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METALS

INSIDE METALSCOMPILED ON MONDAY, SEPTEMBER 19, 2011

ALUMINIUM:

Hungary alumina firm gets record fine for spill

Norsk Hydro sells stake in alumina refinery

COPPER:

Japan's copper refining capacity to fully recover

by end Sept-analyst

Freeport Indonesia strike delays copper exports

Japan's JX says copper demand in China solid

NICKEL/STEEL:

Ukraine plans to raise steel output in 2011, 2012

TIN/MINORS:

Operations resume at First Uranium Ezulwini

mine

MARKETS (Click on the sections below to jump to the full story)

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Peru miners wait for royalty reform small print

Mwana Africa's Zimbabwe mine gold output

tops target

Kenya tightens mining rules to protect

environment Base Resources gets funds for Kenya titanium

project

GENERAL NEWS

BASE METALS: Copper prices fell as investors focused on apossible slowdown in the global economy, with major de-

veloped nations mired in sovereign debt issues while devel-

oping economies combat inflationary pressures. "Copper is

down today as investors are feeling insecure about future

global demand given the bad news out there. The euro

zone crisis is unsettling while there is still no news on

whether the U.S. will be rolling out a QE3," said CIFCO Fu-

tures analyst Zhou Jie.

PRECIOUS METALS: Spot gold gained 0.8 percent, ex-tending a 1.2-percent rise in the previous session, as wor-

ries about a worsening debt crisis in the euro zone and the

bloc's future drove investors to seek safety in bullion. "Gold

and the dollar will remain the outperformers as equities

and base metals look weak today," said a Singapore-based

trader.

FOREX: The euro got off to a rocky start, with its weaknessgathering pace after a series of political setbacks in Europe

over the weekend prompted a flight to safety. "What hap-

pens this week? The euro is going to come under pressure -

as it already has this morning," said Rob Ryan, FX strate-

gist at BNP Paribas in Singapore.

Cuba shuts down second Canadian tradingcompany

TRADING PLACES

FEATURECOLUMN-Nickel - The return of the Chinese pig farmer: Andy HomeSomething is up in nickel . For most of this year the stainless steel input hasstruggled to shake off a bearish analysts' consensus that it is heading forstructural over-supply as a host of production start-ups and restarts come online. A string of unexpected supply-side hits in the first half of 2011 has onlydeferred the inevitable, according to the common narrative.

Andy Home is a Reuters columnist. The opinions expressed are his own

Click here to read the rest of the column

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COLUMNNickel - The return of the Chinese pig farmer:Andy Home--Andy Home is a Reuters columnist. The opinions ex-pressed are his own--

LONDON, Sept 16 (Reuters) - Something is up in nickel .

For most of this year the stainless steel input has struggledto shake off a bearish analysts' consensus that it is headingfor structural over-supply as a host of production start-upsand restarts come on line.

A string of unexpected supply-side hits in the first half of2011 has only deferred the inevitable, according to thecommon narrative.

The evidence will come in the form of a turnaround in thelong-running downtrend in LME warehouse stocks.

Nickel stocks have a marked seasonality, falling in the firsthalf and rising in the second half of most years. This yearshould see an accentuation of this "normal" trend as sea-

sonality combines with slowing stainless steel productionand rising nickel output.

Except that it hasn't happened. We're fast approaching thefourth quarter and LME nickel stocks are still falling. As oftoday they total 97,650 tonnes, the lowest they've beensince March 2009.

Moreover, there are 6,888 tonnes in the cancelled warrant"departure lounge." That's equivalent to 7.1 percent of to-tal registered stocks.

Falling stocks have been accompanied by a marked tight-ening of the nearby LME spreads.

The benchmark cash-to-three-months period was yester-day valued at $15 per tonne contango, compared with $42at the start of the month. "Tom-next", the shortest-datedspread in the LME system, has been flirting with backwar-dation most of this week.

So what is going on?

THE RETURN OF THE PHYSICAL ETF

The breakdown of the cancelled tonnage in the LME sys-tem gives a clue.

The ratio of metal earmarked for physical drawdown ishighest in those locations closest to China: 21 percent inSingapore, 38 percent in Busan and 54 percent in Gwangy-

ang.

The arbitrage window for profitable imports into Chinaopened last month and metal seems to be flowing accord-ingly.

This partly reflects a recent anomaly in the domestic Chi-nese market, where nickel pig iron prices briefly moved to apremium to refined nickel.

But the flow is also speculative with Chinese tradersamassing stocks at what they perceive to be "bargain"prices.

And underpinning such a view is chatter in the local market

that someone is planning to launch a physically-backedexchanged-traded fund (ETF) for nickel.

Details are still sketchy, particularly concerning the iden-tity of the fund's promoter, but the prospect of a physicalbuyer for 10,000 tonnes or more of metal is whetting arbi-trageurs' appetite.

DAMP SQUIB?

The pending launch of physical ETFs was a major talking-point at last year's LME Week cocktail parties in October.

