The Asia Miner

OCT-DEC 2015

The ASIA Miner - Reporting Important Issues to Mining Companies in the Asia Pacific Region

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10 | ASIA Miner | October-December 2015 CHINESE steel market participants expected new steel orders during September to stay at similar levels to August, although prices were predicted to soften slightly, according to the Platts China Steel Sentiment Index (CSSI), which showed a headline reading of 55.64 out of a possible 100 points in September. The September index rose just 0.45 points from August's 55.19, and was the second consecutive month the CSSI has stayed above the 50 threshold. A fgure greater than 50 indicates expecta- tions of an increase. According to Platts, the outlook for new domestic steel orders increased by 1.35 points to 58.33, while export order expectations for the month deteriorated by 10.09 points to 24.48. The CSSI rebounded strongly in August on the back of improved ex- pectations for domestic demand. It showed a headline reading of 55.1 out of a possible 100. The index rose 28.6 points from July's 26.5, giving a reading above the 50 threshold for the frst time since May. Crude steel production was expected to stay relatively fat in Sep- tember, compared with August, while steel inventories held by trad- ers were expected to rise further in response to weak demand. Prices of fat steel products, such as hot rolled coil, were expected to weaken slightly in September, the CSSI showed. Sentiment is more positive regarding domestic demand, while expectations for export orders fell 10.09 points in September to 24.48. "Generally, market sentiment remains extremely pessimistic with domestic steel prices at record lows, while demand from the man- ufacturing and property construction sectors has yet to improve," said Platts' managing editor of steel and steel raw materials Paul Bartholomew. "Exports have provided a vital outlet for Chinese steel but there is now so much competition for overseas markets that it is pulling export prices down and eroding confdence." CSSI refects expectations of market participants for the month ahead. It is based on a survey of approximately 50 to 75 China-based market participants including traders, stockists and steel mill operators. "Normally, you would expect a positive rebound for steel demand as the weather cools and construction activity picks up, particularly after the work stoppages around Beijing for the Victory Day parade and World Athletics Championship," Paul Bartholomew said. "How- ever, survey respondents did not envisage any signifcant improve- ment in the coming month." Separate to the CSSI, the average monthly price in August for China export hot rolled coil was $306.21 per tonne free on board (FOB) China, down 2.7% from $314.98 in July. THE mining sector shows early signs of adjustment to future con- ditions underpinned by signs of stabilizing prices over the next 12 months, but is exercising even greater caution in the operations of their businesses, according to industry leaders interviewed in the Mining Business Outlook Report released by Newport Consulting. Last year the report found a fve-year low in the sector's conf- dence but this year leaders show signs of accepting tough market conditions. They have recalibrated and refocused, some resorting to an unprecedented scale of investment cutbacks and job redun- dancies as they focus on being globally competitive. The report confrms green shoots appearing after a long chill in the sector with 16% of the mining leaders interviewed cautiously optimistic about their growth prospects for the next 12 months – up more than double on last year's fgures. Leaders showing no signs of optimism dropped from 93 to 84%. Despite a slight shift in confdence, miners are not spending or in- vesting over the next 12 months. The report fnds an overwhelming 78% of leaders reducing Capex spend – up from 44% last year. In 2013, the report found 81% of mining leaders moderately or signif- cantly increasing spend. This stark difference suggests that even if there are signs of a recovery, it is early stages and will be slow. Newport Consulting managing director David Hand says, "Min- ers are doing it tough but for the frst time in three years there are green shoots, a ficker of life in the sector. They are fghting back to remain competitive. Some are reducing the number of mines operating as they focus on becoming more effcient and productive while they wage war against the tough economics of doing business in Australia." Leaders are challenged currently by productivity (32%), remaining competitive (17%), regulations, tax and unions (14%) and volatile commodity prices (14%). The opportunities for the next 12 months are in consolidation of operations, cost-cutting, improved produc- tivity and a greater focus on the customer. The annual report traditionally concludes with advice to the Feder- al Government from the leaders interviewed. This year the message is simple: 'We are doing all we can – you need to work with us to make the difference required.' Miners want to see reformative action taken in the areas of industrial relations and unions. The report, conducted annually since 2010 by operational man- agement consultancy Newport Consulting, canvasses the views of Australia's mining leaders. It draws on in-depth interviews held between April and June 2015 with 50 mining leaders from a broad range of private and publicly listed companies. The report serves as an independent pulse-check of Australia's mining industry. China Steel Sentiment Index stabilizes Flicker of life in mining sector

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