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Financial instruments disclosures | 6 Months Ended
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Jun. 30, 2018
Disclosure Of Financial Instruments [Abstract] |
Financial instruments disclosures | 5. Financial instruments disclosures Except where stated, the information given below relates to the financial instruments of the parent companies and their subsidiaries and joint operations, and excludes those of equity accounted units. The impact of the transition to IFRS 9 on 1 January 2018 is included on page F-12 to F-18. Fair values disclosure of financial instruments The carrying amounts and fair values of all of the Group’s financial instruments which are not carried at an amount which approximates their fair value at 30 June 2018 and 31 December 2017 are shown in the following table. The fair values of the Group's cash and loans to equity accounted units approximate their carrying values as a result of their short maturity or because they carry floating rates of interest.
|  |  |  | 30 June 2018 |  | 31 December 2017
|  |  |  | Carrying |  | Fair |  | Carrying |  | Fair
|  |  |  | value |  | value |  | value |  | value
|  |  |  | US$m |  | US$m |  | US$m |  | US$m
Short term borrowings | (428) |  | (428) |  | (552) |  | (552)
Medium and long term borrowings | (12,485) |  | (13,806) |  | (14,624) |  | (16,385)
Valuation hierarchy of financial instruments carried at fair value on a recurring basis The table below shows the financial instruments carried at fair value by valuation method in accordance with IFRS 9 at 30 June 2018:
|  |  |  |  |  |  |  |  |  | Not held
|  | Total |  | Level 1(a)(i) |  | Level 2(b)(i) |  | Level 3(c)(i) |  | at fair value
|  | US$m |  | US$m |  | US$m |  | US$m |  | US$m
Assets |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents(d) |  | 5,989 |  | 3,130 |  | - |  | - |  | 2,859
Investments in equity shares and funds |  | 141 |  | 19 |  | 81 |  | 41 |  | -
Other investments, including loans(e) |  | 2,187 |  | 2,090 |  | - |  | 82 |  | 15
Trade and other receivables(f) |  | 2,713 |  | 7 |  | 758 |  | - |  | 1,948
|  | 11,030 |  | 5,246 |  | 839 |  | 123 |  | 4,822
Derivatives (net) |  |  |  |  |  |  |  |  |  |
Forward contracts: designated as hedges(g) |  | (90) |  | - |  | - |  | (90) |  | -
Forward contracts and option contracts, not designated as hedges(g) |  | 232 |  | - |  | 9 |  | 223 |  | -
Derivatives related to net debt(h) |  | (310) |  | - |  | (310) |  | - |  | -
Liabilities |  |  |  |  |  |  |  |  |  |
Trade and other payables |  | (5,175) |  | - |  | (20) |  | - |  | (5,155)
|  | 5,687 |  | 5,246 |  | 518 |  | 256 |  | (333)
Fair value disclosure for financial instruments (continued) The table below shows the financial instruments carried at fair value by valuation method in accordance with IAS 39 at 31 December 2017:
|  |  |  |  |  |  |  |  |  | Not held
|  | Total |  | Level 1(a)(i) |  | Level 2(b)(i) |  | Level 3(c)(i) |  | at fair value
|  | US$m |  | US$m |  | US$m |  | US$m |  | US$m
Assets |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents(d) |  | 10,550 |  | - |  | - |  | - |  | 10,550
Investments in equity shares and funds |  | 136 |  | 88 |  | - |  | 3 |  | 45
Other investments, including loans(e) |  | 1,152 |  | 1,037 |  | - |  | 88 |  | 27
Trade and other receivables(f) |  | 2,985 |  | - |  | 90 |  | - |  | 2,895
|  | 14,823 |  | 1,125 |  | 90 |  | 91 |  | 13,517
Derivatives (net) |  |  |  |  |  |  |  |  |  |
Forward contracts and option contracts, not designated as hedges(g) |  | (87) |  | - |  | 11 |  | (98) |  | -
Derivatives related to net debt(h) |  | (177) |  | - |  | (177) |  | - |  | -
Liabilities |  |  |  |  |  |  |  |  |  |
Trade and other payables |  | (5,922) |  | - |  | (15) |  | - |  | (5,907)
|  | 8,637 |  | 1,125 |  | (91) |  | (7) |  | 7,610
(a) | Valuation is based on unadjusted quoted prices in active markets for identical financial instruments. This category includes listed investments in equity shares and funds.
