for global US dollar is expected to be mostly
GDP growth in 2019 is now slightly flat until late in the 2nd half ‘20 as the
2.3% 1 125
lower at 2.7% (previously 2.8%) as Fed holds back on interest rate hikes,
economic expansion falters in all 3 then strengthen on expectations of
major economic regions. In 2020 the 1.0%
US rate hikes on inflationary pressure 1 000
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
growth rate is expected to lift to 2.8% driven by the improving global and US
(unchanged from previous forecast) as Trump economies. Apart from incorporating a slightly lower global growth
goes all out to facilitate a healthy global growth for this year our forecast is mostly unchanged.
environment to boost his re-election bid. Our
forecast in 2019 has fallen to 2.7% from
2.8% on a weaker European outlook.
Energy commodities
 
90 11
Oil: OPEC+ (OPEC and Russian- European natural gas: Rising import
led alliance) production cuts and US supply from Russia and global LNG
sanctions on Iran and Venezuela to push 60 markets, outweighing lower domestic 8
up prices for much of 2019 before rising production, to weigh on prices

supply from non-OPEC countries, led around seasonal winter peaks. Apart
30 5
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
by the US, and weak demand growth from incorporating a slightly lower
pushes prices down. Price peaks are expected each year around US summer global growth for this year our
“driving season”. Our 2020 forecast has been lowered on expectation of forecast is mostly unchanged.
faster US production growth.
 
130 110
Australian (NC) thermal coal: Rising South African (RB) thermal coal: A
Chinese production and import delays pull back in Indonesian exports and
to lower Asian demand and put 90 seasonally lower Indian production 75
downwards pressure on prices. Our should raise prices in 2nd and 3rd
forecast was lowered on greater quarters ’19. Lower imports from main
50 40
Chinese delays of Australian buyer India (as local output ramps up)
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
imports and expectation that Australia will start to compete outside its to put downwards pressure on prices from late 2019. Imports
traditional markets where demand is slowing. from new markets in Africa and Middle East to provide some
support. Our forecast for 2nd & 3rd quarter 2019 was raised
on expectation of seasonally lower Indian mining output
boosting export demand and greater demand for SA

35
Uranium: Growing nuclear reactor electricity generation.
demand should outweigh mining
production, increasing prices over the 25
period. Apart from incorporating

a slightly lower global growth for
15
this year our forecast is mostly
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
unchanged.
Steel and its inputs

 
90
110
Steel: High iron ore costs to lift prices Iron ore: Tight supply over 1st half
in 2nd quarter ’19, before giving up most 2019 following Brazil’s disaster to
65
of its gains as iron falls. Thereafter 100 keep prices high. Recovering global
improving global growth sentiment supply to exceed slow steel demand
as trade disputes are resolved to growth thereafter, pushing prices 40
90
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
slowly increase prices, despite slowly down. Apart from incorporating

falling input costs. Our forecast is now for a slowly rising price from 3rd a slightly lower global growth for this year our forecast is mostly
quarter 2019 on improved global growth sentiment. unchanged.
Click here for interactive list of all sections of report
ii
Rolling Commodities Forecast by Afriforesight - 14 March 2019 / Executive Summary
Steel and its inputs continued
 
8
280
Coking coal: Global oversupply and Manganese: Prices to fall as strong
weak demand growth (held back by a margins for miners encourage supply
200
gradual shift away from blast furnace expansion ahead of growing steel 4
steel production) to dampen prices. 120 and battery demand growth. Apart
Apart from incorporating a slightly from incorporating a slightly lower
40 0
lower global growth for this year our global growth for this year our
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
forecast is mostly unchanged. forecast is mostly unchanged.
Stainless steel and its inputs

 
110 15 000
Stainless steel: Indonesian-led supply Nickel: Strong demand growth from
growth to push prices down until mid- rising stainless steel production and
2020; thereafter prices rebound as 80 electric vehicles manufacturing to 11 000
unprofitable producers exit the market. support price increases over the period.
Apart from incorporating a slightly Our forecast is now for prices to pull
50 7 000
lower global growth for this year our back over the next few months after
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
forecast is mostly unchanged. their recent surge, but rise slowly
thereafter on rising demand for stainless steel manufacturing.
 
220 2 200
Chrome ore: Rising global ferrochrome Ferrochrome: Firmly rising global
production to outweigh slow chrome stainless steel production to outweigh
ore output growth, as Southern African 140 ferrochrome production and drive 1 600
mining activity is held back, and lift prices up. Apart from incorporating
prices. Apart from incorporating a a slightly lower global growth for
60 1 000
slightly lower global growth for this this year our forecast is mostly
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
year our forecast is mostly unchanged. unchanged.
Other base metals

 
2 400 7 600
Aluminium: Low alumina costs to keep Copper: Trade deal uncertainty to
price low in 1st half; thereafter prices 2 000
hold back near-term prices. Firm
to be lifted by stronger consumer demand growth, mainly in electrical 5 300
and transport demand. Apart from 1 600 applications and consumer products,
incorporating a slightly lower global just outweighing growing supply, to lift
1 200 3 000
prices over rest of period. Apart from
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
growth for this year our forecast is

mostly unchanged. incorporating a slightly lower global growth for this year our forecast
is mostly unchanged.

3 000
Zinc: Strong supply growth from new Lead: Global demand and supply are 
2 700
mines to weigh down prices. Our 2 400
both expected to grow slowly over the
Apart from incorporating a slightly period, holding prices more or less 2 100
lower global growth for this year our 1 800 stable. Apart from incorporating
forecast is mostly unchanged. a slightly lower global growth for 1 500
1 200
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
this year our forecast is mostly

900
unchanged.
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
 
75 13
Cobalt: Oversupply as new projects Lithium: A sharp rise in global
come online in the DRC should production led by Australia to push
push down prices until mid-2020. 40 prices down to mid-2020, before 9
Strong demand growth for batteries battery demand pushes prices up.
for electric vehicles and electronics 5
Prices now increase in 2nd half ’20 5
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
should lift prices thereafter. Apart from as demand growth for batteries for
incorporating a slightly lower global growth for this year our forecast is electric vehicles and consumer electronics offsets rising supply.
mostly unchanged.

iii
Precious metals & diamonds
 
Gold: Prices rise on safe-haven 1 500 Platinum: Declining diesel 1 100
demand from global trade uncertainty, autocatalyst demand to keep prices

geopolitical risks and inflation fears 1 100
low over 1st half 2019, but risk of 800
before giving up gains 4th quarter ‘19 supply disruptions keep a floor under
on trade dispute resolutions. Thereafter prices. Thereafter, expectations of
700 500
a flat price until 2nd half 2020 when it substitution of palladium by cheaper
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
begins another decline on rate hike platinum in autocatalysts to drive firm price
expectations. Our forecast is now for price declines end ‘19 on increases. Apart from incorporating a
trade dispute resolution and during 2nd half ‘20 on US rate hike slightly lower global growth for this year
expectations.

230
Rough diamonds: Growing jewellery
sales and constrained supply to lift
prices over forecast period. Apart from 180
incorporating a slightly lower global

growth for this year our forecast is 130
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
mostly unchanged.
As always, we would appreciate any feedback on this report. Please contact us with any questions, suggestions or comments at 021 422 4500 or
nathan@afriforesight.com.
All the best for the month ahead!
The Afriforesight team

iv
1. Global growth 1. Global Growth
Forecast until 2020
  • Despite seemingly making progress on trade


3.5%
negotiations with China, Trump is expected to
keep markets in suspense for as long as practically
3.0%
possible, to give the US economy a weak base from
2.5% which he can “launch” a recovery before his Nov
2.0% 2020 presidential bid.
1.5% • We believe that over the shorter term he will clinch
some smaller deals or concessions, such as cuts to
1.0%
some tariffs that hurt US industry (e.g. the 25% steel
0.5% tariffs), and close his major trade deals by the end of
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Produced by Afriforesight the year to give him a clean campaign run for 2020.
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
In 2020 growth is expected to improve to 2.8% as
World GDP Index 124 125 125 127 128 129 129 130 131 132
Y-on-Y Change 3.0% 2.9% 2.6% 2.7% 2.7% 2.7% 2.7% 2.8% 2.8% 2.8%
much of the world contributes to a firmer economic
Annual Change 2018 3.1% 2019 2.7% 2020 2.8% development path, as we expect:
Produced by Afriforesight • Trump goes all out to foster a healthy global growth
environment after taking credit for “trade peace”.
• Trump’s US shale oil lobby, as well as his Saudi
Our forecast for global GDP growth in 2019 is now slightly and Russian friends, should pay him back for
lower at 2.7% (previously 2.8%) as economic expansion earlier higher prices, now “heeding” his demands
falters in all 3 major economic regions. In 2020 the growth
to produce more and pushing global prices down.
rate is expected to lift to 2.8% (unchanged from previous
Lower oil prices should stimulate industrial and
forecast) as Trump goes all out to facilitate a healthy
transport activity, boosting global growth.
global growth environment to boost his re-election bid.
• Americans might also be deployed to resolve
Global growth for 2019 to be slower at 2.7% as:
the conflicts in Venezuela and Libya, to ensure
• Europe and China slow down more than previously
improved oil exports. All to give American voters
expected due to trade damage and higher oil prices
cheap gasoline prices in the period before the
(Europe really suffers, but China only shows the
November elections.
world weaker numbers to seek sympathy from
US politicians to avoid harsh intellectual property • The US Fed is also expected to continue keeping US
constraints). interest rates low as cheaper oil helps cool inflation
expectations. This benign interest rate policy and
• The US slows down as the impact of 2018’s tax
easing inflation fears would also allow many of the
stimulus wears off. The Fed’s shift to a more growth
world’s central banks to reduce their interest rates,
supportive interest rate policy (with no further hikes
providing a boost to the global economy.
now expected for this year) should slowly start
having a positive impact only during the 2nd half of • Lower interest rates should also gradually lift
2019. global consumer expenditure, boosting demand for
consumer-related commodities.
• Trump continues to engineer a higher oil price to
please his well-heeled oil lobby through sanctions
on Iran and Venezuela’s oil exports, and helped Compiler: Jacques Botha (jacques@afriforesight.com)
further by the OPEC+ alliance’s production cuts. Supported by Charles Kieck (charles@afriforesight.com)

