Commodity price momentum continued in January: Macquarie Research

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Commodities Comment
Commodity price momentum continued in January
Feature article
 We review commodity price and inventory performance in January. Prices
continued their momentum into 2011, as a continually improving demand
outlook combined with supply disruption bolstered fundamentals. Copper, iron
ore and tin recorded all-time record monthly average nominal prices.

Latest news
 Base metal prices showed limited movement on Wednesday, with copper
failing to reach the much-anticipated $10,000/t mark. Tin again outperformed,
rising 1.6% to $30,690/t amid ongoing supply shortfalls. Meanwhile, the Platts
premium hard-coking coal spot assessment rebounded to $359/t FOB
Australia over concerns of ongoing disruption from Cyclone Yari.
 Vale has concluded a new five-year collective labour agreement with the
USW union on behalf of staff at its Voisey’s Bay nickel plant in Canada. This
ends the strike that began at the plant on 1 August 2009 and covers staff in
both mine and mill operations.
 ETF Securities latest data show that its physically backed funds in copper,
nickel and tin, launched in mid-December, have attracted sufficient investor
inflows to accumulate only 2,070t of copper, 402t of nickel and 180t of tin to
date. It is perhaps surprising that the funds have not drawn stronger inflows to
profit from the current bull run in base metal prices, with copper and tin hitting
new record highs this week. Although it is still early, this initial indication
suggests that the impact of physically backed ETFs on base metal markets
may be modest.
 McCloskey’s has reported that Rio Tinto has settled semi-soft coking coal at
$180/t FOB Australia for the current calendar quarter, equivalent to 80% of
the premium hard-coking coal settlement for the quarter. This is below the
$200/t that producers were originally seeking, but it does place the semi-soft
settlement at the same level as PCI for the first time in recent history. In
addition, it is reported that Rio has locked in term that the 2Q settlement will
be 80% of the agreed hard-coking coal price for this period – on our $290/t
estimate for HCC, this would equate to $232/t FOB Australia – just below
2008’s all-time record. Meanwhile, McCloskey’s report that Xstrata has
agreed $182.5/t for the quarter with a 77% of HCC clause for 2Q.
 Japan’s Ministry of Economy, Trade & Industry has announced that steel
companies in the country plan to produce 28.398mt of steel in 1Q11, up 2.6%
sequentially and 7.1% YoY. The steelmakers project increased export
volumes to be the key driver, rising 8.4% in the quarter. We expect Japanese
steel output to fall 1.5% QoQ as the raw materials shortage forces a scale
back of output at certain mills.
 In its annual accounts bulletin for 2010, Finnish stainless steel Outokumpu
suggested its order intake had been encouraging in early 2011 after a soft
market situation in late 2010. The company projects that its delivery volumes
in 1Q11 will be up 10–20% sequentially.