(b) | Valuation is based on inputs that are observable for the financial instruments; which include quoted prices for similar instruments or identical instruments in markets which are not considered to be active, or inputs, either directly or indirectly based on observable market data.
(c) | Valuation is based on inputs for the asset or liability that are not based on observable market data (unobservable inputs).
(d) | Cash and cash equivalents include money market funds which are treated as fair value through profit or loss (‘FVPL’) under IFRS 9 with the fair value movements going into finance income. Under IAS 39, these amounts were held at amortised cost.
(e) | Other investments, including loans, comprise: cash deposits in rehabilitation funds, government bonds, managed investment funds and royalty amounts receivable. The royalty receivables are valued based on an estimate of forward sales subject to the royalty agreement.
(f) | Trade receivables include provisionally priced receivables relating to sales contracts where the selling price is determined after delivery to the customer, based on the market price at the relevant quotation point stipulated in the contract. At 31 December 2017, under IAS 39, the quotational period exposure was considered to be an embedded derivative, which was separated from the host receivable and measured at fair value through the income statement. On adoption of IFRS 9, the embedded derivative is no longer separated and the entire balance is accounted for as one instrument and measured at fair value. At the end of June 2018, US$658 million of provisionally priced receivables were recognised.
(g) | Level 3 financial instruments, under IFRS 9, primarily consist of electricity purchase contracts linked to the LME with terms expiring between 2020 and 2030 (31 December 2017: 2018 and 2030). These contracts are measured using discounted cash flows and option model valuation techniques. These contracts with a net fair value of US$135 million at 30 June 2018 (31 December 2017: US$(98) million) are valued using significant unobservable inputs with regard to Aluminium prices.
Fair value disclosure for financial instruments (continued)
(h) | Interest rate and currency interest rate swaps are valued using applicable market quoted swap yield curves adjusted for relevant basis and credit default spreads. Currency interest rate swap valuations also use market quoted foreign exchange rates. A discounted cash flow approach is applied to the cash flows derived from the inputs to determine fair value.
(i) | There were no material transfers between Level 1 and Level 2 or between Level 2 and Level 3 for the six months to 30 June 2018 or the year to 31 December 2017.
Level 3 Financial instruments The table below shows the summary of changes in the fair value of the Group's Level 3 financial assets and financial liabilities for the six months to 30 June 2018 and the year ended 31 December 2017.
Level 3 Financial assets and liabilities |  |  |  |  |  |  |  | 30 June 2018 |  | 31 December 2017
Opening balance |  |  |  |  |  |  |  | (7) |  | 479
Adjustment from transition |  |  |  |  |  |  |  | 19 |  | -
Currency translation adjustments |  |  |  |  |  |  |  | (9) |  | 8
Total realised gains/(losses) included in: |  |  |  |  |  |  |  |  |  |
– Consolidated sales revenue |  |  |  |  |  |  |  | - |  | 1
– Net operating costs |  |  |  |  |  |  |  | (1) |  | (5)
Total unrealised (losses)/gains included in: |  |  |  |  |  |  |  |  |  |
– Consolidated sales revenue |  |  |  |  |  |  |  | (6) |  | 17
– Net operating costs |  |  |  |  |  |  |  | 145 |  | (508)
Total unrealised gains transferred into other comprehensive income |  |  |  |  |  |  |  | 93 |  | -
Disposals/maturity of financial instruments |  |  |  |  |  |  |  | - |  | (5)
Transfers |  |  |  |  |  |  |  | 22 |  | 6
Closing balance |  |  |  |  |  |  |  | 256 |  | (7)
Total gains/(losses) included in the income statement for assets and liabilities held at end of period |  |  | 138 |  | (491)
Sensitivity analysis in respect of level 3 derivatives Forward contracts and options whose fair value is determined using unobservable inputs are calculated using appropriate discounted cash flow and option model valuation techniques. The most significant of these assumptions relates to long term pricing where internal pricing assumptions are used after the 10 year LME curve. A 10 per cent increase in long term metal pricing assumptions would result in a US$16 million (31 December 2017: US$41 million) decrease in carrying value. A 10 per cent decrease in long term metal pricing assumptions would result in a US$38 million (31 December 2017: US$22 million) increase in carrying value.

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