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The Lodestone
Cost push to become bigger on weather? Zinc
backwardation increases LME inventories
• Cost push becoming bigger? Seems so: Spot iron ore prices continue to
move up and have touched $175/MT. With some of the recently-shut Chinese
steel production likely to come back, combined with continued lower Indian
iron ore exports, this has resulted in spot iron ore prices increasing 40% from
the lows of $125/MT hit in July-10. Port inventories in China stand at
~76MT. We are more worried on coking coal, where inclement weather in
Australia could likely result in a repeat of 2007 when coking coal prices
surged because of rains and ‘Force Majeure’ declaration. JPM coal analyst
John Bridges in his note ‘Rain everywhere lifts coal prices’ dated 13th Dec,
2010’ highlights that ‘BHP remembers the cyclone season of 2007 when even
with submerged draglines in mines the company’s coking coal business made
record profits’. Indian steel mills are dependent on Australian coking coal
(TATA India has ~50% captive coking coal). Thermal coal prices have hit
$115/MT (Newcastle). JPM Australia resource team highlights that the wet
weather in Australia is really in early Feb-early April.
• Steel price increase - North America continues to lead the way: While steel
prices are firming up globally, the pace of increase remains the sharpest in
North America. JPM steel analyst Michael Gambardella post the Roundtable
with MT Flat Carbon America CEO highlights that HRC February price of
$680/MT would be up roughly $160/MT from Oct/Nov trough. Scrap prices
continue to increase with scrap prices crossing $400/MT. Elsewhere steel price
increases have been more modest so far. While domestic Indian long product
prices have moved up over the last 1-2 weeks (2-4%) mainly on cost push, flat
product prices continue to struggle. While some mills have increased prices by
1-1.5% from today on HRC, we believe it is more tentative in nature. With
continued Japanese interest in the Indian steel market, Bloomberg carried a
news report that Kobe Steel and Essar Steel (NR) have agreed to invest
$475mn for a 0.5MT auto steel plant, with the report highlighting that the
plant is likely to become operational by early 2013. Longer term, we expect
India’s value-added steel market to see increased competition as many of
the domestic companies get access to technologies via stake sale/JV.
• Copper smelting fees on the rise: Media reports (Bloomberg, Reuters) have
reported that smelters are reportedly asking for a steep increase in custom
Tc/Rc (Treatment and Refining Charges). The negotiations have just started.
Copper smelters have seen depressed fees over the last 1-2 years.
• As zinc enters backwardation, LME metal stocks increase: LME zinc
inventories increased 11% w/w and hit nearly 0.7MT on the LME on
backwardation in the metal. This seems to be mostly material which was offexchange
coming to on-exchange inventories. Going into next year, aluminum
among the base metals has relatively large off-exchange inventory. MB
announced the launch of a new alumina index based on Australia FOB prices.
Iron ore imports in China for the month of Nov-10 were at 57.4MT, up 12.4% y/y
and +26% on a sequential basis. The sequential increase is partly because the
National Day holiday in early Oct. As per Bloomberg, the increased purchases show
that China’s power restrictions to steel mills have eased and mills are replenishing
their stockpiles.
Metal News Tracker
Steel
Price hike likely in January – Bhushan Steel
Mr Nitin Johri CFO of Bhushan Steel said prices are going up because of the
pressures of increase in raw material prices. Coking coal prices have gone up by 8%
to 10% in the last quarter and even the iron ore prices are going up. He pointed that
while demand is picking up, it not as good as it should have been and feels that it
may take another 1 or 2 months to see whether the prices will continue or it will get
stabilize over the next 2 months. He said a few companies have increased prices by
Rs1000-1500, but if the raw material price increases continue (as seen in the last 3-4
months) then another hike of the prices (Rs1000-1500) may be taken in Jan or Feb.
(ET Now, Steelguru)
Raw Material
Iron Ore-Prices near May high, other suppliers filling India gap
Prices of imported iron ore in China stabilised near levels last seen in May on firm
offers, though trade was thin as some steelmakers had difficulty accessing credit.
Tight supplies from India had boosted demand for raw material from top miner
Australia and was also encouraging suppliers from the Middle East and Africa to
boost shipments to China, traders said. Indian ore with 63.5 percent iron content was
being offered at $173-$175 a tonne, cost and freight, for a third day on Wednesday,
although Chinese consultancy Umetal said there were more quotes than deals
recently. Chinese steel mills usually find it difficult securing loans to fund iron ore
purchases during the end of the year, and recent moves by the Chinese central bank
to increase reserve requirements for banks has further limited the amount of money
circulating in the market, Umetal said. Still, some Chinese mills continue to buy iron
ore in anticipation of further price increases next year when the country's crude steel
output is expected to hit another record level. (Reuters)
Coking coal prices may rise 20%
Global coking coal prices could rise nearly 20 per cent in the second quarter of 2011
from current prices, with heavy demand from China, Brazil and India amid tight
global supplies, said a consultant on international coal markets. Coking coal contract
for January settled at $225 a tonne, up from the previous $209 a tonne, and
indications are that prices for the second quarter of 2011 will hit $250 a tonne.
According to Gerard McCloskey, chairman and founder of the McCloskey group,
which specialises in data and analysis of the sector, there would be frenetic corporate
activity in the coal space. Demand apart, supply constraints were pushing up prices.
There has been a spate of coking coal closured in China. “This year, China’s coking
coal imports could be more than 40 million tonnes, up from 34 million tonnes last
year,” McCloskey said. (Business Standard)
Base Metal
Aluminium market to be in supply surplus
The global aluminium market will be in supply surplus again next year as demand
growth will slow from this year while production continues to rise. Marco Georgiou
of industry consultants CRU Group said that "We see reasonable global demand
growth next year but slowing from this year while supply will rise with restarts at
small independent smelters and new production in the Middle East. The market will
be in surplus next year with prices volatile at times but probably capped on the
upside at USD 2,500 with reasonable support on the downside at USD 2,100 as that's
where the marginal cost of production is." (Reuters)
China copper plants seek smelting charge of USD 80 per tonne in 2011
Chinese copper smelters increased quotes for annual copper concentrate treating and
refining charges next year by 7% to 8 cents per pound, a two thirds jump over 2010
that miners have so far shunned. Smelters in China received 4.65 cents for so called
TC and RC charges to covert imported copper concentrates into refined metal this
year and had until December 5 sought 7.5 cents per pound for next year. Traders said
that the new quote comes after a top Japanese smelter executive sounded out the
same annual requirement late last month and some Chinese smelters met a global
miner last week in Hong Kong for the first round of the 2011 TC and RC talk on
which the two sides had not reached any agreement. (Reuters)
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