Industrial users were outraged they would have to tusslewith speculators for finite amounts of metal, particularly inmarkets expected to be in short supply such as copper.

Those fears have since abated. ETF Securities did indeedlaunch ETFs backed by physical metal for all the mainLME-traded base contracts.

But their performance has been underwhelming. Physicalholdings of nickel , for example, total just 78 tonnes.

The physical copper ETF could be termed the most"successful" for ETF Securities. It currently holds 1,800tonnes of the red metal, but that holding has been staticsince early August and is lower than the peak tonnage of

3,400 tonnes held in May-June.

Other high-profile physical ETFs, meanwhile, remain con-spicuous by their absence.

One year on from the filing of the original prospectuses thetwo proposed copper funds, backed by J.P.Morgan andBlackrock , are still stuck on the U.S. regulator's desk.

The most recent amendments to those filings included de-tailed analyses of global copper stocks, reinvigorating theconspiracy theorists who argue that copper market tight-ness is an illusion manufactured by investment banks.

The clear inference is that regulators are still uncomfort-

able about the potential impact on physical markets and byextension futures prices and have asked for more informa-tion.

And as for the aluminium ETF promoted by Credit Suisse ,it seems to have disappeared without trace.

RUSAL , which was due to supply the metal, recently at-tributed the delay to market volatility but second thoughtsby another participant, Glencore , may be the more serioussticking-point, according to insiders.

PIG FARMERS

So just when the metals world had written off the wholephysical ETF concept as a false alarm, along comes one in

China.

Which is somehow fitting.

As I pointed out in a column this time last year, the firstprototype came in China in the form of physical hoarding ofhigh-value base metals, nickel and copper in particular, byChinese pig farmers.

Well that was the story anyway. It may have been apocry-phal but like all myths it took hold because it struck achord.

There were all sorts of stories about physical stockpilesbeing built up in China in 2009 by investors, both small

and large.

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FEATURE

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Prices were bombed out in 2009. Chinese smelters hadhigh and mounting unsold stocks. And Beijing had justunleashed its massive stimulus programme, promisingboth higher prices for the raw materials needed for its in-frastructure build-out and higher inflation. Both of whichturned out to be true.

If pig farmers did buy nickel early in 2009, when the LMEprice dipped below $10,000 per tonne, they would havemade a fair profit selling it earlier this year, when pricespeaked just shy of $30,000.

Now, prices look low again. Not as low as in 2009, it's true.But with LME three-month metal hovering around $21,000per tonne, the nickel price is close to the top end of the pro-duction cost curve as defined by the higher-cost Chinesenickel pig-iron producers.

Which is why Chinese players are once again scale-downbuyers of physical nickel and which is presumably whysomeone is planning a physically-backed nickel fund.

There's another key motivation, though. There is no nickel

futures contract in China.Other metal contracts on the Shanghai Futures Exchange,particularly zinc and steel rebar, have attracted heavy trad-ing volumes from speculators over the last couple of years.

Frankly, a physical ETF is a crude investment vehicle rela-tive to a futures contract. It's a one-way price bet. You can'tgo short. And you forfeit the roll yield in a backwardatedmarket, which tends to be a by-product of a metal in shortsupply and therefore worth going long of in the first place.

But if there is no futures market, it's something of a no-brainer for both promoter and would-be punter.

And it's also an option if your own investment rules preventyou from touching anything resembling a futures contract.

Those copper funds currently stuck with the U.S. regulatorare aimed at tapping pent-up demand from U.S. investorswho want a bit of the copper price action but are restrictedto U.S.-regulated securities only.

The jury is still out on whether they'll ever see the light ofday.

But it's still too early to write off the physical ETF concept.It may be re-invented in China but it won't be dis-invented.

Indeed, right now, even the prospect of one is affecting the

nickel market in a very real and very tangible sense.

FEATURE

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Peru miners wait for royalty reform small printBy Caroline Stauffer and Patricia Velez

AREQUIPA, Peru, Sept 16 (Reuters) - Mining companiessay a drive by Peru's leftist president to raise royaltiesshould not derail multibillion-dollar projects as long as thesmall print reflects the spirit of agreements with the indus-try.

President Ollanta Humala's government presented a bill toCongress on Wednesday to reform the current tax regimeas industry leaders gathered for the Perumin mining con-

vention in the Andean city of Arequipa.

Humala, who has moderated his once-radical leftist tone,was elected in June on pledges to raise mining taxes tohelp fight poverty, sparking uncertainty in a sector thataccounts for about 60 percent of Peruvian export earnings.

His decision to negotiate the royalty reform proposal withmining companies has helped soothe investor concerns,although some industry figures say the higher tax burden

threatens smaller, less productive operations.Others say the government must ensure the law passed byCongress sticks to the outlines already discussed.

"The rates are exactly what we negotiated, we don't have aproblem with them," Pedro Martinez, head of the country'smining company association, said on Friday.

