Macquaire: Commodities - Latest PMI data point to continuing expansion of industrial output

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Commodities Comment
Latest PMI data point to continuing expansion of industrial output
Feature article
 Purchasing Managers Indices for January 2011 were published on Tuesday.
These latest data indicate that industrial output continues to expand at a brisk
pace in all major economies, which should be supportive of base metals and
steel demand, in the coming months. However, the data also showed that
upward price pressures are building.

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 Base metals prices rose sharply in trading on Tuesday. LME copper, which
reached new all-time record highs during the day, closed with a gain of 2.1%.
Tin also reached new record highs (in nominal terms) before closing with a
more modest gain on the day of 0.2%. Nickel notched up the strongest gain
of 2.4% to trade at its highest levels since early May 2008, while aluminium
advanced to above $2,500/t and its highest levels since September 2008.
Zinc bounced on what appeared to be short covering but, alongside its sister
metal lead, continued to trade below its most recent peak.
 Precious metals prices also rose on Tuesday. However, gold was a clear
laggard with a gain of only 0.3% on the day. Holdings in SPDR Gold Trust,
the main gold-backed exchange-traded fund, have recently fallen to an eight
month low of 1,224t.
 As discussed in yesterday's Commodities Comment, Tropical Cyclone Yasi
continues to approach the Queensland coast. The cyclone’s projected path
has been revised northwards, such that it is likely to deal only a glancing blow
to the key coalfields. However, key ports remain closed pending its arrival,
with Abbot Point, Dalrymple Bay, Hay Point and Townsville all shut. In
addition to the QNI’s Yabulu refinery and Korea Zinc's Townsville smelter,
some disruption to Xstrata's Townsville copper smelter is also likely.
 Preliminary shipping data suggests Brazilian iron ore exports fell 20% MoM in
January, as heavy rains continued to impact production. Furthermore, total
losses from Queensland ports relative to plan were in the order of 1.1mt in
the last week of January. Thus far, the inclement weather has taken around
5.4mt of met coal and 2mt of thermal from the export market according to our
estimates, representing just under 50% of met coal supply.
 Russia’s Norilsk Nickel has said that it plans to raise its nickel production to
between 300,000t and 315,000t in 2011, which would mark a rise of 7%-13%
from 2010. At the same time it expects its copper output to remain much the
same as last year’s level of approximately 297,300t.
 According to Kazakhstan's state-owned miner Kazatomprom, uranium output
in the country rose 27% YoY in 2010 to 17,803t, accounting for ~34% of mine
supply globally, up from 19% in 2008. We would reiterate that much of this
incremental growth has found its way into Chinese stockpiles, with 13,400tU
being accumulated in 2010 alone. With no obvious sign that China's appetite
for uranium has been slowed the price outlook remains positive for 2011.