China steps up base metal concentrate imports in September: Macquarie

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Commodities Comment
China steps up base metal
concentrate imports in September
Feature article
 September’s production and trade figures for China show that, as it has with
other raw materials, China dramatically moved to increase imports of base
metal concentrates in the month. In our view, this reflects both opportunistic
buying and growing confidence in further demand growth into 2011.
Latest news
 Base metals rose across the board on Tuesday on further dollar weakness, as
the market settled into the short lull between Monday’s PMI numbers and
tomorrow’s Fed announcement. Aluminium outperformed, up 2.6% on the
day, while silver gave back some of its recent gains, down 0.7%. Meanwhile,
LME lead stocks rose 1.4% on the day to move back above 200,000t for the
first time in over ten years.



 Iron ore swaps rose strongly on Tuesday, with the SGX 62% Fe CFR China
contract for 1Q 2011 trading up $4.5/t to $148/t. With The Steel Index
physical market assessment up 0.2% on the day to $150.2/t, the forward
curve backwardation is now extremely shallow, reflecting the expectation of a
tight market prevailing into 2011. We note, however, that unless Chinese
steel production volumes pick up rapidly, the current iron ore restock could be
short lived. Indeed, latest port congestion data show that port congestion
outside Brazilian and Australian ore export ports has fallen sharply in recent
weeks back to levels last seen in early August. This suggests that
competition for ore volumes is slightly weaker at present. Also, while Chinese
iron ore port stocks fell for the second consecutive week last week, down
0.7% to 79.1mt, a rise in the number of vessels waiting to unload means that
total stocks (including floating material) rose by 1mt WoW. At 1.8 months of
import consumption, these are now roughly 10% above the long-term norm in
terms of stocks-at-hand.
 Auto sales in Europe were weak in October. French and Spanish sales fell
sharply relative to last year as scrappage schemes were reduced or
finished. Spanish sales fell 37.6% YoY after a 26.9% YoY decline in
September, while sales in France fell 18.7% YoY to be down 1.4% for the
year to October. New car registrations fell 20% YoY, according to industry
association VDA, although order intake had picked up by 35% YoY in the
month, suggesting that the deadweight of the expiry of scrappage schemes in
September last year is finally starting to be lifted.
 Aluminium producers in the Arabian Gulf could produce as much as 8mt by
2020, according to the Gulf Aluminium Council. Whether output ultimately
rises to this level, we certainly anticipate an increase in the region's primary
aluminium production as a number of new projects start up in the coming
years. We expect the region's output to reach over 4mtpa by 2015, compared
with less than 3mt this year and ~2.4mt in 2009.
 Steel scrap prices are finally starting to show some signs of life. The Metal
Bulletin Turkish import index rose $3.25/t on the day to $385.5/t. Meanwhile,
the Platts Composite scrap assessment is up 6% on its late-October nadir.