But he expressed concern over a clause in the bill thatwould let royalty rates be revised in future, saying lawmak-ers should modify the government proposal to ensure in-

vestment continues to flow into the fast-growing economy.

The government proposal envisions royalties of between 1percent and 12 percent on the profits of those mining com-

panies that did not sign stability agreements in the 1990s.

If Humala's bill is approved, they will also have to pay a"special tax" of 2 percent to 8.40 percent on their profits.

Meanwhile, companies that signed stability accords wouldhave to pay a "special contribution" of between 4 percentand 13.12 percent of their profits.

The proposed system, which would be based on miner'soperating profits, would replace the current royalty rate ofbetween 1 percent and 3 percent paid on sales.

Mining firms operating in the South American country haveprojects with planned investments of up to $42 billion for

the next 10 years, according to private estimates, and manycompanies confirmed their plans this week.

Peru's Buenaventura and U.S.-based Newmont said their$4.8 billion Conga mine, the most expensive mine in Peru'shistory, was on track to come on line in 2014.

Companies including Xstrata , Anglo American and BarrickGold Corp detailed their projects at this week's conventionin Peru, the world's second-biggest copper and silver pro-ducer and the No. 6 gold producer.

Barrick, the world's top producer, said it was "betting onPeru" with a $550 million investment program. CerroVerde said it expected to submit an environmental impact

study for its $3.5 billion expansion project by year's end,playing down the impact of the tax shake-up.

"The new formula for additional mining payments meetsthe objectives of President Humala's government whilealso preserving Peru's competitive position as an attractivecountry for mining investment," Bruce Clements, generalmanager at the Cerro Verde copper mine told Reuters.

Some miners said smaller companies may have to recon-sider their plans if Congress passes the new tax scheme.

"There are marginal projects with very marginal ore gradesthat, if we weren't going through a time of high metalsprices, would never be developed and would clearly be af-fected by higher taxes," Juan Luis Kruger, Gold FieldsLatin American chief, said at the convention in highlandArequipa.

Gold Fields, the world's No. 4 gold producer, does not havethe tax stability accords signed by many large internationalfirms operating in Peru including Xstrata, BHP Billiton andBarrick.

Mines Minister Carlos Herrera told reporters the govern-ment was open to changes to its proposed legislation.

"In my opinion, the objective (of preserving investment) hasbeen met, but if it's felt that improvements can be made,there shouldn't be a problem," he said.

Mwana Africa's Zimbabwe mine gold outputtops targetBy Nelson Banya

BINDURA, Zimbabwe, Sept 16 (Reuters) - Gold minerMwana Africa's Zimbabwe mine output has risen to amonthly average of 4,500 ounces, outstripping its targetedannual production rate, company executives said on Fri-

day.

The AIM-listed firm's Freda Rebecca mine, 85 kilometresnortheast of Harare, produced 27,240 ounces of gold in thefinancial year to March 2011, company figures show.

"We are currently producing at a rate of 4,500 ounces permonth, which exceeds our phase two target of 50,000ounces," Freda Rebecca General Manager Toindepi Muga-nyi said during a tour of the mine.

"We have operated at 100,000 ounces per year before andwe can still get back to those production levels."

The mine produced 112,164 ounces in 2000, before an eco-

nomic meltdown critics say was triggered by PresidentRobert Mugabe's seizure of white-owned farms.

Freda Rebecca suspended mining operations in 2007 atthe height of a political and economic crisis, but resumedproduction in 2009 after a coalition government set up byMugabe and Prime Minister Morgan Tsvangirai adoptedthe use of foreign currencies and allowed firms to sell theirgold and keep all the proceeds.

Speaking during the tour, mine manager Eliakem Hovesaid Freda Rebecca now had its sights set on ramping upproduction to 70,000 ounces per year, subject to boardapprovals and the availability of capital.

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"There are plans to increase production to 70,000 ounces,taking advantage of the higher gold price and the currentliberalised environment," Hove said, adding the mine wasworking on reducing costs from the current $681 per ounceto around $650 per ounce in order to maximise profitabil-ity.

"We don't expect the (gold) price to come down below

$1,200. Experts are predicting the rally will stay for at leastanother year."

Hove said Freda Rebecca and other mines had struck adeal with state power utility ZESA to directly import elec-tricity from Mozambique, easing outages that had affectedproduction in previous years.

Mwana Africa was in talks with the Zimbabwe governmentover its empowerment laws, which seek to transfer major-ity shareholding in foreign-owned mines to local blacks,Muganyi said.

Zimbabwe's Empowerment Minister Saviour Kasukuwerehad given miners up to September 30 to comply with the

law and had threatened to cancel several firms' licences.However, Harare has taken a softer tone over the last fewdays about the policy.

Mines Minister Obert Mpofu told a mining conference thisweek no licences would be withdrawn, while Kasukuwereindicated the government was willing to be flexible in im-plementing the law.

Kenya tightens mining rules to protectenvironmentNAIROBI,Sept 16 (Reuters) - Kenya has reviewed approval

procedures for grating mining rights to curb environmentaldestruction, a government legal notice said on Friday.

