S&P Global Ratings has raised its 2017-2018 forecasts for copper and aluminium due to production curtailments, steady industrial demand and continued Chinese growth seen so far this year.

S&P Ratings analysts now expect aluminium to average $1,800/mt for the rest of 2017 and $1,800 in 2018 compared with $1,650 and $1,650, respectively.

Copper is expected to average $5,500 for the rest of 2017 and $5,500 for 2018, compared with earlier forecasts of $5,070 and $5,290, respectively. "Steady gains in aluminium, copper, and iron ore prices that started in late 2016 have continued for the most part," S&P Ratings analysts noted in a report released last Monday.

"In our view, this reflects a combination of improved supply conditions, notably production curtailment in China and strikes in Chile, amid steady growth in industrial demand," they said.

"Despite market concerns related to a slowing Chinese economy, we believe consumption will increase to an extent that should support currently favourable commodity prices generally in line with our assumptions."

The aluminium forecast revision was based in part on the Chinese government's plan to curtail supply by reducing aluminium and alumina processing capacity to minimize air pollution.

"We also continue to expect that demand for aluminium will remain healthy and increase in the low- to mid-single digits over the next 12 to 24 months," S&P Ratings analysts said. "We expect a slight price decline from currently high levels (close to $2,000/mt), primarily based on our expectation for a modest global surplus of aluminum in 2017. However, our expectation for relatively balanced market conditions beyond this year underpins our price assumptions through 2019."

Recent trade actions brought by the World Trade Organization on behalf of the US Trade Representative over illegal Chinese subsidies and petitions in March from the US Commerce Department and the Aluminum Association for anti-dumping duties may further support prices, S&P Ratings analysts said.

The revision of the copper price forecast was based expectations for continued robust demand in Asia, coupled with a tighter supply scenario, analysts added.

"Our estimates indicate a deficit scenario becoming more evident toward 2019, so we are assuming an upward sloping [price] curve," they said.

Gold prices are likely to average $1,200/oz through 2019, unchanged from previous forecasts.

"In our view, gold prices are likely to maintain an inverse correlation with US interest-rate expectations. Our forecast for gradual interest-rate increases and the continued relative strength of the US dollar underpin our subdued average gold price assumptions over the next several years," the analysts said.

But heightened geo-political tensions and global market uncertainty could increase demand for gold, thereby mitigating downward price pressure, they added.

http://www.platts.com/latest-news/metals/washington/sampp-global-ratings-raises-copper-aluminum-price-21424033

Water supply concerns and pollution in Latin America will drive increasingly strict environmental regulations in the region over the coming years, which in turn will also make miners’ life more difficult, a report by BMI Research shows.

According to the analysts, in addition to raising costs for mining companies and delaying certain projects, the focus on the amount of water used by the extraction industry will heightened social pressure on firms operating in the area.

A recent example of this trend is what happened in El Salvador, which last month passed a law that bans all mining for gold and other metals in the country, in an effort to protect its environment, particularly its water streams.

BMI expects the usage and treatment of water in the mining industry to come under increasing scrutiny in Latin America, as droughts or arid environments in key regions heighten tension between miners and local communities and previous incidents lead to additional regulations.

The researchers name Chile, Argentina and countries in Central America as the most likely to enforce stricter water regulations due to scarcity, contamination or a combination of both issues:

In Chile, the environmental regulatory body (SMA) has been more aggressively pursuing and fining water mismanagement in the mining sector, levelling charges against Antofagasta Minerals' Los Pelambres copper mine and effectively suspending Kinross Gold's Maricunga gold mine in 2016.

In Argentina, Barrick Gold paid a $9.8mn fine for a cyanide spill at the Veladero gold mine in 2016, agreeing to increase water monitoring at the operation in res ponse. In March, a provincial government suspended operations at the mine due to a pipeline issue and, in April, Barrick announced the sale of a 50% stake in the Veladero mine to Chinese firm Shangdong Gold Group for $9.6mn.

In Brazil, following the 2015 tailings dam burst at the Samarco iron ore mine which killed nearly 20 people and polluted hundreds of miles of rivers, parent firms Vale and BHP Billiton face a $50bn lawsuit for damages. In March, a Brazilian judge suspended the lawsuit as the firms negotiate with prosecutors.

Tighter regulations will come at a time when illegal gold mining is once again picking up in the region on the back improving prices for the yellow metal. Generally, these kinds of miners not only don’t abide by environmental regulations, but also use mercury to isolate small amounts of gold, polluting rivers and streams and eventually impacting the health of local communities.

“When the negative externalities of gold mining, namely mercury and cyanide exposure to water sources, are left unaddressed, public opinion on all mining activity can motivate extreme legislation,” BMI concludes.

http://www.mining.com/water-scarcity-pollution-to-take-shine-off-latin-american-mining-sector/

Seasonally stronger copper demand in top consumer China and dwindling stocks of scrap are expected to narrow the discount between metal for nearby delivery against the three-month contract, which hit a four-year high this week.

