Chinese iron ore imports highlight Brazilian price gains:: Macquarie

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Commodities Comment
Chinese iron ore imports highlight Brazilian price gains

Feature article
 A review of Chinese iron ore imports for October shows a couple of interesting
trends. First, after lagging Australian peers in realizing higher prices as the
benchmark system collapsed, Brazilian material is again the highest valued in
the market. In addition, the data show a continuation of China’s diversification
of supply sources away from the major regions. While this is partly due to
price considerations, in our view it highlights the need to source every
available iron unit in an undersupplied market.


Latest news
 Lead was the big mover on Monday’s trading, falling 4.1% to $2,167/t, as it
recorded the only inventory rise among the LME metals. Meanwhile, thermal
coal prices shot up, with prompt API#2 up $3.50/t on the day to $114.5/t, as
further cold weather forecasts for Europe and stronger gas markets boosted
sentiment.

 Rio Tinto recently stated that attributable mined copper output would fall by
15% YoY in 2011, implying a fall in output from 2010 guidance of 661,000t to
562,000tt in 2011 (a drop of almost 100,000t). The fall is expected to be
driven by declines in output at Bingham Canyon, Grasberg and Escondida.
Macquarie estimates that, on a 100% basis, Rio Tinto’s mines will produce
around 1.39mt of mined copper in 2010, falling to 1.26mt of copper in 2011, a
drop of ~130,000t. The extent of the decline was not previously in our
numbers and is consistent with our bullish view on copper into 2011.

 Ghana plans to restart its Valco aluminium smelter in 2011. The 200,000tpa
smelter (six potlines) has been shut since March 2007, mainly due to powerrelated
issues caused by low water levels in the Volta hydropower dam.

Recent power capacity additions have eased these pressures. Edward Bawa,
spokesman of the Energy Ministry, said that cabinet approved the restart of
the smelter for next year, initially on two potlines and ramping up later. Valco
is negotiating with three power utilities on power requirements and tariffs, and
the company is expected to restart output as soon as it has agreed on a price.

 Non-Ferrous China Africa (NFCA) of China Non-Ferrous Metals Mining
Corporation (CNMC) commenced production at its Chambishi Copper Mine
West Orebody project last Saturday. According to NFCA General Manager
Wang Chunlai, the total reserves of the West Orebody are estimated at 45 mt,
with a copper grade of 2.25%. The expected copper ore annual output is 1 mt,
with service life estimated at 25 years (~22,500tpa copper in concentrate).

 Shanxi province is expected to produce 720 mt of raw coal in 2010, growing
100 mt or 16% YoY, according to a report on the National Development and
Reform Commission (NDRC). The northern Chinese province produced a
record 67.58 mt of raw coal in October, up 15% YoY. We note that the winter
months are likely to see little sequential increase in output from the northern
China coal fields.