The Kenya Gazette notice said mining rights will only beawarded upon the presentation of a project feasibility re-port approved by the east African nation's Environmentand Mineral Resources ministry.

"All mining rights issued either in the form of mining loca-tions in the case of small-scale operations or mining leasefor larger operations shall be preceded by a project feasi-bility report that is approved by the Minister for Environ-ment and Mineral Resources," Environment Minister JohnMichuki said.

The discovery of potential reserves of key minerals such astitanium, rare earth, gold and niobium has stirred freshinterests in Kenya's mining industry.

The rush for stakes in the sector has however raised con-cerns from environmental groups that country risked suf-fering environmental degradation especially in caseswhere prospectors failed to find sizeable mineral depositson project sites.

Base Resources gets funds for Kenya titaniumprojectNAIROBI, Sept 16 (Reuters) - Australia's Base ResourcesLtd. said on Friday it had secured funds for its Kenyan tita-nium project and expects to commence operations nextmonth.

The project near the east Africa nation's port city of Mom-basa is scheduled to begin in September after lengthy de-lays due to demonstrations by environmental groups, dis-putes with farmers over land compensation and talks withthe government.

A total of $162.3 million was raised through a cash call an-

nounced on August 1, exceeding the minimum target of$152.2 million, the company said in a statement.

Combined with a $170 million credit it already has, BaseResources said it has enough cash for the project.

"With funding in place, Base is well advanced with pre-implementation activities and is working towards formalproject commencement in early October. A realistic timeta-ble for development will see production commence in thethird quarter of 2013," the company said.

Base Resources expects the project's annual production oftitanium ores to include 330,000 tonnes of ilmenite, orabout 10 percent of the world's supply, and 80,000 tonnes

of rutile, or 14 percent of global output.It also expects 40,000 tonnes of zircon, another type ofmineral.

Titanium is an important pigment for industrial, domesticand artistic applications. It is also a choice material for

joint replacement, tooth implants and body piercing.

In a quarterly update in July, Base Resources said it hadalready started negotiating sale contracts for productsfrom the titanium mining project including ilmenite, rutileand zircon.

It expects the new shares issued under the cash call to be-gin trading on the Australian Securities Exchange on Sep-tember 20, 2011.

GENERAL NEWS

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Cuba shuts down second Canadian tradingcompanyBy Marc Frank

HAVANA, Sept 16 (Reuters) - Cuba has shut down one ofthe most important western trading companies in thecountry as an investigation into alleged corrupt import-export practices broadened to a second Canadian firm,foreign business sources said on Friday.

State security agents on Friday watched who entered thebuilding in Havana's Miramar Trade Center where Ontario-based Tokmakjian Group, one of the top Canadian compa-nies doing business on the communist-run island, has itsoffices.

The company offices on the fourth floor were sealed with anotice that it had been closed by Cuban State Security.

"We received notice on Monday from the foreign ministryand the Council of State, which is the procedure in suchcases, to stop all dealings with the Tokmakjian Group,"

said an employee of a Cuban company that does businesswith the firm.

Like other people who spoke to Reuters about the clamp-down on the company, she asked that her name not beused.

Tokmakjian Group is estimated to do around $80 million inbusiness annually with the Caribbean island, mainly sellingtransportation, mining and construction equipment.

The company is the exclusive Cuba distributor of Hyundai ,among other brands, and a partner in two joint venturesreplacing the motors of Soviet-era transportation equip-ment.

Company officials were not immediately available for com-ment.

Cuban authorities shut down Canadian firm Tri-Star Carib-bean on July 15 and arrested company president SarkisYacoubian. The company, considered a competitor of Tok-makjian Group, did around $30 million in business withCuba.

"Apparently Tri-Star Caribbean was just the beginning.They brought in more than 50 state purchasers for ques-tioning, arrested some of them and broadened the investi-gation from there," a western businessman said.

"As far as I know up to now just Canadian firms are in-

volved, but you can bet every state importer and foreigntrading company in the country is on edge," he said.

FIGHTING CORRUPTION

Cuban President Raul Castro has made fighting corruptiona top priority since taking over for his ailing brother Fidel in2008, and in the past year a number of Cuban officials andforeign businessmen have been charged in graft cases.

Tri-Star Caribbean did business with around half of the 35Cuban state companies authorized to import, from tour-

ism, transportation and construction to the nickel and oilindustries, communications and public health.

The whereabouts of the man who founded the family busi-ness, Cy Tokmakjian, of Armenian heritage, born in Syriaand educated in Canada, was not clear on Friday.

He was last seen by Reuters a week ago, the day after hisoffices were sealed, but another western businessman saidhe had been detained by Cuban authorities.

"They picked up Cy on Saturday and I heard his wife and atleast one of his kids flew in to see what they could do," hesaid.

Cuba's state-run media rarely reports on corruption relatedinvestigations until they are concluded and those chargedare sentenced.

