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Commodities Comment
Commodities in control during 2010
Feature article
In terms of absolute daily commodity price action, 2010 proved more benign
than its recent peers as China and the rest of the world took turns to
implement growth spurts. Furthermore, statistical analysis of metals price
movements shows that weekly movements in metals prices were statistically
in control through the year.
Latest news
Nickel was the standout base metal over the trading week, rising 6.9% to
$25,851/t. Despite a Friday correction, the PGMs also outperformed.
Iron ore had yet another strong week, with The Steel Index 62%Fe
assessment CFR China up 3.3% to $178.3/t. Meanwhile, the 58%Fe index
showed even more momentum, up 6.5% to $153.9/t. The 58%Fe index of
14% is at its lowest level since January 2010, and is reflective of a very tight
market where mills are willing to bid up the less attractive lower ore grades.
As would be expected, met coal was the biggest price mover in the week,
rising 28% to $355/t FOB Australia as the effect of Queensland export losses
continued to be felt by the market. We think exports are likely to get even
worse in the short term, as Gladstone port stocks have now been exhausted
and very limited railings are arriving at the port. However, met coal
inventories at key Asian steel producers remain comfortable at the present
time, and the current spot price seems overcooked in the near term.
The People’s Bank of China (PBC) has announced another 50bp hike in bank
Reserve Requirement Ratio’s (RRR), effective from January 20th. Our China
Economist Paul Cavey believes that policy could get tougher, moving from
RRR hikes to an administrative crackdown on bank lending. That will be likely
if loan growth in the next two months is stronger than last year’s Rmb2trn.
Administrative measures on lending were put in place in early 2010, but did
not severely impact growth.
US industrial production growth rose 0.8%MoM to be up 5.9%YoY.
Manufacturing was a little weaker in the month at 0.4%MoM, with utilities
output rising strongly. Auto production was low relative to the last couple of
months at 7.41m ann.
Western European passenger car sales were surprisingly resilient, falling
4.1%YoY in the month and 5.5% for the year as a whole. We estimate that
production rose over 10% in 2010 as auto makers rebuilt stocks after
significant cuts last year. Platinum, which is particularly exposed to European
auto production, has been one of the stronger performers in the precious
metals space in early 2011.
Chinese thermal coal prices bottomed-up this week after six weeks of
continuous decline. Qinghuangdao (QHD) 5,500kcal coal is quoted at
Rmb780/t ($118/t including VAT) this week, Rmb10/t ($1.5/t) higher than last
week. We believe QHD coal price will recover from recent lows to last
November’s levels of Rmb820-830/t ($124-125/t) range approaching to the
Chinese New Year period.
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