Macquarie Research:: Surging global iron ore exports

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Commodities Comment
Surging global iron ore exports
 We summarise almost complete data on 2010 seaborne exports of iron ore.
The data shows a strong export growth in 4Q 2010, almost all to China.

Latest news
 Base metals fell across the board on Thursday, as disappointing US jobs data
pushed down the dollar. Palladium again outperformed, up 2.0%.
 Met coal supply was dealt yet another blow on Thursday, with news that one
loading berth at the Westshore terminal in Canada will be out for two weeks
following an accident. We estimate this will cause another 0.5mt of losses to
the market, over and above the ongoing Queensland disruption.
 Two large aluminium smelters have seen production disrupted in recent days.
Hydro’s President stated that the Qatalum smelter, which is in the process of
ramping to 600,000tpa, has been hit by power shortages owing to the
“technical challenges related to the cooling water system”. The disruption is
set to result in an eight-week delay. The losses will be around 20-25,000t.
Exports from Rio Tinto’s Boyne Smelters in Queensland, Australia, which has
a capacity of 560,000tpa, have been seriously disrupted by the floods. One
months’ lost exports would be around 40-45,000t; however, some of this could
be made back later in the year. This news comes on top of the ongoing
disruption to output in China reflecting poor weather and the hangover effect
of the enforced power cuts in 4Q10.
 The State Grid has announced it plans to spend around RMB290bn in 2011
on expanding and upgrading its network (a rise of 10% YoY). Given Chinese
spot copper prices are up almost 25% relative to average prices in 2010, this
implies a potential fall in copper consumption in 2011 relative to 2010. We
expect the spend numbers projected for 2011 were put together when copper
prices were lower than they are at present, and expect the spend numbers will
be revised upwards over the coming year. Indeed, our sources indicate that
owing to the increase in projects to be delivered in 2011, copper consumption
from the State Grid will rise YoY in 2011 regardless of the copper price level,
something which ties in well with the fact that the State Grid often spends
more than it initially states in years of rising commodity prices (final spend in
2010 was RMB264Bn, up from RMB227Bn). We anticipate at least 5-10%
YoY growth in copper consumption from the State Grid in 2011.
 Recent trends in spot treatment charges for zinc and lead concentrates are
instructive on the relative market balance and pricing prospects for the two
sister metals (all following TCs are quoted CIF China). Spot TCs for zinc
concentrates rose from lows of less than $80/dmt in late June / early July to
around $130/dmt in Q310 and have remained fairly steady since then (but still
only half of realised TCs on last year's benchmark terms). By contrast, spot
TCs for clean (i.e. low silver) lead concentrates have fallen by $15-20/dmt
over the last month. This suggests a tighter balance for primary lead raw
materials, despite the fact that recent backwardation in the LME lead metal
price has acted as a break on spot buying of lead concentrates. News of the
suspension of operations at Ivernia's Magellan mine in Western Australia
(about 2% of world lead mine output) will not have helped.