1
Rolling Commodities Forecast by Afriforesight - 14 March 2019 / Background for Industry Forecasts
2. Dollar Index
2. The value of the US Dollar

(Bloomberg Dollar Index)
As all commodities in this forecast are priced in US dollars, the value of the US dollar is of course the one leg of each commodity price
update.
Forecast by quarter until end-2020
   2019: The US dollar is expected to stay relatively flat
1 250 over 2019 due to the Fed’s new stance of holding
1 200 back on interest rate increases until their inflation
1 150 target is only very clearly met. We however expect
slight strengthening towards the end of the year if
1 100
Trump wraps up his trade disputes - with the boost
1 050
in global demand stoking market fears of inflation and
1 000
subsequent rate hikes. But the Fed may even calm
950 markets with the mere pretence of wanting to raise
900 rates.
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Produced by Afriforesight
2020: The dollar is expected to flatten again through
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
the 1st half 2020 as declining oil prices allay inflation
Dollar Index 1 181 1 201 1 192 1 191 1 192 1 197 1 195 1 194 1 197 1 206
fears and hold rate hikes at bay. Thereafter, the strong
Q-on-Q Change 2.0% 1.7% -0.7% -0.1% 0.1% 0.4% -0.2% -0.1% 0.3% 0.7%
US economy and recovering global economy should
Y-on-Y Change 1.7% 2.6% 5.8% 2.9% 1.0% -0.3% 0.2% 0.2% 0.4% 0.7%
cause inflation fears to return along with expectations
of US rate hikes, which may occur by end-2020.
To pin down the value of the USD, we use the Bloomberg Dollar
index, which is calculated by averaging the dollar’s value against
the following basket of other currencies: euro (31.5% of the
index), Japanese yen (18%), Canadian dollar (11.4%), British
pound (10.5%), Mexican peso (10%), Australian dollar (5.1%),
Swiss franc (4.5%), South Korean won (3.7%), Chinese yuan,
RMB (3%) and Indian rupee (2.1%). These weightings are
updated annually. Compiler: Jacques Botha (jacques@afriforesight.com)

2
Rolling Commodities Forecast by Afriforesight - 14 March 2019 / Background for Industry Forecasts
1.1 Oil
We forecast the Brent crude oil price. About two-thirds of global oil is traded on Brent-linked contracts. Seasonal oil demand causes
predictable price swings, peaking in the 2nd and 3rd quarters on stronger North American demand during their summer holiday “driving
season”.
Forecast key aspects

Forecast: Production cuts by OPEC and a Russian-led alliance (jointly called OPEC+) combined with
US sanctions against Iran and Venezuela should raise average prices over 2019. Thereafter, rising global
production and slowing demand growth to push prices down around.
Change to previous forecast: 2020 prices lowered on greater US oil supply.
 

120
OPEC+ holding back global supply
100 OPEC+ (OPEC and their Russian-led allies) agreed
again in December 2018 to reduce output to prop up
80
global prices. OPEC moved immediately, cutting about
60
1.5% of global supply by January (see graph) and is
expected to have removed a further 0.3% of global
40 supply in February. OPEC’s Russian-led allies have
lagged on their part of the agreed output cuts (see
20
graph). Russia has since announced that it will speed
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Produced by Afriforesight up its production cuts to meet its target in March or

3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 April.
Price ($/Barrel) 76.0 68.1 63.7 70.6 73.8 70.0 63.5 64.7 65.5 60.6
Q-on-Q Change 1.4% -10.4% -6.5% 10.9% 4.5% -5.1% -9.3% 1.9% 1.2% -7.5%


 

34.5 18.0
Annual Change 2018 30.5% 2019 -2.8% 2020 -8.5%
33.5 17.5
32.5 17.0

31.5 16.5
2019: Prices relatively high this year on OPEC+
(OPEC and Russian-led alliance) supply cuts and US 30.5 16.0
Sep 16
Nov 16
Sep 17
Nov 17
Sep 18
Nov 18
Jan 16
Mar 16
May 16
Jul 16
Jan 17
Mar 17
May 17
Jul 17
Jan 18
Mar 18
May 18
Jul 18
Jan 19
sanctions on Iran and Venezuela (see grey box).
• The US summer driving season hump should boost OPEC Allies
prices substantially in the 2nd and 3rd quarters before
low winter demand reduces prices. Source: Bloomberg
• Some additional planned US pipelines are expected to

come online, boosting US supply to the global market
and adding minor downwards price pressure in the 2nd
half of the year.
2020: The driving-season cycle will repeat, however

prices will be depressed further by Trump-induced
excessive oil production growth.
• We expect Trump, in a repeat of his mid-term election
tactics, to pressure OPEC+ and US producers into
boosting production in the lead-up to his November
election to give his voters low fuel prices.
• The bulk of planned US oil pipelines are due to come
online this year, further suppressing prices.

3
Rolling Commodities Forecast by Afriforesight - 14 March 2019 / Energy
US sanctions tighten the global market Venezuela
Iran In January 2019, the US placed sanctions on Venezuela,
November 2018 US sanctions on Iran allow it to export effectively banning US firms from importing their oil to
oil to only 8 countries until May 2019. Iran’s exports pressure autocratic president Maduro to step down.
have fallen by about two-thirds (see graph below). The US refiners used to blend the “heavy” Venezuelan oil
US plans to end all Iranian oil exports, lowering global with “lighter” new US oil to get the fuel product mix that
supply by about 1%. works for US refineries. US refiners now must secure
new sources of heavy oil (like Brent) to fill the resulting
  supply gap (see graph).
3 200
 
1 200
2 400
1 600
600
800
0
Jan '19 exports Allowed exports Pre-sanction exports
Source: Reuters 0
Non-US US
Source: EIA, Reuters
Compiler: Vinesh Chetty (vinesh@afriforesight.com)

Supported by Nathan Musson (nathan@afriforesight.com)

4
1.2 Natural Gas
We forecast the price of piped gas sold to Germany from Russia (as a proxy for European prices) and the US Henry Hub price. The
European price is used as a benchmark for South African prices and the Henry Hub price is given as a reference, as it is the price
quoted most often globally.
Forecast - key aspects

Forecast: Ample import supply to weigh down European prices around seasonal demand trends. US prices
should follow a similar seasonal demand cycle but rise, on average, with stronger domestic inland as well as
export demand.
Change to previous forecast: US price increases softened in 2020 on faster production increases.

  Forecasts by quarter until end-2020
12 European prices (blue in the graph and table)
10 Rest of 2019 & 2020: Prices to trend down around
8
seasonal price fluctuations, as increasing supply from
LNG importers outweighs rising continental demand.
6
• Supply to increase firmly as imports continue growing
4 strongly, from the combination of piped gas (mainly
2 from Russia) and the expanding seaborne (LNG) gas
market, outweighing a gradual decline in the limited
0
domestic output.
1Q13
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US prices (red in the graph and table)
 
 Rest of 2019 & 2020: Prices to rise as growing domestic
6
and export demand outweighs supply increases.
5
• Production should rise on the back of increasing shale
4 oil production.
3 • Producers are increasingly looking at the export market
with higher prices, focusing on Asia and to a lesser
2
extent, Europe.
1
0
1Q13
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1Q14
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1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
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3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
European Gas
9.83 9.47 7.16 6.23 5.94 6.88 6.48 5.80 5.63 6.10
Price ($/mnBtu)
Q-on-Q Change 12.5% -3.7% -24.4% -13.0% -4.7% 15.9% -5.9% -10.5% -2.8% 8.3%
Annual Change 2018 43.6% 2019 -29.6% 2020 -8.4%
Henry Hub Gas

2.91 3.83 2.86 2.82 3.00 3.16 3.35 3.09 3.17 3.30
Price ($/mnBtu)
Q-on-Q Change 2.9% 31.6% -25.5% -1.1% 6.4% 5.2% 6.1% -7.7% 2.3% 4.1%
Annual Change 2018 6.5% 2019 -5.6% 2020 9.0%
Compiler: Vinesh Chetty (vinesh@afriforesight.com)
Supported by Nathan Musson (nathan@afriforesight.com)

5
1.3 Thermal Coal
1.3.1 Thermal Coal - South Africa
We forecast the benchmark “RB1” Richards Bay FOB export price for 6 000kCal/kg product exported from South Africa. This category
only makes up 10-15% of SA’s exports, but prices for lower calorific value (CV) coals largely also follow the RB1 price trend.
We now also forecast a South African domestic “industrial” price, based on domestic thermal coal price data from the DMR.