The discount or contango for the cash copper contract against the three-month forward on the London Metal Exchange jumped to $35.25 a tonne MCU0-3 this month, matching the high hit in June 2013. It closed at $27.25 on Tuesday compared with a $3 premium in January.

"As second-quarter physical buying gets underway the contango will decline," Societe Generale analyst Robin Bhar said. "Copper rallied because people were worried about supply disruptions, it saw scrap dealers around the world sell inventory, the bulk of which has probably already come through."

China is the world's largest consumer, accounting for nearly half of global demand estimated at more than 23 million tonnes this year. Chinese demand typically rises in the second quarter ahead of the summer months when construction and industrial activity picks up.

The trigger for scrap dealers to release stocks was higher benchmark copper prices, which climbed above $6,200 in February, the highest since March 2015 and a gain of nearly 30 percent since November last year.

Citi analyst David Wilson expects scrap supplies to increase by one million tonnes this year relative to 2016, overwhelming losses of around 385,000 tonnes from disruptions at mines.

"We expect the rate of scrap flow to slow into the second half of the year, as scrap inventories at merchants are drawn," Wilson said, adding that disruptions could cut mine supply by around 7 percent this year.

That is above the 5 percent analysts typically assume.

Disruptions include strikes in Chile at BHP Billiton's Escondida, the world's largest copper mine, and in Peru at Cerro Verde.

In Indonesia, production at Freeport-McMoRan's giant Grasberg mine in Papua fell after the government banned copper concentrate exports on Jan. 12, part of an effort to boost the local smelter industry.

These problems gave the impression of bottlenecks and supply shortages, but there was no shortage of concentrate for smelters, Aurubis, Europe's largest copper producer, said in a newsletter.

"There were large amounts of cathode that suddenly appeared on the official warehousing system," it said.

Stocks of copper in LME-approved warehouses rose more than 70 percent to above 340,000 tonnes in the first half of March but have since fallen more than 30 percent to below 260,000 tonnes. They are expected to fall further as demand strengthens over the next three months.

http://www.reuters.com/article/metals-copper-contango-idUSL8N1HI1A6

Losses amounting to hundreds of millions of dollars appear to be pushing the Indonesian government and mining giant Freeport McMoRan to resolve a row that has crippled operations at Grasberg, the world's richest copper mine, for three months.

Freeport says it has lost revenue of about $1 billion since the export of copper concentrate from Grasberg was halted on Jan. 12 under new rules issued by the government. The government has lost millions of dollars in royalties and is worried about layoffs and a slowing economy in the restive Papua region, where the giant mine is located.

"There's a lot of grandstanding in public – that, with our economy being close to a $1 trillion a year now, Freeport is a small matter," said a senior Indonesian government official, who estimated the lost royalties and taxes from the mine at about $1 billion a year.

"But truth be told, a $1 billion a year reduction in fiscal revenue is a lot," said the official, who spoke on condition of anonymity.

Indonesia halted Freeport's copper concentrate exports under new rules that require the Phoenix, Arizona-based company to adopt a special license, pay new taxes and royalties, divest a 51 percent stake in its operations and relinquish arbitration rights.

Freeport threatened in February to take the dispute to arbitration, saying the rules were "in effect a form of expropriation".

But now, Indonesia has promised to allow Freeport to export its copper concentrate once again, while negotiations continue over the next six months on contentious issues, including on divestment, economic and legal protection and smelting investment.

The compromise comes ahead of a visit to Indonesia by U.S. Vice President Mike Spence next week. Pressure to resolve the row could also come from Freeport's third-biggest shareholder, activist investor Carl Icahn, who has been appointed a special adviser to President Donald Trump.

For Indonesia, tensions at Grasberg could hamper its efforts to calm the Papua region, where a low-level insurgency has simmered for decades. The mine's social and environmental footprint also remains a source of friction.

Papua's GDP growth is expected to drop to 3 percent this year due to the Freeport dispute, down from 9.21 percent in 2016, according to the Papua branch of Indonesia's central bank.

A slump in Papua's economy could aggravate tensions with Jakarta, complicating efforts by President Joko Widodo to enforce policies to extract more from its natural resources.

"When there is a crisis at Freeport, it will send major ripples through Papuan society," said Achmad Sukarsono, an Indonesian expert at the Eurasia consultancy.

PAPUA ECONOMY

In Timika, a sprawling town of around 250,000 people and a supply hub for Grasberg, the Freeport dispute has hit businesses, caused a slump in house prices and stalled credit, residents say.

Mastael Arobi, who owns a car rental business there, has cut his fleet by two-thirds because of slow business and is worried about the interest he pays on loans.

"We are half-dead thinking about repayments," he said.

Transport operators in Timika had similar complaints, with a motorcycle taxi driver saying it was hard to make even a third of the up to 300,000 rupiah ($22.50) he used to make each day.

"Since these furloughs and layoffs began we have stopped providing credit to Freeport workers," said Joko Supriyono, a regional manager at Bank Papua in Timika, who said ATM transactions had declined by around two-thirds since January.

