Commodities Comment by MacMacquarie Research

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New Caledonia nickel supply on the rise, but with some challenges


Feature article
 We report on the feedback from the Fourth New Caledonia Nickel conference
held last week in Noumea. New Caledonia has a population of only 250,000
but is one of the leading nickel producers in the world with its share of global
supply likely to rise from 7.5% in 2010 to 12% by 2015.


Latest news
 Base metals climbed on Thursday amid lower trading volumes for the US
holiday, with strong afternoon rises pushing lead and zinc up 5.0% and 3.9%
respectively. Copper stocks continued to fall, with LME inventories down
another 575t to 357kt, 29% below levels at the start of the year.

 The Shanghai Futures Exchange (SHFE) has said that it will raise margins
and widen daily price move limits on its contracts, including copper, zinc and
aluminium, from 30th November. The settlement margin on aluminium
and copper will rise to 10% (from 7% and 8.5%, respectively) and on zinc to
12% (from 8%). The daily limit on price moves will increase to 6% (from
5%). We do not anticipate any significant market reaction to these changes.

 Metal Bulletin has reported that leading German automaker BMW has
announced that a strong demand outlook for its vehicles has led it to shorten
its Christmas break next month. The company expects to sell 1.4m units in
2010, with production currently operating at full capacity. The 2010 rebound
in auto demand has been a key factor in recovering European demand for
flat-rolled steel and PGMs for catalytic convertors.

 Antofagasta and Codelco have recently finalised labour agreements for
workers at the Los Pelambres and Radmiro Tomic mines, respectively. While
the Collahausi strike is into its 4th week (workers have until Nov 23 to accept
a recent offer), there are very few major labour contracts up for expiry until the
end of June 2011, when contracts at Grupo Mexico (Various) and Codelco (El
Teniente) expire. At the 520,000tpa Collahausi copper mine, the companies
involved continue to state that production has not been significantly
affected (with contractors contributing to maintaining output), while the union
is claiming the opposite.

 According to Reuters, Peru’s ruling APRA party is seeking to double royalty
levels paid by miners from 1-3% to 2-6% of the gross sales price in a bill
presented to Congress this week. For copper and gold, the levy would be 5%
and 10% respectively. With presidential elections due in six months, this is
again likely to become a political issue. Peru’s mining sector accounts for
approximately 60% of exports from the country by revenue, and historically
tax levels have been kept low to encourage foreign investment.

 Coal freight from Qinhuangdao (QHD) to Guangdong edged up RMB1/t
to RMB75/t over the past week. Freight from QHD to Shanghai was also
marginally higher. Chinese coastal freight has been a useful leading
indicator of spot domestic coal prices in China and is currently 15% off the
recent peak of RMB88/t seen at the start of the month.