Tokmakjian, a former mechanic, is a self-made millionairewith interests in Canada and other countries besides Cuba,where he is a well known figure. He made his first deal withthe Caribbean island in 1988.

President Castro, a general who headed Cuba's DefenseMinistry for 49 years, has cracked down on corruption aspart of his efforts to revive the country's sagging economy,but to date has done little to change the conditions thatfoster it, such as low salaries and lack of transparency.

There is no open bidding in Cuba's import-export sectorand state purchasers who handle multimillion-dollar con-tracts earn anywhere from $50 to $100 per month.

Castro has moved military officers into key political posi-tions, ministries and export-import businesses and in 2009established the Comptroller General's Office with a seat onthe Council of State.

A source close to the Tri-Star Caribbean case said theComptroller General's Office had been brought into theinvestigation, indicating it most likely was targeting highlevel officials.

Castro's crackdown has resulted in the breaking up of high-

level organized graft in the civil aviation, cigar and nickelindustries, at least two ministries and one provincial gov-ernment. An investigation into the communications sectorand another into shipping are also under way.

TRADING PLACES

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Hungary alumina firm gets record fine for spillBUDAPEST, Sept 16 (Reuters) - An alumina firm whoseplant flooded parts of Hungary with toxic red sludge last

year must pay an environmental fine of 135 billion forints($655.5 million), the government said on Friday, addingthat it would take steps to keep the firm solvent and opera-tional.

MAL Zrt said in a statement on its website that it wouldappeal against the fine. It has 15 days to appeal against thedecision. A regional water management and environmentauthority imposed the record fine on MAL Zrt on Thursday.

The spill of industrial waste in October 2010 at the plantnear Ajka in western Hungary killed 10 people and injuredabout 120, polluted a tributary of the Danube and spreadheavy metals into the soil that damaged farmland.

In Hungary's biggest environmental disaster to date, some1.88 million cubic metres of the waste material leaked outof the alumina plant reservoir into villages and waterways.

The company also maintained its view that last year's spillwas not caused by its owners' negligence but was due toshortcomings in the planning and building of the reservoirbuilt when MAL was still in state hands under communist

years, and due to extreme weather conditions.

"Considering the size of the catastrophe and the amount ofthe material that spilled, the authority imposed the strict-est calculation when it set the fine," government state sec-retary Zoltan Kovacs said in a statement on Friday.

MAL Zrt is a privately owned company, but shortly after thedisaster the government took control over its operations. Itis no longer under government supervision.

Kovacs said that the government, considering the recordhigh fine, will review the financial situation of the companyand will do its best to ensure that it remains solvent andable to operate. MAL Zrt is the area's biggest employer.

"The state, via the National Asset Management Company(MNV), is in continuous contact with the company's man-agement, and has been conducting intensive talks with theowners since February about potential changes in the own-ership structure," Kovacs said.

Local press has speculated that the state could be plan-ning to nationalise the company. A police investigation intothe disaster is still under way.

Norsk Hydro sells stake in alumina refineryOSLO, Sept 16 (Reuters) - Norwegian aluminium producerNorsk Hydro said on Friday it would sell its 35 percentstake in a Jamaican alumina refinery partnership Alpart toRussian peer UC Rusal for 250 million crowns ($45 mil-lion).

UC Rusal, the world's top aluminium producer, will own allthe shares in Alpart when the transaction is completed inOctober, Hydro said.

Operations in the Alpart bauxite mines and the aluminarefinery in Jamaica, with a production capacity of around1.65 million tonnes alumina per year, have been curtailedsince 2009 due to overcapacity in the alumina market.

The sale will have a postive effect of about 400 millioncrowns in Hydro's third-quarter net result. ($1 = 5.593 Nor-wegian crowns)

Japan's copper refining capacity to fully recoverby end Sept-analystBy Carrie HoSHANGHAI, Sept 16 (Reuters) - Japan's copper refiningcapacity is expected to recover to its full capacity of 1.7 mil-lion tonnes by the end of September after being hit by anearthquake and tsunami in March, a senior industry ana-lyst said on Friday.

Ryuji Ida of the Metal Economics Research Institute of Ja-pan said the recovery was largely due to the MitsubishiMaterials Onahama Smelting and Refining company in thenortheast returning to full capacity. The firm has a smelt-ing capacity of 324,000 tonnes per year and a refining ca-pacity of 300,000 tonnes per year.

"Capacity improved significantly over the past month afterthe Onahama plant went back to full capacity from 65 per-cent capacity in early August," Ida said on the sidelines ofthe Metal Bulletin 7th Asian Copper Conference in Shang-hai.

While refineries will have the means to ramp up fully by theend of the month from their current output of 1.5 milliontonnes per year, some may choose to not to do so due tolow copper TC/RCs (treatment and refining charges), Idasaid.

The recovery of smelting and refining capacities in Japanmight have partially contributed to August's 18 percent

month-on-month fall in spot TC/RCs that Chinese smeltersreceive for converting concentrate imports into copper,although traders also cited a global supply tightness forthe fall. Japan currently consumes around 1 million tonnesper year of refined copper and exports the remaining pro-duction, Ida said.