Forecast: Declining Indian import demand and rising Australian supply should push export prices down over
the forecast period. Domestic prices should rise on Eskom and industrial demand, as well as lack of supply
growth.
Change to previous export price forecast: Export prices raised on expectation of seasonally higher
Indian import demand. Domestic prices raised on expectation of higher priced purchases by Eskom.
Outlook for the profitability of the SA coal industry is GOOD: Operating margins for SA thermal coal
producers should average around 30% in 1st quarter ’19 and decline to 25% over the forecast period.

 Forecast by quarter until end-2020
120
Export price
1st quarter 2019: Strong Indonesian export supply and
100
strong Indian production should continue to push down
prices:
80
• Indonesia is exporting excessive coal volumes at
60
discount prices to Asian markets (see box below),
including to South Africa’s main market India, as
Indonesia looks to increase foreign exchange reserves,
40
to boost its floundering economy, ahead of its hotly
1Q13
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3Q18
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3Q20
Produced by Afriforesight contested April elections.


 • India’s imports of South African coal are down on
700
seasonally strong domestic mining output and the
(temporary) flooding of the market with cheaper
600 Indonesian coal.
• Growing demand from other markets like Pakistan, the
500 Middle East and Africa should however help mitigate
this temporary fall in India’s demand for SA coal.
400
2nd & 3rd quarter 2019: Lower Indonesian supply and
seasonally lower Indian production should increase
300
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
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1Q20
3Q20
demand for South African coal and push up prices:

• Indonesian coal exports are expected to fall back after
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
its April election, as the government returns to its policy
Export Price ($/t) 102.5 96.7 85.4 82.9 85.0 85.6 85.1 84.8 84.5 84.3 to reserve 25% of coal for domestic usage.
Q-on-Q Change 2.3% -5.7% -11.7% -2.9% 2.5% 0.7% -0.6% -0.3% -0.4% -0.2%
• With lower Indonesian exports, India and other importers
Annual Change 2019 -13.9% 2020 -0.1%
2018 15.4%
are likely to turn back to South Africa for coal.
Domestic Price (R/t) 559 624 598 589 593 605 606 609 615 622
• Indian coal production should again decline seasonally
Q-on-Q Change 7.5% 11.7% -4.2% -1.5% 0.7% 2.0% 0.2% 0.5% 1.0% 1.1%
as monsoon disruptions occur, temporarily boosting
Annual Change 2018 6.5% 2019 -5.6% 2020 9.0%
import demand.
Important note: The 2nd quarter 2019 averages are lower than
the 1st quarter averages only due expectations of low prices early
in the quarter. However, we expect the prices to rise throughout
the 2nd quarter.

6
4th quarter 2019 & 2020: Expanding Indian coal
mining and improving rail logistics should reduce Indonesia temporarily flooding the
their need for imports and weigh down prices. South international market
African exporters should also face rising Australian • In late 2018 Indonesian coal exports rose strongly
competition as demand slows from Australia’s major (see graph), changing tack from previous government
Asian buyers (see Newcastle Coal on p8). There plans to reserve coal for domestic usage.
are, however, some positive price drivers that should
mnt
Indonesia Coal Exports
prevent a price collapse. 25
• Minor price drivers offsetting price declines:
20
ÌÌ Demand for electricity and cement production in
smaller African and Asian markets should continue 15
growing, mostly from Pakistan.

10
ÌÌ Supply growth should be limited as coal mine
investments have been lacking in recent years. 5
• While prices are forecast to decline in dollar terms, a 0

weakening rand should support export prices and profit
Jul 17
Jul 18
Apr 17
Oct 17
Apr 18
Oct 18
Jan 17
Jan 18
Jan 19
margins.
Source: All Ports through Bloomberg
Domestic price
1st quarter 2019: Currently weak export demand (see • Exports have been encouraged to help boost foreign
Export price above) and lower demand from Eskom currency reserves, to improve the government’s
(60% of domestic use) due to the large number of coal- standing ahead of the major election scheduled for
fired power plants which are offline for repairs and 17 April.
maintenance should weigh down prices. • Indonesian coal is considered a bargain, averaging
$71/t in February compared to South Africa’s $84/t.
Rest of 2019 & 2020: Rising Eskom electricity output • In February, Indonesia started cracking down on
and industrial demand, coupled with slow supply some smaller miners for not meeting government
growth (see grey box) to boost prices. requirements to sell 25% of their coal domestically.
• We expect that Eskom’s “new government support We expect Indonesia is unlikely to restrict the larger
package” of R23bn per year will boost the price through miners before their 17 April election, but after the
two avenues: election foreign currency holdings will become less
ÌÌ Heavy spending on maintenance and repairs to of a political issue, and government should return to
improve power plant availability leading up to the conserving coal for the country’s industrial expansion
peak demand period during winter. In March 2019
South African production to remain tight
only about 62% of Eskom’s power plants were
• South African production growth has been
online, much lower than its 80% target. Reaching its
constrained in recent years and is expected to remain
target should boost demand, and thus the price.
weak due to lack of investment in new projects.
ÌÌ Purchasing of appropriate coal for its power plants,
• Eskom is also avoiding investment in tied mines.
after previously using maintenance-hungry, lower-
• Smaller miners can produce in current conditions
grade product in some cases, which was a major
generally but aren’t investing enough to maintain
factor in plants being damaged and taken offline.
output when transition to more expensive
This demand for higher quality coal should raise the
underground mining will be needed.
average domestic price.
• Industrial demand should rise on gradually improving
domestic growth.
• Domestic coal supply should grow only slowly due to Compiler: Vinesh Chetty (vinesh@afriforesight.com)
a lack of investment, the breaking the industry up into Supported by Nathan Musson (nathan@afriforesight.com)
smaller players.

7
1.3.2 Thermal Coal - Newcastle
The section presents the forecast for the Newcastle FOB export coal price, a benchmark for the Asia-Pacific seaborne market.

Forecast: Lower demand from major buyers to weigh down prices over the forecast period.
Change to previous forecast: Prices lowered on Chinese import delays and expectation that Australia
will start to compete outside its traditional markets where demand is slowing.
Outlook for the profitability of the Australian coal industry is VERY GOOD: Operating margins should
average around 40% in 1st quarter ’19 and decline to 30% over the forecast period, as shown on the right-hand
axis of the chart.

   
120 100% Asia needs less imports
100  

240
80 50%
160
60
40 0%
80
1Q13
3Q13
1Q14
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1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Thermal Coal Dollar Price Australian Operating Margin

3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
0
2017 2018E 2019F 2020F
Price ($/t) 116.6 105.2 96.9 93.6 91.1 89.2 88.0 85.8 84.7 84.3 China Japan South Korea
Q-on-Q Change 12.2% -9.8% -7.9% -3.4% -2.7% -2.1% -1.3% -2.5% -1.3% -0.5%
Source: IHS, Australia’s Industry Dept
Annual Change 2018 21.7% 2019 -13.5% 2020 -7.5%
• China is expected to import less over the forecast
period as it ramps up domestic coal mining to support
their local economy and boost employment.
• Australia’s exports to China have been particularly
Forecast by quarter until end-2020 badly hit in 1st quarter 2019, as China stepped up
Jan - early Mar 2019: Indonesia flooded the market coal inspections at ports, delaying import clearance
with cheap coal (see Thermal Coal - South Africa) times to 90 days in March, up from 40 days in January
pushing prices down. and 20 days under normal conditions.
• Japanese and South Korean import demand is also
Rest of 2019 & 2020: While we expect that Indonesia set to decline slightly as they gradually move to
will start reserving coal for domestic usage again in the ‘cleaner’ energy sources.
2nd quarter 2019, lower imports from major east Asian
buyers (see graph) and growing Australian supply
should push down on prices. Due to weaker demand
from its traditional markets, Australia is expected to
start shipping to other south Asian and Middle Eastern
markets, but will need to offer discounts to compensate
for greater shipping distances and compete with other Compiler: Vinesh Chetty (vinesh@afriforesight.com)
coal suppliers like South Africa. Supported by Nathan Musson (nathan@afriforesight.com)

8
1.4 Uranium
We forecast the spot price for processed uranium oxide (U3O8), commonly called yellowcake. The bulk of uranium is sold under multi-
year contracts. The spot market is typically used for smaller discretionary purchases.

Forecast: Growing nuclear reactor demand should outweigh mining production, increasing prices slightly over
the period.
Change to previous forecast: Prices lowered during 1st half 2019 as some miners exit the spot market.
Outlook for the profitability of the industry is OK: Gross profit margins of major producers are currently
around 15% and should rise over the forecast period, as shown on the right-hand axis of the chart.
 2nd half 2019 & 2020: Prices to increase slightly


45 120% as demand growth outweighs slow growth in mined
supply.
90%
• Demand to be driven from reactor growth in Asia,
35 60%
especially in China and Japan.
30% • China is expected to account for 73% of new nuclear
25 0%
reactors globally to 2020, to meet demand for ‘clean’
electrification. However, lengthy build-times mean that
-30%
most reactors will come online later in the period.
15 -60% • Japan is still slowly restarting reactors shut after the
1Q13
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1Q15
3Q15
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3Q16
1Q17
3Q17
1Q18
3Q18
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1Q20
3Q20
Fukushima disaster, with each reactor facing public
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 scrutiny and some being decommissioned instead.
Price ($/lb) 25.7 28.4 28.5 28.4 28.8 29.2 29.7 30.2 30.7 31.4
• Supply to increase slowly as smaller producers come
Q-on-Q Change 17.0% 10.6% 0.2% -0.5% 1.4% 1.5% 1.6% 1.7% 1.9% 2.1% back online as prices rise, even as larger producers
Annual Change 2018 10.6% 2019 16.6% 2020 6.2% keep their supply steady.
Produced by Afriforesight • Major global producers - including the largest,
Kazatomprom and Cameco - lowered output in 2018 to
boost prices. Prices rose enough to turn profit margins
positive for the 1st time in 2 years, making further cuts
Forecast by quarter until end-2020 unnecessary.
1st half 2019: Spot market purchases from major
miners - seen over the past year to meet long-term
supply contracts at prices below production costs - Compiler: Joshua Rorke (joshua@afriforesight.com)
Supported by: Vinesh Chetty (vinesh@afriforesight.com)
are expected to fade in the near term, weighing down
prices.