Freeport, which employs more than 32,000 staff and contractors in Indonesia, has now "demobilised" just over 10 percent of its workforce, a number expected to grow until the dispute is resolved.

Persipura, the main soccer club in Papua and one of Indonesia's most decorated teams, announced last month that Freeport, its top sponsor, had stopped its funding.

Indonesian Vice President Jusuf Kalla said in a recent interview that while he did not anticipate political pressure, Washington should not politicize the Freeport issue.

Another Indonesian government official said moves to allow Freeport to export temporarily were aimed at showing that the government is willing to find a solution, and to send a positive message, especially to foreign investors, who are watching the saga closely.

"We are not changing our stance. Our basic stance on 51 percent divestment, our demand for smelters - all that is still there. But in negotiations, you should give a little to assure the other side that we are still open to some options," said the official.

The two sides had opted for a temporary solution to break a deadlock in issues that "cannot be resolved quickly," said Bambang Gatot, Director General of Coal and Minerals in the mining ministry,

A spokesman for Freeport Indonesia declined to comment on the warming ties with the government.

A senior Freeport McMoRan executive said last week the company was awaiting details of a temporary export permit from the Indonesian government that would allow it to ramp up production.

http://www.reuters.com/article/us-indonesia-freeport-idUSKBN17E0XT

Diversified miner Rio Tinto Plc said on Wednesday it was continuing talks on the long-term future of its stake in the Grasberg copper mine in Indonesia and one of its top executives would visit the country for talks over the coming weeks.

Mine operator Freeport McMoRan's exports of copper concentrate from Grasberg, the world's richest copper mine, have been at a standstill since mid-January, when Indonesia introduced rules intended to improve revenues from its resources and create jobs.

"There is no doubt that Grasberg is a world-class resource. However, there's a difference between a world-class resource and a world-class business," Rio Tinto Chief Executive Jean-Sebastien Jacques said on Wednesday, responding to a shareholder at the company's annual general meeting in London.

"Depending what will happen in the coming months and years in terms of negotiations with the government, the extension beyond 2021, Rio will have to come to a conclusion whether we want to stay or not," Jacques said, adding discussions involving all parties would continue over the next six months.

Rio Tinto has a joint-venture with Freeport-McMoRan Inc for the huge Grasberg copper and gold complex in remote Papua, with rights to 40 percent of production above specific levels until 2021 and 40 percent of all production after 2021.

As pressure mounts on Indonesia to agree a compromise U.S. Vice President Mike Pence will visit the country next week and Arnaud Soirat, head of Rio Tinto's copper and diamonds business, will visit shortly afterwards, Rio officials said.

Freeport McMoRan, the biggest publicly-listed copper miner, has lost $1 billion since the export of copper concentrate from Grasberg was halted on Jan. 12 under new rules issued by the government.

The Indonesian government has lost millions of dollars in royalties and is worried about layoffs and a slowing economy in the restive Papua region.

http://www.reuters.com/article/us-rio-tinto-agm-grasberg-idUSKBN17E1R7

Lead's rally from multi-year lows hit November 2015 were on the back of major zinc-lead mine shutdowns and strong demand from the automotive sector, responsible for the bulk of demand.

A new report from BMI Research says positives for the market will largely stay in place leading to a widening albeit relatively small market deficit through 2021.

BMI, a unit of rating agency Fitch, forecasts the lead market will be minimally undersupplied this year the back of persistent supply cuts and growing demand from second-tier consumer countries but the shortfall could quadruple to 70,000 tonnes in 2021.

Mined lead production will continue to feel the effects of a global slowdown in mining capital expenditure, which will have a knock-on effect on refined lead supply.

China produces nearly half the world's mined lead and is responsible for some 40% of global refined lead output. The country's production of refined lead will stagnate on the back of Beijing's pollution clampdown on heavy industry and growth will be muted at best elsewhere. China's imports of lead was up threefold last year and will slow going forward, but an increasing refined deficit will support import levels.

Tightening conditions are already evident with LME warehouse stocks falling by 10% over the past month

Thanks to high recycling rates (lead's main application is in batteries and in the US for instance recycling rates are close to 100%) mining makes up less than half of annual global supply.

On the demand side Chinese lead consumption growth of 11% in 2016 will slow dramatically as its red hot auto market cools, but India will take up some of the slack with growth rates in high single digits for the next five years.

BMI's autos team forecasts a slowdown in vehicle production growth in China from 13.4% in 2016 to an average of 5.9% from 2017–2021, providing support to lead demand. Globally vehicle output is also projected to expand from an annual average of 2.8% from 2012–2016 up to 2.9% during 2017–2021.

The global stocks-to-use ratio will gradually decline from 5.7% in 2017 to 3.6% in 2021 says BMI.

Tightening conditions are already evident this year with LME warehouse stocks falling by 10% over the past month. Lead was drifting lower on Tuesday at $2,253 a tonne ($1,022 a pound), but the metal is holding onto year to date gains of 13.6%.

http://www.mining.com/lead-price-boost-deficits-set-widen/