Freeport Indonesia strike delays copper exportsBy Samuel Wanda and Olivia Rondonuwu

TIMIKA, Indonesia, Sept 16 (Reuters) - A strike involvingthousands of workers at Freeport McMoRan's Indonesiancopper mine and port has delayed around 133,000 tonnesof copper ore concentrate shipments, industry officials saidon Friday.

The strike, combined with recent supply disruptions atLatin American mines, has raised concerns over a globalshortage of the metal, though so far this week copper pricegains have been dampened by worries about the globaleconomy.

Workers at Freeport's Amamapare port in Papua joinedminers on Thursday in a month-long strike over pay,stranding six vessels awaiting copper ore cargo to be deliv-ered to smelter plants in Indonesia, China, the Philippinesand Japan.

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"Right now there is no activity and delays are expectedwith the six vessels at the port," said Ricky Noviansyah, aport captain for Wilhelmsen Ships Service.

Based on the mine's daily production target, the strike po-tentially cut output of 230,000 tonnes of ore per day, saidenergy ministry official Thamrin Sihite, after a meetingwith Freeport Indonesia's management on Friday.

Four Freeport supporting vessels, including two boats tohelp load concentrate onto ships, as well as a tug boat andanother vessel for coal and fuel to supply power stations atthe mine, have halted operations and locked up, as thecaptains and engineers joined the strike on Friday, a portworker told Reuters by telephone.

Freeport has so far declined to comment on production.

Activity at Grasberg, the world's third-biggest coppermine, has stopped as workers demand a larger slice ofmining profits.

The huge mine, which also holds the world's largest goldreserves, produces around 150,000 tonnes of copper ore a

day, according to the firm's website.

Copper prices rose 0.7 percent on Friday to $8,773 a tonne,but has dropped about 9 percent so far this year.

LOSSES

Energy minister Darwin Zahedy Saleh said Indonesia islosing $6.7 million from revenues due to the strike everyday, with the government looking to mediate talks be-tween the firm and union.

The union, representing about 8,000 workers, has de-manded a pay rise to between $17.5 to $43 per hour, downfrom initial demands for $30 to $200 per hour, but still

above a current $1.5 to $3 per hour rate.It has said that other Freeport workers worldwide get 10times their current level.

A total 544,311 tonnes of copper was taken from the Gras-berg mine last year, around 3.8 percent of the world's out-put. The Indonesian strike, if it lasts, is likely to be morecostly for Freeport than the eight-day work stoppage inJuly, when the firm said it suffered a production loss of 35million pounds (15,876 tonnes) of copper and 60,000ounces of gold.

The strike in Indonesia comes after workers in Freeport'sPeru copper mine Cerro Verde, which produces 2 percent of

the world's copper supply, launched an indefinite strikethis week for better pay and benefits.

Japan's JX says copper demand in China solidBy Yuko Inoue and Yuka Obayashi

TOKYO, Sept 15 (Reuters) - JX Nippon Mining and MetalsCorp , the parent of Japan's top copper smelter, said appe-tite for copper in China remains solid, helping ally concernsthat a global economic downturn could dampen demand inthe country and drive down the price of the industrialmetal.

Masanori Okada, president of JX Nippon Mining, said in aninterview with Reuters on Thursday that the group's 2012export offers of refined copper at premiums of about $100,the same as in 2011, are being accepted by Chinese buyers.

"Europe's debt woes have prompted investors there to shiftfunds to less-risky assets, pressuring copper prices on theLondon Metal Exchange, but demand in China remainsdecent," Okada said.

"At least real demand is solid and there will be no collapsein the Chinese market next year," he continued.

"That's our understanding from the recent deals and talks

at our subsidiary, although we don't see aggressive large-lot buying as in the past any more due to financial tighten-ing."

He said the firm's premiums for spot export deals are cur-rently over $115-120 over cash LME copper price .

Copper prices have so far held up on expectations of strongdemand from China, which is estimated to consume about40 percent of global demand, forecast at around 19 milliontonnes this year.

Three month-copper prices on Thursday were around$8,700 a tonne, compared to this year's high of $10,190 ,hit in February.

Pan Pacific Copper, which accounts for nearly 40 percentof Japan's copper production, is 66 percent-owned by JXHoldings Inc, the group's holding company.

Okada also said there have been no fundamental changesin market trends since June, when some Japanese andSouth Korean smelters agreed a mid-term copper treat-ment charge of over $85 per tonne and a refining charge ofover 8.5 cents per pound, more than double last year's lev-els.

"We'll start 2012 TC/RC talks at over $85/8.5 cents withconcentrate suppliers in October."

He said expansion by Chinese smelters has eased some-what due to environmental concerns, while he sees no bigchanges in copper ore supply in 2012.

"We won't see a change in the tide until 2014, when somenew copper mines are expected to come onstream withmore than 1 million tonnes in annual new output, includingfrom Xstrata's Las Bambas project in Peru and Vale's Sa-lobo project in Brazil."