9
2.1 Steel
We forecast a weighted index of the important categories of steel products from the European and Chinese markets; we however
exclude the tariff-distorted US prices from our international price index and analysis.

Forecast: High iron ore costs in 1st half of 2019 to push prices up temporarily, thereafter improving demand
sentiment led by trade dispute resolutions to nudge prices up despite declining iron ore and coking coal costs.
Change to previous forecast: Price levels boosted from 2nd half 2019 on expectations of improved
demand sentiment as the US works to resolve its trade disputes.
 This effect should be felt regardless of whether Trump


120 reverses the steel tariffs currently implemented (see
grey box).
100 • Iron ore costs to fall as global output recovers after
recent environmental and safety-related curbs in Brazil,
80 encouraged by high margins.
• Coking coal (see p13) input costs are also expected
60 to trend downwards as Australian exports recover and
strong margins encourage mining growth globally.
40
1Q13
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1Q15
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1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Potential removal of Trump’s steel tariffs

unlikely to have major impact on the physical
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
steel market
International Index 109.3 99.4 98.8 102.5 100.1 100.5 101.2 102.9 102.6 103.0
Trump’s trade war resolutions that we expect late in
Q-on-Q Change -2.9% -9.1% -0.6% 3.7% -2.3% 0.4% 0.7% 1.7% -0.3% 0.4%
2019 will be a major boost to global confidence and
Annual Change 2018 10.5% 2019 -7.3% 2020 2.0%
boost steel demand significantly. If resolutions include
removal or reduction of steel tariffs we expect this to
reinforce the sentiment-driven positive price effect, if
only slightly.
While these tariffs drove a clear wedge between
Important note: The 1st quarter 2019 average is lower than the 4th
US and international prices, the actual effect on the
quarter 2018 average only due to the sharp fall in prices over the
global physical market was minor, as evidenced by the
4th quarter 2018 due to weak global growth sentiment. However,
we expect the price to rise throughout the 1st quarter 2019 despite second graph which shows only minimal shifts in US
forecasting a slight decline in quarterly average price. production and import demand in the global context
(the green line indicates when tariffs were imposed).


1st half 2019: Inflated iron ore costs to boost prices: 

• Brazilian iron ore (see p11) supply disruptions
following the Brumadinho tailings dam disaster should 
boost steel manufacturing costs in the near term.
• Uncertainty around Trump’s trade disputes is expected 
to continue holding back global growth sentiment,
weighing on demand. 

























2 half 2019 & 2020: Price to fall initially as iron ore

nd
costs normalise before trade dispute settlements 


significantly boost demand growth, nudging prices up Source: WorldSteel, Bloomberg
despite further falling raw material costs:
• Demand should rise with improving confidence in the
global economy, assuming Trump begins resolving Compiler: Jason Welz (jason@afriforesight.com)
trade disputes later in 2019 as we expect (see p1). Supported by Nathan Musson (nathan@afriforesight.com)

10
Rolling Commodities Forecast by Afriforesight - 14 March 2019 / Steel Related Metals
2.2 Iron Ore
We forecast the price of 62% content iron ore fines imported into northeastern China.

Forecast: Supply to remain tight over 1st half 2019 following Brazil’s disaster, keeping prices high, but thereafter
recovering global supply exceeding slow steel demand growth should push prices down.
Change to previous forecast: No significant changes.
Outlook for the profitability of the industry is EXCELLENT: Average gross profit margins are expected to average
around 60% in 1st quarter 2019 and decline gradually over the rest of forecast period, as shown on the right-hand
axis of the chart.


150
 
100%
Brazilian exports dwindling
130 90% 
110 80%  4-week averages
8
90 70%
7
70 60%
50 50% 6
Brumadinho
30 40% disaster
5
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Iron Ore Dollar Price Gross Margin

Produced by Afriforesight 4
1 Jan 18
1 Jun 18
1 Aug 18
1 Sep 18
1 Nov 18
1 Dec 18
1 Jan 19
1 Feb 18
1 Mar 18
1 Apr 18
1 May 18
1 Jul 18
1 Oct 18
1 Feb 19
1 Mar 19
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
Price ($/t) 66.2 71.0 83.1 82.3 74.7 69.2 68.2 65.6 63.6 62.0
Q-on-Q Change 1.7% 7.2% 17.1% -1.0% -9.2% -7.3% -1.5% -3.8% -3.1% -2.5% Source: GlobalPorts through Bloomberg
Annual Change 2018 -4.4% 2019 12.0% 2020 -16.1% As the graph shows, Brazil’s iron ore production was
Produced by Afriforesight already on a seasonal decline when the deadly tailings
dam collapse on 25 January at Vale’s Corrego De
Feijao mine near Brumadinho occurred, leading to the
Forecast by quarter until end-2020 closure of several other mines in the country.
Rest of 1st half of 2019: Continued supply disruptions Brazil’s exports are bound to decline further in the near
term as Vale will decommission all its similar dams,
in Brazil (see grey box) should keep prices high.
necessitating temporary production curbs over the
2nd half 2019 and 2020: Strongly improving production next 3 years, and a proposed law change is expected
growth from the rest of the world should exceed slow to extend the outages to other miners.
steelmaking demand, leading prices down.
• Exceptional margins due to high prices should spur non-
Brazilian miners to raise production over the period.
• Continued decommissioning of tailings dams should
hold back some production in Brazil.
• Brazil is however expected to expedite the resumption of
temporarily halted mines and increase production from
unaffected mines to minimise the economic impact.
• Global steelmaking demand should grow slowly over
the forecast period as global growth sentiment improves Compiler: Eduan Hauman (eduan@afriforesight.com)
with expected trade dispute resolution. Supported by Jacques Botha (jacques@afriforesight.com)

11
2.3 Manganese Ore
We forecast the FOB price for 37% manganese content ore exported from Port Elizabeth, South Africa. Chinese demand for manganese
tends to follow steel-making demand.

Forecast: Strong seaborne supply growth to weigh down prices over the forecast period.
Outlook for the profitability of the industry is VERY GOOD: Average gross profit margins are expected to decline,
but remain close to 50%, as shown on the right-hand axis of the chart.
 • Demand for alloy smelting in South Africa is expected

 
8 100% to remain weak in the near term due to potential power
7 supply disruptions. SA smelters are also considering
6 cutting capacity or closing operations due to sharp
5 electricity price increases.
4 50%
3 China prefers South African manganese
2 While China produces manganese ore, it chooses to
1 import South African ore on quality grounds (see graph).
0 0% Chinese ore quality is generally poor and contains only
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Manganese Ore Dollar Price Gross Margin about 20% manganese while South African ore is
usually sold at a higher grade of around 37%.
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
China’s steel and ferro-alloy producers prefer the
Price ($/dmtu) 5.93 5.90 5.32 5.39 5.34 5.25 5.19 5.28 5.21 5.17
South African grade, as using higher graded ore curbs
Q-on-Q Change -2.2% -0.4% -9.8% 1.3% -0.9% -1.8% -1.1% 1.7% -1.3% -0.8%
polluting emissions.
Annual Change 2018 38.9% 2019 -13.2% 2020 -2.2%
Produced by Afriforesight 


40%
Forecast by quarter until end-2020 30%
Rest of 2019 & 2020: Prices to fall as seaborne supply

20%
grows on strong mining profits, outpacing steel and
battery manufacturing demand growth.
10%
• Demand for steel (see p10) manufacturing is expected
to grow only slowly during the period.
• Low grade ores should continue to see more downwards 0%
China South Africa
pressure than medium-high grade ores as mounting
Source: Afriforesight
environmental concerns encourage the use of better
quality (lower emission) raw materials (see grey box).
• Demand for battery manufacturing to rise firmly but Compiler: Nathan Musson (nathan@afriforesight.com)
should still make up only a small portion of total demand. Supported by Vinesh Chetty (vinesh@afriforesight.com)

12
2.4 Coking Coal
We forecast the Australian East Coast FOB price for premium hard coking coal.

Forecast: Slowing Chinese demand for seaborne imports, and rising global supply to push prices down.
Outlook for the profitability of the industry is VERY GOOD: Operating margins should average around
45% in 1st quarter ’19 and decline to about 35% over the forecast period, as shown on the right-hand axis of
the chart.


