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Commodities Comment
2010 spot iron ore average up 84% YoY
Latest news
The Macquarie Commodities Team would like to wish all our readers a happy
and prosperous 2011.
Base metals ended the year strongly, with all closing higher in Friday trading.
Over the week, lead (+6%) and zinc (+7%) showed largest gains. LME
copper stocks ended the year at 377,550t, 24.9% below end-2009 levels.
Meanwhile, The Steel Index 62% CFR China iron ore assessment finished the
year at $170.1/t, leaving the 2010 average at $147.0/t, up 84% YoY.
The latest news on the coal logistics situation in Queensland is mixed,
following the heavy rain last weekend. At the time of writing, the 110mtpa
Goonyella system is close to being back in operation one week after being
closed by a derailment. As a result, the 75mtpa Dalrymple Bay Coal Terminal
expects to recommence loading operations on 1st Jan. However, the
Blackwater and Moura lines in Southern Queensland are expected to remain
closed for at least another week, and with coal stockpiles at Gladstone port
now under 1 million tonnes (less than one week), further disruption in this
area is likely. We currently estimate that 98mtpa of met coal production
capacity is under force majeure, equivalent to 73% of Queensland exports
and 37% of global seaborne supply.
The key Australian iron ore export ports of Dampier and Port Hedland have
cleared ships from harbour and anchorage ahead of the forecast New Year’s
Day cyclone. The Pilbara ports have shipped at an average rate of
1.05mt/day thus far in 2010, representing 38% of global supply, hence any
prolonged closure or storm damage could potentially have a significant impact
on seaborne supply.
The average iron ore spot price over the October-December period equates to
$148.4/t on a FOB Australia basis, based on our calculations. This represents
a 17.5% rise over the July-September average. While BHP Billiton is using a
variety of quotational periods (QP) for iron ore supply, our understanding is
that this period is predominantly used for anything priced quarterly. Thus,
with the different QP used BHP’s Q1 2011 price rise would exceed that of Rio
Tinto (7.7%) and could result in a premium of ~$11/t for equivalent material in
the coming quarter.
Thermal coal prices are set to finish 2010 on a very strong note having risen
sharply over the past week. While physical trades have been scarce over the
holiday period, front month swaps have jumped, with API#2 up to $132/t,
API#4 at $129.50/t and Newcastle FOB up to a stagging $137.25/t, up almost
$10/t from last week. Problems with supply should ensure that risks remain to
the upside in the near term, with disruptions in Indonesia, South Africa and
Colombia adding to the well documented problems in Australia.
ETF holdings of precious metals all rose significantly in 2010. Gold ETF
holdings were up by ~300t in 2010, which is well short of the 617t of ETF
buying in 2009. After very flows in silver ETFs in 1H10, activity exploded with
~102moz of purchases, or the equivalent of 13.5% of annual mine supply.
For palladium, total inflows into ETFs totalled ~950koz, which is roughly the
same as estimate Russian stockpile sales for this year. Platinum ETF
holdings were up ~490koz, or 100koz more than last years inflows.
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