JX plans to reach full production at its 160,000 tonnes ayear Caserones copper project in Chile in 2014.

Smelters and copper concentrate suppliers including BHPBilliton and Freeport McMoran Copper and Gold will start

talks on TC/RC charges in the first week of October in Lon-don.

TC/RCs are paid buy miners to smelters to convert concen-trate imports into refined metal. Higher charges, typicallyseen when supply rises or demand falls, cut concentrateimport prices and discourage smelters from producingmetal.

Ukraine plans to raise steel output in 2011, 2012KIEV, Sept 16 (Reuters) - Ukraine plans to produce 34.5million tonnes of crude steel in 2011 and expects to in-

crease the output to 37.5 million in 2012, the governmentsaid in its forecast published on Friday.

(Continued on page 9)

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Ukraine, amongst the ten largest steelmakers in the world,raised steel production to 33.3 million tonnes in 2010 afteroutput fell to 29.8 million in 2009 due to the global eco-nomic slowdown. The government also said it forecast thatpig iron production would rise to 31 million tonnes in 2012from 28.9 million in 2011. Ukraine's steel production rose8.0 percent to 23.15 million tonnes in the first eight monthsof 2011 versus the same period in 2010.

Operations resume at First Uranium EzulwinimineTORONTO, Sept 16 (Reuters) - First Uranium said on Fri-day that operations had resumed at its Ezulwini mine inSouth Africa after an accident where one employee died.

Operations at the underground gold and uranium minewere suspended on Tuesday after a drill operator died.

Separately, the Toronto-based company said it had re-ceived a letter from South Africa's mineral resource minis-try purporting to "withdraw" the mining right for its MineWaste Solutions (MWS) tailing processing facility.

The company said the notice is defective as MWS is not a

mine, and that it has responded to the ministry.First Uranium shares were up 1.43 percent at C$0.35 onFriday on the Toronto Stock Exchange.

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METALS-Copper slides on global slowdownfearsSHANGHAI, Sept 19 (Reuters) - Copper prices fell as inves-tors focused on a possible slowdown in the global econ-omy, with major developed nations mired in sovereign debtissues while developing economies combat inflationarypressures.

A partial end to a strike at Freeport McMoRan's coppermine in Indonesia had little impact on prices.

Three-month copper on the London Metal Exchange fell1.9 percent to $8,534.25 a tonne by 0441 GMT, after inch-ing down 0.2 percent in the previous session.

The most-active December copper contract on the Shang-hai Futures Exchange dropped 3.2 percent to 63,730 yuan($9,984) per tonne, catching up with overnight losses inLondon, after rising 1.2 percent in the previous session.

"Copper is down today as investors are feeling insecureabout future global demand given the bad news out there.

The euro zone crisis is unsettling while there is still nonews on whether the U.S. will be rolling out a QE3," saidCIFCO Futures analyst Zhou Jie.

Investors will focus on a policy meeting of the U.S. FederalReserve on Tuesday and Wednesday, where the Fed couldtake steps

to increase downward pressure on longer-term interestrates to help spur a recovery of the world's largest econ-omy.

"Credit remains tight in China and Beijing seems unlikelyto implement any measures to stabilise the world economythis time," Zhou added.

Chinese Premier Wen Jiabao is still worried about highprices, according to a statement on the central govern-ment's website on Friday, signalling that the end of thecountry's tightening cycle is still not in sight.

India raised interest rates for the 12th time in 18 months onFriday and signalled more was to come, confounding ex-pectations that it was coming to the end of its tighteningcycle.

In Europe, Greece pledged on Sunday to take the toughdecisions needed to avoid default but announced no newausterity measures to secure international bailout fundsnext month, failing to ease investor concerns over a possi-

ble defaultEU policymakers look unlikely to heed U.S. Treasury Secre-tary Timothy Geithner's call to scale up the euro zone'sbailout fund, with most economists saying that a default byGreece is inevitable at some point and that Italy is not outof the firing line.

Dimming the prospects of boosting the fund, Germany'sSocial Democrats beat Angela Merkel's conservatives in aregional vote in Berlin on Sunday, handing the chancellorher sixth election defeat this year ahead of a key Bundestag

vote on Sept. 29 to give the European Financial StabilityFund (EFSF) more powers.

Investors also remained cautious about the U.S. economicoutlook as policymakers there debate over how to cut itsdeficit.

Supply disruptions in Indonesia have partially abated ascontract workers at Freeport's Grasberg copper mine re-turned to work and some output resumed in the midst of aplanned one-month strike. But the union has not agreed a

pay deal with the company.

PRECIOUS-Gold rises on euro zone woes; eyeson FedSINGAPORE, Sept 19 (Reuters) - Spot gold gained 0.8 per-cent, extending a 1.2-percent rise in the previous session,as worries about a worsening debt crisis in the euro zoneand the bloc's future drove investors to seek safety in bul-lion.