300

100%
Australian supply temporarily disrupted
Australia’s main coking coal producing region North
250 80%
Queensland was hit by major flooding in February,
200 60% curbing global trading and supply as some railways
and ports closed in the aftermath, pulling back
150 40%
exports (see graph). Mines are also expected to
100 20% have been affected, which may depress supply for
slightly longer, but Australia’s exports should pick up
50 0%
firmly towards mid-2019.
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Coking Coal Dollar Price Operating Margin

Produced by Afriforesight 
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20  (mostly coking)
8
Price ($/t) 187.9 219.3 203.3 188.7 180.9 175.3 170.4 167.2 165.3 163.2
6
Q-on-Q Change -1.4% 16.7% -7.3% -7.2% -4.1% -3.1% -2.8% -1.9% -1.1% -1.3%
Annual Change 2018 9.5% 2019 -9.5% 2020 -11.0% 4
Produced by Afriforesight 2
0
Jan 18
Jun 18
Aug 18
Sep 18
Nov 18
Dec 18
Jan 19
Feb 18
Mar 18
Apr 18
May 18
Jul 18
Oct 18
Feb 19
Abbot Point Dalrymple Hay Point Weipa

Source: North Queensland Bulk Ports through Bloomberg
Feb and early-Mar 2019: Prices rose as flooding in
Australia cut global supply (see below).
Rest of 2019 & 2020: Slowing Chinese demand and

rising supply on new mine production growth and
recovering Australian exports to lower prices:
• China’s import demand is expected to decline following
government policies to delay and restrict imports and
encourage domestic production.
• Mozambique, Russia, and North America to drive new
supply growth; Australia is expected to bounce back
from port and rail disruptions.
• Despite steel manufacturing rising globally, blast furnace
operations (which use coking coal) should continue
to be gradually phased out for ‘cleaner’ electric arc Compiler: Vinesh Chetty (vinesh@afriforesight.com)
operations. Supported by Nathan Musson (nathan@afriforesight.com)

13
3.1 Stainless Steel
We base our forecast on the Chinese 304 cold-rolled coil Wuxi market index in dollars.

Forecast: Strong Asian supply growth to lower prices until mid-2020. Thereafter, rising input costs to force
unprofitable producers out of the market, weakening supply against rising demand, boosting prices.
Change to previous forecast: Price decline softens 1st half 2019 on China’s safety inspections and
power shortages.
 2nd half 2020: Rising ferrochrome and nickel input costs
 
120 and rising competition from low-cost Asian producers are
expected to push unprofitable producers to cut production,
lifting prices on lower supply.
100
A new wave of Indonesian stainless steel set

80 to hit the market


60 5
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
International Index 92.8 89.8 89.5 89.1 88.5 87.9 87.4 86.8 87.2 87.9
Q-on-Q Change -3.6% -3.2% -0.3% -0.4% -0.7% -0.6% -0.6% -0.7% 0.5% 0.8% 2.5
Annual Change 2018 2.9% 2019 -5.6% 2020 -1.6%

0
Forecast by quarter until end-2020 Operating Under construction Planned
Rest of 2019 & 1st half 2020: Strongly rising global Source: Shanghai Metals Market
production led by new low-cost Indonesian capacity
Indonesia has become the largest growth centre for
(see grey box) to weigh down prices. global stainless steel output and will account for about
Factors softening the decline: 20% of global production in the medium term, up from
• Demand should grow moderately as global consumer 7% currently, as it is expected that their planned projects
spending lifts with global economic growth (see p1), come to fruition (see graph). Due to vast domestic nickel
boosted by expectations that Trump will resolve his and energy resources, Indonesian stainless steel mills
trade disputes in the 2nd half of 2019. have significant logistics cost advantages stemming
• A relatively low global interest rate environment over from use of domestically-produced nickel pig iron.
the period should further boost consumer demand for
stainless steel-containing durable goods.
• Ferrochrome and nickel input costs (see p17 and
p15) are expected to rise.
• Inner Mongolian production (about 10% of China’s
output) should be constrained over the next few
Compiler: Jason Welz (jason@afriforesight.com)
months by heightened safety inspections and electricity Supported by Nathan Musson (nathan@afriforesight.com)
shortages.

14
Rolling Commodities Forecast by Afriforesight - 14 March 2019 / Stainless Steel Related Metals
3.2 Nickel
We forecast the LME refined nickel spot price.

Forecast: Rising demand for stainless steel and electric vehicle battery manufacturing to boost prices over
the forecast period.
Change to previous forecast: Prices to pull back over next months after recent surge, rising slowly
thereafter on rising consumer demand.
Outlook for the profitability of the industry is VERY GOOD: Gross profit margins for major nickel miners
should average 38% in 1st quarter ’19 and rise over the remainder of the period, as shown on the right-hand
axis of the chart.
  manufacturing giving further support near the end

 
20 000 100% of the period. Increases should be softened by firm
18 000 growth in production, led by Indonesia (see grey box).
16 000
14 000
50% Asia to drive production growth
12 000
• Indonesian ore production (about 29% of global in
10 000
1st half ’18) is set to increase sharply to feed rapid
8 000 growth in domestic nickel pig iron (NPI) production.
6 000 0% About 55% of Chinese and Indonesian NPI output
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
is produced as part of integrated stainless steel

Nickel Dollar Price Gross Margin
Produced by Afriforesight operations - with the balance available to export
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 markets.
Price ($/t) 13 197 11 427 12 369 12 616 12 667 12 730 12 794 12 896 13 025 13 142 • NPI production growth in China should taper towards
Q-on-Q Change -8.4% -13.4% 8.2% 2.0% 0.4% 0.5% 0.5% 0.8% 1.0% 0.9% the end of the forecast period due to tighter ore supply
Annual Change 2018 25.5% 2019 -3.6% 2020 2.9% as Indonesia plans to limit ore exports to ensure
Produced by Afriforesight cheap supply to domestic NPI plants. However,
recovery in ore production from the Philippines (11%
of global) should gradually fill this gap as mines that
Forecast by quarter until end-2020 shut in 2017 restart - they are currently pending
environmental approvals.
Jan - Feb 2019: Prices increased strongly on weaker
dollar, signs of improving US-China trade relations  
and fears of supply disruptions from Vale’s Brazilian 900
operations after their recent tailings dam disaster

(about 9% of Vale’s nickel is produced in Brazil).
600
• Most of Vale’s nickel operations were not affected
except for Onça Puma mine (25kt in 2017 - about 1%
of global) - court ordered it to shut down from 9 Mar 300
due to pollution, but we expect Vale to restart output
on appeal.
0
2nd quarter ’19: Prices to decline from current high 2015 2016 2017 2018F 2019F
China Indonesia
levels (but be up on average due to lower 1st quarter
Source: Nornickel
average) as markets realise that electric vehicle
demand will only pick up significantly in the future due
to infrastructure constraints and as Vale production
issues are resolved.
Rest of 2019 & 2020: Prices to rise, driven by rising

stainless steel production to feed global consumer Compiler: Pearson Mururi (pearson@afrioresight.com)
demand growth, with demand for electric battery Supported by Ayanda Makupula (ayanda@afriforesight.com)

15
3.3.1 Chrome Ore
We forecast the export price of metallurgical grade UG2 concentrate with 40-42% chromite content from South Africa to China. Due to
China’s winter industrial activity curbs, prices are seasonally lower over the 4th and 1st quarters of each year.

Forecast: Rising global ferrochrome demand is expected to outpace ore supply as global chrome mining is
held back by constrained Southern African growth, lifting prices.
Change to previous forecast: None.

 Constrained Southern African output to curb
390
global supply growth
350
310

270
South Africa
230 8%
5%
190 Kazakhstan
8%
150
110 India
10% 50%
70
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Turkey
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 Zimbabwe
19%
Price ($/t) 169 164 166 185 192 188 185 192 197 193
Others
Q-on-Q Change -16.1% -3.5% 1.5% 11.2% 3.9% -2.2% -1.6% 3.8% 2.9% -1.9%
Annual Change 2018 -24.5% 2019 -4.3% 2020 5.0% Source: Govt files, Bloomberg
Southern Africa remains the world’s largest source
of chrome ore as shown in the chart above; with
South Africa accounting for the lion’s share of
Forecast by quarter until end-2020 regional output, but Zimbabwe’s 5% is rising rapidly.
Rest of 2019 & 2020: Moderate global demand growth Recovery in global chrome ore prices in recent years
for ferrochrome production ahead of chrome ore supply has encouraged mine expansions and increased
should support continued price increases: processing of chrome-bearing PGMs tailings, but
• Chinese demand is expected to rise firmly in the near further growth from this region is expected to be
term as ferrochrome smelters ramp up after Chinese constrained over the forecast period:
New Year (see p17), and winter pollution-related • South Africa’s production growth should be curbed
curbs end. Demand growth over the rest of the period by uncertainty over power supply, but output should
to be supported by rising ferrochrome production in the nonetheless increase gradually as PGM projects
rest of the world, especially in Asia. process more chrome-containing tailings.
• Global chrome ore supply is expected to rise, but held • Zimbabwe’s growth to be held back by persistent
back by slower growth from Southern African producers foreign currency shortages and excessive domestic
(55% of global output - see grey box). fuel costs.
• Price increases to be held back by:
ÌÌ Stocks at Chinese ports remain relatively high at
over 2 month’s worth of consumption in March.
ÌÌ Seaborne supply is boosted by higher exports from
South Africa on lacklustre local demand due to
higher electricity prices. Compiler: Ayanda Makupula (ayanda@afriforesight.com)

16
3.3.2 Ferrochrome
We forecast the price of charge chrome with 50% chromium metal content exported from South Africa to China. Seasonal factors are
expected to affect these markets at different times of the year: Prices should be weaker over the 4th and 1st quarters each year, due
to China’s winter industrial activity curbs and New Year slowdown. Prices should lift firmly during the 2nd and 3rd quarters each year as
seasonally high electricity costs slow South African production.

Forecast: Slow ferrochrome smelting growth lagging global stainless steel production to drive prices up over the
period.
Change to previous forecast: None.
Outlook for the profitability of the industry is GOOD: We estimate gross profit margins for major global
ferrochrome producers to rise slowly over the period, as shown on the right-hand axis of the chart.
 increases in SA and potential hikes in Zimbabwe

 
2 700 100% (see grey box below).
ÌÌ Increasing chrome ore input costs (see p16) over
2 400 80%
the forecast period.
2 100 60% Demand
• Demand should increase with rising stainless steel
1 800 40%
production, driven by new capacity additions in Indonesia
1 500 20% (see p14). Chinese domestic stainless steel production
should grow only slowly due to stringent pollution controls.
1 200 0%
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Ferrochrome Integrated Ferrochrome Gross Margin SA and Zim ferrochrome smelters facing
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 strong power tariff hikes
Price ($/t) 1 931 1 845 1 834 1 929 1 973 1 944 1 928 1 986 2 032 2 017
South Africa’s (the 2nd largest global ferrochrome
Q-on-Q Change -4.2% -4.5% -0.6% 5.2% 2.3% -1.5% -0.8% 3.0% 2.3% -0.7% producer after China) energy regulator has already
Annual Change 2018 -9.8% 2019 -3.5% 2020 3.7% approved above-inflation increases of 13.8% and
Produced by Afriforesight 8.1% for 2019 and 2020, respectively (see graph
below). These increases are expected to be more
than the industry can bear on average and may
lead to production cuts.
Rest of 2019 & 2020: Modest global ferrochrome 

output growth due to slowing Southern African 120
production, and firm demand growth for stainless steel

manufacturing to support price increases.
80
Supply
• Global supply is expected to rise slowly, supported by 40
projects that should add 850ktpa capacity (about 7% of
global output) over the period. These include Yuanda
0
Juhua, Guangxi Liuzhou (both in China) and Gulf Mining 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
(Oman) expansions as well as new smelters planned
by Safe Alloys (Oman) and Eurasian Resource Group Source: Afriforesight, NERSA
(Kazakhstan).
• Factors holding back supply:
ÌÌ Unplanned power supply disruptions in South Africa.
ÌÌ Sharp electricity (20-30% of smelting costs) price

17
• Zimbabwe, while relatively small globally, has seen a

 strong rise in interest to develop its chrome mining
16
and smelting capabilities since their recent change in
government.
12
• However, proposed sharp increases in electricity
8 costs (see graph alongside) as well as Zimbabwe’s
persistent foreign currency shortages are expected
4 to result in delays to some (if not most) of these
developments, or production cuts at current projects.
0
Current Proposed
Chrome smelters Others
Source: Afriforesight, ZERA, media releases Compiler: Ayanda Makupula (ayanda@afriforesight.com)

18
4.1 Aluminium
We forecast the LME refined aluminium spot price.

Forecast: In 1st half 2019 lower alumina costs should keep prices low; thereafter prices to be lifted by stronger
consumer and transport demand.
Outlook for the profitability of major aluminium producers is only OK: Gross profit margins are expected
to average around 15% in the 1st quarter and increase over the period, as shown on the right-hand axis of the
chart.



2 300 100%
Rest of 1st half 2019: Subdued alumina input costs to
2 100 80% keep prices low:
• Brazil’s large Alunorte alumina refinery is expected to
1 900 60%
return to full output, from 50% currently, weighing down
1 700 40% global alumina prices.
• Revitalised Chinese industrial activity from mid-March
1 500 20%
due to the end of winter pollution curbs should boost
1 300 0% global aluminium demand, partly offsetting downward
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
price pressure.
LME Aluminium Spot Gross Margin
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
2nd half 2019 & 2020: Demand growth from the
consumer packaging, transport and, to some degree,
Price ($/t) 2 054 1 966 1 872 1 869 1 887 1 908 1 925 1 944 1 965 1 983
building sectors to slowly push up prices.
Q-on-Q Change -9.3% -4.3% -4.8% -0.2% 1.0% 1.1% 0.9% 1.0% 1.1% 0.9%
Annual Change 2018 7.3% 2019 -10.8% 2020 3.7%
Compiler: Eduan Hauman (eduan@afriforesight.com)
Supported by Jacques Botha (jacques@afriforesight.com)

19
Rolling Commodities Forecast by Afriforesight - 14 March 2019 / Other Base Metals
4.2 Copper
We forecast the LME refined copper spot price.

Forecast: Firm demand growth, mainly for electrical applications and consumer products, should outweigh growing
supply, slowly lifting prices over the period.
Outlook for the profitability of the industry is EXCELLENT: Average gross profit margins are expected to average
around 55%, as shown on the right-hand axis of the chart.
Copper, Grade A Cathode, LME Spot Price, CIF European ports

• Price increases should be weighed down slightly as
  supply growth is expected to be encouraged by massive
8 000 100%
margins, exceeding 50% gross and 40% EBITDA.
7 000
However, regulatory uncertainty in many copper
producing regions should prevent rapid increases in
6 000 60%
mining output.
5 000
Low stocks continue to support price
4 000 20%

1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Copper Dollar Price Gross Margin  At Major Exchanges

Produced by Afriforesight 1 000
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
Price ($/t) 6 120 6 164 6 222 6 266 6 341 6 404 6 449 6 507 6 592 6 605
Q-on-Q Change -11.1% 0.7% 0.9% 0.7% 1.2% 1.0% 0.7% 0.9% 1.3% 0.2%
Annual Change 2018 5.8% 2019 -3.4% 2020 3.6%

650
300
Jan 17
Mar 17
May 17
Jul 17
Sep 17
Nov 17
Jan 18
Mar 18
May 18
Jul 18
Sep 18
Nov 18
Jan 19
Mar 19
Forecast by quarter until end-2020 Source: Bloomberg
Rest of 1st half 2019: Subdued market activity due
Copper inventories at major exchanges have
to US-China trade deal uncertainty should limit price
rebounded somewhat by mid-March, but are still 56%
increases.
down from their peak in March 2018, currently standing
• Further downward price pressure is expected in the at just over 5 days of average global production.
near term as Chinese smelters and traders enter the
export market to capitalise on low stock levels at major
commodity exchanges (see grey box).
2nd half 2019 - 2020: Growing global demand, boosted

by the easing of trade tensions should augment
demand for electricity cabling and renewable energy
plants, lifting prices firmly.
• Relatively attractive consumer credit due to the soft
global interest rate environment should also boost Compiler: Eduan Hauman (eduan@afriforesight.com)
consumer demand for durable goods like cars. Supported by Jacques Botha (jacques@afriforesight.com)

20
4.3 Cobalt
We forecast the LME cobalt spot price.

Forecast: DRC production ramp-up to push prices down until mid-2020. Thereafter, slower supply growth and
rising demand for electric vehicle batteries to drive prices upwards.
 
90 000 DRC projects to oversupply market until mid-
80 000 2020
70 000 • DRC production (66% of global in 2018) increased
60 000 35.6% y-on-y during Jan-Sept ’18, with Glencore’s
50 000 operations in Katanga providing much of this growth,
40 000
as the graph illustrates. Further growth is expected in
30 000
2019 as Eurasian Resources, Chemaf and Pengxin
are expected to start production at projects with
20 000
48ktpa combined capacity (about 35% of global in
10 000
2018).
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
 
30 9%* 12%*
Price ($/t) 65 387 56 951 35 211 33 450 32 447 31 960 31 481 31 166 31 634 32 488
Q-on-Q Change -25.2% -12.9% -38.2% -5.0% -3.0% -1.5% -1.5% -1.0% 1.5% 2.7% 2%*
Annual Change 2018 30.6% 2019 -54.4% 2020 -4.7%
20
Forecast by quarter until end-2020 10
Mar 2019: Prices to lift slightly over the month on

threats of temporary production cuts at Glencore’s 0
Mutanda copper mine (about 20% of global cobalt 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
DRC output excl. Katanga Glencore's Katanga operations
in 2018) and as battery manufacturers reopen after
*Katanga’s share of DRC output
winter break in China. Source: Central Bank of Congo
Rest of 2019 & 1 half 2020: Prices to decline on

st
• Sales from Glencore’s Katanga operations are
strong DRC supply, despite expectations of suspended currently suspended due to high uranium content.
sales from Glencore’s Katanga operations (8% of Glencore is investigating options to temporarily
global in 2018 after March production start), as 3 other restart sales in the near term.
major projects are expected to start ramping up in • Glencore plans to temporarily cut supply at its mature
2019. Mutanda mine (produced 20% of global cobalt in
2018) to investigate new methods to extract copper.
2nd half 2020: Prices lift slowly on rising demand for
electric vehicle batteries and slowing supply growth,
as new developments outside DRC slow following the Compiler: Pearson Mururi (pearson@afriforesight.com)
collapse in prices. Supported by Eduan Hauman (eduan@afriforesight.com)

21
4.4 Lithium
We forecast the Chinese lithium carbonate price as a proxy for global prices. About 60% of lithium is consumed in lithium carbonate
form and China uses about 60% of the world’s lithium.