Investors will focus on a policy meeting of the U.S. FederalReserve on Tuesday and Wednesday, where the Fed could

take stepsto increase downward pressure on longer-term interestrates to help spur a recovery of the world's largest econ-omy.

The Group of 20 meeting on Thursday and Friday will alsobe on the radar, as investors fear that Greece's sovereigndebt crisis could turn into a full-blown banking crisis.

"Gold and the dollar will remain the outperformers as equi-ties and base metals look weak today," said a Singapore-based trader.

As confidence in the euro eroded, the dollar, another tradi-tional safe haven, rose strongly against a basket of curren-

cies.

The strength of the greenback could potentially curb gainsin gold, as it makes the precious metal pricier to buy forholders of other currencies.

Spot gold gained 0.8 percent to $1,824.45 an ounce by0310 GMT, after posting its biggest weekly drop since theend of June with a 2.5 percent fall, hitting a three-week lowof $1,761.94 on Friday.

U.S. gold rose 0.7 percent to $1,827.30.

Technical analysis suggested that spot gold is likely to zig-zag up towards $1,930 an ounce, with an immediate target

at $1,860, said Reuters market analyst Wang Tao.Sluggish U.S. consumer sentiment data also helped sup-port the bullish sentiment in bullion.

Gold prices are expected to hit $2,200 by 2012, supportedby the economic uncertainties in Europe and the UnitedStates, said the chief executive of AngloGold Ashanti , theworld's third-largest gold producer.

But money managers slashed their bullish bets in gold fu-tures and options in the week ended Sept. 13, after theprice of bullion fell sharply from record highs, according toCFTC data.

(Continued on page 11)

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FOREX-Euro slides 1 pct, unimpressed by EU -againSINGAPORE/SYDNEY, Sept 19 (Reuters) - The euro got offto a rocky start, with its weakness gathering pace after aseries of political setbacks in Europe over the weekendprompted a flight to safety.

The euro lost about 1 percent on the day to $1.3664 andfell 0.8 percent to 105.06 yen as investors reacted badly toan unproductive European Union meeting in Poland.

A cancellation of a visit by Greek Prime Minister GeorgePapandreou to the United States to chair an emergencymeeting and a regional election defeat for Germany's chan-cellor Angela Merkel added fuel to an already tense euro.

"What happens this week? The euro is going to come underpressure - as it already has this morning," said Rob Ryan,FX strategist at BNP Paribas in Singapore.

Policymakers from the European Union (EU) and the Inter-national Monetary Fund (IMF) will probably approve the

next tranche of aid for Greece in the end, "but in the mean-time the uncertainty is weighing heavier and heavier,"Ryan said.

With a two-day U.S. Federal Reserve policy meeting loom-ing ahead on Tuesday and Wednesday, the euro may man-age to hold above last week's seven-month low in the near-term, he added.

The euro dipped briefly below its support level near$1.3664, the 61.8 percent retracement of last week's rallyto $1.3937 from a seven-month trough of $1.34949 on trad-ing platform EBS.

The next Fibonacci support lies near $1.3599 the 76.4 per-

cent retracement of the same rally, with more support at itsSept. 14 intraday low near $1.3590.

Market talk that an Asian sovereign account sold the Aus-tralian dollar and the euro helped push the greenbackhigher this morning.

DOLLAR RISES BROADLY

"This week will be another good one for the USD withweakness in euro, pound and Aussie," said JosephCapurso, currency strategist at Commonwealth Bank ofAustralia.

Capurso expected the single currency to fall to $1.3200-$1.3300 this week.

With the Swiss franc no longer a safe harbour due to SwissNational Bank selling and the yen also dogged by the dan-ger of more intervention by Japanese authorities, thegreenback outperformed major currencies.

The dollar rose broadly, edging up 0.1 percent against theyen to 76.87 yen and climbing 0.7 percent versus the Swissfranc to 0.8823 . The greenback's rise knocked sterlingdown to an eight-month low of $1.5685 .

Commodity currencies were also under pressure with theAustralian dollar sliding 1.2 percent to $1.0240 .

CBA's Capurso anticipated the Aussie to test $1.0000 by

the end of the week. The Australian dollar broke above par-ity in March and only dipped under it for a few hours in Au-gust, when it bottomed at $0.9927.

Trading is likely to be thinner than on Monday as Japan isclosed for a holiday.

The U.S. Federal Reserve begins a two-day policy meetingon Tuesday amid talk it will take further quantitative steps,such as lengthening the maturity of its debt holdings.

"The Fed seems unlikely to engage in a third round ofquantitative easing just yet," Mansoor Mohi-uddin, head offoreign exchange strategy for UBS, said in a recent re-search note.

"Instead we expect the Fed will agree to shift the composi-tion of its balance sheet away from short dated assets tolonger term bonds. This will help flatten America's yieldcurve further. But with ten year U.S. yields above Germanand Japanese yields, the impact on the dollar is likely to bemuted," he added.

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LME ANALYTIC CHARTS

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