Forecast: A sharp rise in global production led by Australia to push prices down.
Change to previous forecast: Price to rise in 2nd half ’20 on higher demand for electric vehicle battery
manufacturing.
  • Chilean production (about 33% of global in 2017) should

25 000 also be boosted by the start of SQM’s Salar De Atacama
project’s planned 30ktpa (13% of global) expansion in
20 000 2019.
2nd half of 2020: Rising demand for electric vehicle

15 000
batteries and slowing supply growth should push up
the price.
10 000
• EV and hybrid sales (30% of use) are expected
to increase firmly with the shift away from internal
5 000
combustion cars. China, the largest auto market,
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Produced by Afriforesight targets 10% of total sales as EV sales by 2020 - sales

3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 in 2018 were already 4.5% of total.
Price ($/t) 12 208 10 021 10 000 9 700 9 331 9 219 9 127 9 100 9 373 9 466
• Demand for storage batteries (10% of use) should also
Q-on-Q Change -38.2% -17.9% -0.2% -3.0% -3.8% -1.2% -1.0% -0.3% 3.0% 1.0% rise with rapid adoption of renewable energy generation,
Annual Change 2018 -16.0% 2019 -41.0% 2020 -3.1% particularly for home and small-scale use.
Produced by Afriforesight • Smartphone sales declined by 5% in 2018, the 1st
contraction ever, driven mainly by economic and
political uncertainty in major markets. China’s market
Forecast by quarter until end-2020 was particularly hard hit due to additional pressure
Rest of 2019 & 1st half 2020: Sharply rising global from its trade dispute with the US but should recover
supply driven by new projects and expansions in slightly as their government has implemented various
Australia and Chile, is expected to outweigh increasing programmes to boost domestic consumer spending.
demand for electric vehicle batteries, weighing down
prices.
• Australian production to rise sharply as projects come
online and recent projects ramp up, adding about 20%
to global output over the next two years.
 
450
300
150
0
2017 2018 2019 2020
Greenbushes Mt Marion Pilgangoora Altura Whabouchi
Bald Hill Mt Cattlin Wodgina Finniss
Compiler: Joshua Rorke (joshua@afriforesight.com)
Source: Afriforesight, company filings
Supported by Jacques Botha (jacques@afriforesight.com)

22
4.5 Zinc
4.5 Zinc
We forecast the LME refined zinc spot price.

Forecast: Strong supply growth from new mines outpacing slow steel demand growth to reduce prices over the
period.
Outlook for the profitability of the industry is VERY GOOD: Average gross profit margins are expected to average
about 40% during the 1st quarter 2019 and decline slowly over the forecast period, as shown on the right-hand axis
of the chart.
 • Galvanised steel demand in the transport sector should

 
3 600 100% decline on increasing replacement of car parts made
from galvanised steel with cheaper or more suitable
composite materials.
2 800 70%
• Low zinc inventories should offset price declines slightly
in the near term.
2 000 40%

Building & construction
1 200 10%
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
24%
LME Zinc Dollar Spot Gross Margin
Transport
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
45%
Price ($/t) 2 537 2 629 2 660 2 636 2 625 2 604 2 573 2 552 2 537 2 524 6%
Consumer goods & electrical
Q-on-Q Change -18.4% 3.6% 1.2% -0.9% -0.4% -0.8% -1.2% -0.8% -0.6% -0.5%
appliances
Annual Change 2018 1.2% 2019 -10.0% 2020 -3.2%
25%
Produced by Afriforesight Others
Source: Boliden

Rest of 2019 - 2020: Mined production is expected
Compiler: Joshua Rorke (joshua@afriforesight.com)
to outgrow demand for zinc use in galvanised steel, Supported by Eduan Hauman (eduan@afriforesight.com)
pushing prices down:
• Supply should grow firmly from several large projects
started in 2017-18, including two new big mines:
Australia’s Century tailings (264ktpa) and South Africa’s
Gamsberg (250ktpa).

23
4.6 Lead
We forecast the LME refined lead spot price.

Forecast: Car battery demand and supply growth are expected to remain mostly balanced over the period,
keeping prices sideways.

 
2 600
4% Batteries
3%2%
2 400
5%
Rolled & extruded products
6%
2 200
Pigments & other compounds
2 000
Ammunition
1 800
Alloys
80%
1 600
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Others
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
Source: International Zinc & Lead Study Group
Price ($/t) 2 097 1 978 2 058 2 060 2 062 2 058 2 058 2 064 2 064 2 058
Q-on-Q Change -12.0% -5.6% 4.0% 0.1% 0.1% -0.2% 0.0% 0.3% 0.0% -0.3%
Annual Change 2018 -2.5% 2019 -8.1% 2020 0.1%

Rest of 2019 - 2020: Demand for lead-acid batteries
(about 80% of lead use, see pie chart) to grow slowly in
line with conventional car sales. This will be balanced
by increasing supply from recycling of old lead batteries
and production from new zinc-lead mines, keeping
prices sideways. Compiler: Joshua Rorke (joshua@afriforesight.com)
Supported by Eduan Hauman (eduan@afriforesight.com)

24
5. Precious metals & diamonds
5.1 Gold
Forecast: Prices over the first 3 quarters are expected to be volatile on a rising path on growth uncertainty
and inflation fears (i.e. fears of stagflation) as global trade remains uncertain and the oil price remains high.
By the 4th quarter Trump would have ended his trade-war-mongering allowing recession fears to subside. In
2020 inflation fears will be weak as oil trends at lower levels, but sound global growth will boost gold jewellery
demand to compensate for lower safe-haven demand. Expectations of US rate hikes late in the year should
weigh further on the price.
Change to previous forecast: Price increases are now expected to end by 4th quarter 2019 as trade
disputes are expected to be resolved earlier and low global interest rates lead to stronger stock
markets.
Outlook for the profitability of major global gold miners is EXCELLENT: Gross profit margins should
average around 46% in the 1st quarter ’19 and edge down later over the forecast period, as shown on the right-
hand axis of chart.
   from a no-deal Brexit. Gold safe-haven investment

 
1 700 100% demand to grow.
• Geopolitical risks should add further pressure throughout
1 500 the year:
70%
ÌÌ Increasing fears of a 3rd world war. China’s Communist
1 300 Party may want to flex its muscles ahead of China’s
40% centenary next year in 2021, and is already clamping
1 100 down on dissidents in Hong Kong while escalating
its drive to re-integrate Taiwan.
900 10% ÌÌ North Korea is demonstrating its readiness to launch
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Gold Dollar Price Gross Margin

more missiles at the free world.
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
ÌÌ The most powerful country in the world has a
impulsive president who shoots before he aims and
Price ($/oz) 1 211 1 230 1 307 1 331 1 343 1 316 1 316 1 320 1 308 1 298
has the keys to initiate a nuclear holocaust.
Q-on-Q Change -7.3% 1.6% 6.3% 1.8% 0.9% -2.0% 0.0% 0.3% -0.9% -0.8%
ÌÌ The Middle East remains a volatile pressure pot.
Annual Change 2018 0.8% 2019 4.3% 2020 -1.0%
2020: We expect the gold price to gradually weaken

over 2020 as:
• Stock markets look more attractive as global growth
Forecast by quarter until end-2020 improves and Trump buries the trade war hatchet.
Jan & Feb 2019: Prices rose on the US Fed’s revised ÌÌ The Fed is expected to continue with a soft interest
stance to hold back on interest rate increases until rate policy, as inflation remains benign, because of
inflation really bites and safe-haven demand was the lower oil price (see p3).
fuelled by Brexit chaos and expectations that the US’s ÌÌ Gold jewellery sales should increase on rising
trade disputes may drag on. consumer spending, boosted by improving global
growth and low interest rates.
Rest of 2019: Prices to rise on expectations of rising
ÌÌ Markets should also have expectations that North
inflation and continued trade war tensions leading to Korea, Russia, and other potential global antagonists
stock market volatility, before giving up some of its move towards peace with the West, wise to the fact
gains by the 4th quarter hopes of a trade resolution, that Trump may be looking for an excuse to enter a
ending the year marginally up. war in the lead-up to the November elections.
• Higher oil price in 2019 (see p3) and the Fed’s ÌÌ Later in the year we expect the Fed to start
relaxed stance on interest rate hikes should stoke threatening the market with readiness to respond to
inflation fears. a build-up of inflationary risk through the potential lift
• US trade wars are expected to remain a risk to global of interest rates, boosting the dollar and weakening
growth and cause stock market volatility, while the EU gold.
is in economic turmoil and at risk of an economic crisis

25
Rolling Commodities Forecast by Afriforesight - 14 March 2019 / Precious Metals & Diamonds
Potential slow-down in global production  
unlikely to impact prices 6 000
Fears that global mined production of gold has, or will

soon be peaking should have a negligible impact on
the price in the medium term - barring a highly unlikely
3 000
and dramatic drop-off in production - as total supply
should be impacted only minimally due to the large
volumes of above ground stocks (see graphs).
  0
2010
2011
2012
2013
2014
2015
2016
2017
2018
110
Above-ground stocks at year start Mined production
Source: World Gold Council
55
Compiler: Jason Welz (jason@afriforesight.com)

Supported by: Jacques Botha (jacques@afriforesight.com) and
Charles Kieck (charles@afriforesight.com)
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: World Gold Council

26
5.2 Platinum
Forecast: Declining diesel autocatalyst demand to continue weighing down prices until mid-2019. Thereafter,
rising speculative investment on expectations of substitution for palladium in petrol autocatalysts and rising
demand for heavy-duty diesel vehicle autocatalysts to raise prices. Strong recycled supply should, however,
slow price increases.
Outlook for the profitability of major South African PGM producers is GOOD: EBITDA profit margins are
expected to fall gradually to about 18% as production costs rise faster than revenue.

  
 
Demand
1 700 • Investment demand should rise firmly due to:
70%
ÌÌ Expectations of a shift away from palladium to
1 500
55% platinum by petrol autocatalyst manufacturers due
1 300
40%
to the relative deficit of palladium and surplus of
platinum in global markets (see grey box), as well as
1 100 25% the price differential.
900 10% ÌÌ Expectations of gradually rising fuel cell demand
over the forecast period, though use is currently
700 -5% limited to a small range of passenger cars and niche
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
Platinum Dollar Price EBITDA Margin of SA PGM producers

applications like heavy industrial equipment and
stationary power units. This effect may be muted
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
by substitution, as carmakers like Nissan are testing
Price ($/oz) 814 823 820 810 830 852 873 897 924 954 solid oxide fuel cells (with no platinum content).
Q-on-Q Change -10.1% 1.1% -0.4% -1.2% 2.5% 2.7% 2.4% 2.8% 3.0% 3.2% • Increasingly stringent emissions laws should encourage
Annual Change 2018 -7.4% 2019 -5.9% 2020 10.2%
higher platinum loadings in heavy-duty diesel
Produced by Afriforesight autocatalysts, somewhat offsetting the decline in light-
duty diesel autocatalyst demand.
• Jewellery demand is expected to rise firmly, driven by
firm growth in global consumer spending.
Feb 2019: Fears of supply disruptions from South Supply

Africa due to threats of union worker strikes boosted • Global platinum production is expected to be more-or-
platinum prices firmly. less sideways in 2019, held back by shaft closures in
South Africa, but rise in 2020:
Rest of 1st half 2019: The ongoing European-led ÌÌ SA production (70% of global) is expected to fall
decline in diesel car sales over excessive pollution in 2019 as more unprofitable Lonmin, Implats and
concerns should continue to weigh down prices. Sibanye-Stillwater shafts shut down, partly offset
However, price declines should be offset by the risk of by ramp-ups by RBPlat and Northam Platinum.
slower output from South Africa due to: Output should rise in 2020 as new projects start up
• Sharp South African and Zimbabwean electricity price - including Wesizwe’s Bakubung and various tailings
increases (see Ferrochrome on p17). retreatment projects - but the risk of unsustainably
• Fears of labour disruptions as SA’s labour court failed large electricity cost increases should hold back
to declare the potential strike by AMCU workers illegal, other expansion plans and may force some smelters/
despite ordering suspension of the strike. refiners to shut or reduce capacity.
ÌÌ Output in the rest of the world should grow moderately
Rest of 2019 and 2020: Rising speculative investment with Sibanye-Stillwater’s Blitz (US) project ramping
demand due to the expectation of eventual substitution up while Karo Resources (Zimbabwe) plans to start
for palladium in petrol autocatalysts, as well as rising a project in 2020.
demand for heavy duty diesel autocatalysts and
jewellery to boost prices.

27
ÌÌ Recycled supply (about 25% of total output) is
These results imply platinum-based petrol autocatalysts
expected to remain strong, particularly in Europe, as
should be capable of outperforming palladium-based
scrapping of older diesel cars accelerates.
catalysts (even in engines optimised for palladium
catalysts), while using up to 50% less PGM material
Automakers may seek to shift to using in some cases. However, given the rapid changes in
platinum in place of palladium in petrol the manufacturing of vehicles and autocatalysts to
autocatalysts meet increasingly stringent emissions controls since
Conflicting views have surfaced regarding the the study took place, we believe new studies into the
substitution of palladium with platinum in petrol comparative viability of palladium/platinum in petrol
vehicles. autocatalysts need to be conducted for manufacturers
to make truly informed decisions.
In December 2018, the World Platinum Investment
Council reaffirmed a view given in mid-2018 that the Until further evidence can be presented, Afriforesight’s
large differences in prices between platinum and view remains in line with the World Platinum Investment
palladium (currently over $700/oz) should encourage Council, as platinum supply (especially from recycling
petrol autocatalyst producers to shift their use of operations) is expected to be in surplus while palladium
PGM metals towards platinum. However, Nornickel is expected to see a deficit during 2019 and early 2020
in Feb 2019 claimed the two metals are not easily due to the ongoing diesel market backlash.
interchangeable in petrol autocatalysts and palladium As palladium becomes more difficult to source we
is a better catalyst for the job. expect autocatalyst manufacturers to start switching
Both views seem to be based on a 2013 study by to using higher loadings of platinum. The potential for
Johnson Matthey, which looked at petrol engines manufacturers to save on precious metal costs should
optimised for palladium-rich catalysts to test whether also encourage this shift (although some manufacturers
shifting the PGM mix in the autocatalyst altered say the investments needed to achieve the switch are
performance at an inlet temperature of 450 °C. Although delaying any such plans).
the study concluded that palladium outperformed
platinum, the underlying data reveals mixed results
- and palladium tended to give the best results at
relatively high loadings per cubic foot of autocatalyst
substrate, but platinum generally outperformed at
lower loadings (see chart below).

0.60
HC/CO/NOx emissions (g/km)
0.45
0.30
0.15
0.00
40/Pt
30/Pt
27/Pt
20/Pt
40/Pd
30/Pd
27/Pd
20/Pd
32.5/Pd
32.5/Pt
Compiler: Ayanda Makupula (ayanda@afriforesight.com)

Total PGM loading (g/ft3)/primary metal
Supported by Jason Welz (jason@afriforesight.com)
Source: Johnson Matthey Data

28
5.3 Rough Diamonds
We forecast the rough diamond composite index.

Forecast: Growing jewellery sales and constrained supply should support prices over forecast period.
Outlook for the profitability of major diamond producers is VERY GOOD: Gross profit margins are
expected to average around 38% over the forecast period, as shown on the right-hand axis of the chart.

 
 Forecast by quarter until end-2020
260 100%
Rest of 2019 & 2020: Prices to rise slowly as global
250
consumer spending is stimulated by relatively low
240 80%
interest rates over the forecast period and easing trade
230
220 60%
war tensions, outpacing a slow recovery in production.
210 • A lack of financing from banks for cutters and polishers
200 40% in India should curb physical demand, while market
190 uncertainty over De Beers’s entry into the synthetic
180 20% diamond market should also weigh on prices initially.
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20
3Q20
• Relatively low global interest rates should however

Composite Rough Diamond Index Gross Margin
Produced by Afriforesight boost consumer spending over the period, although this
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 should taper late 2020 as rates begin rising in the US
Composite Rough again.
205 206 204 205 207 208 210 212 213 214
Diamond Index
• Trump is expected to finally make peace on the trade
Q-on-Q Change 2.1% 0.2% -0.7% 0.6% 0.8% 0.2% 1.0% 1.0% 0.7% 0.5%
dispute front by late-2019 - reviving market confidence
Annual Change 2018 1.9% 2019 2.0% 2020 3.0%
and boosting consumer spending.
Compiler: Eduan Hauman (eduan@afriforesight.com)

Supported by Pearson Mururi (pearson@afriforesight.com)

29

Afriforesight Rolling Commodity Forecast 2019

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Afriforesight Rolling Commodity Forecast 2019

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Rolling Commodities Forecast

A. Background for industry forecasts

B. Industry information for each commodity

4. Other base metals

Jacques Botha Nathan Musson Eduan Hauman

Economic backdrop  

up prices for much of 2019 before rising production, to weigh on prices

period. Apart from incorporating

Steel and its inputs

slowly increase prices, despite slowly down. Apart from incorporating

Stainless steel and its inputs

year our forecast is mostly unchanged. unchanged.

Other base metals

growth for this year our forecast is

this year our forecast is mostly

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demand from global trade uncertainty, autocatalyst demand to keep prices

incorporating a slightly lower global

All the best for the month ahead!

The Afriforesight team

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Forecast until 2020

  • Despite seemingly making progress on trade

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2. The value of the US Dollar

Forecast by quarter until end-2020

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Forecast key aspects

Produced by Afriforesight up its production cuts to meet its target in March or

Forecast by quarter until end-2020

• Some additional planned US pipelines are expected to

2020: The driving-season cycle will repeat, however

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Source: EIA, Reuters

Compiler: Vinesh Chetty (vinesh@afriforesight.com)

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Forecast - key aspects

Annual Change 2018 43.6% 2019 -29.6% 2020 -8.4%

Henry Hub Gas

Annual Change 2018 6.5% 2019 -5.6% 2020 9.0%

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Forecast - key aspects

Produced by Afriforesight contested April elections.

demand for South African coal and push up prices:

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growing, mostly from Pakistan.

• While prices are forecast to decline in dollar terms, a 0

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Forecast - key aspects

100  

Thermal Coal Dollar Price Australian Operating Margin

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Forecast - key aspects

 2nd half 2019 & 2020: Prices to increase slightly

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Forecast - key aspects

 This effect should be felt regardless of whether Trump

Potential removal of Trump’s steel tariffs

2 half 2019 & 2020: Price to fall initially as iron ore

costs normalise before trade dispute settlements 

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Forecast - key aspects

Iron Ore Dollar Price Gross Margin

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